The COVID-19 pandemic will cause “without a doubt a very important recession” in Latin America this year, since to its “pre-existing conditions” of low growth is added the severe impact in China and the United States, warned this Tuesday Luis Alberto Moreno, president of the Inter-American Development Bank (IDB).
“Latin America is going to be affected by what happens to the people who are most affected by the virus, which are those with pre-existing conditions. Latin America, unfortunately, was with pre-existing conditions in a low-growth environment. And, obviously, this shock of both supply and demand is going to affect a lot,” Moreno said in a telephone interview with EFE.
“This is undoubtedly going to mean a very important recession in Latin America. How important? That depends on how quickly we manage to flatten the curve (of contagion) and get the economies back on track,” he added.
Although the IDB doesn’t make specific projections, he said that the institution’s most recent estimates, from four weeks ago, pointed out that for “every point of decline in China’s economic growth, Latin America was affected by six-tenths.
“But obviously that was when the contagion was coming primarily from the Chinese side. Today the contagion is coming through all the economies of the world. Of course, the U.S., which is the most important; the European economies, which is what makes the investment,” said Moreno, who has been president of the IDB since 2005 and will leave the office at the end of the year.
The latest International Monetary Fund (IMF) forecasts, published in January, contemplated economic growth in Latin America for 2020 of 1.6%, after barely registering 0.1% last year.
On Monday, the World Bank predicted that the expansion of economic activity in China would range from 2.3% in the base scenario to barely 0.1% in the most negative one, which means an abrupt halt to the 6.1% growth registered in 2019.
Moreno also highlighted the added challenge of resuming activity after the sudden halt in the pandemic.
“Economies are not like ‘on and off’. It has been paralyzing because of the decisions being made, but restarting the economies will be the most difficult,” he said.
In Latin America, there are more than 15,000 confirmed cases, although the trend is upwards, according to the world map showing the evolution of the pandemic in real-time, drawn up digitally by Johns Hopkins University in the United States.
Brazil continues to have the highest number of cases with 4,579, followed by Chile (2,449), Ecuador (1,962), Mexico (993), Panama (989), Peru (950), Argentina (820) and Colombia (798), according to the map, although the figures vary constantly.
The IDB has $3 billion in emergency funds available to address the pandemic. To these, Moreno reported, $9 billion are for regular programming and “each country is rethinking how to use these resources” because “naturally the demands are enormous.
He also has $5 billion available from IDB Invest, the window for the private sector.
“It’s true that this is coming to Latin America as if towards the end, and that allowed several countries to make decisions to close down and many took advantage of the situation that was in the middle of Easter so that it was possible to comply with the quarantine recommended by experts,” he added.
But, he acknowledged, “no part of the world was prepared for this” as it was “a virus that exceeds the health capacity of all countries, due to the enormous (number) of people who have to go to hospitals.
In Moreno’s opinion, the most important thing now “is to strengthen health systems,” because as in the rest of the world there is a shortage of medical equipment; to support the most vulnerable; and to support small and medium businesses in these difficult months.
In recent weeks, moreover, there has been “a large outflow of capital from emerging markets, which means that liquidity problems have only worsened.
Finally, Moreno lamented that the magnitude of the pandemic has meant “a break in international cooperation”, recalling that many countries producing medical material have banned their exports in order to protect their citizens.
“I hope that when all this happens and there is a cool head we will return to thinking that more multilateralism is required and not less,” he concluded.
The IDB, founded in 1959 and based in Washington, is the leading development institution in Latin America and the Caribbean.