A Winding Road to Recovery for Latin America, Caribbean

February 12, 2021/IMF

An almost deserted square in Münster, Germany. A large second wave and new lockdowns are threatening the recovery in Europe. (photo: Rolf Vennenbernd dpa picture alliance Newscom). Image Credit: IMF

A WINDING ROAD TO RECOVERY FOR LATIN AMERICA, CARIBBEAN

Latin America and Caribbean economies face a resurging virus that threatens to thwart an uneven recovery, increase COVID-19 cases and deaths, and plunge more people into poverty, Alejandro Werner, the director of the IMF’s Western Hemisphere Department, writes in a blog with the IMF’s Anna Ivanova and Takuji Komatsuzaki.

The IMF revised its regional 2021 growth forecast upwards to 4.1 percent (from 3.6 percent in October), based on the stronger than expected performance in 2020, an expectation of expanding vaccination efforts, better growth outlook for the United States, and higher prices of some commodities. But the region faces strong headwinds as more countries reintroduce strict containment measures.

A slow recovery: The region is forecasted to go back to its pre-pandemic levels of output only in 2023, and GDP per capita in 2025, later than other parts of the world. The crisis had a disproportionately large impact on employment with losses concentrated among women, young, informal and less educated workers—with consequences for social indicators.

The way forward: Countries should continue to prioritize spending on healthcare, including vaccination and testing. Support for vulnerable sectors most affected by the pandemic should continue as well. Removing too much support too early could jeopardize what is already an uncertain recovery.

The pandemic hit Latin America and Caribbean harder because of its many inherent structural fragilities (for example, more people working in sectors that require close proximity and less in which teleworking is feasible). The region has paid a high toll in terms of infections and deaths relative to its population. The IMF has been supporting Latin America and the Caribbean with policy advice, technical assistance and financing, providing over $66 billion to 21 countries, including contingency lines. This amounts to over two thirds of the emergency liquidity support the IMF extended globally.

Watch the press briefing about the latest regional economic outlook update for Latin America and the Caribbean here

You can also listen to Werner discuss the outlook for the region in an event with the Americas Society/Council of the Americas.

AVERTING A DIVERGENCE DISASTER

The world must do everything in its power to reverse a dangerous and ever-widening gap that has emerged between rich and poor countries as a result of the pandemic, IMF Managing Director Kristalina Georgieva stressed during a recent media roundtable.

“We must do everything in our power to reverse this dangerous divergence—especially because some parts of the world are moving to the new climate and digital economy, and large parts will be left behind in getting there. This is a major risk and potential historic missed opportunity!” she said in remarks at the press event.

The distribution of fiscal support measures and now vaccines is dramatically different across countries. As the United States ramps up vaccines to end the health crisis, only a handful of African nations have launched vaccination campaigns.

The depth of divergence: Even though the IMF has forecasted 5.5 percent growth for the world in 2021, 150 economies are not going to reach their pre-pandemic level this year. There will still be 110 economies that won’t reach their pre-pandemic level in 2022. About 50 percent of emerging markets and developing economies that were converging towards advanced economies per capita income over the last decade are expected to diverge over the 2020–2022 period, the MD highlighted.

“You can call it the lost decade. It may be a lost generation,” she warned.

Three ‘R’s: The MD laid out three key priorities: winning the race between a mutating virus and vaccines, boosting the resolve of policymakers to continue support until the recovery is durably underway, and revitalizing international cooperation when it comes to easing the debt burden on emerging markets and low-income countries.

“One thing is clear: future generations will not look kindly on those who underestimate the dangerous divergence facing us today,” she said.

A consequential year: Speaking at the Warwick Economic Summit to about 2000 students from 60 countries, IMF Deputy Managing Director Antoinette Sayeh reiterated the MD’s key message on divergence.

“2021 can be the most consequential year of our lifetimes,” she said. “If we can come together and sow the right policy seeds today, we can exit the crisis with minimal scarring and build the foundation of a 21st century economy.”

UPDATE ON GLOBAL OUTLOOK

IMF Chief Economist Gita Gopinath spoke this week with students at the American University Cairo, where she discussed the key findings of the recent World Economic Outlook Update, the race between the virus and vaccines, policy response, growing inequality between and within countries, green and digital recovery, and how to achieve a job-rich recovery especially for youth.  

Watch the event here.

NIGERIA AT A CRITICAL JUNCTURE

Nigeria–Africa’s largest economy–faces a challenging recovery as it entered the pandemic already with falling per capita income, high inflation, and governance challenges. However, certain policy adjustments and reforms can help set the country on a more sustainable path to recovery, the IMF’s Ari Aisen, Jesmin Rahman, and Jiaxiong Yao write in a recent Country Focus article.

Moving toward a unified exchange rate, taking measures to raise more revenue in the near- and medium-term, and diversifying the economy toward more export-oriented and less oil-dependence could help the economy emerge from the crisis stronger. The policy advice came after the IMF concluded its regular economic assessment of the country, known as an Article IV consultation.

E-GOVERNMENT’S IMPACT

The ability to renew a driver’s license or passport, pay a tax bill, or easily access government data easily online can lead to a more efficient and transparent government. New IMF staff research shows that “e-government” sources can actually make an economy more attractive to foreign investors.

In a new IMFBlog, a review of foreign direct investment inflows in 178 host countries over a period of roughly 16 years finds that the presence of e-government services appears to stimulate the inflow of foreign direct investment. Specifically, countries that implement and adopt strong information and communication technologies, regardless of their level of development, are found to attract more inflows compared to countries with weaker internet access, the IMF’s Ali Al-Sadiq writes in the blog.

Want to find out more? Read the full blog here.

CURBING CORRUPTION

How can strong governance of economic institutions curb corruption? What reforms can be undertaken to promote inclusive growth and ensure government spending is reaching those who need it? And what is the role of digitalization in facilitating these efforts?

Listen to Zeine Zeidane, deputy director of the IMF’s Middle East and Central Asia Department, and Qazaq TV host Lyazzat Shatayeva discuss these issues and how fighting corruption can help shape a successful post-pandemic recovery.

Watch the 40-minute event here.

Mark your calendar: IMF Middle East and Central Asia Department Director Jihad Azour will discuss the outlook for the region at two virtual events next week. The first hosted by the Wilson Center will take place on Feb. 16 at 10 a.m. EST. A second event hosted by the Carnegie Middle East Center on Feb. 18 at 8 a.m. EST will also discuss where the region’s economy is headed.

PODCAST: FEMINIST ACTIVISM TO CLOSE THE GENDER GAP

Global disparities between women and men have narrowed over the twentieth century but despite the strong evidence of the benefits of closing the gender gap, progress has been slow in many parts of the world.

Alice Evans, a lecturer at King’s College London, has studied women movements across the globe and written extensively on the topic. She was invited by the IMF Africa Department to talk about how feminist activism helps women overcome barriers to greater economic autonomy and is key to achieving gender equality. In this podcast, Evans says feminist activism thrives in societies with female mobility, economic development, and labor-intensive growth.

Listen to the full podcast here.

DISTRIBUTION MATTERS 

Economics can’t avoid distributional issues—it must make room for insights from other disciplines, Binyamin Applebaum writes in our latest issue of F&D on the future of work and opportunity.

“Just as economists learned to incorporate the growth of knowledge into their understanding of the world, just as they have—for the most part—accepted the need to wrestle with the imperfections of financial markets, so too they now are grappling in earnest with the complexities of distributional questions,” he writes.

Applebaum goes on to describe how doubts about the importance of distributional issues have come at the expense of minorities, in particular.

Read the full piece here or download the PDF.

IMF AROUND THE WORLD

The IMF Executive Board this week concluded an economic assessment or Article IV consultation with Russia, where directors called on the authorities to stand ready to extend support if needed. Click here to read the transcript of Russia’s Article IV press briefing.

During a similar consultation with Iraq this week, directors emphasized the importance of reducing fiscal imbalances.

In addition to announcing the conclusion of its Article IV consultation with Nigeria, the board also announced the conclusion of its consultation with Poland. The board on Friday is scheduled to meet for Article IV consultations for Indonesia, Paraguay, and Kosovo.

IMF staff concluded a virtual staff visit to Barbados this week where the pandemic continues to have a major impact on the island nation’s economy. 

IMF LENDING

Check out our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19. We are also regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.

To date, 80 countries have been approved for emergency financing, totaling over US$32 billion. Looking for our Q&A about the IMF’s response to COVID-19? Click here. We are also continually producing a special series of notes—more than 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more.

FINAL THOUGHT

Thank you again very much for your interest in the Weekend Read. We really appreciate your time. If you have any questions, comments or feedback of any kind, please do write me a note.

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