What the COVID 19 pandemic will change in Latin America

What forecasts for Latin America are possible for the period after the corona crisis? It seems certain that the economies will be more controlled by governments and the population will be poorer. South America will fall back to being an exporter of raw materials and will be less and less able to compete as a location for global industry. Whether the social tensions will flare up again remains to be seen. Populists are on the starting blocks everywhere.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

It is about two months since the first corona infected people were registered in South America. The region is still far from the peak of daily new infections and deaths. Currently, the number of infected people in Argentina, Chile and Peru seems to be lower than in Ecuador, Mexico or Brazil. But still the statistics are neither comparable nor reliable.

Nevertheless, it is already foreseeable that Latin America will experience the most severe recession since the debt crises of the 1980s. The situation is surprisingly similar. Today, as then, the debts of the states are rising rapidly – now as a result of social measures due to Corona, then for state investments. This time too, demand and prices for oil have fallen, as have many agricultural and mining products. For a raw material exporter like South America, this is a tragic combination because solvency is shrinking. New debt crises will be inevitable. Ecuador and Argentina are currently trying to avoid them by negotiating. How financial investors and multilateral banks will react to a regional debt crisis is still open.

It can be foreseen that taxes will rise and overall state control of the economy will increase. High unemployment and growing poverty will reduce per capita income and thus consumption. This will cause not only raw material exports to stutter, but also the decisive growth engine of Latin America, the demand of the 630 million people. It will become less attractive for investors to invest in the production of consumer goods.

Weaker currencies could favour the region as an export platform. However, due to the technological backwardness of industry and the reduced global value chains, South America in particular is likely to become an even stronger exporter of raw materials than before.

The implications for policy are still unclear: will the social unrest that only a few months ago shook Chile, Ecuador, Colombia and Bolivia continue in the Post Corona era? On the one hand, the surveys in Chile, for example, seem to indicate that neither criticism of social antagonisms has diminished as a result of the crisis nor dissatisfaction with politics. On the other hand, the same surveys show that good crisis management is acknowledged by the population. Thus, on the one hand, a continuation of the unrest is possible, but on the other hand, authoritarian governments will try to suppress it. In general, it seems certain that populists in all countries will try to take advantage of the crisis.

COVID-19 in Latin America

Development of case numbers in the region


Currently reported cases in the countries

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