According to ECLAC, Latin America and the Caribbean will grow 5.9% in 2021
New ECLAC annual report warns that the crisis has exacerbated the region's structural problems and projects a slowdown for next year
Latin America and the Caribbean will grow in 2021, although the pandemic continues and the crisis exacerbated long-standing structural problems in the region: low investment and productivity, informality, unemployment, inequality and poverty. For this reason, recovering investment and employment, especially in environmentally sustainable sectors, is key to a transformative and inclusive recovery, the Economic Commission for Latin America and the Caribbean (ECLAC) said today when delivering a new version of one of its most important annual reports.
The Executive Secretary of the organization, Alicia Bárcena, released the Economic Study of Latin America and the Caribbean 2021: Labor dynamics and employment policies for a sustainable and inclusive recovery beyond the COVID-19 crisis, in which ECLAC updated its regional growth projection for this year to 5.9% and warned that the region will have a slowdown in 2022, with an estimated expansion of 2.9%.
The growth in 2021 is mainly explained by a low base of comparison -after the contraction of 6.8% recorded in 2020- in addition to the positive effects derived from external demand and the rise in the prices of basic products (commodities) exported by the region, as well as increases in aggregate demand.
“There are important asymmetries between developed countries and middle-income nations -among which are most Latin American and Caribbean countries- both in the dynamics of vaccination and in the ability to implement policies for recovery. economic”, indicated Alicia Bárcena.
“To maintain expansive fiscal and monetary policies, the countries of the region need to complement domestic resources with greater access to international liquidity and with multilateral mechanisms that facilitate debt management, if necessary. Multilateral initiatives are needed to face the uncertainties about vaccination and the access of developing countries to financing under adequate conditions”, added the Senior United Nations official.
The document shows that the structural problems that for decades have limited the region's economic growth worsened as a result of the pandemic and will limit the recovery of economic activity. Before COVID-19, the region had a path towards stagnation: in the six-year period between 2014 and 2019 it grew at an average rate of 0.3%, lower than the average for the six-year period that includes the First World War (0.9%) and that of the Great Depression (1.3%). It also shows a progressive fall in investment, reaching in 2020 one of its lowest levels in the last three decades (17.9% of GDP). Similarly, labor productivity falls significantly.
On the other hand, in 2020 the pandemic unleashed the greatest crisis that the labor markets of Latin America and the Caribbean have experienced since 1950. At the global level, the region's labor markets were the most affected by the crisis generated by COVID- 19 -the number of employed persons fell 9.0% in 2020- and the expected recovery for 2021 will not allow reaching pre-crisis levels.
Likewise, the pandemic caused a sharp drop in labor force participation, particularly for women. With the crisis, female participation in 2020 reached 46.9%, which represents a decline from the levels of 2002. In 2021, a recovery of this indicator is expected, which would reach 49.1%, despite which the levels they would be similar to 2008.
The Economic Study highlights that ECLAC has proposed channeling investment towards sectors that promote a new style of development and that can enhance competitiveness, employment, and lower the environmental footprint. These are: the transition to renewable energy; sustainable mobility in cities; the digital revolution, to universalize access to technologies; the health manufacturing industry; bioeconomy and ecosystem services; the care economy; circular economy; and sustainable tourism.
"Boosting employment will demand productive and labor policies to promote job placement, especially for women and young people," said Alicia Bárcena. He added that programs that promote employment should be expanded, especially for women and youth; promote sectoral policies for the reactivation of productive activities seriously affected by the crisis, such as trade and tourism; extend and deepen support programs for micro, small and medium-sized enterprises (MiPymes); and boost the care economy.
In fiscal matters, the report highlights that fiscal policy must accelerate public investment and encourage and attract private investment. It is a priority for the sustainability of fiscal policy to strengthen tax revenues and reduce evasion, which represents around US $ 325,000 million (or 6.1% of regional GDP).
In this area, greater access to international liquidity and multilateral mechanisms that facilitate debt management would contribute to broadening the space for fiscal and monetary policy in the region. The issuance of Special Drawing Rights (SDRs) equivalent to US $ 650 billion, recently implemented, will strengthen the external position of the countries of the region, reduce risk and free up resources to meet the Sustainable Development Goals (SDG). But the issuance of SDRs and their reallocation is not a panacea and should be accompanied by other initiatives, including the creation of multilateral funds such as the Fund to Alleviate COVID-19 Economics (FACE) promoted by Costa Rica, to facilitate access to financing.
The report highlights the need to strengthen regional, subregional and national development banks in order to increase lending and response capacity to the pandemic, as well as the establishment of a multilateral sovereign debt restructuring mechanism to deal with the obligations contracted with private creditors. It adds the importance of mitigating the pro-cyclicality of risk rating agencies and contributing to making financial stability a global public good through the creation of a multilateral credit rating agency.
“The set of innovative instruments should be expanded to improve access to financing and include middle-income countries in all initiatives for debt relief and access to concessional liquidity. GDP should not be the only criterion for evaluating the development and needs of countries. We must go from graduation to graduation”, highlighted Bárcena.