On March 19, the Inter-American Dialogue hosted a conference call titled “Coronavirus and its Consequences for Latin American & Caribbean Economies” with Alicia Bárcena, executive secretary of the UN Economic Commission for Latin America and the Caribbean (ECLAC) and Santiago Levy, non-resident senior fellow at the Brookings Institution and former vice president for sectors and knowledge at the Inter-American Development Bank. This conversation was moderated by Michael Shifter, president of the Inter-American Dialogue.
Shifter started off the conversation calling attention to the fact that the Covid-19 crisis in Latin American will only become more serious and challenging in the next weeks and months. There is great uncertainty, economic forecasts have been changed, policy measures differ greatly from country to country, and so far, we haven’t seen any signs of regional collaboration to address this pandemic. In this context, what can we expect in the next few months?
Bárcena opened her remarks highlighting the seriousness of this unprecedented crisis. The effects in the global economy will be worse than those of the 2008 – 2009 financial crisis, expecting a contraction of the global economy by 1 percent and a reduction of economic activity of -3.5 percent. However, Bárcena considered it challenging to estimate the overall economic effects of the pandemic since these initial estimates are based on the shock to the Chinese economy but do not take into consideration the shock in Europe or other parts of the world as the virus continues to spread.
“This crisis affects both supply and demand,” continued Bárcena. On the supply side, we are already seeing closed facilities around the world, such as automobile factories in Europe. On the demand side, there will be a big loss of income and profitability, and the International Labor Organization (ILO) estimates that 25 million people could lose their jobs. In Latin America, the optimistic forecast is a –1.8 percent contraction of GDP. This contraction, she noted, is particularly concerning given the degree of inequality in the region. The number of people in extreme poverty could go from 57.4 to 90 million. The executive secretary of ECLAC also listed other shocks to Latin America’s economies such as the hit to the tourism industry, the interruption of production in the manufacturing sector, the drop in commodity prices, and a drop in demand from countries such as China, Saudi Arabia, and Russia. In addition, we can expect the worsening of global financial conditions, with very low demand for financial assets in the region and depreciation of currencies.
Santiago Levy clarified during his remarks the difference between the 2008-2009 financial crisis and the one that we are facing now. Then, we had an external shock affecting two components of economies (tourism and exports) while the financial markets collapsed and there was huge volatility. In this current crisis, we face all of these challenges but also an internal demand shock. There is also the added factor of uncertainty since we do not know how long this will last. As opposed to 2008, the countercyclical ability of the region to respond is constrained, with a debt-to-GDP ratio higher than in 2008.
The conversation then turned to the different responses by governments in the region, including sanitary measures, the protection of vulnerable groups and border closings. The biggest risk for Latin American countries tackling this crisis is in the health sector, due to the big gaps in access to healthcare and coverage. When asked about what effective responses should look like, Levy clarified that if countries are going to engage in deficit spending, they should signal to the population that this is going to be transitory and that a tax increase will have to follow after the crisis. “These tax increases should be as progressive as possible, focusing on income taxes and, depending on the country, adding consumer taxes with the correct support in place,” he clarified. He also discussed the reduction of contributions to social security through the formal sectors and Bárcena added the need to increase programs such as cash transfers, unemployment insurance, and support to the informal sector. The need to increase protections for women was discussed, such as guaranteeing access to health care (especially for pregnant women), and other forms of support such as cash transfers to households. Bárcena also emphasized the importance of rescuing multilateralism in this crisis, calling for more integration and coordination between countries as well as multilateral institutions.
The call ended with a Q&A session with the audience, where three countries, in particular, were discussed: Mexico, Brazil, and Venezuela. In Mexico, both experts agreed that the main constraint will be physical access to beds and respirators, with a ratio of 1 bed per 1,000 people. Brazil will face a similar limitation. In Venezuela, the already existing humanitarian crisis is worsening. Bárcena called for increased humanitarian aid for this country, delivered through the UN, the Red Cross and the organizations already there. Levy also noted that Venezuela will suffer a double hit because of the drop in oil prices. Both argued for the suspension of sanctions having to do with humanitarian aid, “this is not the time for sanctions, it is the time to save lives.”
LISTEN TO THE RECORDING OF THE CONFERENCE CALL HERE:
Press coverage of this event:
Covid-19 is hitting Caribbean and Latin American economies hard. Can they survive? (March 27, 2020 – Miami Herald
“No es tiempo de sanciones, es tiempo de ayuda”, experto sobre impacto del COVID-19 en Venezuela (March 19, 2020 – Voice of America)
Covid-19 tendrá un impacto mayor que la crisis financiera del 2008: Cepal (March 20, 2020 – El Heraldo de Mexico)
CEPAL estima una contracción del 1,8 % y más desempleo y pobreza por COVID-19 (March 20, 2020 – La Vanguardia)
Latin America and Caribbean find history of U.S. travel in new coronavirus cases (March 20, 2020 – Miami Herald)
Coronavirus, minuto a minuto: Guatemala destituye a viceministro de Salud por gestión ante COVID-19 (March 20, 2020 – Deutsche Welle)
Latin American GDP may shrink 1.8% and countries should spend freely to avoid the worst (March 19, 2020 – Latin America Business Stories)