Latin America’s COVID-19 recovery: Unequal and insufficient

April 26th, 2023

Latin America was one of the hardest hit regions by the pandemic in health, social and economic terms. In 2020, 44 million jobs were lost and 22 million people were pushed into poverty, adding to the 187 million poor in the continent.In Argentina, Peru, Brazil and Mexico, the poverty rate grew by 7%, a greater increase than the regional average.

Women were particularly affected, with a decade-long setback in their participation within the labor market as the most affected sectors, commerce and tourism, concentrated 57% of women’s employment. In the continent, only 60% of women who became unemployed re-entered (at least partially) the job market by 2021, according to the International Labor Organization.

In the face of this crisis, public response was insufficient as shown in a report led by Latindadd, with the support of the Financial Transparency Coalition, titled “Financing in times of crisis: Interventions in Latin America since COVID-19”, (initially launched in Spanish and now also available in English) which analyzed the emergency response in Argentina, Brazil, Chile, Colombia, Costa Rica and Ecuador.

The report found that COVID-19 recovery funds represented only 4.6% of the region´s GDP in 2020, less than half of the amount recommended by the UN. Making matters worse, we found that small and medium companies and informal workers were largely left out. On average, support to big enterprises represented 44% of the total funds, as opposed to Micro, Small & Medium Enterprises (MSMEs) and informal workers which only received 20% and 5% respectively.

Two relevant exceptions were Colombia and Argentina which ranked second and third out of the 21 countries analyzed in the global study, with support for informal workers representing 14% and 15% of overall recovery packages. This generalized disregard also increased gender inequalities, given the fact that women are about 56% less likely to be entrepreneurs in the formal sector and 63% more likely to be entrepreneurs in the informal sector.

With regards to social protection, Brazil and Chile did better than other countries after spending more than half their COVID-19 recovery funds between 2020 and 2021 to protect the poor and most vulnerable (58% and 51%, or US$92bn and US$31bn respectively), while Colombia had the lowest spending on this category (9% of its recovery expenditure or US $8bn). Some limitations arose from the lack of up-to-date population registries to guide the provision of benefits and the absence of control mechanisms for the use of available resources.

The report also shows that governments’ ordinary public budgets were insufficient, even after redistributing and adjusting internal priorities, as many recurred to public debt through the issuance of bonds or loans from international organizations. In total, 17 Latin American countries issued bonds between January and October 2020, worth US$122bn, exceeding the annual amount in 2019 (US$118bn). Thus, the region had little decision-making space and depended highly on external resources and providers.

The region was the largest recipient of COVID-19 lending from the International Monetary Fund in 2021 ($US118bn), partly due to other regions not having systems to channel this funding to households and businesses. This was reflected in the case of Africa, which received US$26bn, almost the same as Chile (US$24bn) and as much as the combined allocation to Colombia and Peru (US$17bn and US$11bn) in 2021.

Although seemingly large, these resources were exhausted before the end of 2021, bringing with them IMF’s demands for austerity. This is more problematic when the acceptance of these funds and conditionalities was the only option left. Contrary to other countries, Chile chose to generate funds by partially releasing pension funds for households’ liquidity instead of being dependent on IMF support but was left with an unresolved long-term resource gap since the tax reform rejection.

Worryingly, Latin American countries have been left with bulging fiscal deficits while alternative methods of financing are scarce or simply do not exist . This is even as the COVID-19 crisis seems to subside, and despite the region’s economies bouncing back in 2021 driven by the reactivation of the global demand and higher prices in raw materials. This has meant that most fiscal rules have been abruptly reinstated, without plans to address structural funding concerns or the need for further support for businesses, informal workers and the poor and most vulnerable, affected by the current inflation and cost of living crisis.

As governments must continue implementing measures to guarantee the rights of the most vulnerable, there is a growing need for alternative and more sustainable forms of financing, without excessive or premature conditionalities. Internally, that also means that countries should focus on more progressive taxes, including those on wealth or properties, to be implemented immediately to generate the needed funds. Likewise, this requires a more strategic, focused and transparent process, as there is no space for inefficiencies and leakages within the construction of an equitable, inclusive and sustainable recovery.

“Much of the pandemic’s impact in the region arises from pre-existing inequalities in access to infrastructure, human capital, connectivity and other basic services. Beyond the response to the emergency, public measures must target the creation of the structural capacities still lacking”, recommends the study. This is particularly important in a context of social discontent, even before the pandemic.

The road towards building a more resilient regional social structure must recognize the value of maintaining flexible up-to-date comprehensive registries to understand key dimensions of vulnerability and to achieve adequate responses. It also requires the establishment of a new social and fiscal pact that promotes progressive and sustainable taxation, the appreciation of care, the claim of historically excluded peoples and nationalities, and homogeneous access to basic needs. Finally, all this should be channelled to the simultaneous development of social, productive, technological and human infrastructure.

Note to editors: The report is part of a global process led by the Financial Transparency Coalition (FTC) with a 2021 update systematized in the document Recovery at a Crossroads: how countries spent COVID-19 funds. A process with research and mobilization components that will continue to evolve after being discussed and assessed in local and global spaces.

View the original post in Spanish here.

Written by Klelia Guerrero García

Tax Justice Specialist, Latin American Network on Economic and Social Justice (Latindadd)

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