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Dialogue of ministers of foreign affairs and high-level authorities of Latin America and the Caribbean on the post-pandemic economic recovery

Opening remarks by the Executive Secretary of ECLAC, Alicia Bárcena.

27 October 2020|Speech

Remarks by Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), at the dialogue of ministers of foreign affairs and high-level authorities of Latin America and the Caribbean on the post-pandemic economic recovery

Thirty-eighth session of ECLAC

Monday, 26 October 2020

 

Thank you very much Minister Rodolfo Solano.

Dear Ministers of Foreign Affairs and high-level authorities of the countries of Latin America and the Caribbean

Friends,

We are facing a real change of era with global challenges such as climate change, inequality, growing asymmetries between developed and developing countries, and now the coronavirus disease (COVID-19) pandemic.

All this requires a profound transformation that recognizes the relationship between the economy, society and the environment, and greater multilateral cooperation at the global and regional levels.

It is a great honour for me to provide a brief overview of the post-pandemic economic recovery to open this important political dialogue of ministers of foreign affairs and high-level authorities of Latin America and the Caribbean.

ECLAC is humbled and pleased to welcome this dialogue. We believe in dialogue, in the exchange of ideas, in a conversation in which all parties listen and are open to being persuaded by the opinions of others, encouraging the construction of shared ideas.

I would like to acknowledge here the enormous effort made by all the governments of the region in containing COVID-19 and send our condolences to the families affected by this pandemic.

All without exception, with both successes and missteps in overcoming the structural difficulties and deficiencies of our health systems, have made the fight against the health crisis and the mitigation of its economic and social effects the priority in their public agendas.

Your participation in this dialogue is testimony to that commitment.

The pandemic has shone an unusually harsh light on the limitations of the current development model, which are reflected in a persistent pattern of low growth, low productivity, rising inequality, insufficient export diversification, limited fiscal space and increasing environmental degradation. These are the constraints that stand in the way of meeting the growing demands of the population.

Let us not forget that the countries of the region made tremendous efforts between 2002 and 2014 to reduce poverty and inequality, leading to a significant increase in income levels.

This calls for critical reflection on a crisis-recovery strategy, for a successful path forward cannot be achieved by reverting to the way things were.

We put to you the importance of the shift towards a more inclusive and sustainable development pattern that ensures the conditions for governance and in which there is a balance between economic growth, social inclusion and environmental sustainability, placing equality at the centre of development.

The COVID-19 crisis has once again put fiscal policy at the heart of discussions on development and growth.

We must be capable of reflecting on this point.

The region needs to maintain an expansionary fiscal policy in a framework of fiscal sustainability, adopting a clear strategic approach with regard to public revenues in order to achieve sustainable growth and employment levels.

Furthermore, the reconstruction and transformation will require more and better State involvement; a State that promotes a policy of inclusion and prevents the erosion of society brought about by exclusion; a State that has been strengthened institutionally and is agile in its response to problems, with instruments that are timely and fit-for-purpose.

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ECLAC projects a regional average decline of 9.1% in GDP in 2020, a 13.5% rise in unemployment (bringing the number of unemployed to 44 million), and an increase in the number living in poverty to 231 million in 2020, some 37.3% of the population, with 96 million falling into extreme poverty. This speaks to an enormous setback, a grave crisis that is exacerbated by the high level of informality in the labour market.

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Excellencies, we present for your consideration a set of ideas outlined in the document "Reconstruction and transformation with equality and sustainability in Latin America and the Caribbean".

Firstly, we see that fiscal policy has returned to the heart of discussions on development and growth. Public spending has been the key tool for mitigating the economic and social effects of the pandemic, a fiscal effort representing on average 4.1% of the region’s GDP, aiming to strengthen health services and alleviate the economic and social effects of the crisis. Measures have also been taken to support households via basic emergency incomes and support for micro-, small and medium-sized enterprises.

Secondly, we must stress the importance of financial and monetary measures to address the crisis. Given high fiscal deficits, many countries have had to seek external support. Between March and June 2020, 11 countries placed sovereign bonds, together totalling US$ 24.8 billion, at low interest rates in international markets. Furthermore, most countries in the region —16 in Latin America and 9 in the Caribbean— supplemented their financing needs with emergency funds from international financial institutions amounting to US$ 22.587 billion.

The situation of the highly indebted small island developing States of the Caribbean is worrisome, as their treatment as middle-income countries limits their ability to access concessional financing. This adds to their high vulnerability to natural disasters. ECLAC has underscored the need for progress in debt relief mechanisms (at least 12% of the subregion’s total debt of US$ 57 billion), along with the creation of a Caribbean Resilience Fund to finance investment in climate change adaptation. Meanwhile, the countries of Central America, many of which are also considered middle-income countries, have a narrow fiscal space and large deficits that limit effective debt service payment, so the international community should give special consideration to debt interest payment relief at least until 2021 and to Costa Rica’s proposed Fund to Alleviate COVID-19 Economics (FACE), through which developed countries would grant US$ 516 billion in unconditional, low-interest and long-term loans to developing countries, regardless of their per capita income.

ECLAC estimates indicate that the crisis will last longer than expected and growth will not return to pre-crisis levels before 2023.

For these reasons, we suggest that it will be necessary to maintain an expansionary fiscal policy within the framework of fiscal sustainability, taking a strategic approach to public revenues. It is essential to work on new fiscal covenants that include measures to make region’s tax systems more efficient, progressive and sufficient. There are a number of options, including vigorously combating tax evasion and avoidance, which amounts to 6.1% of the region’s GDP, and looking at tax expenditure, which amounts to 3.7%. The objective is to put an end to the culture of tax privileges and thus foster a progressive tax burden structure as economic activity regains momentum.

On the monetary front, we propose the continuation of conventional and non-conventional expansionary policies. Central banks must maintain the pragmatic stance they have adopted during the crisis in order to expand the set of tools at their disposal, that is, complementing conventional tools (lower interest rates) with other non-conventional instruments (public asset purchases, direct financing to the public coffers) to ensure adequate liquidity for the financing of a new development strategy. They must also ensure the macrofinancial stability of the region’s economies, especially in terms of inflation and macroprudential capital regulation.

We must direct fiscal resources towards sustainable public investment that is intensive in job creation, and promote public-private partnerships for investment, incorporating environmental and social foundations.

We must afford fresh impetus to industrial policy for sustainable development and the revitalization of regional integration. The organization of international productive chains that will be consolidated with the return to activity and economic reactivation will transform the interdependence of the global economy. There will be a need for policies that deliberately favour productive and service sectors and chains, altering signals to change the pattern of specialization of the economy. Examples are the health industries (devices and medicines), energy and the digital economy. Argentina and Mexico have provided us with alternatives in the production and distribution of a COVID-19 vaccine in coordination with the Carlos Slim Foundation and AstraZeneca, involving national industries in each country.

We argue that progress must be made towards the construction of a welfare state. To protect the living conditions of the whole population, it is crucial to take steps to move towards decent work, to promote co-responsibility for care among the State, the market and families, and to pursue universal access to social protection, by ensuring universal access to high-quality health and pension systems.

It is time to implement universal, redistributive and solidarity-based social policies with a rights-based approach, to ensure that no one is left behind.

We must not overlook the territorial and local dimensions in the design and implementation of policies to support the modelling and understanding of increases in inequality and social exclusion in both urban and rural areas.

Lastly, institutional strengthening and organizational development of States are key to addressing the crisis in the region. This will take a strong State, equipped with human, financial and organizational resources that are up to the challenge, that engages public bodies in policy design, and in the oversight and implementation of actions, with transparency and accountability to society.

All this suggests that the recovery will be slower than projected and that the economic and social costs of this crisis could continue to rise.

Therefore, a successful strategy to deal with the crisis cannot be based on a return to the pre-existing situation, but must view the crisis and the heavy regional discontent as a break in the development model, requiring far-reaching transformations, to ensure a balance between economic growth, social inclusion and environmental sustainability.

These transformations will require progress towards political and social compacts built with broad stakeholder participation. Through dialogue and transformative leaderships, these compacts will support progress towards consensuses to universalize social protection and reorient development, based on equality, with redistributive fiscal policies, industrial policies and environmental policies for sustainability.

Regional and international solidarity will be fundamental to rebuilding and transforming with equality and sustainability, for the progress of all, contributing with a united voice to a global compact for the provision of public goods such as climate security, global health (universal vaccination), peace and financial stability.

The 2030 Agenda is more relevant today than ever before; efforts must be redoubled to achieve the Sustainable Development Goals and to address the inequality that characterizes our region.

In closing, I would like to thank the Minister of Foreign Affairs and Worship of Costa Rica, Rodolfo Solano, for this most wide-ranging and historic session and for having led the initiative to adopt the Political declaration on a sustainable, inclusive and resilient recovery in Latin America and the Caribbean. For ECLAC, this declaration is not only a mandate and a guide for the pursuit of our mission, but also a crucial signal that it is possible for the region to speak with one voice in the face of the historic challenges that we are called upon to address at this critical time.

This brings to mind the words of the philosopher Giani Vattimo:

… let’s not say that we will reach agreement once we have found the truth. Let’s say we have found the truth when we have reached agreement.

Today, as the United Nations celebrates its seventy-fifth anniversary, we can say that under the auspices of ECLAC, Latin American and Caribbean multilateralism has once again expressed its vocation for cooperation and integration loud and clear.

We will listen with the utmost attention to each and every one of your reflections. ECLAC grows and flourishes from dialogue with its member countries. Together, we can do more, and do better, for a sustainable, inclusive and resilient recovery in Latin America and the Caribbean.

Thank you very much.