23 Jun Latin America Overview: COVID Impact
Latin America has emerged as one of the most uniquely challenged regions in the face of the emergence of COVID-19. As countries across the region prepare to reopen, the World Health Organization (WHO) has warned that the virus has not even reached the peak of its growth curve. In addition, the inability of leaders in the region’s two largest nations to curtail the virus has created even more cause for worry. As Latin America becomes the new epicenter of the coronavirus, inequality and corruption threaten to worsen the region’s social ills.
The region’s largely commodities-based economies are less insulated from shocks in global demand. The precipitous drop in petroleum prices has led OPEC to mandate a decrease in production in order to weaken the economic blow. Nonetheless, major regional oil exporters such as Venezuela, Brazil, Mexico and Colombia have seen a sharp drop in export revenues and foreign investment. Beyond the energy sector, Latin America has certainly felt the impact of cratering economies around the world. This is especially serious in a region where millions depend on remittances from relatives working abroad. Remittances are crucial not only to the survival of impoverished families, but to the economies of nations across Central and South America. For example, remittances made up 22% of Honduras’s GDP in 2019. In addition, millions of workers across Latin America are part of the region’s massive informal economy. This has made the distribution of monetary aid more difficult in the region with the second highest rate of income inequality in the world (after sub-Saharan Africa). The precarity of the sources of income of the majority of Latin American families has made the economic fallout even more severe. Meanwhile, political scandals are forming across the region as public officials are accused of improperly handling coronavirus aid through conduct such as fraudulent purchases of medical equipment. Shockingly, 14 of Colombia’s 32 regional governors are currently under investigation for corrupt practices during the crisis, while Bolivia’s health minister was arrested last month. As the spread of the virus skyrockets, some of Latin America’s leaders have failed to meet the moment. Unfortunately, regional analysts have been hard-pressed to find reasons for optimism for the remainder of 2020. The following is a brief analysis of the outlook of the region’s major economies during these challenging times.
Brazil has seen its number of confirmed coronavirus cases skyrocket to over half a million, as the country was vaulted into the unenviable position of having the second largest number of cases and deaths in the world (only behind the United States). Experts have blamed the response of president Jair Bolsonaro, who has denied the gravity of the virus and attempted to prevent state and local leaders from implementing lockdown measures, for the massive outbreak of coronavirus in Latin America’s largest country. As pro- and anti-Bolsonaro protests rock Brazil’s streets, he has continued to foster division and even marched with anti-lockdown protestors in Brasilia. The country’s splintered coronavirus response has been left to state governors, such as João Doria of Sao Paulo and Wilson Witzel of Rio de Janeiro. Both have become frequent targets of Bolsonaro for their attempts to implement quarantine measures in Brazil’s most populous regions. Across Brazil, states have begun a gradual phasing-out of these measures, with many entering Phase 1 of reopening earlier this month. This comes in spite of an infection rate that is still rapidly rising, which has prompted the WHO to urge Brazil to hold off on reopening. The push to reopen comes as Brazil’s economy suffers from the effects of COVID-19. Economy minister Paulo Guedes has predicted a contraction of 4.7%, which would be the Brazilian economy’s worst performance in over a century. Investors and analysts are even less optimistic than the government, with some predicting contractions as large as 7.7%. One of the most impacted sectors of the economy has been the meatpacking industry concentrated in the states of Rio Grande do Sul and Santa Catarina. Meatpacking plants have become some of the most serious hotspots for the virus. The severity of Brazil’s outbreak has led US president Donald Trump, who himself has been criticized for a lackluster response to the virus, to impose wide-ranging restrictions on travel from Brazil. Brazil’s woes have been exacerbated by the lack of any semblance of a coordinated healthcare or economic policy to address the virus. As of now, there does not seem to be a clear solution in sight for the region’s largest economy.
Despite implementing lockdown measures early on, Peru has become one of the hardest hit nations in Latin America as COVID-19 ravages the country’s most impoverished communities. The increasingly dire situation in Peru is reflective of the explosion of the coronavirus across Latin America, where a dangerous mix of chronic underlying social conditions, economic inequality, and overcrowded urban populations have made the spread of the virus inevitable. Originally brought to the region by wealthy citizens travelling or studying abroad, the virus now disproportionately impacts low-income communities with less access to healthcare. In addition, about 70% of Peruvians work in the informal economy, making quarantine nearly impossible. Decades of insufficient investment in the country’s health system have caught up to the administration of embattled president Martín Vizcarra, who must now grapple with the second-highest per capita rate of daily new infections worldwide. The government has had many missteps in its coronavirus response, such as when the poorly planned distribution of relief checks (in a country with a low penetration of banking services among adults) led to overcrowding at banks across the country as people were forced to collect the funds in-person. Vizcarra has extended national lockdown measures until June 30th and police have arrested thousands of citizens for breaking quarantine as authorities struggle to contain the virus. The Peruvian economy, one of Latin America’s most notable success stories, continues to deal with the consequences of the coronavirus. April saw a 40.49% drop in economic activity compared to 2019, as mining executives predict a 15% drop in output for 2020. As the country comes dangerously close to maxing out its ICU capacity with case numbers showing no signs of slowing down, Peru’s future has become increasingly uncertain.
After seeing a sudden uptick in coronavirus cases in May, the Colombian government has announced plans to begin the gradual reopening of the country. President Iván Duque has announced that the country will begin to emerge from quarantine during June, starting with non-coronavirus health care procedures and retail. However, large events and travel, for example, will continue to be prohibited for the foreseeable future. The country’s capital, Bogotá, as well as the cities of Cali and Cartagena (the epicenters of the pandemic in Colombia) will not see any easing of lockdown measures. The Colombian government has provisionally suspended domestic and international travel through August 31st, which has severely impacted the country’s airline industry. Avianca, the largest carrier in Colombia and the third largest in Latin America, announced it has entered Chapter 11 bankruptcy protection proceedings. It is unclear whether the Colombian government will step in and rescue Avianca, as the German government has done with Lufthansa Airline Group. Meanwhile, Colombian authorities have announced that they expect a contraction of at least 5% for 2020. The surge in unemployment caused by the virus has also caused migration difficulties for the Duque administration, as thousands of recently unemployed Venezuelan migrants attempt to return to their country. As of May 12, over 52,000 Venezuelans had returned. It is unclear if the government of Nicolás Maduro has the capacity to handle this sudden influx, and its failure to do so could further compound Colombia’s woes. Though Colombia’s reopening has begun, the ongoing suspension of several major cities and key sectors of the economy does not bode well for the country.
On the back of a series of anti-government protests earlier this year, a surge in coronavirus cases poses yet another challenge to the administration of president Sebastián Piñera. The economic toll of the virus has sent shockwaves through the economy as the Minister for Economy, Development, and Tourism, Lucas Palacios, predicted a “very significant drop” in the Chilean economy. The country’s national carrier (which also happens to be the largest airline in Latin America), LATAM Airlines, has filed for Chapter 11 bankruptcy. LATAM’s operations in Chile, Colombia, Peru, Ecuador, and the United States will be included in the restructuring process, while operations in Brazil (the airline’s most profitable division), Argentina, and Paraguay will be excluded. Amid the collapse in economic activity, the International Monetary Fund (IMF) announced the approval of a $24 billion credit line for Chile. In addition, the government has reached a deal with opposition lawmakers on a new, $12 billion stimulus package which includes, among other measures, the bolstering of monetary relief for poor and unemployed citizens as well as a decrease in taxes for small and medium-sized corporations. The Piñera administration hopes these developments will help Chile weather the storm caused by the precipitous drop in global economic activity caused by COVID-19. Meanwhile, the spread of the virus among Chileans shows no signs of slowing down, with Chile already having the third highest per capita number of cases worldwide.
In spite of being one of the few Latin American countries to successfully contain the coronavirus pandemic, Argentina has been unable to escape its economic consequences. The Argentine government found itself forced to default on its debt payments after failing to meet a May 22nd deadline. The government has extended the deadline for negotiations with creditors three times since the default announcement, first until June 2nd, subsequently until June 12th, and once again until June 19th. Negotiations failed to meet each of these deadlines, and the government has imposed a final deadline of July 24th for investors to agree to its proposal. This is now the 8th time in its history that Argentina, a nation with a history of struggling to repay bondholders, has defaulted on its debt. Economy minister Martín Guzmán had announced the country’s intention to improve the current restructuring offer, which had already received the approval of the IMF, due to objections raised by some investors. This will become a significant test for the administration of recently elected president Alberto Fernández, who during his campaign promised to find a sustainable solution to Argentina’s debt issue while avoiding the mistakes made by his predecessor, Mauricio Macri. Failure to renegotiate debt payments could even further derail the country’s already struggling economy, with the IMF already predicting a 6% contraction for 2020. The Inter American Development Bank announced it had approved a loan of approximately $1.8 billion to the Argentine economy, which will be used to ensure wider access to healthcare as the country (with the exception of Buenos Aires) prepares to reopen and jumpstart economic activity. In a bid to prevent job losses and maintain the output of Argentina’s prominent soy industry, Fernández decreed a controversial state takeover of soy crushing giant Vicentin, which had previously defaulted on its debt payments at the end of 2019. Meanwhile, a political scandal has begun brewing as prosecutors have announced their intentions to commence a corruption investigation against Macri due to allegations of illegal surveillance and campaign finance violations, among other purported crimes. As of now, Argentina’s future continues to be very uncertain, a trait the country has unfortunately become known for in the past few years.
As the pandemic wages on, Mexico has been one of the hardest-hit countries in Latin America, with nearly 100,000 confirmed cases. Nonetheless, president Andrés Manuel López Obrador, also known as AMLO, has pushed ahead with plans to restart his country’s economy. The Mexican manufacturing sector, a significant contributor to Mexico’s economy that is closely intertwined with that of the United States, has suffered from the American stay-at-home orders. AMLO’s administration has predicted that up to a million jobs could be lost. To make matters worse, COVID-19 struck while the Mexcan economy was already in a recession. This is perhaps why the government has continued its push to reopen the country despite a steady rise in confirmed case numbers. AMLO’s coronavirus response has seen the populist leader depart from his leftist politics as he cuts public spending and invests heavily in fossil fuels while rejecting the implementation of widespread lockdown orders. He has also hesitated to implement economic stimulus plans, a strategy employed by governments around the world. His economic reactivation strategy largely centers around the construction of a new oil refinery and the reactivation of key infrastructure projects such as the Tren Maya in the Yucatán Peninsula. It remains to be seen whether Mexico’s unorthodox approach to the pandemic will be successful. The true impact of coronavirus in Mexico will be hard to track, as the country has so far only tested 250,000 people out of a population of over 120 million. Economic reactivation could be boosted by a smaller-than-expected decrease in remittances, with the amount of money sent by migrants to relatives in Mexico dropping by only 2.6% (compared to a 40% decrease in remittances to El Salvador, for example). Nonetheless, Mexico’s central bank predicts that the economy could contract by up to 8.8%. To counter the economic fallout and boost recovery efforts, the Mexican government has taken out a loan of $1 billion from the World Bank.
Puerto Rico’s economic woes seem set to continue through 2020, as the island’s economy reels from the impact of the coronavirus pandemic. Though pre-virus economic indicators predicted a second consecutive year of growth, COVID-19 has sent the Puerto Rican economy into even further disarray. Puerto Rico seems to have been able to manage the health crisis relatively well by instituting one of the strictest lockdown orders in the United States. Nonetheless, Puerto Rico’s fortunes are closely tied to those of the mainland, which itself is reeling from months-long stay-at-home orders. Tourism, one of the central drivers of the island’s economy, has been one of the most profoundly impacted industries, and it remains to be seen what the future of travel will look like in the aftermath of the coronavirus. Federal officials have begun to react as Puerto Rico’s already struggling economy is battered even further. Puerto Rico’s Financial Oversight and Management Board, established under the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa), has agreed to postpone debt payments and austerity measures originally scheduled for 2021 by one year. Meanwhile, Democratic members of the US House of Representatives, led by Rep. Raúl Grijalva, have proposed further changes to Promesa’s strict austerity program. Puerto Rico has also received over $2 billion from the US Coronavirus Relief Fund. Puerto Ricans have also found themselves in the potential beginning of yet another political scandal due to Governor Wanda Vásquez’s approval of a contentious overhaul to the island’s Civil Code, which has raised questions about its rushed approval process and lack of protections for the LGBTQ+ community. Having already felt the brunt of a series of natural disasters, Puerto Rico’s situation could be made even more precarious by the upcoming Atlantic Hurricane season, which researchers predict will see above-average activity.
The spread of coronavirus has been a catalyst for the exposure of serious underlying issues in Latin America. Here, the spread of the virus has been a tale of inequality and political mishandling of the crisis. Only a small part of the overall population has access to quality healthcare and can afford to take time off from work, not to mention even maintain basic social distancing measures. All the while, leaders have taken advantage of the situation to advance their own personal agendas. As the rest of the world attempts to proceed towards the light at the end of the tunnel, analysts are hopeful that renewed economic activity can set regional economies on the right track. That being said, the worst is yet to come for Latin America as the devastation caused by COVID-19 shows no signs of slowing down.