Impact of war in Ukraine will raise poverty in Latin America to 33.7%, says ECLAC

RIO DE JANEIRO, BRAZIL – The impact of the war in Ukraine, especially the rise in energy and food prices due to sanctions against Russia, will push poverty to 33.7% this year and extreme poverty to 14.9%, up 1.6% and 1.1% respectively from 2021. This was the warning issued Monday by the Economic Commission for Latin America and the Caribbean (ECLAC).

The Santiago de Chile-based regional organization said in its report, “Impact of the war in Ukraine on Latin America and the Caribbean: How can we face this new crisis?” that the conflict will add 7.8 million people to the 86.4 million already living in extreme poverty and suffering from food insecurity.

“These levels are significantly higher than those observed before the pandemic and make the possibility of an early recovery a distant prospect,” ECLAC said.

COLOMBIA, MEXICO, AND BRAZIL HIT HARDEST

Inflation began to rise in Latin America in mid-2021, mainly due to tax breaks granted during the pandemic and increases in consumption. The region closed with an average rate of 6.6%.

Last April, regional inflation rose to 8.1%, and most central banks expect it to remain high for the rest of the year.

“The impact of higher prices and lower growth on poverty will vary from country to country. In Colombia, Mexico, Paraguay, and Brazil, there will be a strong setback in the fight against poverty,” the document says

The agency added that inflation “affects the impoverished and households in the middle and lower-middle-income distribution,” as “the share of food in the household consumption pattern increases as income decreases.”

To counter the unprecedented rise in food prices, ECLAC calls for no restrictions on international trade in food and fertilizer, maintaining or increasing food subsidies, and reducing or eliminating tariffs on grains and other commodities imports.

INTEGRATION

In addition to inflation, “the external context of insecurity and the slowdown in economic activity and trade in the region,” the organization said.

After the economic recovery of 6.3 percent in 2021, regional gross domestic product (GDP) will reach an average annual growth of 1.8 percent in 2022, ECLAC projected in April.

This tends to return Latin America to the slow growth pattern of the 2014-2019 period, when the average annual GDP growth was only 0.3 percent per year.

Higher commodity prices, rising transportation costs, and disruptions in international supply chains will also impact the region’s merchandise exports.

In December 2021, ECLAC projected a 10 percent increase in the value of regional merchandise exports and a 9 percent increase in imports.

However, due to the increase in prices of some of the top products traded by the region, exports and imports are expected to increase by 23 percent in 2022.

For Mario Cimoli, acting executive secretary of the Commission, “the current situation cannot be considered as an isolated phenomenon, since its effects are accompanied by those of more than a decade of consecutive crises: the international financial crisis, the economic tensions between the United States and China, and the pandemic.”

Cimoli called for “expanding fiscal space and raising revenues while allowing for more investment” and “strengthening the role of regional articulation in crisis management.”

“It’s a region that wins when it’s united and loses when it’s divided regarding food, hydrocarbons, and energy. We need to be clear about that if we want to advance regional integration,” he concluded.