RIO DE JANEIRO, BRAZIL – For the president of the Inter-American Development Bank (IDB), Latin America needs to increase spending and start considering an ambitious recovery plan, similar to what the United States did during the Great Depression, to be implemented once the pandemic is under control.
Currently the global epicenter of coronavirus, the region is facing the daunting challenge of recovering millions of jobs destroyed by quarantines, in addition to the informality of the labor market,” said IDB President Luis Alberto Moreno in an interview. Large-scale infrastructure projects would be an option to recover the economy from the deep depression expected this year, he said.
“At the moment, everybody is in the emergency room, dealing with immediate problems,” Moreno said during an interview from the US capital, Washington. “As we begin to look at our loans and our program for 2021, we need to definitely start thinking about how to recover growth in our economies.”
The Latin American economy is expected to contract by nearly ten percent this year, the sharpest decline since countries began producing national accounting statistics in the 1950s. The downturn reflects the impact of the pandemic, which forced most countries in the region to shut down their activities.
Unlike developed countries, the region has limited fiscal resources and a large proportion of the population lacks social safety nets to prevent the rise of poverty and unemployment.
The IDB has redirected some US$450 million of its current loan portfolio of US$26 billion to help countries finance the purchase of hospital equipment, such as beds and ventilators, to fight the coronavirus, said Moreno. He mentioned Uruguay, Costa Rica, and Medellín, Colombia, as examples of governments that have succeeded in tracking and testing to prevent the virus from spreading.
With less developed health systems than advanced economies, Latin America has been devastated by the pandemic, particularly its largest economies Brazil and Mexico. The region accounts for about half of all new daily infections by the virus. The International Monetary Fund projects that Brazil and Mexico’s GDPs in 2020 will drop by 9.1 percent and 10.5 percent, respectively.
Countries will need to examine supply chains in search of opportunities for intelligent import substitution in areas such as foodstuffs and some types of manufacturing, said Moreno. A consequence of the difficulty in purchasing medical equipment during the pandemic is that countries have started producing items such as uniforms, masks, and sanitizers, he said.
The bank plans to disburse US$15 billion this year to governments and another US$7 billion to companies through its private sector arm, IDB Invest, Moreno said. The Washington-based institution will at some point need to increase capital or limit leverage in the coming years, although he hopes the initiative for this approval will rest on his successor. Moreno, who took over the IDB in 2005, is expected to complete his third and final term in late September this year.
“The IDB will have to review its capital sooner or later,” he said. “What I will do is analyze all the different options and try to leave that to my successor in order for him to get the first draft of this discussion.”
He would not comment on the election of his successor. Last week, the United States announced plans to appoint Mauricio Claver-Carone, now a senior advisor to President Donald Trump, seeking to break the six-decade tradition of choosing a president from the region. Claver-Carone is expected to dispute the post with Argentinian Gustavo Beliz, who is also backed by Mexico. Former Costa Rican President Laura Chinchilla also plans to enter the dispute.
Source: Infomoney