Interview with Alicia Bárcena
ECLAC Executive Secretary
On the 20th of May 2020, the Executive Secretary of ECLAC (Economic Commission for Latin America and the Caribbean) Alicia Bárcena, participated in a digital conference of the KAS ADELA Regional Programme, in Panama on the COVID-19 pandemic and the economic and social effects in Latin America and the Caribbean (LAC). ECLAC has produced a series of studies on the socio-economic impacts of the pandemic in the region, as well as recommendations for dealing with the situation that can be adapted to each country's reality. This institution has established the "COVID-19 Observatory", which has carried out a series of analyses of the measures taken by the countries of the region in the economic, social, health and gender spheres.
Economic and social effects of Covid-19: a crossroad for the region
In the ECLAC report "Latin America and the Caribbean in the face of the COVID-19 pandemic: Economic and social effects", the organisation has estimated a decline of 5.3% of the GDP, which is a drop not seen since 1914 and 1930. This economic recession can be projected worldwide, with total GDP estimated to fall by at least 3%. There are several reasons for this huge drop, such as a decline in the region's trading partners, as well as a fall in commodity prices, which are the largest productive market for several South American countries. This may benefit net importers of oil and food, such as Central America and the Caribbean, but only to a certain extent, since demands from various trading partners are also decreasing and not only for primary products.
In addition to these elements influencing the decline in GDP, there is also the disruption of global value chains that mobilise the region's economy. Before the pandemic, these processes were highly linked, developed and globalised; everything could be transported in parts and pieces from anywhere in the world and trade had become highly fragmented. With COVID-19, these global value chains have been disrupted, affecting the region greatly, especially manufacturing countries such as Mexico and Brazil, with their automotive industry.
Another major issue affecting the regional economy has been the decisions of all countries to self-manage a slowdown in the domestic economy, since we are experiencing a health pandemic, not a banking crisis, and part of the measures recommended to safeguard people's health is the temporary closure of economic sectors such as restaurants, shopping centres, companies and others. Over all this promotes the so-called "social distancing". This has led to a drop in mobility and a lower demand for tourism, flights and remittances among all the economic activities affected. ECLAC has estimated a 20% drop in economic inputs from people who travel in the region, and there are some countries that depend heavily on this income, especially the tourism sector.
Finally, another element that has led to a drop in growth of minus 5.3% is the worsening of global financial conditions, because there has been an outflow of capital in the region and all of this has a major impact on poverty. The organisation estimates that poverty could increase by 4.4%, which refers to 215 million people. At the same time, the drop in regional trade of possibly 15 % also leads to an increase in unemployment of 3.4 %, which equals about 37 million unemployed. Thus, we will have an increase in inequality.
This pandemic has demonstrated the great fragility of the economies and the dependence we have on external manufactures in the region, so we could see the development of a new economic geography in the world. This, with the objective of having less dependence on imported manufactures and the great fragmentation of global value chains. Regional cooperation itself can be a tool to overcome this crisis, allowing for the restructuring of the interaction and development of Latin American countries within these chains and the promotion of the internal market in the region as a key element in the search for economic recovery and the development of new industries.
Latin America and the Caribbean should be much better integrated. Only 16 % of the region's total exports of goods are destined for the regional market and this is one of the lowest rates in the world. The region could be better integrated through trade facilitation and progress in updating and synchronising existing trade regulations between countries. The lack of coordination and cooperation in the supply of medical supplies and equipment is very serious. The production of medicines and medical supplies, for example, is highly concentrated in industrialised countries, while only 4% of these types of medical supplies or medicines are produced in Latin America and the Caribbean. There is a need for more exchange of information, medicines, equipment, experts and best practices between the different countries. There is also very little infrastructure, for example, in terms of transport, which could be developed, as there are currently some limitations to the exchange of goods. It is necessary to look for complementary productive areas and Europe can be an important ally to rethink a new "green deal" that benefits all actors. ECLAC is working in these areas to promote a more sustainable and egalitarian future with a new proposal and industrial inclusion.
There is a great diversity of countries in the region, including highly indebted countries that do not have the capacity and fiscal space to be able to act in the face of the COVID-19 crisis. Most countries have opted to redirect their national budgets to cope with the impact of this pandemic and some have also directed their efforts towards strengthening small and medium-sized enterprises, but this is insufficient, as they do not have the same fiscal flexibility as, for example, Europe. This is why countries have to turn to external financing. Some countries, such as Colombia, Chile, Peru and Mexico, have the capacity to borrow fundings or to go to the markets with reasonable interest rates. There are other countries that cannot do that, for example, in Central America. ECLAC is largely proposing to postpone debt repayment. On average, countries in the region spend only 2.2% of GDP on health, which is far from the 6% recommended by the WHO, in contrast to the 2.6% spent on paying interest on debt.
The time has come in Latin America and the Caribbean to move towards more egalitarian welfare states and this could be the first step towards a universal basic income. In order to address these economic difficulties to come, ECLAC proposes an emergency basic income for six months to meet the socio-economic needs of people in the region. This would be a basic emergency income equivalent to 140 dollars a month. It would not cost more than 2.1% of the countries' BIP. ECLAC has made a country-by-country analysis and advocates for this basic emergency income to support the poorest populations.
In recent months, there has been a discussion about the dependence of countries on imports in core sectors. With the pandemic, globalisation may decrease, but regional cooperation could increase. This pandemic showed the great fragility of the region's dependence on external manufactures. In the future there is going to be a profound change with a new economic geography in the whole world because many companies in many countries want to be less dependent on imported manufactures and the great fragmentation of value chains. We are going to bring production and the different stages of value chains back to territorial proximity. Regional markets become very favourable in this opportunity. There will be a scenario of greater regionalisation in large blocks and regional reintegration will be a key part of the recovery.
Regional integration is set to play a key role in the COVID-19 crisis. At the international level, a new globalisation with inclusive and sustainable governance may be the best solution. Our region in particular has to show how it will develop in new industries and new sectors. We are currently experiencing a transformation of industry, where the car manufacturer is producing respirators and the alcohol producer is producing disinfectant gel, restaurants have converted to delivery and that adaptive capacity is very important.
Innovative ideas, such as the production of masks with 3D printers or the development of new fans, are currently in high demand. This is an opportunity for growth and knowledge exchange at the regional market level in Latin America. ECLAC organised a meeting with the region's science and technology ministers and has prepared a platform for ministerial exchange on science and technology. There they determined how they can collaborate and advance in innovation, eco-innovation or sustainable approaches in emerging technologies such as robotisation and automation. To achieve this, the region has to make progress on the issue of connectivity and advance broadband and connectivity. Not all countries in Latin America and the Caribbean have access to higher-capacity fibre optics for telemedicine or 3D manufacturing with 3D printers.
It is important to highlight that the relationship with the EU is fundamental for Latin America and the Caribbean. European investments in Latin America and the Caribbean are crucial, because they have left plant industries in sectors such as the automotive industry, energy, water and manufacturing. These are free trade and investment agreements. The region should ask itself: What are the goods and services that we can exchange most readily and how can we generate value chains? Mercosur is making good progress, but with the impact of the pandemic it has stalled a bit. It is of great importance for the region that Europe opens up its markets to more processed products. Negotiations with Europe must continue, for labour and environmental reasons, but also because there are industrial strategies that are very valuable for LAC.
In relation to Covid-19 and the 2030 Agenda, ECLAC is the main promoter of the Escazú agreement, as access to information, justice and citizen participation in environmental matters is fundamental. It is the only international treaty that defends activists in their human rights and is very participatory in all negotiations. At this time, ECLAC is concerned that some countries are loosening environmental regulations in order to reactivate the economy or have an impact on extractivism after the pandemic. The next crisis will be the climate change crisis. It is a quieter emergency, but it will be much more decisive if we do not really achieve clearer cooperation in the world. The environment has shown us that the destruction of ecosystems is not the way out and is possibly the origin of the problems we have today. The origin of the COVID-19 pandemic is a zoonosis, which is an infectious virus that has spread from animals to humans, so we have to rethink what kind of world we want to live in and work towards too.
In turn, in the area of proposals for the economic revival of the region, Latin America and the Caribbean face great challenges to revive their economy. Regional cooperation is needed here. The participation of small and medium-sized enterprises and manufacturing is very important because these are the sectors that generate jobs. This can help address the big issue of unemployment and poverty. ECLAC has made the input-output matrix for all countries in the region, to see where the complementarities are and to reposition the region in industrial integration. In the future, there must be greater integration of production networks.
Regarding public transport, there is a need to consider how to achieve sustainability of public mobility in the era of pandemics. New protocols for transport will be developed and one interesting option is maritime transport. In this way, goods do not have to be transported by road and closed national borders pose fewer problems. ECLAC has analysed maritime transport and has published an observatory where there is a mapping of infrastructure in Latin America and the Caribbean. The digital market also plays an important role here. In Central America, the electronic market must be linked to the single digital market, because teleworking and tele-education will be more important in the future.
Konrad-Adenauer-Stiftung e.V.
By:
Marcee Gomez,
Project Coordinator. ADELA Regional Programme
Hannah Friedericks,
Intern, ADELA Regional Programme
