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TWN Info Service on Health Issues (Jul20/06)
17 July 2020
Third World Network


COVID-19: Latin America & Caribbean to suffer worst recession in a century
Published in SUNS #9161 dated 16 July 2020

Geneva, 15 Jul (Kanaga Raja) – The COVID-19 pandemic will result in the worst recession in the Latin America and the Caribbean (LAC) region in a century, causing a 9.1% contraction in regional GDP in 2020.

This is one of the main conclusions highlighted by the UN Secretary-General in a Policy Brief on the impact of COVID-19 on Latin America and the Caribbean.

According to the Policy Brief, Latin America and the Caribbean has become a hotspot of the COVID-19 pandemic, exacerbated by weak social protection, fragmented health systems and profound inequalities.

“COVID-19 will result in the worst recession in the region in a century, causing a 9.1% contraction in regional GDP in 2020,” it said.

This could push the number of poor up by 45 million (to a total of 230 million) and the number of extremely poor by 28 million (to 96 million in total), putting them at risk of under-nutrition.

In a video statement, Secretary-General Antonio Guterres said that as COVID-19 continues to spread throughout the world, Latin America and the Caribbean has become a hotspot of the pandemic.

In a context of already gaping inequalities, high levels of informal labour and fragmented health services, the most vulnerable populations and individuals are once again being hit the hardest, he added.

“Women, who make up the majority of the workforce in economic sectors being most affected, now must also bear the brunt of additional caregiving.”

Indigenous peoples and people of African descent, as well as migrants and refugees, are also suffering disproportionately, as vulnerability multiplies, said Mr Guterres.

“We must do everything possible to limit the spread of the virus and tackle the health effects of the pandemic. But we must also address the unprecedented social and economic impacts,” he added.

“I have called for a rescue and recovery package equivalent to more than 10 percent of the global economy. Developed countries are doing it themselves with their own resources.”

For Latin America and the Caribbean, the international community must provide liquidity, financial assistance and debt relief, said the Secretary-General.

Building back better requires transforming the development model of Latin America and the Caribbean.

In a region where inequality has become untenable, it means developing comprehensive welfare systems that are accessible to all.

“It means creating a fair taxation system, promoting decent jobs, strengthening environmental sustainability, and reinforcing social protection mechanisms. It means regional economic integration,” said Mr Guterres.

According to the Policy Brief, in a region which experienced a significant number of political crises and protests in 2019, increasing inequalities, exclusion and discrimination in the context of COVID-19, if left unaddressed, will affect adversely the enjoyment of human rights and democratic developments, potentially even leading to civil unrest.

Prior to the pandemic, the region’s development model was facing severe structural limitations: high inequality, balance-of-payments constraints, and exports concentrated in low-technology sectors resulting in recurrent exchange-rate and debt crises, low growth, high informality and poverty, vulnerability to climate change and natural disasters, and loss of biodiversity.

“Negative social indicators were and continue to be aggravated by extremely high rates of homicide and gender-based violence, including femicide.”

Recovery from the pandemic should be an occasion to transform the development model of Latin America and the Caribbean while strengthening democracy, safeguarding human rights and sustaining peace, in line with the 2030 Agenda for Sustainable Development, said the report.

“Equality holds the key for the successful control of the pandemic and for a sustainable economic recovery in Latin America and the Caribbean.”

HEALTH IMPACTS

According to the Secretary-General’s report, several Latin American and Caribbean countries show some of the highest numbers of absolute and per capita COVID-19 cases worldwide.

With fragmented and unequal health systems, they are ill-prepared to handle a health and human crisis of this scale, it said.

“Participation in health insurance plans was low. Lack of access to quality health care and information is especially acute in rural and remote areas, affecting particularly indigenous peoples.”

Other barriers affecting indigenous peoples’ access to health is the lack of an inter-cultural approach that encompasses native languages and customs, which is critical, inter alia, for indigenous women’s sexual and reproductive health.

Urban transmission of COVID-19 is of special concern to Latin America and the Caribbean as the world’s most urbanized developing region, said the report, adding that 80% of its population lives in cities and 17% is concentrated in six mega-cities, with populations of over 10 million each.

Latin American and Caribbean cities are marked by inequality, with one in every five urban residents in the region living in slums, where overcrowding and poor access to water and sanitation raise the risk of contagion.

The region is reliant on extra-regional imports of medical products essential for treating COVID-19, with less than 4% of imports sourced from within the region itself.

International cooperation remains critical in the fight against COVID-19, said the report.

ECONOMIC IMPACTS

According to the report, when the pandemic hit the region, its economies were already experiencing serious difficulties.

In the preceding six years (2014-2019), economic growth had been the lowest (0.4%) recorded since 1951.

In addition, fiscal space contracted and public debt increased in Latin America, from about 30% of GDP in the period 2009-2011 to over 45% in 2019.

In the Caribbean, the average debt was 68.5% of GDP in 2019.

As a result of a series of external shocks, compounded by structural weaknesses and vulnerabilities and high exposure to natural disasters and the impacts of climate change, some Caribbean small island developing states (SIDS) are among the most indebted economies in the world.

Fiscal capabilities in the region are limited and have very little or no re-distributive impact, albeit with variations across countries, said the report.

The limited fiscal space is strongly correlated with the low tax burden and regressive tax structure.

In 2018, general government tax revenues in the region averaged 23.1% of GDP, well below the average of 34.3% of GDP for OECD countries.

Tax evasion and avoidance and illicit flows further limit the fiscal space. Tax non-compliance in Latin America stood at US$325 billion in 2018, equivalent to 6.1% of GDP.

The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that GDP could fall in Latin America and the Caribbean by 9.1% in 2020.

The external drivers of this are an expected fall in exports (20%), a decline in remittances to the region (of around 20%) and lower demand in the tourism sector (during the first four months of the year tourist arrivals fell by 35% in Central and South America, and 39% in the Caribbean), which will hit the Caribbean particularly hard.

Women will be especially affected, as they are more likely than men to work in accommodation and food services (60% of employees), a proxy measure of employment in the tourism sector.

The external shock is compounded by an internal shock produced by social distancing and lockdown measures, primarily affecting the service sector, and especially the informal sector, which represents a significant share of total employment in Latin America and the Caribbean.

Many informal workers have relatively limited savings capacity to cope with periods of inactivity, nor do they have access to income substitution mechanisms such as unemployment insurance, associated with formal work.

In addition, the shock is expected to have a disproportional impact on women, who are over-represented in informal work, self-employment and the service sector (transport, business and social services), which currently employs 78% of women in the labour market, said the report.

SOCIAL IMPACTS

Latin America is one of the most unequal regions in the world and the differential impacts of COVID-19 risk making this situation worse, said the report.

The sharp drop in economic activity is expected to lift the unemployment rate from 8.1% in 2019 to 13.5% in 2020.

The poverty rate is expected to rise by 7.0 percentage points in 2020, to 37.2%, while extreme poverty is expected to rise by 4.5 percentage points, from 11.0% to 15.5%, which represents an increase of 28 million people.

“The pandemic is exacerbating existing food insecurity caused by environmentally driven food shortages, political turmoil, and dwindling purchasing power.”

Latin America and the Caribbean has seen an almost three-fold rise in the number of people requiring food assistance.

The number of people experiencing acute food insecurity could increase by 11.7 million to 16.0 million people in 2020 because of the pandemic, said the report.

Haiti and the Central America Dry Corridor are areas of particular concern. The approaching hurricane season in the Caribbean presents an additional risk, it added.

These trends also imply a rise in inequality. The Gini index is expected to increase with the COVID-19 pandemic by between 1.1% and 7.8% in several countries in the region.

Although the region comprises mainly middle-income countries, middle-income households account for a small and vulnerable share of the total population.

In the past decade, the middle-income segments have expanded in Latin America and the Caribbean, changing the region’s social and political landscape.

However, most of this growth has occurred in the low- and lower-middle-income strata, where households are highly vulnerable to negative shocks and may easily fall back into poverty.

In 2019, 77% of the Latin American and Caribbean population belonged to low- or lower-middle-income groups (per capita income of less than three times the poverty line), with no savings to withstand a crisis.

The pandemic is also having asymmetrical health and socioeconomic impacts based on age, gender, sexual orientation, ethnicity and migration and refugee status, among other factors, said the report.

Across the region, there is increasing stigma, discrimination and hate speech targeting minorities, health personnel and those suspected of carrying the virus.

“Public policies need to address these asymmetries and combat racism, xenophobia and discrimination, based on human rights in the fight against COVID-19.”

Older persons are at significant risk of death and severe disease owing to COVID-19 (particularly those aged over 80, about 2% of the region’s population).

About 13% of the region’s population (85 million people) are over the age of 60.

Women and girls are especially hard hit by the pandemic. Women spend thrice the time that men do on unpaid domestic and care work each day – between 22 and 42 hours per week before the crisis.

Domestic violence, femicide and other forms of sexual and gender-based violence have increased, the report noted.

Calls received by emergency helplines for women in Chile and Mexico, for instance, are reported to have increased by more than 50%.

Indigenous peoples and people of African descent (10% and 21% of the region’s population, respectively) are also disproportionately affected, owing to worse socioeconomic conditions compared to the rest of the population, limited access to social protection, and high levels of discrimination in the labour market.

Although children and young people have been spared the worst health impacts to date, education has been interrupted across the region, with over 171 million students in Latin America and the Caribbean currently at home.

Since mid-March, governments across the region have announced social protection measures in response to the sudden drop in worker and household incomes, particularly among the most vulnerable populations, said the report.

As of 26 June 2020, 29 countries in the region had adopted 194 social protection measures to help households.

The cash and in-kind transfers implemented in 26 countries to support families in situations of poverty and vulnerability during the crisis covered approximately 69 million households (286 million people, or 44% of the population).

Projected expenditure over six months will amount to some US$69 billion, about 1.4% of GDP for 2020.

The immediate international multilateral response should be extended to the middle-income countries, the report emphasized.

This group, which includes most Latin American and Caribbean countries, faces structural constraints, yet has been largely excluded from cooperation in the form of emergency liquidity response, concessional funding, trade exemptions, deferral of debt service payments and humanitarian assistance.

These instruments are especially urgent for tackling the rising external public debt of Caribbean small island developing States (SIDS).

“Debt sustainability should be pursued by fostering sustainable and inclusive growth, not by austerity that halts investment.”

International financing should be expanded, including a major allocation of special drawing rights (SDRs), accompanied by initiatives for debt relief or debt standstill and innovative financing mechanisms such as the Debt Relief/Swap for Climate Adaptation for the Caribbean, said the report.

 


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