COVID 19 and Latin America: Three months on, the struggle continues

Ecuador which became face of the epidemic and the epicentre in end March continues to have the highest number of death cases per capita in the region.

By Ravi Bangar

The Americas have registered more than 2.4 million cases of the new coronavirus and more than 143,000 deaths from the resulting Covid-19 respiratory disease. Latin America has passed Europe and the United States in daily infections. Infections are rising across the region but they are especially of concern in Brazil, Mexico and Peru.

The pandemic is unprecedented continuing to cause financial and economic costs. This has come at a time when the region was already in the clutches of due to falling commodity prices (except gold). The collapse of oil prices made oil exporters in the region much more vulnerable to the deepening crisis.

In addition to strengthening health policy responses, many countries in the region have taken measures of containment, including border closures, school closings, and other social distancing measures.

These measures, together with the world economic slowdown and disruption in supply chains, the decline in commodity prices, the contraction in tourism, and the sharp tightening of global financial conditions have brought activity to a halt in many Latin American countries—severely damaging economic prospects.

Since the first case was reported on 26 February in Sao Paulo, Brazil the region has witnessed a surge in cases. On 22 May WHO announced that South America has become an ‘epicentre’ of the COVID-19 pandemic with Brazil the hardest-hit country.

The response of the governments in the region has been resolute and timely to protect the lives of its people by imposing strict lockdowns and attempting to firewall damage to economies.

It is only in May onwards that some have relaxed lockdowns. This response to the pandemic was in near alignment to the global response. The regional leaders have been unanimous in this response to COVID 19 with the sole exception of leaders of Brazil and Mexico.

On the political front, the Latin American populations have shown tremendous patience and have been following health advisories. The advance of the pandemic has neither been uniform nor experiences elsewhere replicable.

Peru which in the initial stages seemed to have been successfully started reporting a surge in the number of cases. Peru has the second-highest number of cases in Latin America after Brazil. This has been ascribed to the lack of social, financial and physical infrastructure to back up the policy initiatives of the government aimed at enforcing containments. The deep inequality in Peru is one reason, according to Dr. Elmer Huerta, a Peruvian doctor. “What I have learned is that this virus lays bare the socio-economic conditions of a place,” he said. Many of Peru’s poor have no choice but to venture outside their homes for work, food or even banking transactions.

Ecuador which became face of the epidemic and the epicentre in end March continues to have the highest number of death cases per capita in the region.

The IMF in early approved Ecuador’s request for emergency financial assistance of US$643 million to meet urgent balance of payment needs stemming from the outbreak of COVID-19 and to support the country’s most affected sectors, including the healthcare and social protection systems.

On May 25, demonstrators defied coronavirus restrictions to march in cities across Ecuador in protest against President Lenin Moreno’s drastic economic measures to tackle the crisis. He ordered the closure of Ecuadoran embassies, a reduction in diplomatic staff and scrapped seven-state companies as part of measures designed to save some US $4 billion. He also announced the liquidation of the TAME airline, which has lost more than $400 million over the last five years.

In early May Colombia unveiled around US$ 3.7 billion (1.5% of GDP) in measures to counter the effects of the coronavirus outbreak. These include additional cash transfers for the most vulnerable, VAT rebates for the poorest, tax deferrals for companies, and financing support for SMEs.

Significantly, Defense Minister Carlos Holmes Trujillo proposed “exploring the search for an agreement to modify the implementation” of FARC peace accord signed in 2016 in Havana. This was widely criticised including by former President Juan Manuel Santos who was a signatory to the accord. Minister Holmes Trujillo was forced to clarify, “modifying the agreement unilaterally is perfidy.”

ELN (National Liberation Army), a rebel group in Colombia which had declared a unilateral ceasefire for April due to the coronavirus pandemic did not extend it.

The ELN is Colombia’s last active guerrilla movement, comprising of about 2,000 combatants. It operates in 10% of the country, and is much smaller than the Revolutionary Armed Forces of Colombia (FARC).

The ELN has sought peace talks with President Ivan Duque, who broke off negotiations after a car bomb attack on a police academy in the capital Bogota that killed 22 cadets in January 2019. President Duque has refused to begin negotiations until group halts all violent activity.

On 14 May, Colombia’s air force killed ‘Mocho Tierra’ of ELN and three others. He was one of the most-wanted leaders of the ELN killed in the bombing in a rural area of Bolivar province. This is expected to harden stand of the rebel group and escalate violence in parts of the country.

Brazil has sadly become the second-highest in the world with over cases and deaths. Since the pandemic began, Brazil’s two health ministers have stepped down.

President Bolsonaro of Brazil, who famously dismissed the virus as a “little flu”, has received global criticism for repeatedly flouting social distancing guidelines and lockdown strategies. He has stressed that these measures are likely to cripple Brazil’s economy beyond repair. He joined in anti-lockdown rally posing for photographs and interacting with hundreds of supporters.

Mexico has been reluctant to impose a strict lockdown. President López Obrador, who has claimed to have “tamed” the coronavirus, is pushing ahead with plans to open the country in stages, despite the rising death toll.

Chile responded quickly to the first cases on March 3, introducing a nationwide curfew and selective quarantines on areas with high incidences of the virus. Schools, universities and businesses were closed as part of social distancing measures and transport restricted.

Surprisingly, Chile recently suffered a surge in infections prompting the government to order the lockdown of Santiago. The capital is the main focus of the pandemic in Chile, with 90 per cent of the country’s 74,000 cases. Last week, the Senate was closed after three senators tested positive for the coronavirus. Sessions were held by video conference.

Chile announced a fiscal stimulus package worth US$11.8bn (4.7% of GDP) to tackle the economic impact of the novel coronavirus outbreak. The stimulus package—the largest in the country’s history—consists of three main pillars: boosting the budget of the healthcare system, implementing measures to protect workers against a loss of income, and providing support for small and medium-sized enterprises (SMEs) through tax measures. Also, the Central Bank in coordination with the financial industry regulation (the Financial Market Commission or CMF) have announced measures loosening regulatory credit requirements and increasing the flow of credit to companies and consumers.

Before Covid-19 slammed the world’s economies to a halt, Argentina was already in dire financial trouble. In February, President Alberto Fernández headed into talks with the International Monetary Fund, hoping to delay payments on Argentina’s US$100 billion in debt. Argentina has a commercial flight ban until September. 1, one of the world’s strictest travel measures during the pandemic. The lockdown, due to expire on Sunday, has been in place since March 20.

Cuba has said that use of two drugs produced by its biotech industry that reduce hyper-inflammation in seriously ill COVID-19 patients has sharply curbed its coronavirus-related death toll.

Despite the pandemic, Latin American central bankers and regulators have put into action a series of measures aimed at blunting the impact of the coronavirus, COVID-19, as the threat to their citizens and economies grows severe.

These emerging market nations have moved, alongside their developed market peers, to increase local market liquidity, cut interest rates and begin addressing the expected surge in bankruptcies.

According to IMFcountries in Latin America and the Caribbean have been hit later than other regions from the pandemic and therefore have a chance to flatten the curve of contagion. Efforts on multiple fronts to achieve this goal are underway.

Significantly, several emerging countries in the region have been able to issue bonds in international markets in recent weeks on fairly good terms. These include Chile, Guatemala, Mexico, Paraguay, Peru, and Panama. Two regional banks have also done so (the Central American Bank for Economic Integration and the Development Bank of Latin America, CAF), as well as two state-owned firms from Chile (Codelco and the Santiago Metro) and two from Colombia (Ecopetrol and the Bogota Electric Energy Company, both with some private shareholders).

From mid-April to mid-May 2020, the total of these bond issues amounted to over $17 billion, much more than multilateral financing to Latin America during this period. Some of the issues achieved relatively good interest rates. The Mexican bond issue of April 22, for a total of $6 billion, was the largest in its history, was oversubscribed 4.75 times, and got an effective interest rate of 5 per cent for its 2031 bond. The 2031 Chilean bond issue of May 5 got an even lower rate of around 2.5 per cent.

The governments have mounted efforts to address pandemic by scaling up health related infrastructure, import of medicines, ppe suits, ventilators and other medical supplies. The government have also extended helping hand to the population through relief packages to tide over twin crisis of unemployment and health.

(The author is Former Ambassador to Colombia and Ecuador, High Commissioner to Cyprus, Deputy Permanent Representative to the WTO and Deputy High Commissioner to Singapore. At the Ministry, he headed Multilateral Economic Relations, West Africa and East & Southern Africa Divisions. The views expressed are personal.)