Adapting to the new normal: the economic impact of COVID-19 in Central America

By Miguel Angel Medina Fonseca, Economist at Chief Economist Office, Central American Bank for Economic Integration


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Photo: Eve Orea / Shutterstock

The COVID-19 pandemic is causing one of the largest economic recessions in the world’s history. In Central America, the Central American Bank for Economic Integration foresees a worst case scenario where the region’s GDP will contract by 4.9%, and public debt will increase by at least 7.6 percentage points of GDP.

The COVID-19 pandemic has prompted most governments around the globe to take preventive containment and mitigation measures, often implemented under state of emergency or similar clauses. In Central America, most policies have focused on saving people’s lives and reducing the socio-economic impact of the pandemic. Some measures stand out:
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América Latina y el Caribe en tiempos del COVID-19: no descuidar a los más vulnerables

Por Federico Bonaglia, Director Adjunto, Centro de Desarrollo de la OCDE, y Sebastián Nieto Parra, Jefe de la Unidad de América Latina y el Caribe, Centro de Desarrollo de la OCDE.


Este artículo es parte de una serie sobre cómo abordar COVID-19 en los países en desarrollo. Visite la página específica de la OCDE para acceder a los datos, análisis y recomendaciones de la OCDE sobre los impactos sanitarios, económicos, financieros y sociales del COVID-19 en todo el mundo.


Photo by Manuel on UnsplashRead this blog in English

Las medidas de contención necesarias contra el COVID-19 han generado una crisis económica mundial sin precedentes, combinando choques por el lado de la oferta y de la demanda. Ahora, la pandemia está afectando a América Latina y el Caribe y los países se están preparando para el efecto multiplicador que tendrá en la región. Tan solo unos meses antes, a finales de 2019, muchos países de la región tuvieron una ola de protestas masivas impulsadas por un profundo descontento social, aspiraciones frustradas, vulnerabilidad persistente y creciente pobreza. Esta crisis exacerbará estos problemas.

Más allá de la magnitud del impacto en los sistemas de salud que ya son débiles (unos 125 millones de personas aún carecen de acceso a los servicios básicos de salud), el abrumador impacto socioeconómico de la crisis podría recaer desproporcionadamente en los hogares vulnerables y pobres si no se implementan respuestas ambiciosas de política. Continue reading

Trading to avoid falling behind in the COVID-19 crisis: Lessons from Central America to boost prosperity

 By Rodrigo Méndez Maddaleno, Economist at Chief Economist Office, Central American Bank for Economic Integration (CABEI)


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Panama City, Panama – container vessel leaving the Panama Canal. Photo: Shutterstock

If what and where you export matters, Central American countries need to upgrade the quality of their exports, produce new ones and dive into new markets.

Central American countries are open to international trade. Trade in the region represents 67% of GDP, more than the world’s average of 51%. Average tariff rates for the region have also shown a consistent decline since 2005 going from 7% to 5%. However, the region’s economic performance has not reflected this, with an average GDP per capita growth of around 2.5% in the 2000s, which means that income doubles approximately every 30 years. So why has there not been an economic take-off? What is missing in the region when it comes to trade and economic policy in general? These questions are even more relevant today, as COVID-19 and the global crisis are affecting the region and its major trading partners.

To address this, it is important to analyse several aspects of Central American trade, such as export composition, main destination markets, and discuss what the region can do to improve its situation and boost economic growth and prosperity. Continue reading

COVID-19 in Latin America: Promoting entrepreneurship and reducing social vulnerabilities

By Jorge Arbache, Private Sector Vice-President, Development Bank of Latin America (CAF)


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Vendor in Quito, Ecuador. Photo: teranbryan_ecu/Shutterstock

Statistics show that economic growth in Latin America is highly volatile, with periods of acceleration and collapse. This dynamic hides perverse implications. The combination of low growth persistence with high-growth volatility is associated with greater risk aversion, which in turn encourages financial speculation and firms to invest in lower risk, but also lower social return projects. Additionally, poverty and other social indicators are also very sensitive to the harmful combination of short growth spells and high volatility. Continue reading

Is COVID-19 widening educational gaps in Latin America? Three lessons for urgent policy action

By Nathalie Basto-Aguirre, Paula Cerutti and Sebastián Nieto-Parra, OECD Development Centre


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Classroom in Jaqueira Village, city of Porto Seguro, Brazil. Photo: Joa Souza/Shutterstock

COVID-19, like most crises, is exacerbating inequalities in the region. To contain the pandemic, most Latin American countries have closed their schools, affecting the learning of 154 million students. However, not all students are affected equally. While distance education can contribute to alleviate the immediate impacts of school closures, it requires a number of conditions to deliver meaningful results. Students from poorer socio-economic backgrounds tend to suffer the most and risk bearing lasting consequences in terms of learning outcomes and, ultimately, opportunities. In particular, three interconnected dimensions stand out. Continue reading

Haitian Families and Loss of Remittances During the COVID-19 Pandemic

By Toni Cela, Senior Research Associate of the Migration for Development and Equality (MIDEQ) hub & Co-ordinator of the Interuniversity Institute for Research and Development (INURED), and Louis Herns Marcelin, Co-Director of the MIDEQ project; Professor at the University of Miami; & Chancellor of INURED


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Port-au-Prince, Haiti. Photo: Rafal Cichawa/Shutterstock

Migration has always featured prominently in Haiti’s history. At times forced, as in the case of sociopolitical repression and the aftermath of disasters, induced to fulfil labour and workforce needs in the Caribbean and in other periods voluntary as in the circulatory movement recorded in the Caribbean, South and North America. Over the past decades, migration in Haiti has evolved from a survival strategy for individual migrants and their families to now buttressing the local economy through the transfer of remittances. This reality was made evident during the 2010 earthquake rebuilding effort when the Haitian diaspora identified itself as Haiti’s “single largest donor” citing “the magnitude of its remittances to the Haitian Republic and how those contributions totalling [USD] $2 billion dollars annually allot[ed] for 30% of the GNP .”  In comparison, public revenues, excluding grants, represent 13% of GDP and are projected to fall to 10% in 2020.

Remittance transfers to Haiti have continued to grow over the past decade, the lion’s share of funds originating in countries throughout the Americas, particularly the United States, where the majority of Haitians have settled. Yet, the global economic crisis brought on by the COVID-19 pandemic poses a serious threat to the global remittance economy. For Haiti, reduction in remittances will further weaken an already feeble economy while negatively impacting the livelihood and health of families and communities. Continue reading

What can Latin America learn from historic debt crises to face the COVID-19 crisis today?

By Juan Flores Zendejas, Associate Professor at the Paul Bairoch Institute of Economic History, University of Geneva


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Photo: Shutterstock

Today, as in the past, public debate can resort to history in the quest for policy lessons. The COVID-19 crisis is prompting governmental action to meet the needs of large swathes of society and achieve rapid economic recovery. This is adding further pressure on public finances. However, while major stimulus packages are to be implemented in several rich countries, most developing and emerging economies do not have the fiscal capacity to provide similar amounts of financial support. Continue reading

Social protection and sub-regional integration: fundamental instruments for post-COVID-19 social reconstruction

By Alfredo Suárez Mieses, Secretary-General, Central American Social Integration Secretariat (SISCA), and Gabriela A. Ramírez Menjívar, Head of the Multidimensional Poverty, Human Capital Development and Social Protection Area- SISCA


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


Photography by Presidency of the Republic of El Salvador
Photo: Presidency of the Republic of El Salvador

The COVID-19 pandemic is causing an unprecedented health, economic and social crisis that threatens to leave a deeply negative mark in the SICA region (Central America and Dominican Republic), particularly on employment, poverty, and inequality levels. The depth of the impacts will depend on multiple factors, including the duration of the pandemic, the public policy responses to contain and control it, a country’s economic structure, the strength of its health and social protection systems, and its level of vulnerability to global dynamics. Social protection is a crucial tool to minimize the costs of the crisis; it is also a crucial investment to make the recovery stronger and more inclusive, thus more sustainable.

Measures taken by most countries to flatten the contagion curve, along with the current international environment, have impacted economic activity with direct effects on income generation and living conditions for a large part of the population. According to the latest report of the Central American Economic Integration Secretariat (SIECA), the region’s Gross Domestic Product will contract by 6.8%. The fall in tourism and decline of economic activity in the United States, the main trading partner and the largest source of foreign direct investment and remittances in Central America, are already having negative effects. The Inter-American Development Bank (IADB) estimates remittances could contract by 10% for each point less of growth in the United States. Continue reading

Mitigating the impact of COVID-19 in Latin America: time to be bold

By Nora Lustig, Professor of Latin American Economics, Department of Economics, Tulane University and Jorge Mariscal, Adjunct Professor of International and Public Affairs, School of International and Public Affairs (SIPA), Columbia University


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Empty streets of Guatemala City during lockdown, March 2020. Photo: Shutterstock

COVID-19 has hit Latin America hard on two fronts. The pandemic and the lockdowns to contain the spread of the virus have shut down significant portions of the region’s economies. However, even if the pandemic were to miraculously disappear from the region, falling demand for exports and tourism, declining commodity prices, interruptions in the supply chain of inputs, shrinking remittances and unprecedented capital outflows are significantly affecting countries’ growth prospects.

The International Monetary Fund (IMF) in its recent World Economic Outlook (April 2020), predicts that the world economy could fall by 3% in 2020 and in Latin America by 5.2% – higher than that observed during the 2008-09 global financial crisis. Still, the IMF’s growth forecasts for Latin America compared to those for advanced countries seem overly optimistic and will likely be subject to downward revisions. Based on data for 48 countries, the OECD has estimated that each month of containment measures translates to an approximate decline in annual GDP growth of up to 2 percentage points. Considering the extent to which the region’s economies depend on trade, foreign direct investment (FDI), commodities, tourism and remittances, in the absence of strong policy responses, we would add an additional decline equivalent to one-third of the total shock. Latin American economies could thus face GDP contractions of 9-10%. Continue reading

COVID-19 and labour markets in Latin America: How to repair the damage?

By José Manuel Salazar Xirinachs, Former Regional Director of the International Labour Organisation (ILO) for Latin America and the Caribbean, and former Minister of Foreign Trade of Costa Rica


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Lima, Peru – April 7, 2020. Photo: Shutterstock

The damage of the COVID-19 pandemic and the ensuing global lockdown crisis will be devastating, causing the worst disruption to labour markets in Latin America since the Great Depression. Up to 43 million people – probably more – could be unemployed in 2020. Tragically, the state of labour markets in the region was bad even before the crisis. Repairing the damage while addressing past structural legacies is possible, but it will be slow and challenging, and will require something most countries in the region have not done well in the past: a massive focus on microeconomic policies for accelerated productive transformation, and technological and human talent development.

The damage has only just begun and is still evolving, but already looks severe. The Economic Commission for Latin America and the Caribbean (ECLAC) estimates a contraction for the region of -5.3%, the IMF of -5.2%, and the World Bank of -4.6%. All projections now point to severe recessions in all countries in the region. Continue reading