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It is Crucial to Propose a Social Compact Based on a Broad and Participatory Dialogue to Face the Present Contingency and Rethink the Post COVID-19 Reactivation

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13 July 2020|Press Release

In the framework of the OECD-LAC Virtual Social Inclusion Ministerial Summit, Alicia Bárcena, ECLAC’s Executive Secretary, called for promoting universal, redistributive and solidarity-based social policies to confront the crisis.

Latin America and the Caribbean urgently needs to take action on a new social compact, a political instrument based on a broad and participatory dialogue that would arrive at agreements and consensuses to face the present contingency and rethink the reactivation in the wake of the COVID-19 pandemic, Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), stated today.

The senior United Nations official participated in a high-level panel entitled “From an impending issue to an emergency: the imperative need for a new and more inclusive social pact in Latin America and the Caribbean,” held in the framework of the OECD-Latin America and the Caribbean (LAC) Virtual Social Inclusion Ministerial Summit: Informality and Social Inclusion in the Times of COVID-19.

On the panel – which was moderated by Miguel Vargas, the Foreign Affairs Minister of the Dominican Republic – the participants also included Martha Delgado, Undersecretary for Multilateral Affairs and Human Rights of Mexico; Rebeca Grynspan, the Ibero-American Secretary General; Gabriela Ramos, Assistant Director-General for Social and Human Sciences at the United Nations Educational, Scientific and Cultural Organization (UNESCO); Ana María Rodríguez, Vice President for Sectors and Knowledge at the Inter-American Development Bank (IDB); and Hernando Soto, President of the Institute for Liberty and Democracy.

During her presentation, Alicia Bárcena underscored that Latin America and the Caribbean is facing a civilizing crossroads and an exceptional time for rethinking and addressing the future with strengthened roles for the State, the market and society.

She said that the legitimacy of and trust in States is being tested today and that given the disconnect between society and the State, it is necessary to move towards broad social compacts in the main political sectors, as a pathway for attaining welfare states and sustainable production and consumption models in line with the 2030 Agenda for Sustainable Development.

She added that these compacts must incorporate environmental sustainability, investment and an industrial policy that truly allows the region to achieve a big push for sustainability.

ECLAC’s highest authority emphasized that a fiscal compact constitutes another crucial area, with a view to promoting progressive and sustainable taxation and ensuring steady and sufficient resources for permanent social investment in the population’s welfare, enjoyment of rights and resilience.

“We are facing an unprecedented crisis that requires transforming the development model in Latin America and the Caribbean, and promoting universal, redistributive and solidarity-based social policies,” she affirmed.

ECLAC’s Executive Secretary recalled that, due to the current crisis prompted by the coronavirus disease (COVID-19), the region runs the risk of erasing 13 years of progress.

She specified that, according to ECLAC’s latest estimates, the region will suffer a 9.1% drop in GDP and a 5.4 percentage point increase in the unemployment rate, which is forecast to reach 13.5%.

In 2020, poverty in Latin America is seen rising by 7.1 percentage points (45.4 million more people) compared with the previous year, taking the total number of people living in poverty to 230.9 million (37.3% of the region’s population). Extreme poverty is expected to rise by 4.5 percentage points (an additional 28.5 million people), affecting in all 96.2 million people (15.5% of the population) who will not be able to meet their basic food needs.

Inequality, meanwhile, will grow by 4.7%, and already 54% of people work in informal conditions, with women the most affected as they represent 60% of that population. In Latin America in the first income decile, 65.8% of workers neither contribute to nor are affiliated with a health system, compared with a weighted average of 42.7%, she added.

To confront the crisis, Bárcena said, ECLAC proposes implementing an emergency basic income equivalent to one poverty line ($147 dollars) for six months, at a cost of 1.9% of GDP, as well as an anti-hunger grant equivalent to 70% of one extreme poverty line ($57 dollars), which would cost 0.45% of GDP. Further proposals include subsidies for microenterprises, greater multilateral cooperation, and a new social compact that would incorporate environmental sustainability.

She added that, according to the Commission’s calculations, there will be a loss of 2.7 million companies, which represent 19% of the business fabric in the region. Therefore, she indicated, ECLAC proposes a subsidy for microenterprises and expanded credit for small and medium-sized enterprises, at zero interest and for a two-year term. It also recommends bailing out big, strategic companies but only on certain conditions, such as that they do not invest in tax havens or redistribute profits among the partners.

Alicia Bárcena stressed the need for an international compact, a much bigger multilateral response than the existing one, which would be extended to middle-income countries that face structural limits and are not taken into consideration in multilateral assistance or concessional funding cooperation mechanisms.

“This will require emergency liquidity assistance, special drawing rights, trade exemptions, a debt service standstill, humanitarian aid. This proposal dovetails with the strategy of the Secretary-General, António Guterres, who, along with Jamaica and Canada, is calling for expanding instruments of financing and looking at the sustainability of debt in countries like the Caribbean that do not have the financial wherewithal to tap markets,” she stated.

Finally, Alicia Bárcena highlighted that deepening regional integration must be an essential component of any strategy to emerge from the crisis. This entails strengthening our own production linkages and promoting intraregional trade, she concluded.