Why is the economic impact of the pandemic so serious in Latin America?

In economic terms, Latin America is one of the regions that have been hit hardest by COVID-19. Before the health emergency, the economies of the region already looked weak, but the crisis that arose from the pandemic accentuated social and market problems.

It should be noted that not all countries are in the same situation. Some nations, such as Peru, Argentina, Ecuador, Mexico, Colombia, or Venezuela have the worst rates. On the other hand, others, such as Brazil, Paraguay, or Uruguay, had blown to their economies, although they were not too serious.

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Recently, ECLAC revealed that Latin America was the developing region most affected by the pandemic in the world. According to the agency dependent on the UN, the region contracted 7.7%, lost almost 3 million companies, and registered about 28% of the deaths from Covid-19 in 2020. Already last year, the organization had warned of the closure of some 2.7 million companies throughout the region, a figure that is equivalent to 19% of all Latin American companies. However, small businesses do not fare better, quite the opposite: that figure extends to 21%, which makes productive growth driven by small capital even more difficult.

Another undoubted problem, as this report reveals, is that of poverty. We refer to a 12-year setback in the entire Latin American territory since it reached 33.7% of people in precarious conditions, the highest level of this time. Let's see more details on numbers that explain why Latin America is in a delicate economic state.

The economic problems of Latin America due to COVID-19

At first, the quarantines implemented in Latin American countries caused, how could it be otherwise, retractions in the economy. For the most part, the transport, culture, and tourism sectors were the most affected, as they are usually those with the least ability to adapt to this health situation.

In statistical terms, they represent a total of 25% of GDP, approximately. On the other hand, other activities that did not suffer too much, such as fishing/agriculture/livestock, the production of food or medical supplies, only reached 14.1% of GDP. In other words, Latin America had to face a large part of its income from its key areas being limited by the COVID-19 restrictions.

Although teleworking allowed many employees to maintain their positions, the truth is that not all companies were able to adapt. Not even all of them could survive, which implied, according to the International Labor Organization (ILO), a loss of some 34 million jobs in the region, demonstrating the fragility to which workers are exposed.

Another structural problem, which increased with the arrival of the pandemic, was informality. In Latin America, there is a high percentage of workers “in the black”. Currently, there are about 140 million people working off the record, which accounts for almost half of the workers. However, right now it is not seen as a problem, but as something that should be "appreciated", since not everyone is "lucky" to have a job in the middle of the pandemic.

So, to avoid even bigger economic catastrophes, governments have had to resort to public sector spending. Aid instruments, such as the COVID-19 Bonus in Chile, the Solidarity Income in Colombia, the Emergency Bonus in Brazil or the Emergency Family Income in Argentina, allowed relative stability for those families who had not been able to resume their activities, although with a high cost for the future.

We are talking about a public deficit and a public debt that increased exponentially, increasing the long-term problems of several countries, such as Argentina, which has a huge debt with the IMF. Furthermore, the production situation is not encouraging: exports and imports fell by 10 and 13%, respectively. The same happens with the acclaimed foreign investments, which fell by 50%, according to UNCTAD, especially in Argentine, Chilean, Colombian and Peruvian territories.

All this leads to one thing: more poverty. In 2001 poverty had directly affected 45% of the region, but by 2019 that figure had dropped to 30.3%. However, the arrival of the pandemic only accentuates structural problems that could not be solved, causing all advances in production to decline and affect Latin American workers.