Tuesday 6 December 2022

Latin America backslides two decades in extreme poverty as a result of the pandemic

The hit in the region is explained by the strong presence of labor informality, according to a study carried out by the OECD, ECLAC, the European Union and CAF.

The hit in the region is explained by the strong presence of labor informality, according to a study carried out by the OECD, ECLAC, the European Union and CAF.

Q REPORTS – The COVID-19 crisis generated a two-decade setback in extreme poverty levels in Latin America and the Caribbean, according to a study prepared by the Organization for Economic Cooperation and Development (OECD), ECLAC, the European Union and the Development Bank of Latin America (CAF).

The text warns that the crisis derived from the pandemic caused damage to an “extremely vulnerable social fabric, resulting in a significant increase in poverty and inequality.”

The report determined that per capita gross domestic product (GDP) levels in Latin America and the Caribbean will not return to pre-pandemic levels until 2023 or 2024. In addition to the fact that poverty and extreme poverty in the region reached levels not seen in recent years 12 and 20 years, respectively.

Per capita gross domestic product levels in Latin America and the Caribbean will not return to pre-pandemic levels until 2023 or 2024
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All this taking into account that the demand policies promoted by the governments served to avoid loss of life and increases in poverty.

A good part of this inequality – measured by the Gini index – is explained by the strong presence of labor informality in the region. When the pandemic broke out in Latin America, 50% of workers had a job that had social security or was not recognized in formal employment records.

Households that earn their income exclusively from the informal economy were the most affected by the crisis, as they lost their jobs and the income they earned from them. On average, 45% of the Latin American population lives in households that depend on this type of employment, 22% live in mixed households, and 33% live in households that depend on the formal economy.

Read more: Container crisis hits street vendors

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Likewise, the phenomenon of informality affects asymmetrically the economies of the region, since while Chile or Uruguay have less than an impact of less than 20%. While in Bolivia, Honduras or Nicaragua it exceeds 60%.

In this context, the organizations recommend that Latin American economies promote innovative options for labor formalization and reduce social coverage gaps to protect women, youth, migrants and other vulnerable groups.

The agencies warn that there is no approach or solution that guarantees a solid, sustainable and inclusive recovery. However, a common feature for recovery is the need to adopt a clearly defined sequence of fiscal policy measures in spending, taxation, and public debt management.

“Mobilizing resources for recovery will require efforts at the national level and better cooperation and coordination at the international level, especially with regard to public debt,” the report explains.

Villa El Salvador is among the districts with the highest level of poverty in Lima, Peru. A study by several multilateral organizations determined that the pandemic generated a two-decade setback in extreme poverty in Latin America. (HUGO CUROTTO / El Comercio de PERU)

At the national level, the document advises that Latin American governments use fiscal, social and productive transformation policies to build a new social contract. In particular, the elements of intra- and intergenerational mobility and equity must be duly considered, as well as the challenges associated with climate change and the transition towards a low-carbon development model.

In regional matters, the report emphasizes that Latin America lags behind in terms of integration, since only 14% of its exports remained within the region in 2019, and the proportion has been declining steadily since 2014.

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Thus, the promotion of intra-regional trade, the creation of regional value chains and the improvement of the region’s participation in global value chains, through the connection of micro, small and medium-sized enterprises with international trade are key public policy objectives in the context of the coronavirus.

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Q Costa Rica
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