Economic recovery from the COVID-19 pandemic in Latin America and the Caribbean will be slower than the return to productivity following the subprime mortgage crisis more than a decade ago, the head of the UN’s office for the region, ECLAC, said on Tuesday.
Alicia Bárcena was speaking during a virtual press conference where she unveiled ECLAC’s latest report which outlines policy recommendations for addressing the economic effects of the pandemic.
It also stresses the importance of international cooperation, including through better distribution of global financial support.
#ECLAC launched today the #EconomicSurvey of Latin America and the Caribbean 2020, one of the main annual reports produced by this @UN regional body. Here are the Commission’s assessment and recommendations 👉https://t.co/CSUHvXHn7Q #COVID19 pic.twitter.com/q82r6vIjPx
— ECLAC (@eclac_un) October 6, 2020
Negative effects, lasting consequences
“The COVID-19 pandemic is having historic negative effects in economic, productive and social spheres, with lasting consequences and medium-term effects on growth and increased inequality, poverty and unemployment. That is why the process for economic activity (GDP) to return to its pre-crisis levels will be slower than what was observed during the subprime crisis (in 2007-2008)”, said Ms. Bárcena.
The Latin America and Caribbean region is experiencing its worst economic crisis in a century due to the pandemic, with Gross Domestic Product (GDP) estimated to contract by 9.1 per cent. By the end of the year, GDP will be at the same level as in 2010, translating to a 10-year setback and sharp increase in inequality and poverty.
Additionally, some 2.7 million businesses are forecast to close in 2020, while unemployment is set to reach 44 million, or 18 million more than last year. The number of poor people in the region is expected to reach 231 million: the same level as 2005, or a 15-year backslide.
Promoting growth, transformation
As a result, “active macroeconomic policies” will be needed to resume growth and to promote structural transformation, said Ms. Bárcena.
“Public revenue must be strengthened, conventional and non-conventional expansionary monetary policies must be maintained, and macroprudential regulation must be bolstered along with the regulation of capital flows to preserve macro-financial stability in the short and medium term”, she recommended, while also underlining the need for international cooperation.
Increase tax collection
While countries have made “diverse fiscal efforts” in the face of the pandemic, ECLAC said these measures – together with declining public revenue – have contributed to a bigger fiscal deficit and increased public debt. Therefore, the challenge now is for countries to maintain an active fiscal policy amid greater indebtedness.
The report recommends that this should be done through a framework of fiscal sustainability centred on revenue, and that tax collection must increase.
On average, the regional rate is currently 23.1 per cent of GDP, compared with 34.3 per cent among countries of the global Organization for Economic Cooperation and Development (OECD).
ECLAC called for governments to fight tax evasion and avoidance, consolidate individual and corporate income taxes, and to broaden taxes on wealth and property. Other measures suggested were establishing taxes on the digital economy and implementing corrective taxes, such as environmental levies or others related to public health.
Towards long-term sustainability
Ms. Bárcena stressed that active fiscal policy must link the short term, or emergency, with the medium and long term, in order to shift the development model towards transformation that is sustainable and equitable.
“Countries must orient public spending towards reactivation and economic transformation, strengthening public investment in sectors that foster employment, gender parity, social inclusion, productive transformation and an egalitarian transition towards environmental sustainability”, she stated.
On international cooperation, ECLAC proposed that multilateral credit institutions must expand their financing capacity and liquidity, including for the long term. the UN body also called for global and regional financial safety nets to be expanded to counteract volatility in finance flows during crises.
Last month, the Government of Costa Rica presented a proposal for a solidarity initiative known as the Fund to Alleviate COVID-19 Economics (FACE), which the UN regional commmision hailed as an example of a viable mechanism for greater cooperation