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Alicia Bárcena, ECLAC's Executive Secretary, during her presentation in an Inter-American Dialogue Conference Call on the Coronavirus and its Consequences for Latin American & Caribbean Economies. (Photo: ECLAC)

Rethinking the global economy in a time of coronavirus

Alicia Bárcena, ECLAC's Executive Secretary, during her presentation in an Inter-American Dialogue Conference Call on the Coronavirus and its Consequences for Latin American & Caribbean Economies. (Photo: ECLAC)

ECLAC secretary calls for cooperation, integration and multilateralism

Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) Alicia Bárcena believes the Coronavirus (COVID-19) pandemic will far more devastating effects on the global economy than those felt during the 2008-2009 global financial crisis.

While participating in an Inter-American Dialogue Conference Call on the Coronavirus and its Consequences for Latin American & Caribbean Economies (LAC) last week Thursday, March 19, she said the COVID-19 crisis will go down in history as one of the worst the world has endured.

“We need to rethink everything, the entire economy. We need a new vision to focus ourselves on how to cope with the extremely difficult scenario that lies before us,” Bárcena urged during the call with moderator Michael Shifter, president of the Inter-American Dialogue, headquartered in Washington, DC, USA. Santiago Levy, a senior economist from the Brookings Institution, was the other panellist on the call.

Bárcena added that LAC countries will not escape the effects of the pandemic since they will experience them through numerous channels.

Commodities and stock markets

“Latin America and the Caribbean, as well as other developing regions, will be negatively affected,” the ECLAC chief stated. “Part of these effects are reflected in the decline in the stock market indices in the region.”

She further explained that investors will seek to avert major risks associated worsening of global financial conditions. Even worse, slowing demand will affect commodities-exporting countries in the LAC.

Company trading price movements are displayed on digital screens hanging inside the Euronext NV Paris stock exchange in the La Defense business district of Paris on February 28, 2020. (Photo: Cyril Marcilhacy/Bloomberg)

To counter these impacts, Bárcena pointed to measures taken by governments in the region to counteract the downside economic effects of the pandemic.

Governments are also taking economic, fiscal and monetary measures that involve increasing social spending, lowering interest rates, intervening in foreign exchange markets, suspending bank credit fees, providing lines of credit for the payment of company payrolls, freezing the reconnection fee for households that fail to pay their water bills, and actions to avoid depleted stocks of basic goods, among others, ECLAC noted.

Protecting the most vulnerable

However, the executive secretary underscored the importance of protecting the most vulnerable groups from the crisis, particularly the elderly, lower-income sectors and the poor.

“The degree of inequality is also important in assessing the extent to which the crisis will impact on the most vulnerable groups of society. The more unequal a country is, the more vulnerable groups will bear the burden of the economic impact of the pandemic and the fewer resources they will have to fight the pandemic. Special attention must be paid to women for their dual role as workers and caretakers,” she said.

Revising the regional outlook

Moreover, Bárcena emphasised that in addition to the virus endangering essential global public good and human health, it exacerbates an already weakened global economy, both from the supply and demand side, due to the disruption in supply chains. As such both companies and employees suffer the loss of income and profitability, and can also result in higher unemployment and greater difficulties to pay debt service obligations.

With this in mind, the ECLAC head said that it has significantly revised growth forecast for the region, which in December 2019 stood at 1.3 per cent for calendar year 2020.

“No country will be able to fight this pandemic without global and regional cooperation. At the end of the day, what we really need to consider is what will happen to multilateralism. There must be more integration.

— Alicia Bárcena, executive secretary, Economic Commission for Latin America and the Caribbean

ECLAC has, therefore, estimated a contraction of -1.8 per cent in the region’s gross domestic product (GDP), which could lead to unemployment in the region rising by 10 percentage points. In addition, this could lead to the number of poor in the region rising from 185 million to 220 million people, out of 620 million inhabitants in total; and the quantity of people living in extreme poverty could increase from 67.4 million to 90 million.

“No country will be able to fight this pandemic without global and regional cooperation. At the end of the day, what we really need to consider is what will happen to multilateralism. There must be more integration. Without a doubt, we must move towards greater coordination, and the policy priority must be how to address the current social and health crisis,” Barcena underscored.

Trade and tourism

The disruption in supply chains, according to Barcena, will also lead to a slowdown in manufacturing in countries including Mexico, Brazil, Peru, and Chile. With China and the US as major trading partners, this will dent exports, which ECLAC predicts will fall by as much as 10.7 per cent.

Check-in counters are seen at Hong Kong International Airport in Hong Kong, China, on Monday, Feb. 17, 2020. Preliminary visitor arrivals data for February show average daily traffic to the city plummeted to fewer than 3,000 people, according to the Hong Kong Tourism Board. (Photo: Paul Yeung/Bloomberg)

The regional body also estimates that if travel restrictions in the Caribbean continue for up to three months, tourism activity will contract by between eight and 25 per cent for the year.

“This pandemic has the potential to reshape geopolitical globalisation, but it is also an opportunity to recall the benefits of multilateral action. That is what, for example, the United Nations Secretary-General António Guterres is trying to do: see how policy coordination can serve to support developing countries, since the asymmetries between developed and developing nations will be ever more clearly noticeable. We have already seen this with the movements of social discontent against these models of globalization that are not meeting people’s expectations,” she said.