The forecasts for Latin America's economy are catastrophic

And there's no surprise in that. With the release of new forecasts for the global GDP amid the COVID-19 pandemic, the numbers for Latin America and the Caribbean have also plummeted.

But it's important to stay tuned on the latest economic measures in the region to mitigate the crisis effects, from emergencial assistance initiatives to the financial engineering being built to support small and big companies, and therefore, jobs and income.

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What Latin America is doing to prevent an economic disaster

On Sunday, the Financial Times reported that 14 Latin American and Caribbean countries have requested urgent help from the International Monetary Fund (IMF) to counter the impact of the coronavirus crisis. 

The region is expected to be hit by its worst recession in 50 years, according to Alejandro Werner, head of the western hemisphere department at the institution. He did not say which countries have asked for assistance, but that the 14 mentioned seek access to a total of $4.48 billion using a credit line which allows disbursement with minimal conditions.

Werner told the FT that Latin America was particularly exposed to the impact of the new coronavirus because it was already struggling even before that, affected by weaker commodity values, oil price, and capital flight, with investors looking for safer assets and markets.

It's true that the region's firepower when it comes to public spending to prevent the economy from collapsing is much smaller than that of the United States, the United Kingdom or the European Union. Even so, the largest economies in Latin America announced a string of measures to mitigate the impacts of COVID-19, ranging from the injection of liquidity in the financial market to emergency aid to citizens and companies.

Together, Brazil and Mexico have 14,199 confirmed cases of infection with the new coronavirus, and already account for 647 deaths due to the disease. It's just the beginning of the so-called contagion spiral of the new coronavirus.

Besides individual initiatives, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) is prescribing greater integration among the region’s countries in order to mitigate the effects of the COVID-19 pandemic. As we would say in Portuguese, uma andorinha só, não faz verão¹

According to a new report the impacts predicted by ECLAC are severe. Unemployment in the region could increase by 10 percentage points. This could lead to the number of poor in the region rising from 185 million to 220 million people, out of 620 million inhabitants in total; and the quantity of people living in extreme poverty could increase from 67.4 million to 90 million.

This crisis has prompted ECLAC to forecast a decline of at least -1.8% in the region’s GDP, “although a contraction of between -3% and -4%, or even more, cannot be ruled out“.

Stay on top of the main economic measures taken by the two largest economies in Latin America:

Brazil

In the end of February, when the first case of coronavirus was confirmed in Brazil and also in Latin America, the Economy Minister Paulo Guedes (photo) said that the most important response during the crisis should be the approval of the reforms already planned. That changed drastically with the escalation of COVID-19 cases in the country. Since then, several measures have been announced by the Brazilian government:

• One of the first measures of the Brazilian government was to zero the import tax rate on 50 medical and hospital products necessary to fight the pandemic and determine, via the Federal Revenue Service, that items such as gel alcohol, masks, gloves and etc. have simplified customs clearance.
• In recent weeks, an emergency financial assistance of BRL 600 for informal workers, micro-entrepreneurs and the unemployed in the country has also been proposed and approved by Congress. For mothers responsible for their families’ income (single-parent families), the project allows the granting of two assistance quotas, that is, BRL 1,200 (almost $240). The aid will be given for the next three months. The emergency aid  will cost BRL 98 billion, and it should reach 100 million Brazilians, including the 77 million low-income people who are already registered in the Cadastro Único, the federal government’s base register for social programs. Amid criticism for taking too long to approve this measure – three weeks passed between the first draft of the idea and the signature of President Jair Bolsonaro – the government also has the challenge of operationalizing this financial assistance. The application to register citizens will be available on Tuesday, but, according to a lawyer specializing in innovation, Ronaldo Lemos, there are serious risks that the system will not be able to withstand the amount of access to which it will be submitted, not to mention the lack of safeguards to prevent registration fraud. registration fraud.

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"Brazil does not have a system of digital identities. Countries like Chile, Peru, Estonia and India (1.3 billion inhabitants) have already resolved this issue in recent years. Transferring income to the most vulnerable in these countries will be a breeze compared to Brazil"

Ronaldo Lemos, lawyer, and director of the Institute of Technology and Society of Rio de Janeiro, wrote in his column for Folha de S.Paulo newspaper.

• The Central Bank also announced a credit line of BRL 40 billion to finance the payroll of small and medium-sized companies. The program will finance up to two minimum wages per employee. If the worker earns more than that, the credit will only contemplate the established limit, and the company may complete the payment. According to the Brazilian Central Bank‘s president Roberto Campos Neto, the program could reach around 12 million people and 1.4 million companies. The initiative was formulated by the country’s Ministry of Economy and BNDES (National Bank for Economic and Social Development). The loan will be offered by banks that process payrolls. In return, companies will not be allowed to fire anyone for the next two months. The practical access to these credit lines, however, is still unclear. As of Monday, only two of the five largest banks in the country had already released information on how to obtain financing: Itaú Unibanco and Bradesco.

Mexico

Shortly after confirmation of the first Covid-19 case in Mexico, the President Andrés Manuel López Obrador was criticized for not taking more restrictive measures to encourage people to stay at home. While major cities in the country have gone into self-isolation or lockdown, cancelling flights and shutting down land borders, Lopez Obrador continued to argue that such measures were not needed, and that it would only hurt the Mexican economy. 

The president's biggest concern came from the fact that the Mexican gross domestic product shrank 0.1% in 2019, López Obrado's first year in office. It was the first annual fall in the GDP since 2009.

About a week ago, however, AMLO changed his mind, and now asks those citizens who can, to stay at home. 

• In the beginning of March, Mexico’s central bank cut its interest rate to 6.5%, moving forward their monetary policy meeting by three days. According to Forbes, the rate cut matched the emergency cuts made by the Federal Reserve, which cut the overnight lending rate to between 0% and 0.25% recently. Mexico’s real rate (after inflation) is around 3%. This gives Banxico room to cut the country's rate again in the following weeks. Also according to Forbes, at least 8% of Mexico’s economy is in trouble as Americans stay home. With a coronavirus escalation, the millions of Americans who usually spend their Summer Break in Mexico are canceling their reservations.
• On Sunday, AMLO announced that Mexico will offer 25bn pesos ($1 billion) to fund 1 million loans for small businesses. He also said that social programmes aimed at almost half the population that lives in poverty would be increased

• But no further measures to help private-sector companies survive the crisis, such as tax breaks, were announced. AMLO said that he would prioritise social spending, alongside with his flagship airport, train and refinery infrastructure projects. These measures, said Mexico's President, would be enough to create 2 million new jobs. Business leaders, however, fear that by halting all but essential activities to stop the spread of the Covid-19 without major stimulus, as many as 1.2 million jobs will be lost. 

It's important to follow the news about:

How Brazil will operationalize its emergencial aid to citizens and companies

In addition to official announcements and decrees, money needs to be effectively made available to the poorest citizens, informal workers and the unemployed. Besides that, banks must actually grant the promised loans to finance companies' payrolls for the next months. This week will be decisive to see if the mechanisms designed for this will actually work.

Glüky, Revelo, Jobecam, Gupy: meet the innovative group of Latin American HRTechs

In Brazil, there are already 274 startups offering solutions in HR. They are advancing fast and attracting global investors in the whole region. At the request of LABS, the Association for Private Equity & Venture Capital in Latin America (LAVCA) listed some of HRTechs’ recent major moves in the region, when we talked to some of them.

Global online music streaming grew 32%, and Spotify continues to be the market leader

Global online music streaming subscriptions grew 32% year-on-year reaching 358 million subscriptions in 2019, according to a Counterpoint Research report, and Spotify still rules the market.

Should the U.S. Let Huawei Work in Peace?

›› LABS Country and manufacturer are playing a delicate chess match for quite a time now, and Latin American countries are valuable pieces in it

Coronavirus Ravages Ecuador’s Largest City

›› The Wall Street Journal With morgues full and residents fearful of the virus, families have begun leaving the deceased outside their homes or on street corners

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