Remarks by Angel Gurría
29 June 2020 - Paris, France
(As prepared for delivery)
Dear President Jáuregui, Vice-president Salafranca, Ladies and gentlemen,
It is a pleasure to be a part of this important event on “COVID-19 and Latin America: priorities for dealing with the pandemic and reconstruction”.
Before starting, I would like to thank the Euroamérica Foundation for giving me the opportunity to share with you some thoughts on the COVID-19 crisis, its impact on Latin America, and the priorities that should guide the response to the crisis and lead the way towards reconstruction that is not just rapid and vigorous, but also resilient, inclusive and sustainable.
Just two weeks ago, the OECD updated its Economic Outlook, and the picture is bleak. Our forecasts indicate that this year we will face the biggest recession in the OECD's 60-year history. Given the uncertainty surrounding the development of COVID-19, we present two scenarios in the Outlook. The first considers that the virus is brought under control, and indicates a 6% contraction in global GDP by the end of this year. This figure worsens to a 7.5% drop in the second scenario, in which a second outbreak of the pandemic occurs.
The forecasts for Latin America are equally negative. The countries that we follow in our Outlook (Argentina, Brazil, Chile, Colombia, Costa Rica and Mexico) will experience falls in GDP of between 4% (Costa Rica) and 8.3% (Argentina) in the most favourable scenario.
We must also remember that this crisis hit Latin America at a time of great uncertainty and difficulties marked by very low growth (with a regional average of 0.1% in 2019 ), high levels of unemployment and informality, vulnerable middle classes in highly unequal societies, and an increase in poverty and extreme poverty in several countries of the region. All these factors contributed to the social discontent that manifested itself in the form of protests in the streets of many countries in the region last year.
We are also currently facing a double supply and demand shock. Volatility in the financial markets is higher than at the time of the 2008 crisis. The global recession will generate a sharp decline in exports, especially to China and the USA, Latin America'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.
Latin American governments have reacted appropriately, with expansionary fiscal and monetary policies aimed at alleviating the impact of the crisis on households, workers and businesses, as well as protecting the most vulnerable sectors.
However, the fiscal space for a response is limited in many countries in the region. Between 2008 and 2019, the average fiscal deficit rose from 0.4% to 3.0% of GDP, and public debt increased from 40% to 62% of GDP . Despite this, we have seen ambitious stimulus programmes equivalent to between 1% and 7% of GDP.
The crisis is threatening to reverse the social progress achieved by Latin America in recent decades. Even before the emergence of COVID-19, poverty in Latin America and the Caribbean was once again on the rise in several countries. 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. If we also take into consideration the vulnerable middle classes, which today represent 37% of the region's population, most members of which have no form of social protection, the outlook is indeed worrying.
We are talking about 70% of the population of Latin America that could be significantly impacted by the pandemic. For example, micro-, small- and medium-sized enterprises (MSMEs) represent 99% of firms and 60% of employment in LAC. The risk of insolvency, especially for micro and small enterprises, is high. Some estimates suggest that only 15% of companies with monthly sales of under USD 5,000 can survive after two consecutive months of confinement. The huge loss of jobs could disproportionately affect this vulnerable "middle class”.
In addition, the social impact of the crisis could 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, who are faced with the awful dilemma brought on by the crisis of deciding whether to protect their health or their income. This requires creativity and innovation. For example, Colombia, a new member of the OECD, successfully delivered 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.
As you know, the WHO currently considers Latin America to be the epicentre of the pandemic. At present, around 2 million cases have been recorded in the region, with cumulative daily increases of over 50,000 cases, and a total of more than 100,000 deaths. In view of this dramatic reality, I would like to highlight some priorities for addressing the crisis.
The first priority is without question to fight and defeat the virus. As I have said on many occasions, there is no conflict between health and the economy. Let us not create 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, this crisis is presenting an opportunity to create a better, greener, more digital, and more inclusive, Latin America. If we are to seize this opportunity, then we must strengthen social protection and inclusion.
The third priority is an ambitious, co-ordinated and coherent multilateral response. To achieve the development, production and distribution of a vaccine, for example. There have already been initiatives in the health field, such as exchanges of medical and scientific information by the Ibero-American Medicines Authorities Network in collaboration with SEGIB. In addition, strong international co-operation will also be key to building more resilient value chains and avoiding simplistic responses that jeopardise the benefits of the rules-based multilateral trading system.
Fourth, we must help the most vulnerable countries with ambitious programmes. There are many governments that will be competing to finance their additional expenditure, and we cannot take the risk of some countries losing access to capital markets. In this regard, I welcome the initiatives of the IMF, the World Bank, the IDB and the CAF concerning the extraordinary provision of resources to support the response to the crisis.
Fifth, the taxation of the digital economy. As you know, we at the OECD have been working for the past three years to achieve a consensus solution on this issue by the end of this year. We have to do everything in our power to reach a political agreement. Without a multilateral solution, the accumulation of unilateral measures may result in more trade tensions than the world can afford at the moment.
And I would like to conclude with an important appeal: the private sector must play a substantial role in the revival and construction of a better Latin America.
In the short term, support measures will have to be tailored closely to the recovery phase, in order to avoid the creation of lasting market distortions, by favouring the reallocation of resources between sectors and activities. In the long term, Latin American countries face the challenge of designing a productive strategy, and improving investment and entrepreneurship conditions in the continent. If a better future is to be built, it will be essential to have a strategy that is aligned with commitments related to climate change, preserving biodiversity and protecting the environment. Governments can and should aim recovery at a decarbonised economy using public investment as well as private sector incentives, for example, through making financial support measures to certain sectors conditional upon climate co-operation.
The COVID-19 crisis is also forcing companies to rethink their operations and supply chains. These changes are an opportunity to improve their resilience and strengthen a public-private partnership that is more necessary than ever.
Ladies and gentlemen,
At the OECD, we are working hard to help our members respond to the crisis. Our digital hub provides access to more than 100 documents containing analyses, data, good practices and policy recommendations on the different dimensions of this crisis, and we are organising discussions with the governments of Member countries in order to assist them in the recovery of their economies and societies.
There is no doubt that 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 all - governments, the private sector and international organisations - have to work together with a common vision to ensure a strong and united exit from the crisis - including in Latin America.
You can count on the support of the OECD to help rebuild a better, greener, more inclusive and more sustainable world for years to come. Thank you.