The Social Cost of the Pandemic

After decades of volatility, crises and high rates of poverty and inequality, the first decade of the century marked a turning point for Latin America. China’s growth and increased demand for commodities, the implementation of policies to combat poverty, and educational improvements raised incomes, particularly among the poorest. Between 2000 and 2018, the number of Latin Americans living on less than USD 4 a day more than halved (from 33% to under 15%), and the middle classes grew to all-time highs.

But the COVID-19 crisis threatens to undo these gains. First, economic growth has slackened for several years, slowing down the pace of these social improvements. In addition, vulnerable groups—those with an income enough to stay above the poverty line but with few tools to deal with negative external shocks—remained relatively constant at 33% over the past two decades.

Today, more than 210 million vulnerable people in Latin America are at risk of falling back into poverty. They do not have savings to cope with sudden loss of income, have relatively low educational levels and live in densely populated cities—often in overcrowded households and with little access to quality public services—, and thus more exposed to the virus. In turn, almost 50% of Latin American workers are in the informal sector and have limited access to social protection systems. In fact, more than a third of the region’s population is not covered by public social protection programs.

As in other countries, Latin American governments will be forced to compensate vulnerable groups for the loss of jobs and income caused by confinement measures. However, in addition to the small fiscal room for maneuver in many countries, two structural issues threaten the effectiveness of these policies.

First, with a few exceptions, state capabilities are low. Technology, human capital and integrated computer systems are lacking, both to reach the 240 million people excluded from the social protection network and to improve epidemiological surveillance and testing capacity. These institutional weaknesses are also present in public procurement systems, especially during emergencies, which require rapid action, but the absence of ex post controls often opens opportunities for corruption.

On the other hand, cultural norms, particularly trust in state institutions, are important now and in the future, as voluntary collaboration of individuals is essential for the success of the measures. For now, mobility data from transport systems and cell phone applications in Latin American cities suggest that people are abiding by confinement and social distancing measures. However, fiscal measures need to be bolstered in order to cushion the negative impact on the poor and vulnerable. The levels of collaboration currently observed can be rapidly reversed, at a high cost.  

These structural issues cannot be changed overnight, but governments can act to mitigate their most harmful effects. For example, a number of countries have expanded coverage and the amounts of existing social assistance programs, such as (conditional and unconditional) monetary transfer programs, social pensions and food support programs. In addition, and in an effort to identify uncovered portions of the population and provide monetary aid, administrative information from different entities can be combined, as in the case of Argentina and Peru, for example. Progress in e-government and use administrative data will also be needed in order to improve public policy design. Concrete solutions in priority areas to address the health crisis are possible. Lastly, Latin American countries can introduce ex post transparency and monitoring mechanisms, as well as seek the collaboration of international agencies to ensure correct use of funds.

Implementing these measures efficiently has become one of the most pivotal challenges of Latin American states in recent decades. It is a fact that COVID-19 will cause a strong socio-economic impact, but we must preserve the social progress made in times of economic upturn in an effort to avoid an unprecedented setback.