The future of Latin America after covid-19
Ramón Casilda, professor of Latin American studies at the Universidad de Alcalá and Jose Antonio Ocampo, former Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) and professor at Columbia University, along with 29 other Latin American and Spanish academics and former public officials, sign a document published by the Instituto de Iberoamérica from the Universidad de Salamanca, about the need to achieve a "Latin American Consensus" to overcome the economic and social challenges in the region following covid-19.
The forecasts of main economic organizations expect Latin America to be the hardest hit region by the covid-19 economic crisis in the developing world. According to the latest forecasts published last June by the World Bank and the International Monetary Fund, regional GDP will decrease by -7.2% and -9.4% in 2020 respectively. In addition, 30 million Latin Americans could fall below the poverty line, according to the Economic Commission for Latin America and the Caribbean (ECLAC).
The authors warn that this will be the worst recession since records began and will be accompanied by weak growth for the region in the following years, which could mean a new lost decade (2014-2024), with even worse consequences than the crisis of the 80s.
In view of this scenario, they think it is necessary to achieve a "Latin American Consensus" among the economic and social agents of the region, with a clear commitment to the Sustainable Development Goals. The consensus would comprise 18 points, among which the following stand out:
- Adopt counter-cyclical macroeconomic policies and ensure in the long term a balance between fiscal stability and GDP and employment growth.
- Encourage formal employment and occupational training. Support financial inclusion.
- Fight against inequality, expand the social protection system, increase health coverage and raise the coverage and quality of education at all levels.
- Empowerment of industry through investment in R&D, expand production and export diversification by focusing on technology and comprehensive support to SMEs.
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According to Ramón Casilda, “it is no longer just a matter of Spanish capital investing in Latin America, but also of Latin American capital using Spain as a European base,” reinforcing a more balanced transatlantic economic space.
According to José Carlos Díez, Professor of Economics at the University of Alcalá, Spanish households have access to some of the cheapest mortgages in Europe, with interest rates below both Euribor and long-term government bond yields.
According to the IEE, Spain's business tax burden exceeds the European Union average, both as a share of total tax revenues and as a percentage of GDP.
AEB, CECA and UNACC propose measures to increase banks' lending capacity by more than €2 trillion in the euro area, including over €250 billion in Spain, providing additional resources to strengthen banks and finance new investment.
According to Boston Consulting Group, regulation brought in after the GFC strengthened the financial sector’s resilience but institutionalized bias towards removing all risk over economic growth.
According to Ramón Casilda, the EU–Mercosur agreement will generate annual tariff savings of around €4 billion, which is significantly higher than the savings expected under the agreements with Canada and Japan.
Economist José Carlos Díez notes that Spain’s banking sector has an excess of deposits and sufficient liquidity to meet the credit demand of companies and households, and does so at the lowest interest rates in Europe, according to the ECB.
According to CEPS, regulatory and supervisory complexity acts as a structural constraint on integration, investment and market depth, with costs that weigh most heavily on smaller institutions, new entrants and cross-border business models.
According to the ECB, an efficient, secure and integrated payment system would strengthen the international role of the euro and deliver benefits such as lower financing costs, reduced exposure to exchange rate fluctuations and greater protection against sanctions.
According to the IEA one key debate in the EU on financial regulation simplification is whether to explicitly include competitiveness, efficiency or contribution to growth as objectives of the regulatory agencies, following the UK example.
According to IE University’s Center for the Governance of Change, deeper and more integrated financial markets would strengthen the euro’s global role. This requires, among other elements, resilient and interoperable payment systems and completing the banking union.
Partnerships between banks and private credit: The winners will be those that combine bank underwriting discipline, distribution, and customer access with private capital’s appetite for long-dated, illiquid risk, according to Oliver Wyman.