The economic impact of the COVID-19 crisis on Latin America could be potentially devastating, according to a new Special Report by the UN’s Economic Commission for Latin America and the Caribbean (ECLAC). The report, based on the available data in mid-April, has estimated a -5.3 percent drop for the region’s GDP growth in 2020 — the largest in the region’s history. If this is the case, ECLAC calculates, 29 million more people would be pushed into poverty and 16 million more into extreme poverty, alongside a dramatic increase in inequality in what is already the most unequal region in the world.
In the face of this potential disaster, the authors of the ECLAC report recommend a “basic emergency income” as an anti-poverty measure. The proposal could be a powerful tool for economic empowerment that can help millions survive the recession if paired with other measures, the paper argues.
The damage of the COVID-19 crisis won’t just come from labor disruptions caused by social distancing and lockdowns, but from a number of other Covid-related factors as well. ECLAC estimates that low global demand and crashing commodity prices could reduce the value of exports from Latin America by 15 percent this year. Tourism could drop by 20–30 percent. Declining incomes throughout the world means that remittances from immigrants, a source of $96 billion dollars for the region last year, will shrink 19.3 percent this year, according to World Bank estimates.
To prevent a depression and reduce the economic damage, a response to the COVID-19 crisis requires distributing money to large groups of people experiencing a drop in income as quickly and efficiently as possible. In addition, because the Americas lead the world in the percentage of workers who are in “at-risk” informal sectors of the economy, the region’s response can’t exclusively work through employment-based stimulus policies targeted at formal businesses, as these will be less effective at reaching everyone.
The ECLAC report, released May 12, calls on nations in the region to “provid[e] a basic emergency income … equivalent to one poverty line (the per capita cost of acquiring a basic food basket and meeting other basic needs) over the course of six months to the entire population living in poverty in 2020.” ECLAC estimates that direct cash transfers to 215 million people (a bit over a third of Latin America’s population) would cost 2.1 percent of regional GDP.
The idea of directly and unconditionally transferring money with few restrictions to large swathes of the population runs contrary to popular conservative attitudes toward welfare, but various forms of this policy exist worldwide, and the sheer scale of the COVID-19 crisis has driven policymakers around the world to embrace the idea. While the US has distributed stimulus checks, spending on various cash transfers has already increased in Argentina, Brazil, Colombia, the Dominican Republic, Guatemala, Haiti, Honduras, Jamaica, Peru, and Uruguay.
ECLAC’s proposal goes further. First, the announced expansions of cash transfers in Latin America are far smaller than the 2.1 percent of regional GDP that the proposal calls for; for example, Guatemala is seeking an expansion equal to 1.2 percent of its GDP, while Peru and Honduras are only aiming for an expansion of 0.4 percent of their GDP. Additionally, ECLAC recommends that countries consider keeping the basic income policy in place even after COVID-19, in order to tackle endemic poverty.
Though basic income isn’t a substitute for a well-funded welfare state, it may serve as a promising supplement to one. Researchon unconditional cash transfers in Zambia not only found that they were highly effective anti-poverty measures, but that they also had positive spillover effects on local economies. Additional research also casts doubt on common criticisms of the idea: that it will decrease labor participation, increase drug and alcohol consumption, etc.
By quickly distributing cash without hassle to impoverished populations, a targeted basic income for the poor could serve as a vital part of Latin America’s policy response to COVID-19. The international community should act to assist the region in making such a program possible, including through a new issuance of Special Drawing Rights.
This column first ran on CEPR.