Coronavirus threatens to leave 82 million Latin Americans in extreme poverty

A 5% drop in average labour force income would mean that 14.5 million more people would be in extreme poverty, according to ECLAC
Bank in Buenos Aires, April 3, 2020

AFP/ JUAN MABROMATA  -   Bank in Buenos Aires, April 3, 2020

No one is safe from the coronavirus. Neither the rich nor the poor, neither the most advanced countries nor those in the developing world. The economic crisis and the coming recession will be global and will affect everyone. What is different is the starting situation. Although the horizon is gloomy and uncertain for everyone, for Latin America the pandemic means taking steps backwards in the fight against extreme poverty and moving from low economic growth to deep recession. If the average income of the working population were to fall by 5%, the number of Latin Americans living in extreme poverty would rise from 67.5% to 82 million, according to a report published this week by ECLAC, the economic arm of the United Nations for the development of the subcontinent.  

ECLAC also points out in its report that the global slowdown will be a severe blow to the region's economy, which is subject to the ups and downs of raw material prices, manufacture, tourism and remittances. The coronavirus has fallen like a bomb on the UN's decade-long plans to end extreme poverty in Latin America, the world's most unequal region. Alejandro Werner, the head of the International Monetary Fund for the region, said in a recent interview with the newspaper EL PAÍS that the region is facing the worst recession in half a century this year and could see another lost decade, even if recovery is quick.

Playas en Acapulco
AFP/ FRANCISCO ROBLES - Aerial view of the empty beach of Acapulco, Guerrero State, Mexico, April 2, 2020

"The world is facing a humanitarian and health crisis that is unprecedented in the last century in an already adverse economic context. Unlike 2008, this is not a financial crisis but one of people, production and well-being. A war economy situation is too important to leave to the market. States are taking a key role in suppressing the virus and the risks that will affect the economy and social cohesion," explained ECLAC Executive Secretary Alicia Bárcena during the virtual presentation of the report in Santiago, Chile.  

International cooperation plays a fundamental role in this situation, she said. "The way out of the crisis will depend on the economic strength of each country, therefore, given the asymmetries between developed and developing countries, the role of the UN, the IMF and the World Bank will be essential to guarantee access to financing and sustain social spending and economic activity with innovative measures," said Alicia Bárcena.  

The document presented by ECLAC expresses the insistence on implementing immediate actions in the region to address the health, social and economic emergency in order to flatten the disease transmission curve. However, the organization reminds that great care must also be taken not to flatten the curve of economic growth.

Una mujer paseo por Santiago de Chile
AFP/ MARTIN BERNETTI - A pedestrian wearing a mask walks with the background of the Santiago Stock Exchange building, April 2, 2020

The organization also recommends that countries rethink their long-term strategies and strengthen subregional coordination and integration to secure commodity supply chains, promote voluntary, rather than forced, migration, alleviate poverty and encourage the reduction of inequality. In addition, they are urged to strengthen intraregional trade and production chains, among other measures.  

The study indicates that Latin America and the Caribbean faces the pandemic from a weaker position than other regions of the world. Before the spread of the coronavirus, ECLAC had projected growth of 1.3% in 2020. However, the effects of this health crisis have already led it to change that forecast and predict a contraction of GDP of at least -1.8%, although a fall to -3% or -4% of GDP or even more is not ruled out. The committee warns that the final economic impact will depend largely on decisions taken at national, regional and global levels. 

As for the macroeconomic picture, ECLAC says the economic downturn for Latin America will be caused by the decline in economic activity of its main partners (United States, Europe and China), the lowering of raw materials prices, the disruption of global value chains, the drop in tourism activity, the reduction of remittances and the increase of risks in world markets.  

The ECLAC study predicts that the value of the region's exports will fall by at least 10.7% by 2020, due to falling prices and the contraction of global aggregate demand. In addition, since the spread of the virus has accelerated the use of the Internet and digital technologies, this increase may exacerbate the inequalities arising from the different access to them among countries and income groups.

Infografía
AFP/AFP - The number of cases of coronavirus in Latin America and the Caribbean, as of 6 April 2020

In spite of the wave of economic disasters that ECLAC warns will occur as a result of the massive quarantines, the agency's executive secretary called during her appearance for maintaining and increasing the measures applied so far. "If we do not comply with the quarantines in Latin America and the Caribbean, the economic impact will be much greater," she said in a statement.  

The agency also noted in its report the effects that the coronavirus will have on the region's health systems, whose infrastructure is insufficient to deal with the problems generated by the pandemic. ECLAC warns that most countries in the region are characterized by weak and fragmented health systems, which do not guarantee universal access to address the health crisis. Therefore, the organization's recommendations are to strengthen health systems, which requires more and better public spending in the case of Latin America. The countries of the region spent an average barely 2.2% of their GDP on health last year, which is a third of what the Pan American Health Organization (PAHO) recommends.  

Alicia Bárcena recalled during the virtual presentation that the amount of hospital beds available in the region is far from that of Europe, where the coronavirus has caused a collapse of the health system. The only countries with a comparable level of beds to those in the Old Continent are Cuba, Barbados and St. Kitts and Nevis, according to ECLAC data.  

The agency also says that measures to contain and prevent the virus will exacerbate the care crisis in the region. Before the spread of the coronavirus, women spent between 22 and 42 hours a week on domestic and care work. The pressure on health systems will have a particular impact on women, as they account for 72.8% of the total number of people employed in this sector.  

"The world and the region are facing a recession that will have both short-term and long-term effects. The question is how to minimize its costs and resume growth. The magnitude will depend, among other factors, on the strength of the economic response, in which fiscal policy plays a fundamental role," said Alicia Bárcena.