translated from Spanish: 5 economic risks that Latin America will face in 2021 (and an opportunity)

With the onset of vaccine distribution, many people are regaining hope that 2021 will be better than 2020.

A lifelong bus driver, Marco Alarcón lost his job in March, as soon as the pandemic arrived in Santiago, Chile.

Within two months he came up with the idea of making furniture with wood that he found lying on the floor or that they discarded in the construction works. He had never done it before, but the need to earn income prompted him to try something different.

«My passion was always to transport passengers, but now I’ve seen that I can create things with my hands and that fills me with happiness,» he tells BBC World. Better known as the Tata Marco, her daughter posts photographs of her products on Instagram and has gradually managed to open up an impromptu career path, as thousands of people have done from Mexico to Patagonia.

Due to the pandemic Marco Alarcón lost his job as a bus driver. He now recycles wood to make furniture in his home. IMAGE SOURCE: ALARCON FRAME

Although the economic outlook is more encouraging by 2021, there is still a high level of uncertainty about how and when employment will be revived, one of the deepest traces left by the recession after the confinements and the rapid spread of covid-19.

And even though official unemployment reached more than 10% in the region, the hardest hit people were the informal workers who live a day and are not counted in the statistics.

The problem is that even if the economy grows back in the region (about 3.7%, according to different estimates), indicators such as employment or poverty will take much longer to recover.

And as the International Labour Organization warns, in 2021 unemployment Could Climb 11.2%.

«We have been back ten years in ten months,» said ILO Regional Director Vinicius Pinheiro at the end of December. That is why, he adds, the great challenge is to achieve economic growth with employment, an opinion shared by Daniel Titelman, director of the Economic Development Division of the Economic Commission for Latin America and the Caribbean, Cepal.

«The social costs of the pandemic are going to be with us for a long time, and that’s why it’s important that fiscal policy helps mitigate and offset those effects,» Titelman tells BBC World.

To revive the economy, he adds, Cepal projects that Latin America will face 5 major risks by 2021:

1-The evolution of the pandemic and the availability of the vaccine are uncertain

The scenario that the Ecpal considers for its economic projections is that the negative effects of the pandemic would improve in the first half of 2021, with a higher level of mobility than that recorded in mid-2020.

Venezuelan immigrants are one of the groups that has suffered the most harshly from the impact of the pandemic. IMAGE SOURCE: GETTY IMAGES

It also assumes that during 2021 the vaccination process will progress in the region. If so, the economic impact of vaccines on growth could occur from the second half of 2021.

But if the expected conditions are not met, the projection of economic growth for the region of 3.7% in 2021 could undoubtedly decrease.

2-Premature withdrawal of monetary and fiscal stimulus policy measures

Eliminating fiscal stimulus and measures central banks have taken to push recovery could truncate economic growth with a negative impact on the region.

Therefore, the agency recommends that tax aid be maintained and that monetary policy continue to ensure the availability of liquidity at the global level.

3-Worsening global financial conditions

The estimated growth for Latin America also depends to a large extent on the similar international financial conditions to those of the second half of 2020.

For the poorest countries, access to finance is critical. But a worsening financial landscape could create a major problem for those countries that have increased their debt level in the context of the pandemic. Another issue concerns the possible depreciation of currencies, in the face of a lower «risk appetite» investors, who in crisis situations seek refuge in mstable.

If there is a downward trend, it would put heavy pressure on those countries with higher levels of foreign currency debt.

4- Potential drop in commodity prices

Estimates suggest that there will be an increase in commodity prices by 2021.

If this projection is not met, the countries of South America, a net export area of these products, will suffer a severe blow that would affect their income level and growth prospects.

5-Increased social and geopolitical tensions

Rising unemployment, poverty and inequality could intensify latent social tensions in Latin American countries and affect their economic activity.

Add to these internal tensions are geopolitical conflicts, including technological and trade frictions between countries.

«The brutal drop in revenue creates social tensions and challenges to fiscal policy,» argues economist Daniel Titelman of the Eclac. IMAGE SOURCE: GETTY IMAGES

«The brutal drop in revenue creates social tensions and challenges to fiscal policy,» Titelman argues.

He adds, «Governments must make an important effort to continue to support and thus mitigate the social effects of the pandemic.»

An opportunity

«With this crisis there is an opportunity to move towards a more sustainable and inclusive development«the economist says.

A positive view, he explains, is that what we experienced in 2020 is a lesson in overcoming the region’s major structural challenges such as poverty, inequality, unemployment, labour informality and low social protection.

What the pandemic did was put on the table those great challenges that have affected Latin America for decades, he says.

From their perspective, countries would ideally not only take steps to revive the economy in the short term, but also look to the future and include environmental and industrial policies to transform the development model.

Original source in Spanish

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