Panelists discuss the recent acceleration of infection in Latin America, as well as the political and economic ramifications of the pandemic in the region.
HRINAK: Hello, everyone. Thanks for calling in. I hope you’re all taking care, wherever you are.
We are joined today by two of CFR’s distinguished scholars on Latin America: Paul Angelo, who is the fellow for Latin American studies; and Dr. Shannon O’Neil, vice president of the Council and the senior fellow for Latin America studies. Both of them have been following the pace of COVID-19 spread in the region as well as the reactions of governments to the—to the virus. I’d like to remind you all, first of all, that this call is on the record. As the operator mentioned, we will have a discussion among Paul, Stephanie—Paul, Shannon, and myself for approximately a half an hour. And then around 3:30 we’ll open the conversation for your questions.
And, Paul and Shannon, as we begin this discussion, I would like to think in terms of sort of two buckets of issues that we might talk about. The first bucket, the first part of the conversation, I’d like to focus on sort of the immediate situation in the region. What do we know about COVID-19 in Latin America and the Caribbean right now? How the virus is affecting the various countries? And how the governments have reacted to the spread of the virus? I think, Shannon, you’ve characterized it as good, bad, and ugly reactions. So I think we talk about how the different countries have responded, and how effective those responses have been.
And then for the second part of the conversation I’d like to focus more on the analytical, if you will. What does the economic impact in particular, but the health impact as well, mean for the future of the region? What do the public policies that are currently implemented mean in the longer term for economics, for politics, for migration, for public health? And as I was preparing for this conversation I looked at the World Bank report that—semi-annual report on Latin America that came out over the last weekend. And it noted that the context in which the virus is affecting Latin America and the Caribbean is one in which the economic performance has been disappointing for at least the last five years. Commodity prices have been dropping, and we certainly see the price of oil dropping recently, in a way that has made continued spending on social services difficult. And we saw social unrest erupting around the region over—at least since 2019.
So that’s the background. And if we can start out talking about where we are and then—in that context—and then where we might go from here. Shannon, can I turn to you first? What do you see happening in that good, bad, and ugly spectrum of reaction?
O’NEIL: (Off mic)—and thank you all for joining. It’s a pleasure to be here. (Off mic.) Some countries in Latin America have really done a great job. And they’re very proactive. They were some of the first to get out there and do social distancing, and quarantine, and others. So we saw Argentina, Peru, Columbia, Chile, many of the Central American nations really take an aggressive stance. And that has successfully flattened the curve in many of these countries, so they’ve seen many fewer cases than were modeled if they hadn’t taken those steps.
We’ve also seen, though, other countries, and particularly the two biggest economies, Mexico and Brazil, not take those steps, be much slower in taking measures to social distance to stop the virus, and even presidents in both countries that have mocked some of the public officials, the health officials, many of the threats or the sort of worries about the harm that was to come.
And so it’s really been up to governors in those countries to take these proactive steps. And those two countries have done much more poorly, and I think there’s much more to come. And so this is going to be a huge challenge going forward as they deal with different levels of threat, given these first initial steps.
The other thing we’ve seen is most of the countries around the region have poured resources into short-term stimuluses, so trying to keep the economies going, trying to keep workers in jobs and the like. And the biggest exception there, again, is Mexico. And AMLO as president has not chosen to do that. And I think we will see ramifications, reverberations, in the short term, but also as we go forward medium and long term because of that choice.
HRINAK: All right. Well, that was a very good summary. And I did hear every word of that, so thanks very much.
Paul, when you look around at the countries and their level of ability to respond to the crisis, the resources that they have available—and you’ve spent a lot of time looking at Central America in general and Venezuela—can you talk in particular about the kind of additional pressures COVID is putting on the Northern Triangle and Venezuela?
ANGELO: Absolutely. Thank you, Donna.
Looking at Venezuela, and particularly the Northern Triangle countries of Central America—so we’re talking about El Salvador, Guatemala, and Honduras—this COVID-19 pandemic is actually happening against the backdrop of preexisting humanitarian crises.
In the situation in Venezuela, we have a political stalemate between the Maduro regime and the interim government of Juan Guaidó, who is the opposition—who’s the leader of the opposition-led national assembly. You have an economy that has already contracted by 35 percent in the past couple of years, leading to a recession, given the downturn in commodities prices, and a health crisis that really does preexist the COVID-19 pandemic.
Seventy percent of hospitals in the country do not have consistent running water. Sixty-one percent of the country is food-insecure. We’ve seen about five million Venezuelan refugees displaced from their country, most of which have been absorbed by countries like Peru, Ecuador, Colombia, and Brazil. And it’s a country with a population of over thirty million people, but the country only counts on fewer than two hundred ICU beds nationwide.
And so I think that the humanitarian considerations in Venezuela are pretty dramatic. And this is happening also against a backdrop of the political crisis, as I mentioned. And I think that the opposition’s greatest asset over the past several years in resisting the Maduro regime has been its ability to bring people out to the streets.
Now, you know, given the shelter-in-place orders that are being enforced by the military and the national guard, the opposition has lost its greatest bargaining chip, which is its ability to mobilize the people. So I think that this is actually giving Maduro an opportunity to consolidate its legitimacy, the Maduro regime’s legitimacy, in Venezuela.
Now, moving over to Central America, we’ve seen a real mixed bag of responses. In a place like Nicaragua, where you have the populist Daniel Ortega in power, magic realism is alive and well. On March 14, Daniel Ortega led a rally in Managua entitled “Love in the Time of Coronavirus.” He has since gone missing from the public eye for much of the past month, and has refused to actually impose a shelter-in-place order on the country, and has disavowed any knowledge of communicable contagion in Nicaragua.
On the other extreme, you have a government like El Salvador, that of Nayib Bukele, who’s a young Millennial reformist. And he was among the most proactive governments in the region, shutting down flights from Asia as of late January, shutting down flights from Europe in February, and completely closing the borders in early March, well before the country had even reported its first case of COVID. And so, you know, I think, in looking at Central America, where, you know, we’ve already had a preexisting humanitarian and migration crisis, you know, I don’t think—I think that what we’re going to see is just sort of a mixed bag of fallout. That being said, you know, we have got countries like Honduras and Guatemala, which have been engaged in negotiations with the United States to accept asylum seekers that the United States did not—has chosen not to accept.
We’ve also suspended for much of the past year aid—development aid to those countries. That has just yesterday been turned on, which is, I think, sort of a silver lining in the sort of broader discussion about COVID in the region. But I think it’s a little bit—it’s too little too late and we’ve lost significant momentum. If we really want to avoid the—sort of the migratory and humanitarian fallout of this crisis that we’re going to really have to ramp up our aid to the countries of the Northern Triangle.
HRINAK: And has the virus been active in the region long enough for you to be able to say how remittances to the countries from the States have been affected, given the rising unemployment here?
ANGELO: I think you bring up a very good point, Donna, that remittances—as we saw, for example, in the aftermath of the 2008 Great Recession, remittances dropped off significantly, and for countries like El Salvador and Honduras, where about 20 percent of the GDP is comprised of remittances, I think that although we haven’t been able to see sort of an immediate effect of sort of a downturn in remittances coming from the United States to Central America, I think it’s reasonable to assume that in the coming months and the coming years we’re going to see less of an infusion of remittances into the economies. And, as we all know, remittances are probably the most significant source of poverty relief for the countries of Central America. And so that, I think, will sort of further exacerbate the migratory crisis that we’ve already seen take hold over the past decade in the region.
HRINAK: Yeah. So we started out talking about the region and we’ve said region several times but, very quickly, we’ve been discussing the differences among the various countries that were of the region or even subregions. To both of you, maybe, Shannon, you could start. How much, if any, coordination have you seen through the regional institutions? WHO has been criticized, at least from the United States, on its global reaction. But what about POPA (ph), or what about any of the other institutions where the leaders of the countries might have been exchanging ideas in the prevention?
O’NEIL: I have not seen a lot of coordination on a regional basis and, in fact, if we’ve seen anything it’s that countries have turned inside themselves and there’s been fighting over between, you know, Guatemala and Mexico or between other countries on locking down the borders and not letting things through rather than taking a bigger regional response to the issues, and as you say, that’s unfortunate because borders aren’t going to stop germs and there should be a bigger, more thematic and regional and even global way of looking at it. But Latin America I don’t think is alone in this in turning inward, each country for themselves, and thinking about themselves almost alone, but they are suffering what the rest of the world is suffering in terms of pulling away from these bigger global institutions rather than embracing them.
HRINAK: OK. Paul, have you seen anything any different?
ANGELO: No. I mean, I do think—for example, there’s a constellation of countries in South America. I think six or seven nations have joined forces to try to get a $15 billion loan from the Inter-American Development Bank as a way of financing subsidies and the purchase of health equipment from international manufacturers and distributors. But beyond that, I think Shannon’s absolutely right. Many of the countries of the region have—instead of looking to work with their neighbors have turned inward in dealing with the COVID-19 crisis.
HRINAK: Yeah, I have to say, when I look at the regional institutions, the IADB seems to have been the most active in trying to organize some kind of a response for financial stability but also in working with the private sector to provide needed medical equipment and support beyond the immediate—addressing the immediate medical problems. And one thing about the—that coordination with the private sector in each of these countries, does either of you have the sense that the governments are consulting or have consulting closely with their business sectors and, if so, what has been the result of either that coordination or lack thereof?
O’NEIL: Well, I can jump in first and then, Paul, I’m sure you have some thoughts. I mean, this too has been very country specific, and we were chatting a little bit before, Mexico has been on the one extreme where there has not been a lot of consultation between the private sector and the government. In fact, you see the private sector and the government almost in an outbreak of tensions, if not almost war, where the private sector is strongly criticizing the government for not doing anything, and even some of the northern states where the private sector and many of the manufacturing industries are based are threatening—I doubt this will happen—but threatening to pull back their tax base and the like given the way that the federal government is implementing things. And a lot of that comes from the frustration of the private sector and the support that they think they need at this point.
You know, my impression of other countries has been there have been more discussions between either individual companies or business associations. So I do think there have been some discussions, for instance, in Chile between the government and many of the leading private sector companies, as well as the chambers of commerce and the like.
Argentina, too, we have seen there, interestingly, with this government—it’s a new Peronist government—but we’ve seen outreach both to the rest of the political arena. So when the announcement was made to shelter in place for Argentines, it wasn’t just the president of the country up there. It was also the leaders of the opposition party. So you fall very full-frontal, unified political theme. But also, my impression is, behind the scenes, that there has been a lot of back-and-forth with at least strong elements of the private sector in that country as well. So I think we’re seeing a very differentiated response.
Maybe, Paul, you have some other examples or information.
ANGELO: No, I wouldn’t have anything specific tied to that point. But I would also just sort of flag that, you know, a lot of people in the countries of Latin America and Caribbean, are working in the informal economy. So, you know, in a country like Colombia, which is sort of proudly middle-income, 47 percent of the country is working in the informal economy. And I think these are people who have been most hardly hit by the social distancing and shelter in place ordinates that have been imposed by governments across the region.
And these are also—a lot of people who work in the informal economy also live in informal settlements. If you look at, for example, sort of the shanty towns in the south of Bogota, the favelas of Rio, these are people for whom government services and subsidies aren’t making it to help these people weather through the economic downturn that they’re facing. And so I think, you know, that’s just another major economic vulnerability that we have to take into account when we’re looking at sort of the overall financial and economic forecast for the region.
HRINAK: So, Paul, can you continue a little bit more talking about those marginal neighborhoods? And I think we’ve all seen the international media reports on the gangs in Rio enforcing order, enforcing shelter in place orders when the government was less than enthusiastic about a shutdown, the federal government at least. What kind of impact is the virus and the government reactions, what kind of impact are they having on security forces and their role in these communities?
ANGELO: Sure. You know, exactly what you said. I mean, there are informal militia structures or gang structures that have actually sought to impose law and order and enforce the government’s quarantines in places like Rio, in the sort of vulnerable neighborhoods of major capitals in Central America where gangs like the MS-13 or the Mara 18 operate. And really, this has more to do with the bottom line than it does with protecting the local population. These are organizations that depend heavily on local drug sales and on extortion of local businesses. And to the extent that they can keep the population safe, they’re thinking about their ability to collect their rents, you know, in the months after these social distancing and shelter in place lockdowns lapse. And so I think that’s sort of the first calculation.
But I also think, looking across the region and looking at the panorama of organized crime, it’s a bit too early to tell exactly what the overall fallout will be. In a country like Mexico, for example, we’ve seen a decrease in the number of precursor chemicals that are getting to methamphetamines and fentanyl manufacturers because those are supply chains that depend largely on China. However, this may inadvertently be creating opportunities for poppy growers in the south of Mexico who produce heroin. Likewise, we’ve seen a decrease in cocaine use over the past month in Europe. And a similar thing happened, a similar trend took hold after the Great Recession of 2008, but marijuana use increased in places like Europe and the United States.
And so looking at how organized crime actors are going to respond to the economic shock that they’re feeling is—I think we’re going to see some sort of movement or reconfiguration of the criminal underworld. And I think many groups will try to make up for lost profits by engaging in more predatory behavior, things like kidnapping, and extortion, cybercrime, fraud. You know, this is also something that we noticed in the aftermath of the Great Recession of 2008, was that it was a lot easier for criminal groups to recruit for the criminal workforce as unemployment soared, as remittances were down. We saw particularly in places like Honduras and Mexico a scourge of violence and criminality that took hold to accompany an economic recession. And I think we can expect more of that in the coming months and years.
HRINAK: OK. You’ve taken us into the second half of this discussion, which is the longer-term impacts of corona. Shannon, you mentioned in your first intervention both Mexico and Brazil. Can you talk about what you think might be the longer-term impacts in both those countries, what it might mean for the fourth transformation in Mexico that Lopez Obrador has been promoting? Or what it might mean for democratic elections around the hemisphere, even including in the municipal elections in Brazil this year?
O’NEIL: So this is obviously a huge shock to both of those systems. I mean, Latin America in general was the slow—as you mentioned in your opening remarks, Donna—was the slowest growing region in the world before all this hit. And this is going to be a huge stress on all of these countries. But those two big economies, obviously, will take a big part of that.
So Mexico, it is going to have and is having both a supply and a demand shock. So it’s having a shock on the supply. They are starting to social distance. They are shutting down non-essential businesses and the like to try to get a grip on the disease and its spread. So that’s obviously affecting the economy. But they’re also seeing a big demand shock. You saw—even before the social distancing started, you saw most of the auto companies and the auto plant factories shut down because there was no longer any demand in North America. The supply chains were faltering if not breaking at the time. And we see that in other industries as well. So much of what had driven Mexico’s economy in recent years in terms of international manufacturing, that is slowing down and will be difficult to restart in the coming months.
We’re also seeing—you know, Mexico relies pretty heavily on tourism. And that, obviously, is a factor globally that is being hit dramatically. It also has a good deal of remittances that come in. And that too will affect the economy. So if you look out for 2020, you know, lots of people—there’s lots of different estimates out there. But big declines are expected in terms of GDP. And in terms of the fourth transformation, which is Lopez Obrador’s big political project to transform Mexico, you know, that too, I think, looks on the rocks because there just won’t be the money to hold it together, as the—as the private sector goes into shock. (Laughs.) And the challenges of informality and the like there.
You know, many of the people who voted from Lopez Obrador from the lower socioeconomic classes are going to suffer. And they’re going to suffer more than others. So I think there will be real challenges to his popularity, you’re already seeing it to his political party. And they face elections a year from now. So we will see sort of some reckoning at the ballot box down the road. So I do, for Mexico, whether your love or hate the fourth transformation, I think it will be—it is going to falter.
In Brazil, you know, we’ll see, I think, a quite similar challenge there. The latest poll that I saw was that the health minister is much, much more popular than the president himself is right now, as they’ve been fighting with each other in the last—
HRINAK: And calling him the Anthony Fauci of Brazil, yes. (Laughs.)
O’NEIL: Exactly. So, yeah, we’ll see what that actually means, but yes. (Laughs.) So I do think the government has always been a quite bombastic one. But here, where there’s real facts and real lives on the one, I think it may see somewhat of a comeuppance. We’re also seeing, and it will depend how the—how the disease plays out—but many of the governors who have stepped forward, if their social distancing, if their tougher measures show some fruit, show that they’ve, you know, improved the situation in people’s lives, they may become much more popular and be able to challenge the president both in the mid-term elections, which are coming up in this fall. So we may see the president, and his party, and his coalition take a big hit there.
But as we look forward, in terms of both positioning themselves for the presidency. But overall, you know, Brazil was just recovering from a very long recession. And it’s going to go back into that recession. Both its domestic economy consumption—those things are going to fall, and are falling, dramatically—but also what it sends out into the world. The commodities and things that China has bought, or others have bought, that’s going to falter too, right? And those are going to slow. The prices are coming down. Those will all be challenges for the Brazilian economy in 2020 and into ’21.
HRINAK: Yeah, and the economy ministry has already reduced its projected growth rate for 2020 from 2 percent to 0.02 percent, so.
O’NEIL: And the international bank is saying it will be negative. So we’ll see.
HRINAK: They are saying—exactly, yeah. Seeing that also.
So before we go to questions, Paul, if I could just ask you, how concerned are you about elections being postponed in other countries? Bolivia, I see the Dominican Republic has now postponed after some issues with the election in February. Are these areas we should be concerned about?
ANGELO: Yeah, absolutely. I mean, I think if we go back to some of your initial comments about what we saw in the fall, you know, we saw an unprecedented period of popular mobilization across Latin America in what has been aptly named by some as the South American spring. And this was a popular reaction to things like corruption, insecurity, inequality, all features of Latin American society that stand to worsen in light of this pandemic. And I’d say, you know, the potential—as Dr. Haass has said, what COVID is doing is it’s actually accelerating history. And I think that what we’re going to see is this crisis is going to accelerate the democratic backsliding that had already started to take hold in the region over the past couple of years.
You know, militarization, for one. The military in any number of countries, and particularly countries that have been sort of very leery about the military’s role in public life and its role in the provision of domestic security provision, I’d say, you know, the military has been elevated in the political sphere in a number of these countries. As you mentioned, in Bolivia, for example, the elections have been indefinitely postponed. They’re expected to take place some time before September. And it was an announcement that was made and then further publicly supported by the military. So although the military is not necessarily an overt actor, it is being used as an institution that can shore up weak governance or fill in gaps where civilian politicians may not be able to strike any actual agreement.
I would also say, you know, in the Bolivian context as well, it’s giving the interim government of Jeanine Anez—it’s buying her time to prove her administration’s viability and ability to administer government. I mean, she wasn’t intended to stand as a candidate in the upcoming election. She declared her candidacy in a move that violated the terms of her interim status. But nonetheless, it’s very likely that she instead of Carlos Mesa may make it to the second round of elections when they do indeed happen. So I do think that it is really something to keep our eyes on, is just sort of what dynamics this has in the—in terms of the promotion of democratic institutionality across the region.
HRINAK: Well, you have both put a lot of important information and considerations on the table for our broader discussion.
Operator, if you could open the queue for questions and provide the information as to how our callers might line up.
OPERATOR: Thank you.
(Gives queuing instructions.)
We’ll pause for just a moment to allow everyone an opportunity to signal for questions.
HRINAK: And in this pause let me remind all participants that this call is on the record.
Could I just ask very briefly, as we’re waiting for the callers to queue up, Paul, give the information on how domestic violence might be affected by the lockdowns in countries where we know this is an ongoing issue? I’m thinking Mexico, and some of the smaller—well, some of the countries of South—of Central America, rather, as well?
ANGELO: Yeah, absolutely. I mean, you know, this is a region that, for better or worse, you know, machismo is a part—forms a part of a lot of the culture, and particularly in places like Central America and the Northern Triangle countries and in Mexico. You know, incidence of domestic violence is alarmingly high. And now that people, children, women, are being forced to stay in their homes, I think that the risk to them is especially great.
One standout in the region actually has been Argentina, in which the country has actually automatically extended domestic-violence-protection orders for the next three months, which will protect or at least continue to provide resources and protection for women and children who are known victims of domestic violence.
Then again, if you look, for example, specifically at the countries of the Northern Triangle, domestic violence tends to be one of the principal reasons why people, and particularly women and children, tend to emigrate or migrate and seek asylum in the United States.
And so I think once we see this pandemic and the social restrictions relaxed a bit in the region, there’s no doubt in my mind that we will see sort of another major cycle of mass migration, particularly of women and children, from Central America and southern Mexico to the U.S. border.
HRINAK: All right. Operator, are there questions?
OPERATOR: We do have questions. Our first question comes from Pat Host (sp).
Q: Hello. I’m wondering how the proposed or forecasted economic contraction in the region will affect military budgets.
HRINAK: Either one of you want to respond to that? I can ask—first of all, say thank you for asking that question, I assume on behalf of Boeing, I did not ask it myself. Shannon, would you like to start?
O’NEIL: Sure. You know, I would say—I would say a couple of things. One, it’s hard to know. The short answer is it’s hard to know. But I think there are sort of conflicting forces here. One is that lots of these—some of these countries have room for an economic stimulus. Debt-to-GDP levels are low. Other countries, they are not.
So when policymakers are desperate to put some money into the hands of local citizens and keep small businesses open and the like, there is a scramble for money. And lots of that tends to go to people who vote, especially if elections are coming up in the fall, for instance, in Brazil or other places.
So there will be some tendency to take funds and move them to things that will stimulate the immediate economy in the countries that are—you know, that are being thoughtful and trying to design economic policy. So one side would say you would move some funds away from the military into kind of these nuts-and-bolts-of-the-economy spending.
The other side, and just picking up on what Paul had said before, where, you know, one of the accelerations with coronavirus is this rise of the military and the role of the military—and, you know, we’ve seen that in many countries. We’ve seen it in El Salvador. We’ve seen it obviously in Venezuela. But we’ve seen it in Bolivia and other places where the political elites or other people in the political sphere are pulling the military in. Brazil we’ve seen this where there’s lots of, you know, military folks sitting in various cabinet positions.
There is a sense, if you want them to be part of your administration or you want to use their—the respect for the military that we see in many countries around Latin America, particularly vis-à-vis congress or other elected officials, you wouldn’t cut their budgets right now, right? And for those who are a little bit worried about the military, you want to keep them happy and make sure that they have the things that would do so.
So I think that’s a very long way of saying it’s hard to tell when resources get tight. In some places I think you could see the military continue to have the budgets they have, or even increased. And other, I think, politicians will spend some of those funds on people that—numbers that will vote for them in the upcoming elections, trying to curry favor in that space.
Q: Thank you.
OPERATOR: Thank you.
Our next question comes from Andres Small.
Q: Hi. Thank you.
My question is about the social safety net available for the nonprofits or private sector. Which ones will you—have you identified?
HRINAK: Yeah, interesting question.
Paul, do you want to start with that one, please?
ANGELO: Yeah. I mean, you know, I think that’s also—it’s going to depend country to country. In a country like Venezuela, for example, where a social safety net really doesn’t exist, and so the provision of social services has been highly centralized and has been administered, actually, through organizations like the national guard or the military, you know, there’s not a real social safety net to speak of, and particularly in a country, like I said, that’s 61 percent food-insecure.
And so there the real sort of important actor, I think, particularly in terms of administering humanitarian relief that may be coming to the country in dealing with this crisis, is going to be international community, international actors like the United Nations, UNICEF, World Food Program, Red Cross. And, you know, I said the same could be said for countries that have absorbed large Venezuelan or Central American migrant populations, and particularly Colombia, where there are about two million Venezuelan migrants who have left Venezuela and ended up over the past five years.
And then if you look across the spectrum in other countries, in Central America, for instance, right now social spending in the region per capita in countries like Guatemala and Honduras is about $250 per person, per year. And conversely, in sort of a similarly sized country but a significantly wealthier country like Costa Rica, that spending sits at around $2,500 per year.
And so, you know, I think you’re going to see a pretty significant disparity in terms of how social safety net is going to be leveraged by various countries across the region to manage this crisis.
HRINAK: Yeah, in the very short term, I think the multinationals, not just U.S. multinationals but global, have stepped up in many countries to ensure supply and transport of supplies, some who have switched their production from their normal assembly-line activities to manufacturing respirators, ventilators, for example. But the longer social—the longer-term social safety net, I think, is—it’s a real serious issue.
Next question, operator.
OPERATOR: Thank you.
Our next question comes from Jose Fernandez.
Q: Good afternoon. Thank you for this.
We’ve all been reading about China, and China has been putting out reports on donating equipment, medical equipment, masks and the like, to many countries—Bolivia, Costa Rica, Cuba, Mexico, Peru, Venezuela. And also Jack Ma has announced a donation, I think, of about two million masks and thousands of testing kits and the like. But all this is sporadic. And I’m wondering if there’s any—what you’ve been hearing in general about China’s response to the coronavirus in Latin America and whether it is helping to cement China’s position in the region.
HRINAK: Thank you for that.
ANGELO: I’d be happy to take that.
ANGELO: Yeah, I would just—I would just say that, you know, if we look at the way that China helped stimulate the economies of Latin America following the great recession in 2008, it represented about 7 percent of—Chinese spending in the region represented about 7 percent of the region’s GDP.
This response to this pandemic suggests that that stimulus will only be about 3 percent of the region’s GDP. We’ve already seen over the sort of past decade a real disenchantment between China and Latin America. Whereas in 2010 Chinese state financing in the region represented about $35 billion, last year that sum was only about $1.2 billion.
And so I think that China’s engagement with the region sort of, from a long-term economic perspective, is probably not going to be nearly as robust, which means that Latin America is going to have a much more difficult time weathering this storm than it did in 2008.
That being said, the optics are such right now that China’s filling a gap, a soft-power gap, that the United States has, for the most part, reneged in the region in responding to this crisis. I mean, China is flooding the region with PPE, as you mentioned. It’s contributing vital medical equipment. I think there are something like three hundred ventilators that are being sent from China to Mexico, a country where there are only about 2,500 ventilators across the nation. And, you know, this represents sort of a small but symbolic infusion of resources into the region at a time when a lot of people and even governments in the region are calling into question U.S. hegemony and partnership and leadership. So, you know, I think it’s more a problem from the perspective of soft power optics than it is necessarily one of China’s sort of coming in as a white knight and savior.
Q: Thank you.
HRINAK: Yeah, you know, Paul, you mentioned earlier Richard Haass’ piece on the pandemic accelerating history rather than reshaping it. And my thought about China, what part of Chinese history in Latin America is going to be accelerated? The one we’ve seen most recently, which is the sort of disillusionment, particularly because of its experience in Venezuela, or will it be that the activities immediately before this disillusionment, which was more loans, more involvement, more purchases of infrastructure, and investment? It’s a good question, I think.
ANGELO: Yeah, I think actually, you know, there are a number of countries in the region or high-profile politicians in the region who have made sort of xenophobic comments about China and its responsibility for this virus, which has I think soured some of the good will that many Latin America had curried with the Chinese government. I do think that that is temporary. But, you know, now that commodities prices are so low, I think Chinese general interest in the region is necessarily reduced.
OK, next question, Operator.
OPERATOR: Thank you. Our next question comes from Lee Cullum.
Q: Thank you very much. This has been a sobering but compelling discussion.
Shannon, my question is for you. What is Lopez Obrador’s thinking about his oil industry, with or without OPEC?
O’NEIL: Thank you. That’s a good question.
You know, so we’ve seen the back-and-forth over these last few days where AMLO does not want to cut any of the production that Mexico produces to the world in the OPEC+ conversation. And you know, what’s interesting here is that much of Mexico and Pemex, the state-owned enterprise’s production is now under water, so it costs them more money to get it out of the ground than they’d be able to sell it on the open market.
But you know, AMLO’s thinking here, is a man who grew up in Tabasco, so an oil-producing region of Mexico. He grew up and was formed politically, I would say, in the 1970s. That was a time of Mexico’s sort of great oil prowess, and they discovered one the largest fields in the world during those years. And so he sees oil as a way, sort of in a very nationalistic terms as a way of promoting Mexico around the world, sort of being a power because of oil, because of the commodities, as well as a means of creating a domestic political project, of funding the kinds of changes he wants to see in the (domestic political scene ?). So I think his interest in keeping oil coming out of the ground and keeping production high, even if it costs him money, he sees it as a political win even if it is not an economic win.
But back to sort of the earlier question, what happens to the fourth transformation, what happens to its projects, you know, now as we go forward, those barrels of oil coming out of the ground will not bring in money and will actually take money from the Mexican Treasury. So it’s going to be a big challenge for the country. And they have a little bit of breathing room because they have hedged part of that oil production for 2020.. But come a year from now, that will be a big cost and a drag on his administration and on Mexico’s economy overall.
HRINAK: Thank you. Yeah, the question reminds us how many of our countries have the price of oil important as they figure their economic plans and as they balance their books.
HRINAK: Next question.
OPERATOR: Thank you.
Our next questioner is Yvonne Dradel (ph).
Q: Hi. Thank you for this very interesting discussion.
The rise of unemployment will clearly now become untenable in the region. And particularly hard hit are those in the informal sector, which is approximately half the labor force in the region. So before COVID, the most informal workers lacked access to health insurance—(audio break)—
Q: So what do either of you believe governments in the region can do to—(audio break)—
HRINAK: Shannon and Paul, were you able to hear that question?
ANGELO: I mean, I understood that—
HRINAK: (Laughs.) Go ahead, Paul.
ANGELO: I mean, I just understood the sort of unemployment rising, informal sector, and what kind of response would that elicit from the government to help alleviate the social and economic toll that unemployment is going to take in these countries.
Q: That’s right. Yes.
ANGELO: I would just—I would just—OK.
HRINAK: Now you get to answer it, too. (Laughs.)
ANGELO: (Laughs.) Yeah. I would just say that, you know, the governments of Latin America right now are going to have to sort of build on existing social programming infrastructure where it exists to really get financial resources in the hands of the people, and I think that this is also going to entail direct cash transfers in countries where—that aren’t accustomed to engaging in that kind of programming.
I think a good model for a way that many of the countries may be able to help their populations weather the storm is El Salvador. As I mentioned, Nayib Bukele was the president. Nayib Bukele of El Salvador was one of the sort of earliest responders and had taken some of the most stringent preventive measures. But his government is also one of the governments in the region that has taken some of the most significant steps towards alleviating the economic impact on the country’s citizens by, you know, suspending mortgage and credit card payments and debts, by providing monthly cash transfers to 1.3 million people, most of whom work in the informal sector, and by engaging in international lending organizations and trying to help—sort of inject liquidity into the Central American market.
So I think, you know, that’s the kind of response that’s going to be required in a region that’s very—right now, where 30 percent of the population is living below the poverty line and that stands to rise to about 45 percent by the end of this year, given the recent economic projections. So I think—so a lot of Latin American countries are really in a bind in this respect, but it’s going to take a significant amount of support from the social safety net.
O’NEIL: Donna, let me just—
HRINAK: (Inaudible)—who would—oh, go ahead. Go ahead, Shannon.
O’NEIL: Let me just add something because I’ve been thinking a little bit—we talked a little bit earlier. This is when I put on my let’s find the silver lining, perhaps, you know, in Latin America and all the doom and gloom that we’re talking about here. But, you know, when I think about Richard Haass’ idea that, you know, what this pandemic is going to do is just accelerate trends underway, I think that’s right.
But I’ve been trying to think about what are things that might actually change. Might we see a break from the past with the pandemic? And when I put on my happy hat, you know, one of it might be the change in the informal employment in Latin America and that, you know, as was mentioned, 50 percent of workers work in this informal economy. They have really no protections. There’s some places, like Mexico, where they have some health care programs for those who are not part of the more formal economy but those are uneven, at best.
But I do wonder, one of the challenges of getting people out of the informal economy, because lots of, you know, economy ministers and others have tried to do this over years—one of the problems is that it’s not attractive to those people to come into the formal economy, right? They have to pay taxes. They have to register. There’s a lot of costs to formalizing. And we have seen some experiments in Latin America over the past couple of decades where people have formalized. One of those happened in Brazil, when you saw access to credit for companies that were formalized and all of a sudden you saw those numbers get better, where more companies wanted to come on the books because they could get loans from the development banks and the like. That faded with the recession, but I think there are ways to do this if you can attract people into the formal economy.
And I do wonder, given the pandemic, if people see being a formal sector worker gives you access to basic health care, gives you access to stimulus plans, gives you access to the kind of safety net that will really matter in a time like this. Perhaps there’s a space not just for governments to flood the economy to try to help people survive this but also perhaps to change the underlying economic structure, because people will see that there is a benefit to being formal rather than just the cost. But that’s my—that’s my wishful—perhaps wishful thinking hat. But I think there could be a change here.
HRINAK: I think we need some silver lining now, Shannon. I was also about to say that former Senator Eduardo Suplicy, who, in Brazil, has promoted the idea of a basic income for about forty years now says that he understands that after this pandemic passes, Brazil at least will finally establish a basic income, and he will live to see that day. So we’ll see whether that prediction holds.
Operator, next question, please.
OPERATOR: Thank you. Our next question comes from Arvin Ball (sp). Arvin (sp), if you muted your line, please unmute.
HRINAK: Do we need to move on, operator?
HRINAK: Oh, there you are. OK.
Q: Yes. Just about Brazil really quickly. I mean, obviously Bolsonaro’s popularity has been dented by his handling of the situation. Do you think this puts the reform agenda of—(inaudible)—at risk? Is there a chance that he ends up getting impeached? And I know it’s too early to think about this, but, you know, 2022 presidential elections, is there a greater chance that the PDT and left wins the election, comes back to power?
HRINAK: Shannon, do you want to start, and then maybe I have a few thoughts also?
O’NEIL: I’m sure you do have a few, Donna. (Laughs.)
Look, I would start—yes. I think this—whether he gets impeached—I think it’s less likely get impeached. Though in Brazil, never say never, because they’ve been on a roll recently with the impeachments. But I think there’s fragmentation there rather than consolidation behind pushing the president out. And frankly, I think the governors and others have found ways to deal with this pandemic without the president. So there’s a marginalization, to be sure, if not an actual push forward for impeachment. But they do have the paperwork there in Congress. They’re ready. And especially if he would challenge some of the things that are pushing forward, I think that is something hanging over him. So that process should move pretty quickly if there was a congealing of the opposition forces and those who are opposed to his handling.
I do think, as we look forward to presidential elections down the road, that, yes, this is a huge weakness for Bolsonaro. Someone who, you know, if I went back three months ago I would have said: For all of his—you know, for those on the outside, it would seem his foibles and drama, he was facing a pretty fragmented field. A PDT that can’t get past Lula and sort of some fragmentation there. And so had a pretty decent shot at reelection. And now, I think that is questionable. And especially if the active move of the mayor of Sao Paulo and others actually bear fruit and we see those cities and those states do much better in terms of containing or mitigating the worst consequences of this pandemic, then I think they would be very strong contenders for—as presidential candidates.
But, Donna, you probably have some thoughts.
HRINAK: Well, I agree with a lot of what you said, Shannon. I’m also impressed by the way the Brazil congress has stepped up to play a responsible role in all of this, ensuring that any spending that is going to push the government’s budget above the constitutional limit is going to be one-off spending just for this year, and the constitutional cap cannot be breached permanently. I also think that we are seeing perhaps the new leadership in the center between the PDT and the Bolsonarists coming out—assuming a greater role in this. As Shannon says, a lot will depend on whether the actions they’re taking now prove to be—to bear fruit in the medium and long term. But, you know, you also see somebody like João Doria in Sao Paulo reaching out to Lula. So Brazilian politics has been strange, but I agree with Shannon’s assessment that impeachment is unlikely, at least in the immediate term.
I think we have time for one more question, Operator.
OPERATOR: Thank you. Our next question comes from Frederick Bollier (ph).
Q: Hey, good afternoon. I’m joining you from Buenos Aires.
My question for the panelists would be if there is a danger that some of those countries, specifically Argentina, that have sort of gotten ahead of the game, like, you know, closing down—well, moving to a total lockdown with only a hundred cases here—whether they have limited their options in the long run if—because, you know, if the situation worsens, maybe they have already spent the economic capital that was available to them.
HRINAK: I just have to say that what does it say about international communications that the call from Buenos Aires comes through more clearly than the call from Shannon in Vermont? Nonetheless, Shannon, would you like to take that question?
O’NEIL: You know, long live Telefonica. It’s doing a great job. (Laughs.)
But I would say this, I’m sure it’s—I mean, this has been a question for leaders around the world. When is too soon, when is too late to lock down? You know, my general feeling on this is that there really isn’t this tradeoff between the health of your population and economic growth, that that’s a false dichotomy that people are putting out there. If people are dying in big numbers, your economy will tank whether or not you have locked people down. I think it’s just people will get scared and not go out anyways. So the fact that Argentina has been able to keep the number of deaths and presumably infections at a much lower rate than other countries I think does mean it can come out of this, and the selective opening that people are talking about may fare better.
Frankly, as I look at Argentina’s economy, I’m a little bit less worried about corona, which it seems like so far is being handled fairly well, and more worried about their debt. And I think if I had to guess, I would say that we—the defaults will begin—they have a big payment that’s due April 22. And the way that those negotiations are going, or the lack of negotiations right now, would suggest that they won’t be paying that $500 million just a week or two from now. So I think Argentina—as we talk about Argentina’s struggles economically, I think that—the debt that they have yet to renegotiate will be as much of a drain and a constraint on their economic growth and stimulus spending as the actual pandemic and the effects of the disease within the country.
HRINAK: And, Paul, would you like to close us out with a comment—a few comments to that question, or the previous one on Brazil?
ANGELO: Well, you know, I was just sort of saying, you know, sort of in both of those instancing, but across the region and something that hasn’t been brought into this conversation, really is just the opportunities that the COVID-19 crisis will create for corruption in the region. I think a lot of governments in their haste to respond may sort of overlook the need for compliance and oversight. And I just say that that’s something that I caution people to really take a deep look at. You know, the wording of lucrative health equipment contracts.
We already saw it in a country like Honduras a couple of years ago how the Astropharma scandal almost brought the presidency of Orlando Hernandez to its knees after it embezzled hundreds of millions of dollars from the public health budget. And so—and also looking at sort of the degree to which this crisis will be creating opportunities to fuel political corruption and clientelism in the region in places like Bolivia and Mexico. So that was just sort of something that, you know, looking at the arc of what we’ve been talking about, corruption, which is sort of a mainstay in the region, really getting too much attention.
HRINAK: Yeah. A subject for a whole ‘nother call.
So thank you to all of those who called in, and to all of those who asked questions. I’m sorry if your question was not answered, but I hope we’ll be able to talk about many of these issues on future calls without the pandemic hanging over us. So I think everyone can disconnect now. And stay healthy.