The coronavirus pandemic is wreaking economic havoc throughout the world. The Latin American and Caribbean region was going through a long recession that will be compounded by the pandemic. The Ibero-American Business Foundation, the Euroamérica Foundation, CAF (Latin American Development Bank) and the Ibero-American Trade Secretariat have therefore presented a report outlining strategies for overcoming the crisis.
The report 'Latin America: an agenda for recovery' does not attempt to explain the consequences of the pandemic, but rather the strategic lines to be followed by the regions of Latin America, the Caribbean and Spain. It highlights the importance of the European Union in promoting economic cooperation and development measures. This report will be presented at the next Ibero-American Summit of Heads of State and Government in Andorra in 2021.
The Third Vice President of the Government and Minister of Economic Affairs and Digital Transformation of Spain, Nadia Calviño, attended the presentation of the report and stressed the importance of strengthening the legal frameworks for promoting public-private collaboration. "We must correct the gender gap, this is an essential element in the region, we must also focus on the digital and ecological transition".
If the pandemic is doing anything, it is accelerating the process of digitalisation, and the Vice President wanted to exemplify the process of digitalising justice in Colombia, which has been supported by Spanish resources. Calviño wanted to send a message of hope in the face of so much pessimistic data: "The future is not written, uncertainty surrounds us, but everything will depend on what we do now".
The report focuses on the Ibero-American Community and the G-20 Global Agenda. During the presentation, those present stressed the importance of balancing policies with the G-20 agenda in order to increase the region's global presence as an independent economic power. Therefore, the safety nets against the financial vulnerability of Latin America were analysed, with emphasis on the role of the IMF and the Multilateral Banks following the impact of the pandemic.
Cristina Gallach Figueras, Secretary of State for Foreign Affairs and for Ibero-America and the Caribbean, wished to stress the importance of Latin America for the Iberian region. "Our foreign policy only makes sense when we have Latin America and the Caribbean at our centre". The Secretary warned that "Spain is becoming smaller without Latin America" and explained that this is the idea she wants to take to the Government and the Ministry of the Interior.
Figueras offered an interesting perspective to keep spirits up: the idea of the crisis as an opportunity. "It is in the case of Latin America and the Caribbean that we need to repeat this message most. This crisis is an opportunity to get out of self-absorption and isolation and to enter into international collaboration," he explained.
The role of central banks will be crucial and will provide the pillars of an Agenda for Recovery. These pillars are based on the regional integration of Latin American markets, the financing of investments in futures in reduced fiscal spaces, digitalisation to break the loop between informality and labour rigidity, the need to create an adequate legal framework to exit the crisis and the encouragement of activities to promote social investment and the impact economy.
The authors of the report are committed to an inclusive economy. According to recent data from the OECD and CAF, poverty will rise by 4.4% this year in Latin America. The losses in terms of per capita income will be such that they will return to the levels of a decade ago.
The impact of both phenomena is expected to be uneven, with the 40% of workers who do not have access to social protection or to the assistance put in place in most economies to contain the impact of the pandemic crisis.
In addition, an estimated 2.7 million enterprises, most of them small, are already at risk of closure, which could result in the loss of more than 8.5 million jobs.
Ramón Jáuregui, President of the Euroamerica Foundation, wanted to give a touch to the European Union and the great powers such as China and the United States. "Multilateralism is totally wounded, the EU is blocked by the USA and China, and international bodies are not responding adequately to what is happening in the world", warned the president of the Euroamerican Foundation.
That is why this study is designed to mobilise the large financial institutions, especially from the IMF and the development banks. Jáuregui also wanted to mention the central banks to the European governments, "The European Union has an apathetic view of Latin America. We have not yet found that sympathetic and affectionate look. This is a mistake, especially because of the geostrategic and economic advantages it can bring us", he said.
To reinforce this idea, Josep Piqué, president of the Ibero-American Business Foundation, explained that "this report attempts to convey a set of specific measures so that the multilateral institutions take seriously the fact that Latin America cannot be left behind. The European Union must provide fundamental support", said Piqué.
The governments of the region are exhausting, if they have not already done so, the limited fiscal space available to them for the investments needed to safeguard the productive fabric, jobs and the well-being of families, especially the most vulnerable.
The fiscal packages put in place for this purpose, which on average represent about 4% of the region's GDP, and the lower levels of revenue resulting from the crisis have significantly increased (about 5% on average) the primary deficits of the Latin American economies. In turn, these deficits are being financed by higher levels of debt, which is expected to increase by around 10 points of GDP on average by the end of this year.
The document aims to provide an independent, multidisciplinary and expert view of the aspects that should be present in the region's economic recovery strategy following the crisis caused by COVID-19. The main recommendations to the authorities have been:
1. To strengthen the influence of the Ibero-American Community on the Global Agenda, inviting greater coordination of the four Community countries participating in the G-20.
2. To make full use of the IMF's lending capacity and to carry out an additional issue of up to SDR 1 000 billion so that the liquidity created by Quantitative Easing policies in the central countries is also extended to the emerging economies as a whole and to Latin America in particular.
3. Promptly undertake a capital increase of all multilateral banks operating in Latin America, in particular the IDB and the CAF.
4. Use quantitative expansion measures by national central banks that have the capacity to do so in response to the fall in demand caused by the health crisis, conditional on the creation of corporate credit.
5. Extend the ECB and EDF swap and repo network to the region's central banks, using IMF intermediation, so that the latter have access to foreign currency financing on preferential terms and can pass it on to the productive economy. It is also recommended that other channels contributing to the stabilisation of the area be assessed.
6. To make decisive progress towards greater economic and trade integration as the best way to leverage sustained growth over time and to take advantage of and optimise the region's real weight in the global agenda.
7. Address outstanding challenges and improve policy and regulatory frameworks, institutional governance, the investment climate and new financing formulas to enhance and generalise the development of PPPs, thus facilitating the transition towards a green economy.
8. Invest in creating and strengthening digital ecosystems. This is the only way to close the digital divide, while attracting most Latin American citizens to the world of economic and social inclusion, a precondition for resilience and progress.
9. Undertake a reform of the "second chance" business. The temporary suspension of the legal duty to apply for bankruptcy proceedings in those Latin American countries where these exist, and the implementation - at least temporarily - of specific rules for a rapid and simplified treatment of bankruptcy proceedings in those countries where they do not yet exist.
10. Promote social investment and the impact economy, social entrepreneurship and corporate social responsibility to try to mitigate the effects of the pandemic on inequality, equal opportunities and poverty.
To conclude the presentation of the report, Rebeca Grynspan, Ibero-American Secretary General, stressed the importance of the complementarity of Latin America, the Caribbean and Ibero-America. "The importance of a social contract for the future is crucial", stressed Grynspan.
"This crisis has revalued the public (the importance of health, the challenges of education and social protection), but the public is not only the state, but what we build as a collective and has a social role. Here the role of the private sector has a very important role too", he wanted to highlight.
All those present at the presentation of the report agree that "Latin America will not be able to overcome this crisis alone" and international support will be fundamental if the economies of Latin America, the Caribbean and Latin America are to stay afloat in the coming decades.