Latin America, the pandemic and the challenge of building better instead of going back

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As the saying goes, with effort and hope everything is achieved. We should remember this now more than ever because both effort and hope will be needed to overcome the huge challenges that the countries of Latin America and the Caribbean are facing with the COVID-19 pandemic.

In economic terms, this is the most hit region on the planet. The World Bank’s report on the Global Economic Outlook released this week forecasts a 7.2% contraction of gross domestic product in 2020 , while emerging markets and developing economies will decline 2.5%.

Our economists at the World Bank have compared this data with the historical series of GDP growth for the region, and we have found that this is the worst performance since 1901, the first year in which we have more or less reliable growth data for the region. Neither the Spanish Flu of 1913 (-5.1%), nor the Great Depression (-5.2% in 1931), nor the second oil crisis (-2.4% in 1982), nor the Great Recession of 2009 (-1.9%) had a contraction like this one.

These are not mere statistics. A contraction of such magnitude implies less wealth and, worse for the most vulnerable classes, the destruction of millions of jobs and, in general terms, more poverty. The World Bank’s calculations suggest that around 20 million jobs will be destroyed in the region this year, of which about half of them are formal. 

If Latin America is the most economically affected region in the world, you may think that this is because things have been done wrong. It’s certainly true that everything can be improved, but I have no doubt that one of the determining factors of the impact in the region is its high rate of urbanization. At 81% in Latin America, it is highest on the planet and well above the global average of 55%, according to the World Bank’s development indicators. This means that the pandemic has affected Latin America more than other regions.

According to the latest data on the spread of the coronavirus, there are already more than a million cases in the region and the number is doubling every two weeks with a mortality rate of 5% (about 50,000 deaths). Not surprisingly, countries in the region have been forced to impose strict social distancing measures, which has led to the economic collapse.

In response to the pandemic, the World Bank has so far sought to help countries contain the spread of the coronavirus, strengthen the capacities of health systems, protect the vulnerable classes, and support the productive and business fabric . With these objectives as priorities, the World Bank has poured $4.3 billion in assistance into the region in three months, under different modalities. Eighteen countries in the region have benefited from this aid so far, and others will soon as well.

But as we wait to reach a peak on the contagion curve, other needs are arising in Latin America: we must restart the economies of our countries because getting that wheel rolling again is the best way to generate jobs and reduce poverty, and we must make it turn on a more solid basis than we had before this overwhelming pandemic.

This is to say that if we do things right, if we are ambitious in supporting a recovery with the idea of ​​building a more modern region that is less vulnerable to shocks and more integrated into the world, that is capable of offering opportunities to its people and freeing up its productive energies, then we can aspire to a better future for all. Our desire should not be to go back to what was, but to build better. 

Along that same lines, I would add the need to strengthen the macroeconomic conditions that make it possible for an economy to take off. This means consolidating sustainable fiscal programs, enhancing the competitiveness and productivity of companies and the many productive sectors, and stimulating the creation of jobs in dynamic and inclusive labor markets.

All of this is possible and should not be delayed. The current crisis, although deep and painful, offers the unique opportunity to reach broad social and political agreements to move toward these goals.  I am referring to state policies that are backed by the political and business leadership, by formal and informal workers, and by civil society and other organizations. The World Bank will be there to accompany governments that seek to follow this path of modernization.

As I said at the start, it will take effort and hope to return Latin America to the path of growth. But there is one more need: clarity of purpose. The region must develop an idea of ​​the future so that it knows what direction to take.

Authors

Humberto López

Director of Strategy and Operations for the Latin America and the Caribbean Region

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