To cope with the effects of the COVID-19 pandemic, international cooperation and multilateral financial assistance is needed. However, the liquidity available is not enough to meet financing needs on a global level. That is why subregional development banks in Latin America should take bolder measures, since they play a critical role in this area of work, Alicia Bárcena, ECLAC’s Executive Secretary, indicated today at a high-level event organized by CAF - Development Bank of Latin America in the context of its 50th anniversary.
Participants in the event, entitled Rethinking the Present and Future of Latin America and the Caribbean, included Luis Carranza, Executive President of CAF; Joseph E. Stiglitz, Columbia University Professor and Winner of the Nobel Prize in Economics 2001; Ángel Gurría, Secretary-General of the Organization for Economic Cooperation and Development (OECD); and Enrique Iglesias, former Ibero-American Secretary General (SEGIB), former president of the Inter-American Development Bank (IDB), and former Executive Secretary of ECLAC (1972-1985).
In her presentation, the Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) indicated that COVID-19 is hitting Latin America and the Caribbean hard. She said that while countries in East Asia and Europe are gradually planning the reopening of their economies, here in the region, we are wondering if the worst of the pandemic has yet to come.
She recalled that COVID-19 is giving rise to the worst recession in the last century, with a contraction in GDP of at least -5.3% and the main social effects pointing to 29 million more people living in poverty (16 million in extreme poverty) and increased unemployment that will affect at least 12 million workers.
“We do not want another lost decade. This crisis can take our region backwards by 13 years. We are facing the commodification of services, a total fragmentation in health services. We are before the peak of the pandemic. It has exposed a situation of major structural challenges and we are worried that the region may come out of this crisis poorer, with more unemployment, and angrier,” Bárcena stated.
In particular, Alicia Bárcena stressed that the international community has not adequately understood the situation of middle-income countries, which include the majority of nations in Latin America and the Caribbean. “These countries have reoriented their budgets to confront the crisis, but that is not going to be enough because not all of them have the financial wherewithal. That is why the role of development banks is critical,” she insisted.
COVID-19 has intensified the weakening of international cooperation and multilateralism that had been observed over the past few years. In that scenario, regional integration must perform a key role in the strategies for Latin America and the Caribbean to emerge from this crisis, Bárcena explained. A more integrated market of 650 million inhabitants would constitute an important insurance policy against supply or demand shocks produced outside the region, such as COVID-19, she indicated.
She added that this crisis strikes at a production and business structure that has many weaknesses, with a structural heterogeneity that has been terrible for the region. As an example, she indicated that approximately 2.6 million formal companies will likely close in Latin America and the Caribbean, a region with a labor informality rate of 54%.
In terms of financing, Bárcena noted that many of our countries do not have the resources for a post-pandemic reactivation; fiscal space is limited by a low tax burden (18% of GDP) and high tax evasion (around 6.3% of GDP), and debt levels limit access to sources of financing.
In this context, the multilateral system – and the multilateral financial system in particular – play a critical role. Bolder measures should be taken through international financial institutions, she said. “Development banks provide resources in a countercyclical fashion, they serve population segments that are not covered by the private financial sector, and they can help implement medium-term strategies. These are characteristics that must be strengthened,” the senior United Nations official stated.
It is necessary to put modalities into effect for debt relief and, in some cases, debt forgiveness in relation to middle-income countries as well, given that they include the majority of Latin American and Caribbean countries, she added.
“To confront the crisis, we at ECLAC are proposing five concrete actions. The first is to establish a basic emergency income for six months to cover the poorest households’ income. It should be equivalent to one poverty line (approximately $140 dollars per month), which would cost 2.1% of regional GDP. That is not so much, it can be done. Along with that, we are proposing temporary subsidies for micro, small and medium-sized enterprises. And we think that development banks should open a special window for the reactivation and reorientation of companies’ production activities,” Bárcena specified.
“Second, we must develop a welfare system. We have to place our bets on the infrastructure of life, meaning health, nutrition and education. Third, we have to prevent the economic impacts of the crisis from deepening inequalities and discrimination against women and other population groups. Fourth, we are proposing a big push for sustainability that is based on new ways of producing, with an urgent energy transition, investing in digital infrastructure, food security strategies, and fostering more cost-effective and sustainable urban mobility. And fifth, we have to go back to presenting regional integration as something critical, because the economic geography of the future is going to be different, big companies are seeking resilience and not efficiency. So, integration plays a key role here,” she stressed.
Alicia Bárcena also highlighted that the State has played a leading role in this crisis, which has been very important. “But we don’t want an authoritarian State, we want a social one. We need to advance a social, political and intergenerational compact. We need a system for governance and transparency,” she emphasized.
Finally, ECLAC’s Executive Secretary called on CAF and development banks more generally to take bolder steps in support of middle-income countries that so sorely need it, so they can have low-cost facilities and lower interest rates. “We have to bring about a future that is less unequal. We are the most unequal region in the world and inequalities continue to deepen. I put ECLAC at the disposal of CAF, and all of you, to work together for a better future,” she stated.