The Effects of Covid-19 on Latin America and the Economic Outlook

By Maureen Heydt

As the Covid-19 pandemic continues to surge in countries around the world, an expert panel convened by Center for Strategic & International Studies discussed how the pandemic is likely to affect the economic outlook for Latin America. As Latin American nations contend with virus hotspots, how should the macroeconomic and policy responses aimed at a recovery be implemented?

The panel featured a number of experts, including Global Development Policy Center Director Kevin P. Gallagher, who spoke about the need for international financial institutions to increase the “amount of fiscal space” available to Latin American governments to respond to the crisis. “We have to remember that this is a region, the most unequal in the world, that was already rife with social protest and unrest, and severe climate shocks even before the Covid-19 crisis, making it very vulnerable to this shock... The IMF and the G20 are not doing enough – the region is too rich for the Debt Service Suspension Initiative (DSSI), where only a handful of countries qualify, and just one is participating, amid fears of potential credit rating agency downgrade.”

First Deputy Managing Director at the International Monetary Fund (IMF), Geoffrey Okamoto gave introductory remarks and mentioned the IMF has predicted a nine percent reduction in economic growth for Latin America, and expects a partial recovery in 2021. 

Gallagher commented that the IMF projection “is really sobering in a historical context. Translated into GDP per capita terms, this puts Latin America back where they were in 2010 – amounting to yet another lost decade and making that three of the last four decades in the region as lost.”

He also identified four critical measures needed to stymie the fallout, including a new allocation of Special Drawing Rights (SDRs), expanding support of the DSSI, debt relief for the small island developing states of $6.9 billion in exchange for climate adaptation and inclusive growth fund and meaningful participation from the private sector.

“Without bold measures like these we will see more death, more poverty, and many future downgrades in growth prospects,” Gallagher concluded.

The panel also included Chris Campbell, Chief Strategist for Duff & Phelps Institute, Samar Maziad, Vice President and Senior Analyst for the Sovereign Risk Group at Moody’s Investors Service and was moderated by Stephanie Segal, Senior Fellow in the Economics Program at CSIS.