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Policy Brief: The Impact of COVID-19 on Latin America and the Caribbean (July 2020)

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Executive summary

Latin America and the Caribbean has become a hotspot of the coronavirus (COVID-19) pandemic, exacerbated by weak social protection, fragmented health systems and profound inequalities. COVID-19 will result in the worst recession in the region in a century, causing a 9.1% contraction in regional GDP in 2020. This could push the number of poor up by 45 million (to a total of 230 million) and the number of extremely poor by 28 million (to 96 million in total), putting them at risk of undernutrition. In a region which experienced a significant number of political crises and protests in 2019, increasing inequalities, exclusion and discrimination in the context of COVID-19 affect adversely the enjoyment of human rights and democratic developments, potentially even leading to civil unrest, if left unaddressed.

Prior to the pandemic, the region’s development model was facing severe structural limitations: high inequality, balance-of-payments constraints, and exports concentrated in low-technology sectors resulting in recurrent exchange-rate and debt crises, low growth, high informality and poverty, vulnerability to climate change and natural disasters, and loss of biodiversity. Negative social indicators were and continue to be aggravated by extremely high rates of homicide and gender-based violence, including femicide.

Recovery from the pandemic should be an occasion to transform the development model of Latin America and the Caribbean while strengthening democracy, safeguarding human rights and sustaining peace, in line with the 2030 Agenda for Sustainable Development. The costs of inequality in the region have become untenable. The response requires rebalancing the role of states, markets and civil society, emphasis on transparency, greater accountability and inclusiveness to support democracy, strengthening the rule of law and protecting and promoting human rights. The root causes of inequality, political instability and displacement need to be addressed. These steps, in turn, demand social compacts for legitimacy and support, a strong commitment to the fight against corruption and organized crime, as well as an effective, accountable and responsive presence of the state throughout the territory.
The peacebuilding gains made in the past three decades need to be preserved and deepened.

Equality holds the key for the successful control of the pandemic and for a sustainable economic recovery in Latin America and the Caribbean. In the short run, equality helps to sustain income and aggregate demand. The focus on social inclusion counteracts the rise of xenophobia and stigmatization of marginalized groups. The active contribution of youth needs to be recognized, supported and leveraged, as close to 17% of the Latin American and Caribbean population is between the ages of 15 and 24. In the economic recovery, equality is crucial to boost growth and productivity both directly — through access to education, food, health and opportunities for all — and indirectly, by preventing the concentration of economic and political power that constrains, captures and distorts public policies. In Latin America and the Caribbean, building back better implies building back with equality.

Gender equality and the empowerment of women needs to be at the core of the response: Women have been disproportionately impacted by the pandemic; largely employed in the informal and hardest-hit sectors, their ability to absorb economic shocks is less, while they have also taken on greater care demands at home as well as being more exposed to increased violence in a region with high rates of gender-based violence already. Every effort should be made to guarantee full-fledged rights of women, girls and lesbian, gay, bisexual, transgender and intersex (LGBTI) people, including the right to a life free of violence, exploitation and discrimination, the right to health and education, employment, wages and social protection, the promotion of economic autonomy and political participation.

The policy response to COVID-19 should get us closer to the vision of the 2030 Agenda for Sustainable Development across four key dimensions anchored in human rights:

> Social, based on equality and universal social protection for all, regardless of sex or gender, age, race or ethnicity, language, religion, legal or migratory status, or any other status or personal circumstance.

> Economic, based on the creation of decent jobs sustained by enhanced local technological capabilities.

> Environmental, based on the protection of nature and the environment for present and future generations.

> Political, based on democracy, rule of law, transparency, gender equality, conflict prevention, accountability, participation and access by civil society and local communities to information in all the phases of design, implementation and evaluation of public policy.

Policy recommendations for the short term:

> Consider exploring mechanisms to provide people living in poverty with basic emergency incomes. This could include the possibility of providing the equivalent of one national poverty line. In order to address food insecurity and malnutrition, these measures could be complemented, when necessary, by anti-hunger grants for those living in extreme poverty.

> Full access to economic and humanitarian assistance and basic services should be ensured for all in need thereof, especially for informal workers, women, youth and those in the most vulnerable situations: children, older persons, Afrodescendants, indigenous peoples, persons with disabilities, LGBTI persons, internally displaced persons, migrants, refugees and minorities, as well as women who have experienced intimate partner violence, sexual violence or other forms of gender-based violence.

> Consider implementing measures to preserve skills and managerial and productive capabilities to allow production to respond when demand recovers, including emergency subsidies to micro, small and medium-sized enterprises (MSMEs), especially to cover labour costs. Policies should facilitate equal access to information and communication technologies (ICT), tools and platforms. In the case of larger firms, financial support could be provided with conditionalities, such as protecting employment, investing in research and development (R&D), green investments and refraining from distribution of dividends among shareholders.

> The immediate international multilateral response should be extended to the middle-income countries. This group, which includes most Latin American and Caribbean countries, faces structural constraints, yet has been largely excluded from cooperation in the form of emergency liquidity response, concessional funding, trade exemptions, deferral of debt service payments and humanitarian assistance. These instruments are especially urgent for tackling the rising external public debt of Caribbean small island developing States (SIDS). Debt sustainability should be pursued by fostering sustainable and inclusive growth, not by austerity that halts investment. International financing should be expanded, including a major allocation of special drawing rights (SDRs), accompanied by initiatives for debt relief or debt standstill and innovative financing mechanisms such as the Debt Relief/Swap for Climate Adaptation for the Caribbean.

Policy recommendations for building back with equality:

> Fostering comprehensive welfare systems, with revamped social protection schemes and universal access to health care and education for all, free of discrimination and irrespective of legal or migratory status. It should comprise targeted measures to protect the most vulnerable groups.

> Fostering sustainable industrial and technological policies (SDG 9), including measures to encourage a low-carbon growth path, reallocate informal workers into decent jobs, promote the transition to renewable energy, build capabilities in health and in digital and green technologies, and reduce vulnerability to new shocks. Investments in research and development (R&D) and cooperation with universities, the scientific community and the private sector are crucial for resilience and recovery.

> Strengthening progressive tax systems that allow for enhanced domestic resource mobilization (SDG 17) while ensuring that the fiscal effort relies on redistributive taxes, while curbing tax evasion and avoidance.

> Preserving strategic natural terrestrial and maritime ecosystems while reducing territorial inequalities, including through conservation of biodiversity and more inclusive agricultural and forestry systems that are oriented towards local communities and products, as well as respectful of indigenous peoples’ right to their traditional lands.

> Regional economic integration to support productive diversification, economic resilience, and regional cooperation in financing research, science and technology.

> Strengthening democratic governance, the rule of law, accountability and transparency, sustained by a social compact to ensure the legitimacy, inclusivity and effectiveness of public policy, as well the involvement of local communities and civil society, including women´s organizations and youth.

> Environmental sustainability, underpinned by the 2030 Agenda, should be the basis for relaunching multilateral cooperation, particularly in developing countries.

Economic recovery will require a strong multilateralism and international cooperation. Crucial global challenges — such as climate change, human mobility, pandemics or the fight against illicit capital flows — demand new forms of governance. A just transition to a zero-carbon economy, that in many cases will require investments to promote environmentally friendly technologies and economic sectors, should be a critical component of the recovery