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Financing for development in the era of COVID-19 and beyond

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20 p. Editorial: ECLAC March 2021


In 2020, the Latin American and Caribbean region faced the worst crisis on historical record and the sharpest economic contraction (-7.7% and -20%, respectively, in GDP and investment growth for 2020) within the developing world. The available data also show that the contraction of investment relative to that of GDP was greater in Latin America and the Caribbean than in other developing regions.

The pandemic has magnified the structural and institutional gaps of Latin America and the Caribbean. The crisis has severely impacted productive structures, resulting in the closure of more than 2.7 million firms, and the labour market, as the number of jobless persons has escalated to 44.1 million.

Significant firm closures and employment losses, jointly with the fact that the more vulnerable segments of the population have borne the brunt of the crisis, have pushed up poverty levels from 185.5 to 209 million people (from 30.3% to 33.7% of the total population). Meanwhile, extreme poverty will increase by 8 million, to 78 million people. Also, the sharp contraction of investment will constrain future capital accumulation and the capacity of the region’s economies to generate growth and employment. The region’s economic and social development is likely to be set back for at least a decade. By the end of 2020, the level of per capita GDP was equal to that of 2010.

Table of contents

Introduction .-- A. The economic and social impact of COVID-19 will significantly widen the region’s financing gap .-- B. Closing the internal and external financing gap requires international financial institutions to scale up the availability of liquidity commensurate with the financing needs of Latin America and Caribbean countries .-- C. First policy action: expand and redistribute
liquidity from developed to developing countries .-- D. Second policy action: focus on strengthening regional cooperation by improving the lending and response capacity of regional/subregional and national financing institutions and strengthening their linkages to multilateral development banks .-- E. Third policy action: institutional reform of the multilateral debt architecture .-- F. Fourth policy action: provide countries with a toolbox of innovative instruments to improve debt repayment capacity and avoid debt distress .-- G. Fifth policy action: make liquidity and debt reduction measures part of a financing for development strategy to build forward better .-- H. The current crisis should be seized as an opportunity to reach wide social and political consensus to implement ambitious reforms in order to engage in a sustainable and egalitarian building forward process.