From three-month suspensions on loan repayments and utility payments in El Salvador to putting cash in the hands of laid-off Jamaican hotel workers, Latin American and Caribbean nations are unveiling financial aid packages to help stave off the economic crisis created by the coronavirus.
But the bailouts – like the drastic sanitary and confinement measures being imposed by countries to try to stop the spread of COVID-19, the respiratory disease caused by the virus — come with a cost. And no one can say if they will be enough.
“This is going to take a big and huge economic toll on our country,” El Salvador Foreign Minister Alexandra Hill said Monday during a video conference call sponsored by the Atlantic Council on Latin America’s response to the pandemic.
Joining Hill were the ambassadors of Chile, Colombia and Costa Rica to the United States, whose countries have announced increased public health spending, tax relief for small businesses and payment moratoriums — all in the hope of cushioning the financial impact of their decisions to close restaurants, seal borders and order weeks-long, or in the case of El Salvador, a month-long, quarantine of citizens.
Even before Salvadoran President Nayib Bukele ordered a 30-day quarantine of the country’s 6.4 million people beginning March 22, small and medium-sized businesses in the impoverished Central American nation were already feeling the virus’ impact on their balance sheets.
Weeks before his country registered its first positive COVID-19 infection, Bukele closed the airport to international flights, sent home all nonessential public employees for 30 days and ordered private companies to send all employees who are 60 and older, pregnant or with underlying health conditions, home on paid time off for a month.
Last week, Bukele’s economic advisers proposed to help those affected by the extreme measures. Among their proposal: a three-month hold on all mortgage, credit cards and loan payments, as well as suspension of rent and payments for three months on basic services such as electricity, water and internet for those affected by the lockdown.
On Thursday, the Congress agreed to authorize the issuance of up to $2 billion in bonds, loans or a combination of both,“to finance the health emergency, recovery and economic reconstruction fund for COVID-19.”
“President Bukele has said we will recover from this; we can recover from this. But we cannot afford to lose our population,” Hill said. The country so far has 13 cases with no deaths.
On the same day of El Salvador’s vote, Panamanian lawmakers also agreed to dip into government reserves and issue bonds to fund a $2.5 billion COVID-19 stimulus response package.
With the coronavirus crisis worsening in the region and new infections threatening to overwhelm public health systems, Latin American and Caribbean governments are facing more than just rising death tolls. They are facing an economic unknown that some experts say could be worse than the 2008-2009 global financial crisis.
“This is a really complex crisis to respond to because we do not know how long it’s going to last,” Santiago Levy, a non-resident senior fellow at the Brookings Institution said during a recent Inter-American Dialogue talk on COVID-19’s consequences for regional economies. “We don’t understand the epidemiology of the virus and we don’t understand whether it’s going to be a shutdown of three months, and then we go back to ‘normal’ or is it going to be a shutdown of six months and then we go back to ‘normal.’ How long does it take for normalcy to return?
“This makes it very difficult for policy makers because they don’t know what they should be preparing for,” he added. “So the shock is unmeasurable at this point.”
But Latin America and Caribbean policy makers are trying.
Latin America’s financial bailouts
In Costa Rica, where the government has so far managed to avoid a complete shutdown and continues to allow restaurants to remain open but only seat 50 percent of capacity, it’s become a delicate balance between protecting jobs and protecting those who are vulnerable to the highly contagious flu-like virus.
In Chile, where 1,142 infections and three deaths have been registered as of Wednesday, the government has introduced tax deferrals for small businesses, and is protecting workers’ contracts while also providing unemployment benefits.
President Sebastián Piñera’s administration also has expanded the number of hospital beds from 37,000 to 42,000, opened the first of five new hospitals, deployed a hospital ship along the coast and taken over hotels to quarantine infected people, said Chilean Ambassador Alfonso Silva.
“The president has provided a package of $11.8 billion to address the issue,” Silva said.
In Colombia, the government has proposed taking $3 billion out of the oil companies and $700 million out of the pension fund to underwrite programs to support laid-off workers and those with reduced wages.
“Will that be enough?” said Colombia’s ambassador to the United States, Francisco Santos. “I don’t know because as I talked to one member of the Central Bank [Sunday], he said to me ‘We are facing something without precedent in economic terms.’”
President Iván Duque recently announced a three-week quarantine for the entire country, and until May 30 for those age 70 and older. He has also suspended all international flights and is considering doing the same with domestic flights.
Santos said agreements have also been reached with the banks to provide relief to small and medium-sized enterprises, “which are the ones that are going to suffer the most.”
“They talk about unemployment in terms of 30 percent in the U.S. What will that do to our economy?” he said. “We know the recovery is going to be quick afterward but the impact is going to be quite dramatic.”
Growth was already slow before the coronavirus
Before the first patient tested positive for the coronavirus, the regionwide GDP was projected to grow by about 1.3 percent, with some fast-growing economies like the Dominican Republic projected to see an even higher growth rate of 4.7 percent, according to the U.N. Economic Commission for Latin America and the Caribbean.
The U.N. is now revising its growth projections downward while estimating that the number of people living in poverty in the region will spike from 185 million to 220 million, and those in extreme poverty from 67 million to 90 million people.
“That is something we should be very, very worried about because these are the people that are going to be suffering the most, and the degree of inequality is something that is very concerning in our region,” said Alicia Bárcena, executive secretary of the U.N. commission, recalling last year’s social unrest in Colombia and Chile over inequality and the lack of social mobility.
The countries that are most vulnerable are those in the Caribbean, where some economies are projected to shrink between 8 percent and 25 percent.
While for most Latin American economies the shock from the virus will come from China’s diminished role as an exporter of goods as it deals with the fallout of COVID-19, for the Caribbean, the culprit is the travel restrictions.
Jamaica’s response
This has not been lost on tourism-dependent Jamaica, which this finally suspended incoming passengers’ flights as its cases ticked up to 26 and the country inched closer to community spread.
“We cannot say with any degree of certainty when normality will resume, as it depends on factors beyond our control,” Jamaica Finance Minister Nigel Clarke said during a debate Tuesday in Parliament over the country’s budget. “We cannot see return to normality until after the United States and Europe have flattened their curves and until after the world knows much more about this coronavirus.”
Clarke said the country, which was seeing a booming turnaround of its indebted economy, is looking at three months of almost zero occupancy in its hotels and at least two weeks of the airport being shuttered.
Still, the government has proposed a stimulus package aimed at helping the thousands of Jamaican workers and tourism operators who have taken a hit because of COVID-19. These included temporary grants for workers who earned $11,000 taxable income or less and have been laid off or terminated since March 10, the day of the first registered case. Also, in the package is help for small businesses and farmers, and student loans.
To finance the relief, Clarke said the government will be reallocating expenditure in the budget, and delaying some activities.
“While we have done scenario analyses on the economic impact of the COVID-19 pandemic at various levels of intensity, it is too early to forecast what is likely,” Clarke said. But one thing is clear, he said: “Jamaica is in for a massive negative economic shock, which has already begun…. We need to be prepared for the worst.”
World Bank and other lenders can help
Eric LeCompte, who leads the development group Jubilee USA and serves on United Nations debt expert groups, said there is a way that countries like Jamaica can be helped. Lenders like the World Bank and International Monetary Fund need to expand debt relief to all countries.
“It should not only be for the poorest countries but Caribbean countries and Latin America countries should be able to qualify for that expanded debt relief. That’s what we’re pushing,” LeCompte said. “Countries need to prioritize fighting COVID-19 and billions can be freed up right away by halting debt payments.”
LeCompte said the IMF and the World Bank are calling on wealthy nations to allow for debt payment moratoriums. But most countries in the Caribbean, despite being among the world’s highly indebted, do not qualify for such moratoriums or lower-interest loans because they are considered to be middle-income countries. But they should qualify, he said.
“We have more than 11 Caribbean economies that are facing debt distress. Across the Caribbean youth unemployment is high on almost every island; we have poverty rates that range between 20 and 45 percent in many of the small islands,” LeCompte said. “Even if the coronavirus doesn’t lead to the type of major financial crisis, or even depression some economists are forecasting, no matter what, the Caribbean will be one of the worst impacted areas by even short-term economic shocks.” (https://www.miamiherald.com/news/nation-world/world/americas/haiti/article241525961.html)
