What will the economic recovery be like in Latin America?

The region must adapt to the global situation and start a plan that does not affect the health and economic future of citizens .

Woman walking down a street wearing mask

Latin America has several challenges to overcome in order to achieve a successful economic recovery. / Photo: Unsplash – Reference Image

LatinAmerican Post | Juliana Suárez

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Leer en español: ¿Cómo será la reactivación económica en América Latina?

While the entire planet has been activating economic plans little by little after having gone through critical moments of the pandemic, Latin America presents a greater challenge since it must reactivate them while facing an exponential increase in cases. For this reason, the region's governments have been de-escalating the containment measures and opening some sectors that allow their countries to begin operating without putting people's lives at risk.

This stagnation generated in the months of the pandemic came hand in hand with the low growth that the region had been experiencing since past years. As reported by the Economic Commission for Latin America and the Caribbean (ECLAC) in May, the average growth had been 0.4 percent between 2014 and 2019. Now, the same organization estimates that there will be a drop of -5.3 percent, while the World Bank estimates -7.2 percent.

One of the biggest problems facing the region when seeking economic recovery is that Latin America is affected both externally and internally, so governments must find a way to balance both paths. According to Forbes, "on the external side, the reduction in demand for exports, the fall in prices of raw materials and a lower demand for tourism have contributed significantly to this reduction." As for the internal level, small and medium-sized companies have been severely affected, as day-to-day consumption has been limited.

As a result of the above, unemployment has increased and with it the poverty rates. According to the International Labor Organization (ILO) , the region of Latin America and the Caribbean is the one that has been most affected by jobs and calculates that the rate may rise between 4 and 5 points. Thus, going from 8.1 percent, as it was at the end of 2019, to 13 percent. This would be equivalent to going from 26 million unemployed people to 41 million, a record number for the region.

Some measures

Governments must look for ways to prevent this from happening as the coronavirus increases exponentially and their health systems are in critical states.

According to the BBC, boosting economic growth "depends on the level of income, but also on how they were before the pandemic hit, how hard it hit, how responsive they have been and how exposed they are to external shocks."

The Economist Intelligence Unit (EIU) carried out a preliminary study in which it anticipates how Latin American countries will achieve growth to emerge from the crisis in the coming years. According to this, Colombia, Chile, Peru, Paraguay, Uruguay, Costa Rica, Panama and the Dominican Republic will be able to recover their growth level by 2022.

On the contrary, the other countries will have to wait a little longer. Those that will see their recovery in 2023, 2024 or 2025 will be the three main economies in the region: Argentina, Mexico and Brazil, with Mexico being the last of these. Meanwhile, according to the estimate, Venezuela would recover its GDP until 2028.

Also read: Preventing the next pandemic

Among the economic reactivation measures, many of the governments have agreed on the importance of activating trade, which has been controversial since it includes the displacement towards public places such as warehouses and shopping centers . Some examples of these moves have been the opening of restaurants and cafes in Argentina, shopping malls in Peru, opening of trade in general in Mexico and the measure of the day without VAT that was carried out in Colombia.

These attempts seek to activate the economy as long as strict protocols are used, but some sectors of the countries, such as health, have gone against these decisions because they consider it to be a critical point.

Therefore, in countries such as Colombia and Argentina, the medical union has requested to return to stricter measures in order to provide health security . In response, the Bogota capital is currently in mandatory confinement by sectors, while in Argentina they had to close restaurants again in some of the most affected parts.

Although there is no formula that will help the countries of the region to get out of the crisis, it will influence their previous capacity in some issues, said Daniel Titelman, director of the ECLAC Economic Development Division, according to an interview with BBC.

Some factors that can help are: whether countries have a greater fiscal back, that is, the potential to bear the debt and the potential for the international financial system to give them resources; better social protection systems because in the attempt to grow economically, countries will face unemployment and poverty; and ability to protect production, which refers to governments being able to prevent small businesses and companies from closing and being able to continue operating.

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