— ECLAC encourages Latin America, Caribbean

A NEW report by The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) has warned that the COVID-19 crisis could lead to a Gross Domestic Product (GDP) contraction of at least -1.8 per cent in Latin America and the Caribbean in 2020.

The report advises that the only way to mitigate such effects of the pandemic is to move towards a more sustainable development model through greater integration. The document was released on Friday at ECLAC’s central headquarters in Santiago, Chile and is entitled ‘Latin America and the Caribbean and the COVID-19 Pandemic: Economic and Social Effects’.

The study indicates that only with a new development model will the region be able to avoid retreading the paths that led to a situation in which the effects of the COVID-19 pandemic may not just be devastating in the short term, but may also damage the conditions for recovery and development further along.

It revealed that Latin America and the Caribbean confronted the pandemic from a weaker position than the rest of the world. Before the arrival of COVID-19, ECLAC had foreseen that the region would grow a maximum of 1.3 per cent in 2020. However, the effects of this crisis have prompted it to change this estimate and forecast a decline of at least -1.8 per cent in GDP, although a contraction of between -3 per cent and -4 per cent, or even more, cannot be ruled out.

The final economic impact will depend on the measures taken at a national, regional and global level, the commission warns. Presenting the report in a video press conference was ECLAC’s Executive Secretary, Alicia Bárcena. Such a situation, she said, requires governments in the region to take urgent action to address the sanitary emergency, the social emergency and the economic emergency.

In the long term, countries must rethink their development strategies, strengthening sub-regional and regional coordination and integration to ensure supply chains of critical goods.
She stressed: “Emerging from this 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 for guaranteeing access to financing and sustaining social spending and economic activity with innovative measures.”

According to the report, the COVID-19 crisis will have direct economic effects on health systems and mortality rates, and indirect effects that will materialise in the economy’s supply and demand dynamics. It pinpointed that the majority of the region’s countries are characterised by having weak and fragmented healthcare systems and therefore recommended the strengthening of healthcare systems require more and better public spending.

According to ECLAC’s study, it is also forecast that the value of the region’s exports will fall by at least 10.7 per cent in 2020, due to the decline in prices and to a contraction in global aggregate demand.

Meanwhile, in the domestic realm, the containment measures will have costs in terms of production up to 67 per cent of regional GDP and employment up to 64 per cent of formal employment. “The world and the region face a recession that will have effects in the short and long term. The question is how to minimise their costs and resume growth. The magnitude will depend, among other factors, on the forcefulness of the economic response, where fiscal policy plays a critical role,” Bárcena emphasised.

To address the social emergency, the report stated that officials must take measures to protect the income of the most vulnerable groups; measures to protect employment such as unemployment subsidies and a basic emergency income supplement; and measures to support small and medium-sized enterprises (SMEs) and self-employed workers.

Meanwhile, to address the economic emergency, the study explains that actions involving fiscal policy, monetary policy and international cooperation are needed. Regarding fiscal matters, budgets must be reorganised to implement fiscal stimulus packages with the aim of strengthening health systems, protecting income, and minimising the economic contraction.

In the monetary realm, officials must seek to stabilise exchange rates and preserve the solvency and proper functioning of the banking market and to incentivise international cooperation, international bodies’ policies on concessional loans and on graduation mechanisms that disqualify countries from receiving aid must be reconsidered. The study also recommends that low-interest loans should be made available and debt servicing by developing countries, including middle-income ones, should be deferred. “It is time for solidarity, not exclusion,” the document indicates.