Latin America in a post-Covid world
While the rapid containment response initially slowed the infection rate, many social and economic factors hindered the containment of the virus. While governments stepped in and provided financial assistance to those most in need, many were left out. Rethinking the social contract could pave the way for a more prosperous region.
Nicolas Forsans*
High levels of informality, high levels of inequality, the absence of social protection and limited health infrastructure all contributed to making the region the world’s most significantly impacted region in the world, both in health, social and economic terms.
When Covid hit, the region was already facing significant challenges.
Economic growth had slowed down in most countries, and the fall in commodity prices further depressed markets and currencies. The implementation of strict lockdowns – the longest and strictest lockdowns in the world – depressed household incomes and shut down tourism, an important source of employment and income, especially for women who traditionally record higher unemployment rates than men in Latin America. As a result, the region experienced its longest and sharpest recession in the past century.
The formal/informal duality of the economies in Latin America means that lockdowns were not effective enough to reduce the spread of the virus and the collapse of many health systems. For many citizens in the region, lockdowns and quarantines were a luxury they could not afford.
Governments stepping in
Operating in times of limited fiscal headspace, governments faced additional pressures as a result of growing social discontent. However, and despite many limitations, they provided unprecedented assistance to those most in need.
This was much needed. While social assistance programmes in the region cover a significant portion of poor households, many of them remain exposed – close to 40% of workers were not protected by any safety net and 65% in the case of informal workers. There is a wide disparity in those figures, with nearly 70% of workers not covered by traditional safety nets in El Salvador and Honduras, 50% in Colombia and Ecuador and only 20% in Argentina, Chile and Uruguay.
Emergency measures deployed in the region were able to target the most vulnerable households, according to a study of the effectiveness of government support during Covid. However, the compensation was insufficient and undermined governments’ ability to enforce lockdowns.
The informal sector was the hardest hit by the pandemic, and informal workers lost their livelihoods and were left unprotected.
The pandemic brought to the fore the challenges while identifying and reaching out to informal workers and business – they are unregistered, and many don’t have a bank account.
Some countries cross checked existing registries and used mobile phones as means of transferring financial support. Informal workers do not have health coverage and face significant barriers when attempting to access healthcare when they need it. Furthermore, over 80% of the population is concentrated in urban areas and 21% of them living in slums, informal settlements or inadequate housing where basic sanitary services are not available.
Governments also made significant efforts to reach informal workers by expanding non-conditional cash transfers. For example, Argentina’s Ingreso Familiar de Emergencia was specifically targeted at informal workers and self-employed while those who work off informal activities received a temporary new benefit subject to eligibility criteria.
Colombia’s Ingreso Solidario aimed to reach 3 million workers not covered by other schemes. The Dominican Republic created Quedate en Casa and Pa’Ti schemes with a similar aim, while Ecuador’s Bono Familiar Universal aimed to reach 2.3 million workers unable to work.
Supporting informal businesses, for example through direct transfers and moratoria on tax payment were also particularly hard. Incentives were provided for these firms to ‘formalise’ to some extent – in exchange of signing up to a registry they would become eligible for support.
A rethink of the social pact?
The Covid pandemic created an opportunity for governments in the region to rethink their social protection systems. If so, the pandemic could have a positive legacy.
The efforts governments evidenced during the pandemic could pave the way to building universal registries for self-employed, informal workers and businesses. And the consequences of the Covid pandemic, with great uncertainty as to how long and what form the pandemic will take in the months and years to come, could provide incentives for informal businesses and workers to formalise.
At the height of the crisis the CEPAL argued in favour of a rethink of the social contract that binds citizens, workers and businesses to the state, and for the introduction of a universal basic income in the region to prevent a repeat of the devastating consequences of another pandemic in the future. Social pacts in Latin America need rethinking, and this pandemic might provide a unique opportunity to finally move forward and promote a wealthier, more equal and more peaceful region.
* Nicolas Forsans: Professor of Management and MBA Director at the University of Essex, UK. Co-director of the Centre for Latin American & Caribbean Studies and a member of many Latin American societies and think tanks, Nicolas investigates the economic and societal challenges in the region generally, and in Colombia more specifically.
(Photos: Pixabay)
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