Latin America Juggles Crises
Latin American economies face the risk of a new collapse due to the spread of coronavirus and a drop in oil prices, following the dispute between Russia and Saudi Arabia. The combination of these two incidents is a harmful cocktail for Latin American countries, especially for those economies dependent on fossil fuel revenues such as Venezuela and Ecuador. Argentina and Mexico, meanwhile, also face negative outlooks as their economies and energy industries deteriorate. Tough times are ahead for Latin America.
These crises, however, have not granted any respite for countries such as Chile, Ecuador, and Bolivia which were recently weakened by the wave of protests that swept through the region late last year. A constitutional referendum in Chile and presidential elections in Bolivia have now become secondary as the disease ravages through both of their country’s. Brazil, for its part, will probably be facing another year of budget deficits, while Argentina navigates through the turbulent tides of debt renegotiation while trying to keep its economy afloat. The crises have unveiled the vulnerability of Latin America’s political, social, and economic situation.
Most governments across the region have prioritized the well being of their citizens, imposing strict quarantines and lockdowns. This, as a result, will further stagnate the economies and will bring some industries to a halt. Others such as Brazil and Mexico, however, have tacitly decided to protect their economies over human life. Brazilian President Jair Bolsonaro underplayed the impact of the disease, though local authorities criticized and dismissed the opinion of the head of state and have implemented their own measures to prevent the spread of the pandemic. In Mexico, the president asked citizens a few days ago to continue on with their lives normally, a move that opposes strategies taken by other countries in the region and the world.
Latin American economies, however, will face several setbacks, even after the pandemic has run its course, as lockdowns and oil prices have taken their toll.
Looking for some hope
Meanwhile, Ecuador, Argentina, and Venezuela will experience tough times. Quito is currently submerged in economic headwinds as the government deals with more than 1,500 coronavirus cases, debt payments, and possible default. With hundreds of millions of dollars to pay and a depreciated price of oil, one of the country’s main exports, Ecuador’s outlook for this year looks grim. Now, the government of Lenin Moreno is appealing to international organizations for another loan of $2 billion to deal with the pandemic.
For its part, Argentina will continue to renegotiate its mounting debt, though the country will for now focus on tackling the pandemic. With two consecutive years of GDP contractions and poverty rates reaching 35%, Alberto Fernández’s greatest challenge consists of containing the economic and social effects of the coronavirus across Argentina’s poorest communities. This, nevertheless, could be a ticking bomb that the Peronist administration will try to defuse, especially because the national healthcare system will not be able to handle the expansion of the disease. Developing programs to aid the poor during this time will be key for Fernández to keep the situation from simmering, yet the president has repeatedly highlighted that the health of Argentinians will be above the economy.
On the other hand, Brazil is also facing a complicated outlook. The political tension has escalated as Bolsonaro dismisses the risks of the pandemic, creating a standoff between the executive against governors, his own health minister, and the opposition. The virus, meanwhile, is spreading across the country with more than 3,000 cases, though the president has been pushing for maintaining economic activity with a campaign called “Brazil doesn’t stop.” It remains to be seen if the country’s healthcare system sustains the pressure as confirmed cases continue to climb.
Finally, Venezuela could face gale headwinds if the spread of coronavirus gets out of the government’s hands, while Caracas is hit with further sanctions. The South American country has so far implemented strict lockdowns to control the pandemic, though the decision might also be motivated by the precarious status of the country’s healthcare system. Also, the country faces major economic setbacks as the collapse of oil prices have continued to hit the worsening energy industry. Despite the partial dollarization efforts, Venezuela’s already battered economy will be hit. Only time will tell, however, how long Venezuelans, especially those from the lower socio-economic classes, can remain in lockdown considering the extremely low income they receive in this South American country.
The global crisis seems to be affecting Latin American countries in a domino effect, with countries succumbing one by one to the negative economic outlook of the oil price war and the pandemic. Yet, the worst is probably yet to come, as the number of positive cases continues to climb and Russia and Saudi Arabia have so far been unable to reach a new oil agreement. Some countries in the region have taken strong and decisive efforts to prevent the spread of the disease with quarantines, yet we still have to see the final outcome of the current crisis.
Beyond the regional efforts, the coronavirus crisis will have a relevant effect on national coffers. ECLAC estimates that the GDP will drop 1.8% in the next two quarters and the unemployment rate will rise significantly across the region. Consequently, the fall in income levels will mean an increase in poverty from around 68 to 90 million people across the region. These negative figures place the region in what appears to be a situation akin to economic war.