The economic impact of covid-19 in Latin America

Alejandro Werner, Director of the Western Hemisphere Department of the International Monetary Fund (IMF), writes this post “Outlook for Latin America and the Caribbean: An Intensifying Pandemic” at the IMF blog after the recent publication of the IMF´s World Economic Outlook Update.

The article describes the current situation of the Latin America and the Caribbean region which “have become the new covid-19 global epicenter” with negative implications for its economic outlook. In fact, the latest IMF´s World Economic Outlook Update from June 2020 now estimates “the region to shrink by 9.4% in 2020, four percentage points worse than the April projection and the worst recession on record”. 

In this situation, the IMF director considers the following measures as priorities:

• “Fiscal policy”: Reprioritizing expenditure and increasing its efficiency to continue protecting lives and livelihoods to reach different segments of society, especially where informality is high. Due to the likely increase in Public debt “commitment to a medium-term plan of fiscal consolidation and growth-enhancing structural reforms will be key to mitigate sustainability concerns”.
• “Monetary policy”: It should remain accommodative, with additional policy rate cuts where possible, to support economic activity and to ensure proper functioning of financial markets.
• “Measures to maintain employment relationships”: Payroll support and financing of working capital to SMES and corporates, and investments to increase potential growth will be positive for the economic recovery along with the implementation of “containment and mitigation policies” to manage localized outbreaks in the future.