Eclac's Bárcena: 'We need to rethink everything, the entire economy'

The still-nascent shock from the COVID-19 emergency is set to manifest itself via five principal channels in the region with the best case scenario dragging down the economy only 1.8% in 2020, according to the UN Economic Commission for Latin America and the Caribbean (Eclac).

Calling the -1.8% GDP estimate “very optimistic,” Eclac executive secretary Alicia Bárcena (in photo) outlined each of the five channels at the March 19 conference call entitled Coronavirus and its Consequences for Latin American & Caribbean Economies hosted by the Inter-American Dialogue. 

The first channel, said Bárcena, considers the effect that the decline in economic activity in several of the region’s main trading partners (US, Europe, China) will have on countries’ exports, adding the -1.8% figure takes into account the China shock alone.

She said the most recent evaluations on the expected drop in of exports from the LAC offer a range of contraction between 4.6% and under an extreme scenario 10%, adding this range must be taken into consideration when evaluating what kind of economic packages, fiscal mechanisms the region must employ.

“We need to rethink everything, the entire economy. We need a new vision to focus ourselves on how to cope with the extremely difficult scenario that lies before us,” Bárcena said.

A second channel comes from lower demand for tourism services “all through the region” but which would mostly affect Caribbean countries. 

Eclac said if a travel ban prompted by the disease were to last for one, two, or three months, tourism activity in the Caribbean would contract 8%, 17% or 25%, respectively, in 2020.

This implies both travel bans preventing tourists from visiting the islands as well as self-imposed restrictions, Bárcena said.

The third channel will be the interruption of global value chains. 

“This is mainly going to impact Mexico and Brazil, two countries where the manufacturing sectors, and imported parts and intermediate goods [for manufacturing], are very much related to China,” particularly in the case of auto parts, household appliances, electronic products and pharmaceuticals.

The fourth channel entails falling commodity prices, both for oil amid the ongoing spat between Saudi Arabia and Russia, and more broadly price reductions on lower demand for materials like copper, with impacts being highly specialized by country and subregion.

“The fifth transmission channel is intensification of risk aversion,” said Bárcena, amid worsening global financial conditions.

“This entails demand for safer assets,” she said. “[US securities] have seen their rates of returns down to historically low levels, and there's very little demand for the Latin American region’s financial assets, and this has transmitted into a very significant depreciation of the Latin American and Caribbean currencies.” 

Government responses

During the conference call, Bárcena also referred to the measures that governments in the region are already taking to try to counteract the negative economic effects of the pandemic. These range from sanitary steps to reduce and prevent contagion, to social containment measures that seek to protect the most vulnerable groups.

Governments are also taking economic, fiscal and monetary measures that involve increasing social spending, lowering interest rates, intervening in foreign exchange markets, suspending bank credit fees, providing lines of credit for the payment of company payrolls, freezing the re-connection fee for households that fail to pay their water bills, and actions to avoid depleted stocks of basic goods, among others.  

With respect to shortfalls in the health sector, one chief concern, said Bárcena, was the lack of hospital beds in the region, noting the Latin American average was 2.2 beds per 1,000 people, while that of Europe is 5.6. Mexico is particularly worrisome, having only 1 bed per 1,000 people. 

Unemployment and poverty

Bárcena said that in the optimistic case that the LAC economy shrinks only 1.8% in 2020, unemployment region-wide is expected to increase 10 percentage points.

Under that scenario, the number of people in the region living below the poverty line will rise from 185mn to 220mn, while those in extreme poverty will rise from 57.4mn to 90mn, according to the Eclac chief, saying the aftermath of increased inequality is “something to be very, very worried about.”

“The more unequal a country is, the more vulnerable groups will bear the burden of the economic impact of the pandemic and the fewer resources they will have to fight the pandemic,” she said, adding, “Special attention must be paid to women for their dual role as workers and caretakers.” 

Multilateralism is core

In fighting the pandemic, Bárcena urged cooperation and coordination between nations.

“No country will be able to fight this pandemic without global and regional cooperation,” she said. “At the end of the day, what we really need to consider is what will happen to multilateralism. There must be more integration. Without a doubt, we must move towards greater coordination, and the policy priority must be how to address the current social and health crisis,” Bárcena stressed.

Situation in Venezuela

The conference call closed with a discussion on the events in Venezuela, where the humanitarian crisis is worsening. 

Bárcena called for increased humanitarian aid for the country, delivered through the UN, the Red Cross and the organizations present there.

Brookings Institution resident senior fellow Santiago Levy, also speaking on the call, urged the lifting of sanctions on Venezuela at least for humanitarian relief, medical supplies and health resources, “strictly from the health and saving lives perspective.”

Ideally, said Levy, the international community will realize “this is not the time for sanctions, and no time for politics. It's the time to save lives.”