While the COVID-19 pandemic has thrown much of the Western Hemisphere into the worst crisis it has experienced in over a century, the World Bank’s vice president for Latin America and the Caribbean said it also offers an unprecedented opportunity to set the region on a more sustainable, prosperous, and equal path.
According to Carlos Felipe Jaramillo, early World Bank estimates show that the pandemic has driven at least 30 million people into poverty in Latin America and the Caribbean, a figure that could go higher as more data from 2020 comes in. This wipes out 10-12 years of progress, he said.
“We know that this pandemic has fostered an economic crisis of historical proportions, and we know the data are showing us that we really have a real problem of poverty, unemployment, and inequality,” Jaramillo said. “In my talks with presidents and ministers across the region … many of them are very interested in pushing a rethink and pushing reforms to break with these old historical patterns. I know it will not be easy; some countries are still overwhelmed just dealing with the pandemic. That’s why we really need the vaccine soon.”
Although vaccines will make a “huge difference” in economic recovery, Jaramillo said he doesn’t expect many shots to be in arms during the first part of the year. Distribution should ramp up in the second half, he said, but many could be waiting until 2022 to receive their doses.
“I am personally convinced that the recovery needs to be led by the private sector. This is not going to be led by the government.”— Carlos Felipe Jaramillo, vice president for Latin America and the Caribbean, World Bank
While more research is needed to identify all the reasons why Latin America has been hit so hard by the pandemic, high rates of urbanization and density, along with weak health systems that were “not really fully prepared to handle anything like this,” played a part.
Jaramillo said the best estimate from 2020 shows a 6.9% reduction in gross domestic product regionally.
“We have never seen anything like this, and our region — at least among the developing regions — is the one that has seen the worst impact,” Jaramillo said. “I am particularly concerned with the inequality. … Our latest estimate is that inequality levels have spiked up sharply.”
Even before the pandemic, growth in Latin America and the Caribbean was sluggish, with a barely 0.4% increase in GDP over the past six to seven years, according to Jaramillo. This means that returning to the status quo will not be sufficient to address inequality and poverty in Latin America, he said.
“It’s really not about going back to where we were before the pandemic,” Jaramillo said. “The important thing is to move forward and to think of how Latin America can really unlock its much stronger potential, particularly because if we continue with the status quo and business as usual, our projections suggest we will not regain the pre-pandemic GDP until 2023.”
The numbers are even worse if calculations are done on a per capita basis, breaking down growth per Latin American citizen. The region’s inequality means that some countries won’t entirely recover until 2025 or 2026, Jaramillo said. Combine this with the zero growth some countries were experiencing before the pandemic and “we will have a whole lost decade in per capita income,” he said.
“I think this really presents a big case for rethinking,” he added.
Now is the time to make much-needed reform to economies in the region, says Carlos Felipe Jaramillo, the new World Bank vice president for Latin America and the Caribbean.
To recover the estimated 25 million jobs that have been lost during the public health crisis, the region needs to focus on productivity, human capital, and sustainability, Jaramillo said. Equity must be a focus in improving health systems and education, with access to both varying widely according to wealth. There’s a huge difference in the quality of education for the top 20% of households in the region versus the bottom 20%, he said.
Digitalization — only about half the region currently has broadband — and access to finance for small and medium-sized enterprises will also be key, as will elimination of burdensome regulations. Jaramillo said that nearshoring presents an opportunity to increase exports from Latin America and the Caribbean after the region “missed the boat” on global value chains.
“I am personally convinced that the recovery needs to be led by the private sector. This is not going to be led by the government,” Jaramillo said. “Latin American economies are private sector-focused, so we need to spur investment, we need to spur job creation, and we just need to let the private sector do what it does best.”