Latin America and the Caribbean, New social contract, Reviving multilateralism

We need a new multilateralism to bring about a better post-pandemic world

By Benigno Lopez, Vice President for Sectors and Knowledge, IDB

When discussing life after the pandemic, many express a longing to return to a pre-Coronavirus world. But instead of dreaming of the status quo, I hope Latin America and the Caribbean (LAC) advances towards a better and “new normal”, born under the pressures of COVID-19, and far more equitable and collaborative than before. Critically, multilaterals will need to work together more than ever to help make this happen.

Bringing about a better, post-pandemic future will not be easy. LAC has been hit hard by the crisis. According to recent estimates, the region saw a 7.4 percent contraction of GDP in 2020, with 34 million people losing their jobs and at least 40 million falling into poverty. To further complicate matters, the region grappled with pressing challenges even before the emergence of COVID-19. Economic growth and productivity have been lagging for some time. And our region is the most unequal in the world: the richest tenth of the population captures 22 times more income than the bottom tenth, while the richest 1 percent captures 21 percent of the income in the entire economy — double the average in the industrialised world.

As the pandemic spread, so have concerns over inequality. References to inequality on social networks have multiplied by 10 since March 2020, according to our own digital tracking tools.

“The richest tenth of the population in LAC captures 22 times more income than the bottom tenth, while the richest 1 percent captures 21 percent of the income in the entire economy — double the average in the industrialised world.” #DevMatters

These concerns are justified. Inequality is distorting how our countries will recover from the pandemic. While other regions talk of a V-shaped recovery, in LAC recovery will look like a “K”: the privileged will recover quickly, while the well-being of the vulnerable will drop even below pre-pandemic levels. In this challenging setting, what can we do? How can we strive to avoid this K-shaped recovery? And how, instead of returning to the unsatisfactory status quo, can we drive our countries towards a “new normal” of more inclusive growth?

First, we must recognise that our social policies were not designed to cope with these times of unparalleled hardship. For instance, many countries provide temporary support for those who lose their jobs until they find another. But today, across the region, there are no jobs to be found. We must devise new mechanisms to meet these new challenges, with a focus on generating meaningful employment.

Second, because the pandemic has disproportionately impacted the most vulnerable, we must analyse all policies through the lens of inequality. Our surveys show that about 65 percent of households in the bottom 20 percent of income distribution experienced at least one job loss one month into lockdown, compared to 22 percent of households in the top 20 percent. And beyond the loss of income and employment, the pandemic will likely generate adverse long-term impacts on human capital accumulation related to children’s nutrition, health, and education, particularly for low-income households. As such, we must ensure our response places special emphasis on those who are suffering most, both now and in the future: women, children, indigenous communities, Afro-descendants, and people with disabilities.

“About 65 percent of households in the bottom 20 percent of income distribution experienced at least one job loss one month into lockdown, compared to 22 percent of households in the top 20 percent.” #DevMatters

Third, we must ensure support reaches those that can unlock the greatest social impact for their communities. A key example here are the small and medium-sized enterprises that are the heart of our economies, which collectively comprise 95 percent of businesses in the region and generate more than 65 percent of employment.

Finally, we must remember that no organisation working alone is capable of overcoming these extraordinary challenges or creating a “new normal” in which our region is better off. Fortunately, at the IDB, partnerships are a central pillar of our work, and from the very onset of COVID-19 they were a key part of our pandemic response.

As early as March 2020, our network of global partners took immediate action, supplementing our support to the region through financing and the provision of knowledge, technologies, and solutions. Our government partners in Asia shared their invaluable experience addressing the crisis, while Japan became the first IDB partner to fund our pandemic response and Korea provided support exceeding $53 million. In Europe, the European Commission and government agencies in Finland, France, Spain, Sweden, and other countries channelled critical financing and knowledge to our countries. Innovative firms like Amazon Web Services, Esri, everis NTT Data, and Microsoft contributed technological solutions to enable governments to tackle the crisis and continue serving citizens.

And critically we deepened co-operation with the diverse multilateral development banks serving the region and key international partners, notably the Pan American Health Organization, the United Nations Development Programme, the World Bank, and the OECD and its Development Centre, with which we collaborated to co-finance and coordinate joint efforts to support the region in this unprecedented time.

In 2020, the IDB’s disbursements were up 55 percent from 2019 and our pandemic support exceeded $8 billion, while our entity for the private sector IDB Invest nearly doubled its 2019 approvals and our innovation laboratory IDB Lab increased its number of operations by 40 percent. But even so, partners were and will continue to be fundamental to our work in Latin America and the Caribbean.

Moving forward, our vision for this new multilateralism will build upon our robust partnership network to include greater participation from the private sector, including corporations, private investors, and private foundations. It will feature stronger co-operation among multilaterals. And it will prioritise innovative solutions and financing mechanisms that ensure we amplify the impact of every dollar invested by our traditional public sector partners and fellow international organisations.

We intend to continue nurturing our partnerships with the OECD and its Development Centre, and others, so we may collectively reimagine the social contract in the region and ensure this “new normal” improves life for all people. Particularly now, as countries everywhere navigate the overwhelming challenge of ending the pandemic and stimulating recovery, collaboration is the only way forward and a new multilateralism the only vision for the future that will ensure it looks bright.