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OECD Secretary-General

XIV CAF-SEGIB ECONOMISTS’ MEETING: The Economic Impacts of COVID-19 in Ibero-America: Moving Towards Recovering Growth

 

Remarks by Angel Gurría

OECD Secretary-General

12 May 2020 - OECD, France

(As prepared for delivery) 

 

 


Dear Rebeca Grynspan, Luis Carranza Ugarte, Alejandro Werner, Ladies and Gentlemen,


I am delighted to be part of this fourteenth meeting of economists from CAF and SEGIB.


I would like to thank both CAF and SEGIB for convening this important meeting at a pivotal moment for multilateral collaboration.


The COVID-19 pandemic is causing large-scale loss of life and severe human suffering. Economic contagion is also spreading fast. This double shock could be devastating if we do not act quickly, effectively and in a coordinated manner.

 

An unprecedented economic crisis

First of all, it should be noted that it is extremely difficult to calculate the precise economic impact of COVID-19, but many economies are likely to face their biggest recession since the Great Depression of 1929. Our initial estimates point to a decline in annual GDP growth of up to 2 percentage points for each month that strict containment measures continue in OECD countries. Unemployment is also soaring in the major economies. For example, in the United States there have been over 20 million new unemployment benefits claims in 4 weeks.


In Spain and Portugal, as in most economies, the crisis is also having a significant impact on the economy and employment. However, both countries have reacted decisively, setting up short-time work schemes, benefits for the self-employed, help with rent and loans, and increases in benefits for workers affected by the virus. In Spain, 22% of the working population is now receiving unemployment benefits.


In Latin America and the Caribbean, the crisis emerged against a backdrop of great uncertainty, marked by very low growth (with a regional average of 0.1% in 2019 ), high levels of unemployment and informality, vulnerable middle classes, and an increase in poverty and extreme poverty in several countries in the region.


COVID-19 burst out of nowhere into this complex landscape, exacerbating the risks and challenges by increasing volatility in the financial markets, and disrupting international trade that had already been weakened by trade tensions and was now made more difficult by the impact on global value chains.


As is the case in other economies, output and demand in Latin American and Caribbean countries will be affected. The global recession will generate a sharp decline in exports, especially to China and the United States, the region's main trading partners. We will also see a decline in remittances, tourism and foreign direct investment. In addition, the collapse of commodity and oil prices will affect the fiscal and external accounts of a number of countries in the region.


Although the proactive measures taken by LAC governments are welcome, the fiscal space for a response is limited in many countries in the region. Between 2008 and 2019, the average fiscal deficit in the region worsened from 0.4 percent to 3.0 percent of GDP, and public debt increased from 40 percent to 62 percent of GDP . Likewise, our Revenue Statistics Report for the region indicates that the ability to increase spending on public services is constrained by a reduced tax burden and low tax collection, as well as high levels of tax evasion.


The crisis is jeopardising the social advances of recent decades

There is a risk that the impact of the crisis will fall mostly on the most vulnerable. In fact, ECLAC estimates that poverty in LAC could increase by 5 percentage points between 2019 and 2020, from 30% to 35% of the population.


Within micro, small and medium-sized enterprises (MSMEs), which represent 99 percent of firms and 60 percent of employment in LAC, it is primarily the micro and small enterprises that are at risk of going bankrupt.


The huge loss of jobs could disproportionately affect the vulnerable "middle class", which currently represents 40% of the population, most members of which have no form of social protection.


The social impact of the COVID-19 crisis could also be particularly costly for women, as they have higher informality rates, and in many cases are more exposed to gender-based violence brought on by confinement measures.


Another major challenge is to provide support to informal workers. This requires creativity and innovation. For example, Colombia, a new member of the OECD, focussed on delivering cash transfers to more than 1.5 million households designated as being in the informal sector and that could not benefit from traditional national government social programmes.


Moving towards an inclusive recovery

An effective recovery that limits the social and economic repercussions of the crisis will require strong action on several fronts:

  • First, the crisis is an opportunity to build consensus on one of the main remaining reforms: strengthening social protection and inclusion. It has occurred at a time of weakened public confidence and satisfaction, and governments must use the current momentum to rethink the social pact. We will address these key issues in our next jointly produced Latin American Economic Outlook 2020, as well as during the next (virtual) Ministerial Meeting on Social Inclusion under our Regional Programme.

  • Second, increased spending must be combined with measures that show a commitment to long-term fiscal sustainability. A large part of the recovery effort will fall on the private sector, so it is important to progress a productive strategy that improves conditions for investment and entrepreneurship.

  • Third, active international collaboration based on solidarity must be promoted, especially to support the most vulnerable countries. Many governments will find themselves competing concurrently to finance additional expenditure, and we cannot take the risk that some countries will lose access to international capital. In addition, between January and March this year the cost of financing for the LAC region increased by 700 basis points, further increasing the public debt burden. In this regard, we welcome the statements by the IMF, World Bank, IDB and CAF on the extraordinary provision of resources to support the response to the crisis.

  • Lastly, it is essential that policies and economic stimulus measures be aligned with commitments and requirements related to climate change, preserving biodiversity and protecting the environment, while increasing our resilience to potential natural disasters.

Ladies and gentlemen,


This crisis will test our collective ability to respond, the way we co-ordinate efforts at the regional and global levels, and our economic and social models.


We have an opportunity to reinvent multilateralism, to reinvent our co-operation, and to rebuild confidence in institutions in and outside our borders, including in international trade. We need to rethink a new form of multilateralism that is inclusive and sustainable, to ensure a strong and united exit from the crisis.


Pepe Mujica, the former President of Uruguay, recently wrote, “Are we humans reaching the biological limit of our political capacity? Will we be able to redirect ourselves as a species and not as a class or a country? Shall we learn the lesson of disaster by seeing how nature revives?”


You can count on the OECD to support and redirect Ibero-America towards a more inclusive, sustainable and resilient growth model. We are ready to organise exchanges and dialogues with the countries in the region on policies to cope with the crisis, as we did with Colombia two weeks ago, building on the policy briefs and country analyses available on our COVID-19 digital platform. Thank you very much.

 

 

 

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