By Ignacio Ramonet on June 
2, 2021
The COVID-19 pandemic, which has spread throughout Latin America and the Caribbean as of March 2020, has caused three destructive impacts in these 14 months: the greatest health crisis in five centuries; the greatest economic crisis since 1929; and the greatest social crisis since 1932.
With the aggravating factor that, when the plague began, the region was still convalescing from the disastrous effects of the great depression caused, just 12 years ago, by the financial crisis that broke out in the United States and the world in 2008.
A World Bank analysis of the evolution of Latin America and the Caribbean during the coronavirus pandemic notes the “dramatic deterioration of economic conditions in the region” and points to a GDP contraction of 7.2% in 2020, the most pronounced in sixty years… For its part, the Economic Commission for Latin America and the Caribbean (ECLAC), in its report “Latin America and the Caribbean facing the COVID-19 pandemic: economic and social effects” points out that the region is facing the pandemic from a weaker position than the rest of the world, and highlights that the effects of the crisis have caused a fall in GDP, in 2020, of between 3% and 4% or even more.
For months, the population lost its freedom of movement. And the vast majority of companies were paralyzed or reduced their activity. Inequalities, poverty, and extreme poverty increased. In the whole region, marked by more than 50% of informal employment, ECLAC estimates that 22 million additional people fell into poverty in 2020, which implies a 15-year setback…
The situation is unprecedented. Never before have the countries of the region suffered a crisis of such dimensions. In other words, a pandemic of hunger, poverty and unemployment is now being added to the serious endemic structural problems.
This is a very negative scenario. The economies of Central America and the Caribbean, some of them highly dependent on the United States, are being affected in their five income streams: 1) a collapse of traditional exports; 2) a drop in maquila exports; 3) a decrease in foreign direct investment flows; 4) a stagnation of remittances; and 5) a near disappearance of tourism.
The economic slowdown has had a strong impact on government revenues. In terms of public spending, governments have had to face an excessively costly and under budgeted health and social policy (especially in terms of bonds, stimulus packages and emergency financial aid to families and SMEs). In a context in which, moreover, the need to deploy extraordinary and prolonged health and vaccination measures has rightly called for an expansion of state intervention.
In this context, pressures are being felt throughout the region on current spending and the need to limit the socio-economic consequences of the pandemic by compensating, with public investment, for the fall in private investment. All of this is driving governments to seek new resources. Essentially in two ways: 1) through taxation (with increases in rates, taxes and personal income tax); 2) through increased indebtedness.
The most logical solution would be to resort to the first one: to increase taxes. This is all the more so given that tax collection continues to be very low in the region, with an average of only 23.1% of GDP, while in OECD countries the average rises to 34.4%. Some countries, such as Guatemala, Panama and the Dominican Republic, collect less than 15%. And when taxes are analyzed separately, individual income tax collection is much lower: 2.2% of GDP in the region, compared to 8.3% in the OECD.
At the international level, as a consequence of the pandemic, 21 countries, including Joe Biden’s United States, are preparing complete tax reforms or partial adjustments to their taxes. In some Latin American countries, such as Argentina, Chile, Mexico and Uruguay, there are important debates about the need for tax increases.
But not every country can do it, least not now in the midst of the pandemic crisis. In this regard, it is worth warning about the following: the three governments in the region that decided, in the context of the social stress caused by the pandemic, to vote on fiscal reforms to reduce spending or increase revenues – Costa Rica in October 2020, Guatemala in November 2020 and Colombia in April 2021 – have had to face violent social protests…. In all three cases, they have had to backtrack.
It was not difficult to foresee that the social assistance programs implemented during the periods of confinement, and financed by the public budget, would lead to a fiscal deficit and, consequently, to a reduction of spending in the future in order to make good the public finances and a desire to increase taxes. And that this would inevitably produce great social unrest, multiform discontent and even, in some cases cited – Costa Rica, Guatemala, Colombia – violent popular rebellions.
There remains the option of debt. This is no less unpopular. Recall, for example, the recent social revolt of August 2019 against Lenín Moreno in Ecuador because of the package of adjustments demanded by the IMF in exchange for a loan. Or the defeat of Mauricio Macri in Argentina in October 2019, in part also for having requested an important loan from the detested International Monetary Fund.
The solution cannot come from negotiating alone with the lending financial institutions. Since all countries in the region are having the same problems. They must all demand together to negotiate the best possible conditions for exceptional international aid, as exceptional as the pandemic itself.
Although nothing is comparable, the pandemic – with its tens of millions infected and millions dead – has only one recent precedent that has had such an impact on humanity: the Second World War (1939-1945). And after that great trauma, fundamental international decisions were taken that changed the architecture of the world (creation of the UN, launching of the Marshall Plan). This is a similar moment.
The countries of the region should, without delay, convene an unprecedented POST-COVID INTERNATIONAL SUMMIT bringing together the main world financial institutions and the heads of state and government of Central America and the Caribbean to define the bases for the launching of a CARAMEC Plan in favor of all the countries of the Caribbean and Central America.
Although scarce, regional sources of external financing exist: the IMF and multilateral and regional banks, such as the Central American Bank for Economic Integration (CABEI), the Inter-American Development Bank (IDB), the China Development Bank (CDB), the European Bank for Reconstruction and Development (EBRD) are some of the alternatives. These financial organizations have a vocation to help development, and have lines of credit that, although limited, could help to better face the post-pandemic storm. Provided that low interest rates and long repayment terms are obtained; and that there is rapid and effective management and consistent programs are implemented.
Loans could be effective if they were accompanied, within each beneficiary country, by some medium-term tax reform projects that reinforce the social cohesion effect and help reduce unsustainable inequalities.
In most of the countries of the region, the pie needs to be shared more equitably. So that the burden of tax collection does not always fall on the consumption of families, labor, the middle class and workers. It is time to break the taboos of the past and propose that those who have been more protected should now contribute more. The most powerful sectors must contribute more. Not from solidarity or philanthropy, but from tax responsibility.
Another important step could be to modernize the Constitutions. As has already been done in some countries (Venezuela, Bolivia, Ecuador) and as will be done in Chile, and as is being demanded in Peru. With a project for the renewal of an efficient and transparent State. Citizens will not want to pay more taxes if they feel that it will then be squandered in inefficiency and corruption.
We believe that the solution must transcend the national sphere to reach a regional level that allows the region to use its institutional convening capacity achieved through the Central American and Caribbean integration process.
The art of the current leaders, and of those who will take office in the coming months, is to come up with policies that will allow us to face in a unified manner the effects of the brutal crisis caused by the COVID-19 pandemic.
Let us remember that the Great Depression of 1929 also had a severe impact on the region. Its consequences arrived a few years later during the 1930s, opening a long period of economic stagnation, social repression and a serious crisis of democracy marked by a strengthening of military authoritarianism and the establishment of multiple dictatorships…
There is urgency. Because if they do not express themselves through protests, rebellions and barricades, citizens will manifest their discontent -as they are already doing- at the ballot box. And it should be noted that all Latin American countries, except Bolivia, will hold presidential or legislative elections between 2021 and 2024.
This year 2021 alone there are five presidential elections: Ecuador, which has already held them; Peru, which will hold the second round in June. In November there are three more: Nicaragua, Honduras and Chile. There is Haiti, whose date has not been defined. Then there are two mid-term legislative elections, Mexico, in June, and Argentina, in October, which will be a kind of thermometer for the administration of presidents Andres Manuel Lopez Obrador and Alberto Fernandez, respectively. In addition, there will be regional processes in Venezuela and Paraguay. In 2021 alone there will be 23 elections…
In 2022, Brazil, Colombia and Costa Rica will be electing presidents; between 2021 and 2022, the six most important Latin American economies will hold elections. In 2023, Argentina, Paraguay and Guatemala will also go to the polls for president; and in 2024, El Salvador, Panama, Dominican Republic, Uruguay, Venezuela and Mexico have presidential elections. An intense electoral agenda that coincides with the worst economic and social consequences of the pandemic. In an extremely disturbed and inflammable socio-political context.
At a time when the world is disillusioned with democracy, and societies traumatized by the pandemic, there is a danger that citizens will punish the governments in power by looking for a savior, a leader-redeemer who bursts onto the scene with easy proposals for very complex problems, typical of demagogic speeches. No country in Central America and the Caribbean is vaccinated against the virus of demagogy. It is time to act.
Source: Cubadebate, translation Resumen Latinoamericano – English