The Coronavirus Will Cause New Crises in Latin America
The region’s economic and political systems were already under strain. In 2020, the virus may push them to a breaking point.
Latin America is facing a rising tide of cases of the new coronavirus, and many countries in the region are ill-equipped to handle it from a public health standpoint. But there’s more at stake: Economic crises are around the corner throughout the region, and these in turn may fundamentally reshape political systems there.
Latin America is not alone: Many countries around the world are finally waking up to the severity of the coronavirus outbreak. While the health crisis is apparent, it also portends a series of economic and political crises. No country will be able to entirely avoid the economic and political fallout. But Latin American countries will feel it particularly deeply because of how reliant their economies are on investment and trade from the United States, Europe, and China—all currently home to hot spots for the coronavirus.
Economies throughout Latin America still depend heavily on foreign investment and demand for primary commodities such as oil, copper, and zinc. While that remains a winning formula during boom times for advanced economies, it is a shaky foundation. This dependence has already become the crux of today’s underlying economic problems facing the region. Now, the coronavirus pandemic threatens to destroy the foundation entirely. Foreign investment is heading for the exits. Commodities demand is evaporating as the world economy grinds to a halt. Domestic currencies are losing traction against the dollar, and the cost of imported goods is rising rapidly.
[Mapping the Coronavirus Outbreak: Get daily updates on the pandemic and learn how it’s affecting countries around the world.]
We have seen this script play out before. It is what happened in the wake of the financial crisis of 2008-2009, and the subsequent commodities bust. The repercussions this time could be much worse: Debt levels are higher than they were at the outset of the financial crisis, social safety nets remain very weak, tourism has evaporated, and a number of countries such as Argentina, Brazil, and Mexico were already mired in a weak patch economically, while Venezuela faced an outright crisis before the virus arrived.
This is precisely the sort of situation in which governments need a financial war chest to engage in stimulus spending. And the go-to tool of central banks—lowering interest rates to stoke growth—risks further destabilizing domestic currencies against the dollar. This is a risk that many governments are tepidly wading into. Together with deficit spending, it may eventually portend a need to turn to international financial institutions for assistance.
Incumbent politicians are going to pay a steep price for the unfolding crises. Citizens, facing more immediate concerns about the virus, will likely give their governments a month or two of breathing room while pandemic fears are at their height. And most governments have larger foreign exchange reserves than during the last financial crisis, which will buy them reprieve from severe financial shocks for a time. But the poor and the middle class are going to be squeezed immediately, and many cannot afford to abide by quarantine orders for long.
After all, 55 percent of workers in Latin America work in the informal economy and fall through the cracks of spotty social safety nets. Colombia, for example, has already seen protests from workers whose livelihood has evaporated. Many workers in the region live tightly packed in sprawling urban slums. And it will take far more than a couple of months for things like investment and commodity demand to resurface.
This looming economic downturn threatens to upend politics across the region just as the last one did a decade ago after the global financial crisis. The 2000s were characterized by a so-called pink tide in Latin America as leftist rulers rode a wave of popularity based on generous government spending that was underpinned by the commodities boom. Prominent figures such as Hugo Chávez in Venezuela, Evo Morales in Bolivia, and Rafael Correa in Ecuador became standard-bearers of this trend, but it ran far deeper, including such countries as Argentina, Brazil, Chile, and Uruguay as well. But leftist rule in most countries came to an inglorious end when the bubble burst.
It was clear that there had been little attempt to build a rainy-day fund for leaner economic times, and a new group of market-friendly politicians came to power across the region. After the sprawling Odebrecht corruption scandal broke in 2014, it was revealed that many politicians across the ideological spectrum had been enriching themselves with bribery, embezzlement, and kickback schemes, doing further damage to citizen trust in institutions.
With the left discredited, an array of right-leaning governments took power in their stead, promising more fiscal discipline. But these successors have not had an easy time coming to—or staying in—power. In contrast to their predecessors on the left, many of these governments had much weaker roots in society and more unorganized political movements. Take President Jair Bolsonaro of Brazil. Bolsonaro was elected in 2018 as public support for the formerly popular leftist Workers’ Party cratered amid corruption scandals, rampant urban crime, and allegations of mismanagement.
Bolsonaro was a minor political figure outside of the political mainstream. One of his most important backers is the military. Argentina’s Mauricio Macri, who attempted to address his country’s long-running debt crisis, has already been succeeded after only one term by Alberto Fernández, who is backed by the left-wing supporters of his vice president, herself Macri’s predecessor as president, Cristina Fernández de Kirchner.
A few longtime leftists remain in power. Andrés Manuel López Obrador has remade Mexico’s political establishment as the first progressive political outsider to lead the country in a century. But he has walked back many of his most radical promises, and many of Mexico’s fundamental challenges, such as widespread violence, remain unchanged. Daniel Ortega has entrenched a stripe of leftism-meets-nepotism in Nicaragua. Although he has proved his appetite to repress the opposition, he cannot quite manage to entirely squelch it. Nicolás Maduro has maintained his grip on power in Venezuela as the country remains in a nearly unparalleled peacetime economic and humanitarian crisis.
Regardless of ideological bent, most political leaders throughout Latin America operate within—or on top of—disorganized and splintered party systems. This informs the likely political consequences of the unfolding pandemic crisis. Voters are unlikely to simply throw their weight back toward the weakened leftist parties of the previous decade. The more likely outcome is continued political splintering as leaders scramble to repair their countries after economic collapse.
This bodes ill for democracy. The coronavirus crisis gives populist leaders the opportunity to use the tools of the state to sideline the opposition and build in unfair political advantages. And it could also give the growing ranks of budding autocrats in the region pretense to delay elections, suspend freedom of assembly and speech, and shut down institutions like congress and the courts. Venezuela is already cracking down on journalists reporting on the government’s lack of preparedness, claiming that they are betraying their public duties.
The crisis in Latin America due to the coronavirus pandemic is just getting started, but it is going to play out for years. Even if the region doesn’t suffer the worst of the pandemic, it will suffer the brunt of the economic and political consequences.
Michael Albertus is an associate professor of Political Science at the University of Chicago. He is author, most recently, of Authoritarianism and the Elite Origins of Democracy.