Millions in Latin America’s middle classes are being dragged back into poverty as the COVID-19 pandemic exposes the fragility of welfare nets and governments’ lack of financial firepower. The crisis has exposed Latin America’s neglect of long-standing weaknesses: reliance on low-productivity sectors such as mining and agriculture, failure to bring more workers into formal jobs, and lack of effective tax systems to redistribute wealth concentrated among a small elite. Governments in Latin America lack the financial wherewithal to emulate stimulus packages in the United States or Europe. Most suffer from low tax incomes and high debt.
Five of the top 10 countries in the world for infections are in the region, which accounts for 34% of global deaths despite having only around 8% of the planet’s population. Epidemiologists cite poverty as a cause. The pandemic is devastating Latin America’s economic growth – the region of 650 million people will see its economy contract more than 9% this year, according to U.N. estimates, the worst in the developing world.
According to Asier Hernando, regional director of the charity Oxfam, the pandemic could push 52 million more people into poverty – about the size of South Korea’s population – and leave an additional 40 million jobless. Women and indigenous groups will be hit particularly hard.
“There is no cushion. If you fall, you fall a lot,” he said. “This could break the social contract of the region and could lead to years of enormous social conflict.”
The pandemic has cast a further spotlight on hunger, inequality and lack of state support. In Chile, where 2019 protests turned violent, the downturn is reviving anger. In Peru, Congress tried to oust the president and economy minister over lack of support for small businesses. In Venezuela, already spiraling into poverty before COVID-19, protests over shortages have intensified.
About 2.7 million businesses, or nearly 20% of companies, are to shut, according to the United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC). The International Labor Organization (ILO) says 34 million people have already lost jobs. That has left an army of self-employed workers and budding entrepreneurs exposed, which could hurt growth for years. Economists warn the crisis will drive millions from salaried work into informal jobs with lower wages, fewer benefits and less protection. Even in Mexico, the region’s second-largest economy, the left-leaning government of Andres Manuel Lopez Obrador has avoided a generous bailout amid concerns over its finances. As many as 10 million people, many from Mexico’s middle class, are expected to tumble into poverty, analysts say.