Q&A: World Bank Latin America chief on building back better after COVID-19

WASHINGTON — Carlos Felipe Jaramillo took up the post of World Bank vice president for Latin America and the Caribbean on July 1, although his move from Nairobi to Washington is on hold due to coronavirus travel restrictions. Jaramillo, who is a Colombian citizen, spent the last eight years as the World Bank country director for Kenya, Rwanda, Somalia, and Uganda. His pivot back to working on Latin America comes as the region faces the worst impacts of the pandemic — something he sees as both a challenge and an opportunity. “It really is a time to rethink what has been the Latin American development experience of the last 10 years or so.” --— Carlos Felipe Jaramillo, vice president for Latin America and the Caribbean, World Bank “Aside from the short term, we really need to rethink the future of Latin America, and the bank is ready to help on that,” Jaramillo said. “It’s a very challenging situation. But at the same time, I think there’s many openings for countries to do exciting things so that when we recover, we rebuild better … so that there will be a more dynamic growth pattern coming out of it.” Jaramillo spoke with Devex about how the bank is responding to COVID-19 in the short term while keeping a critical eye on long-term reform. This conversation has been edited for length and clarity. The World Bank is deploying $2 billion in COVID-19 response funds to Latin America and the Caribbean. What are some of the most immediate needs of the region the money will help address? We have responded very quickly just in the last three months with about $2 billion of very urgent lending operations to quite a few countries very much focused on coping with the crisis — helping health ministries get prepared with PPE [personal protective equipment], testing, expanding quickly the capacity of key hospitals, and a lot of training. That has been very urgent, and it’s been very welcome. Secondly, we quickly saw the need to help vulnerable people — especially with all the lockdowns, people lost their jobs or livelihoods. A lot of people across Latin American countries live off of hawking things in the streets, and all that was wiped out. We, fortunately, had been working with many countries for many years building protection safety nets, so we didn’t start from scratch in most places. We helped by boosting and broadening these safety nets so they can reach more of the vulnerable. Finally, we got increasingly concerned about loss of jobs and how this crisis is affecting the private sector. Small and medium-sized enterprises are being badly hit, especially if they work in the service sector and they have to deal with clients face to face. We work with a number of governments to try to think through how they can get support through either special credit programs with banks or outright grants for informal microenterprises just to keep them going for a while longer, make sure that they don’t lose everything. Growth in the region was already slowing even before COVID-19 hit, so some of these businesses were already struggling. What does this mean for recovery? It’s a very, very large crisis — much larger than anything we’ve seen since we’ve been keeping record in over 100 years in Latin America. The economic shock throughout the region is the largest we have seen. We keep downgrading every few weeks our forecast, and I wouldn't be surprised if at the end we’re going to come up with numbers that are just shocking. Most countries are going to be near reductions in their GDPs [gross domestic products] of near 10% or more, with a huge blow on employment. Our team is forecasting right now at least 25 million people becoming unemployed, losing jobs across the region just in 2020. We expect at least 50 million to slide under the poverty line that the bank uses to measure across Latin America. This is disastrous because that’s more or less the number of people that had risen above the poverty line over the last 15 years, so we’re losing at least 15 years of progress. How much of that impact comes from the fact that such a large portion of Latin American economies are informal? A lot of the vulnerable people are precisely those that live off of incomes in the informal sector. They were very vulnerable to start with to anything like this, and now we’ve seen it become a reality. What I'm reflecting on — I haven’t been working in Latin America for about eight years — in assessing the situation is that it really is a time to rethink what has been the Latin American development experience of the last 10 years or so. I’ve been looking at the numbers, and it’s really not very good. The percentage of poor population has been stagnant at 24% — no change for about 10 years. Per capita income barely growing at 0.5, 0.6% per year. Debt levels were rising over the last 10 years even without big crises — indebtedness that does not seem to be being used for very strong purposes that yield higher growth. Aside from focusing on helping the vulnerable in the short term, countries also need to think about the medium and long run. This was an important reflection that should have taken place before COVID, but now with COVID I’m finding that people are more open to think that we may need to change and reform. One of them is reviewing, and maybe eliminating, many regulations that prevent the formalization of employment and of entrepreneurs. One of the reasons why we have so much informality in Latin America is because it is hard, it is costly to become formal. “We expect at least 50 million to slide under the poverty line. ... That’s more or less the number of people that had risen above the poverty line over the last 15 years.” --— I think this is a very important conversation to have now so that when we have a recovery, it’s not a recovery back to where we were before COVID — not really a very good place — but it’s a recovery to a much better Latin America, a better growth path that will generate many more jobs, better jobs, more opportunities for micro and small entrepreneurs. They are ultimately responsible for a huge share of employment, so we need them in this recovery stage. What role will the World Bank play in “building back better” in the region? There are critical questions, like how to upgrade our health systems. This has laid bare a lot of deficiencies in the health systems across Latin America — even the systems that we had believed to be the best prepared for any kind of impact of epidemics or things like that — in places like Chile, Costa Rica. You look at their COVID results, and they have not done well at all. There are still issues of access of the entire population to quality health care. I think we will need to have a discussion on how to strengthen those systems to avoid this kind of situation repeating itself in the future and to ensure that the entire population has access to decent health care. On the growth side, we need to have a discussion about how to facilitate the entry and the development of private sector initiatives. I do think that the recovery needs to be ultimately led by the private sector. We need it to provide a lot of jobs — that’s the role mainly of the private sector. We need to create an environment that would facilitate that. The crisis in Venezuela is also impacting the region, sending migrants and refugees to neighboring countries. Venezuela is still a member of the World Bank but has no loans. Do you see that changing given the pressures of COVID-19? We have been ready and we have been open to help in the very difficult Venezuela situation. I'm personally just dismayed to read the numbers that have been coming out of there in the last few years. Venezuela was one of the wealthiest countries in Latin America with one of the lowest poor populations. The last estimate is that the population under poverty is over 90%, which is just a tragedy. So we are open. Unfortunately, the Venezuelan government has not been. They have not really asked for our services. They’re still a member client of the World Bank. But we are open anytime, and let’s hope that that happens, because I think the country needs help.