Opening remarks by Angel Gurría
13 July 2020 - Paris, France
(As prepared for delivery)
President Medina, President Alvarado, Vice President Ramírez, distinguished guests:
The pandemic has given a new dimension and relevance to the exchanges on informality and social inclusion in the region.
The COVID-19 crisis emerged in Latin America and the Caribbean at a time of great uncertainty and difficulties, marked by unemployment, informality, inequality, vulnerable middle classes, and an increase in poverty and extreme poverty.
The economic slowdown that we were already experiencing worsened due to lockdown measures, the fall in global economic activity, and the disruption to international trade that had already been weakened by trade tensions is further complicated by the interruption of global value chains. We also anticipate a decline in remittances, tourism and foreign direct investment.
Moreover, the fiscal space for a response is limited in the region. Between 2008 and 2019, the average fiscal deficit in LAC rose from 0.4% to 3.0% of GDP, and public debt increased from 40% to 62% of GDP.
In this complex landscape, the crisis is mainly affecting the poorest and most vulnerable households. ECLAC estimates that in 2020 the region will see GDP shrink by close to 5.3% and unemployment rise by 3.4 percentage points. This would imply an increase of 28 million Latin Americans in poverty and 16 million more in extreme poverty. The region would lose the gains of two decades of social progress.
Micro, small and medium-sized enterprises (MSMEs), which represent 99% of firms and 60% of employment in the region, are particularly vulnerable to this crisis. The micro and small enterprises are at high risk of going bankrupt. The resulting loss of jobs could disproportionately affect the vulnerable "middle classes”; which today represent 37% of the region's population.
The crisis has also revealed that current social protection mechanisms are insufficient and that many citizens do not have access to them. Informal workers, who represent about 60% of the labour force in Latin America, are particularly exposed, and two thirds of them have no access to social protection (which equals to 40% of the working population). The high level of informality also limits the effectiveness of efforts to contain the virus, as workers in the informal sector are faced with the hard dilemma to choose between the virus or hunger.
The impact of the COVID-19 crisis may also be particularly harmful for certain specific groups, such as women, indigenous peoples, older people, migrants, and young people, all of whom face systemic barriers to integrate themselves in the formal labour market. One in every five young people in the LAC region is expected to be unemployed in 2020, twice the overall rate and three times the adult rate. In addition, 20% of young people aged between 15 and 24 are neither studying nor working. This proportion is even higher for women, at nearly 30%. More than 77.5% of women in the domestic work sector are employed informally. Many women are also exposed to gender-based violence brought on by confinement measures.
The crisis is handing us an opportunity to undertake reforms to achieve growth that is more inclusive. We must put equity and well-being at the centre of the development model for the region. To do so means rethinking the current model, which for decades has generated too much inequality. We must forge a new pact between the State, the market and society that will make it possible moving towards new consensus.
To this end, allow me to highlight some key priorities:
First, the virus needs to be fought and defeated. There is no conflict between health and the economy; it is a false dilemma. Until a vaccine is available, it is essential to remain vigilant and follow “test, track and trace” strategies, social distancing and hygiene measures.
Second, progress needs to be made in terms of stronger and more universal social protection systems, which cover all vulnerable workers and families. Some countries have set an example by developing innovative solutions. For example, Costa Rica, through its Bono Proteger subsidy programme, provides an individual benefit for three months to informal workers and self-employed workers, as well as to those who have experienced layoffs. It is essential to consolidate these efforts in the long term.
Third, moving towards better management of public expenditure and public debt. Tax revenues in Latin America and the Caribbean average 23.1% of GDP, compared with 34.3% in the OECD. It is essential to reform tax and public expenditure systems, as well as enable more efficient and transparent collection, combat tax evasion, increase direct taxes on individuals, and eliminate inefficient tax expenditures. International assistance with raising additional funds should not be based solely on a country's income level, but should also take into account its characteristics and needs. Co-ordinated international action for debt management is also vital.
Fourth, we must promote access to the formal labour market, and improve skills and abilities of the labour force. The digital transformation has proved to be key in preserving certain economic activities throughout this crisis. At the same time, it has also exposed the negative consequences of the digital divide, in terms of access to distance education for example. Therefore, it is essential to improve the skills of workers in the digital economy, as well as to invest in education and business development.
Fifth, citizens need to be empowered. The crisis has occurred at a time of low public confidence, and governments must use the current momentum to rethink the social pact. Only 25% of citizens in LAC had full confidence in governments in 2018, and almost 80% believed that they were governed by, and for, powerful groups and an elite. Now more than ever, effective co-ordination and co-operation between different society stakeholders is essential to provide effective, transparent and sustainable responses.
And last but not least, 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,
Social inclusion is a key element of this crisis. COVID-19 will undoubtedly test the resilience of our social, economic and support systems. It will test our collective ability to respond, and the way we co-ordinate our efforts at the regional and global levels. All of us - governments, the private sector, international organisations - have to work together with a common vision to ensure a strong and united exit from the crisis, to build a better world for all. That is why regional co-operation and integration are fundamental.
Our efforts must be geared towards rethinking the social pact and building a state dedicated to ensure access to health, to food, to education, and quality public services. We will address these key issues in our next jointly produced Latin American Economic Outlook 2020.
I am now pleased to hand over to our distinguished guests so that they can comment, from their own country's perspective, on how they have addressed the challenges of this pandemic. Count on the support of the OECD to help rebuild a better, greener, more inclusive and more sustainable world. Thank you.