After COVID-19, Latin America Braces for ‘Lost Decade’
Already one of the most unequal regions in the world, it may face an unprecedented rise in inequality and poverty due to the economic carnage of the pandemic.
In 2020 alone, nearly 45 million more Latin Americans will be forced into poverty as a result of the coronavirus pandemic, with tens of millions pushed into extreme poverty, a recent study from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) study estimated. More than one-third of the region’s population will face unemployment and food insecurity, threatening dire long-term impacts for Latin America.
While Europe is investing 40 percent of its GDP to fight the economic fallout of the pandemic, Latin American nations are spending on average less than 10 percent to do so. For Alicia Bárcena, ECLAC’s executive secretary, COVID-19 could mean another “lost decade” for the region. The Mexican diplomat spoke to Foreign Policy about what this rise in poverty means for Latin Americans and how creative policies such as a basic income, food subsidies, and debt relief could mitigate some of the worst impacts.
This interview has been edited for length and clarity.
Foreign Policy: What are some of the specific economic challenges Latin America will face as a result of the COVID-19 pandemic?
Alicia Bárcena: We are talking about a lost decade. That is, the GDP per capita will go back to the levels of 2010, and we are also talking about a recession. We are going to recede 14 years in terms of poverty rates. The unemployment rate is going to climb to 13.5 percent, affecting 44 million people. And poverty rates are very much connected to this loss of employment and income. Poverty rates are expected to rise from 186 million people to 231 million people [out of a total population of 630 million].
Inequality is another of the situations that we are confronting. We know that inequality has been growing, has been increasing particularly. We calculated that eight out of 10 people in the region—and we’re talking about 491 million people—will live on an income that is up to three times the poverty line. And that means that 491 million people will live on under $500 a month.
FP: Are there areas or populations that will be particularly hard-hit by the pandemic?
AB: We know that Indigenous peoples [8.3 percent of the region’s total population as of 2010] are highly affected. And these are populations that are very highly affected right now because they are marginalized. They don’t have access to sanitation or to clean water. They don’t have access also to health services, many of them.
The other areas that we see as very vulnerable are those who are importing food—and basically here we’re talking here about the Caribbean countries. For example, the Bahamas import 60 percent of their food, Antigua and Barbuda 55 percent. So we do have some vulnerability there.
Then we also have vulnerabilities related to malnutrition and obesity. This is another big problem in the Caribbean countries, but also in Central America and Mexico. These problems of malnutrition are related to obesity, which are preconditions of COVID-19 at the end of the day.
FP: The ECLAC has vouched for the implementation of a universal basic income in response to the economic disruption of the pandemic. How feasible is that for Latin America?
AB: We are pushing for a basic emergency income for the entire population living in poverty—231 million people—for six months. The line of poverty in each country is different, but the average is $147 per month. And I think this is feasible. For six months, it will cost around 2 percent of GDP. Now, when the basic emergency income is not enough, then we are suggesting a hunger bonus. That is a complement to the basic emergency income equivalent to 70 percent of the extreme poverty line, which more or less corresponds to $67 a month. And this would cost around 0.52 percent of GDP.
The second one is to extend the payment deadlines and grace periods for loans to micro-, small- and medium-sized enterprises. And I think this is very, very important, because otherwise it would be impossible for these companies to continue the production of food. We have calculated that we could support around 4 million, let’s say, very small family-based enterprises.
And then we are also suggesting a fiscal policy. We see that countries in our region have invested between 0.7 to 12 percent of GDP. If you compare them with Europe, Europe is investing around 40 percent of GDP. We will never be able to get there, because we don’t have the same fiscal space. So the last proposal we are suggesting here, in addition to these expansionary monetary policies, we are suggesting that there is a need for countries of the region to access concessional funding.
FP: In April, a group of former Latin American presidents and finance ministers urged increased support from the International Monetary Fund (IMF). What sort of help should the region seek from multilateral organizations?
AB: The IMF has come forward with $88 billion for 80 countries worldwide. In terms of Latin America and the Caribbean, we have received around $51 billion for 20 Latin American countries. But still, there is some space for more financial assistance from the IMF. One of the things that ECLAC is suggesting is the reallocation of existing special drawing rights. We estimate what could be feasible, there exist around $275 billion, which were issued in 2009. So that’s the No. 1 proposal.
The second one is how to capitalize multilateral credit institutions. And of course, in our case, we would like that to come to the regional development banks [Inter-American Development Bank, Central American Bank for Economic Integration, and Caribbean Development Bank], which have done a tremendous effort as well. We do believe that these banks are required to be capitalized further.
The third proposal is dealing with debt relief. For the Caribbean countries, we have an initiative that we call Debt Relief for Resilience, in which what we are suggesting is a debt swap for climate adaptation and debt relief. Many Caribbean countries are highly indebted, they don’t have the capacity to borrow any more. So there has to be concessional treatment, because, as I said, middle-income countries have systemic impacts on the global economy.
And, finally, we are providing some ideas for innovative instruments to link payment capabilities to economic capacity. For example, climate-related disasters … if you have a hurricane, your capability to repay your debt has to go for a standstill. That’s the type of thing that we are suggesting.
FP: What are some of the long-term effects of this rise in poverty on Latin Americans’ daily lives?
AB: I think there are things that are going to change dramatically. We believe that there’s going to be a big change in consumption patterns. As I said before, nutrition. Secondly, I think we have to pay special attention to the digital economy. This region is far behind in terms of quality tele-education and teleworking, so there is a lot of work that we need to do on that front.
And I think there’s going to be a need, an urgent need, for a social and fiscal pact. There has to be a social pact to establish a new universal regime on social protection, because these pandemics showed us that there is a lot of fragmentation, a lot of breaches and gaps in terms of access to health and access to social protection.
I think basically is that there is an urgent need to change the development model in Latin America and the Caribbean. We have to move toward a model of development that is more inclusive, where equality is the centerpiece.
Augusta Saraiva is a former intern at Foreign Policy. Twitter: @gutavsaraiva
Darcy Palder is a former intern at Foreign Policy. Twitter: @DPalder