Latin America: a long and tortuous road to recovery

The Banco de España believes that the area will not suspend the crisis until at least 2022
Jorge Chávez International Airport in Lima on July 15, 2020, when airports throughout Peru reopened for domestic flights as part of the relaxation of measures against the new coronavirus pandemic

AFP/ERNESTO BENAVIDES  -   Jorge Chávez International Airport in Lima on July 15, 2020, when airports throughout Peru reopened for domestic flights as part of the relaxation of measures against the new coronavirus pandemic

The serious economic situation generated in Latin America by the COVID-19 pandemic will not have a quick or easy solution. The region, which has been hit hardest by the virus, will not overcome the crisis in 2021, although there will be a rebound in most of the economies in the coming year after a very hard 2020 with high falls in global Gross Domestic Product and economic activity in all the countries in the area.

While many global entities and experts fear a new lost decade, with major setbacks in fundamental economic and social parameters, Spanish companies, for which Latin America is key, are maintaining their commitment to the area, not without a certain amount of anxiety, and are continuing initiatives to support investment in the area.

At the beginning of September the Banco de España stressed that it expects the Latin American economies as a whole to contract their GDP "on an unprecedented scale" as a result of the pandemic and that many of the countries will not recover the levels of activity that existed prior to the impact of the virus until 2022.

In a document on the evolution of the COVID-19, the entity indicated that although the main markets are expected to show positive growth rates in the coming quarters, the recovery will be fragile and very gradual. "Due to structural constraints and the limited scope for additional stimulus policies, the region's major economies will not recover before 2022," it said. In June, the region became the global epicentre of the pandemic, accounting for almost half of the world's daily deaths from the disease, something that has not been prevented or reduced by the containment and decoupling measures adopted.

Latin America suffers from a number of structural weaknesses, such as high levels of poverty, lower institutional quality than other emerging areas, a high rate of labour informality, a relatively weak health system and a high proportion of the population living in urban areas, pointed out the Bank of Spain, for which the fall in GDP in the second quarter was over 14 percent quarter-on-quarter, a higher percentage than in almost all the regions of the world, but with notable differences between countries: in Peru GDP contracted by over 27 percent, while in Brazil it was 9.7 percent.

Furthermore, the need to recover the economy and prevent further destruction of the business fabric clashes with an anguishing health landscape that hinders, if not prevents, actions aimed at gradually recovering the pulse of activity, particularly in key sectors such as tourism and trade: the ten countries most affected by the coronavirus worldwide include Brazil, Peru, Colombia, Mexico and Argentina, the main regional economies together with Chile, and the main destinations of Spanish investment in Latin America. According to a recent Marsh & McLennan report/survey on the impact of the pandemic, involving 534 companies from 11 countries and 25 sectors, 9 out of 10 firms forecast a significant drop in revenue this year.

Un sanitario comprueba la temperatura a los residentes de las comunidades vecinas que se dirigen al mercado semanal de alimentos en Coata, a 40 km de Puno y cerca de la frontera con Bolivia el 8 de julio de 2020
AFP/CARLOS MAMANI  - A health worker checks the temperature of residents from neighbouring communities on their way to the weekly food market in Coata, 40 km from Puno and near the Bolivian border on 8 July 2020
ICO-BBVA Initiative

In general, and despite the dramatic nature of the situation in Spain, Spanish companies are still interested in Latin America, a region that is a long-term commitment for most of them. Support initiatives also continue to be generated, such as the recent financing agreement between the ICO and BBVA Colombia for 50 million to finance activity and projects involving Spanish firms in Latin America and, especially, in Colombia, where more than 570 Spanish companies are present. Since 2018, the ICO has signed 17 financing agreements with 11 entities which have channelled 1,818 million through the ICO International Channel Line to finance the internationalisation and export of Spanish companies.

From the Segib, the Ibero-American Secretary General, Rebeca Grynspan, never tires of warning that "Latin America risks a setback of two decades of social and economic progress" and of calling for international aid to meet the economic and social challenges facing the region after the pandemic. "It is becoming increasingly clear that recovery from the economic downturn forced by the pandemic will not be in a 'V' shape and that long-term plans and profound changes will be required," he said.

At a time when the IMF estimates that the region will see its GDP fall by 9.4% in 2020, with an insufficient upturn in 2021 and not in all countries, Grynspan recalls that it took two decades for the region to recover its social indicators after the crisis of the 1980s, the blow that came to be known as Latin America's "lost decade", and that now the economic forecasts are much worse.

The IMF has already committed $107 billion and the development banks have tried to act quickly (CAF has just placed $636 million in bonds for the revival of Latin America), but in the opinion of Grynspan and many other experts, the amounts available are insufficient for the magnitude that the regional economic recovery will require. In this connection, the Ibero-American secretary general considers that the IMF should be the main source of financing and resources for Latin America's recovery.