How deep is the impact of the pandemic on the regional economy?
Very deep and that was one of our main concerns, because 2020 ended with the worst growth numbers in a century. The decline in GDP was 6.5%. Even countries that depend on tourism have seen a drop of up to 20%, and that translates into a very large drop in income, in unemployment. This effect affects more poor families. Many families had to sell their assets, use what little savings they had and go to work, despite health regulations in the most difficult moments of the pandemic. In some countries, we have seen an increase in hunger and malnutrition. This is worrying and we haven’t seen it in a long time. The fall has been very dramatic and we are also concerned that it is not only a blow to the poor and the weak, but it was also a very big blow to the middle class.
How hard has the middle class been hit?
very big. We have seen with great relief the gradual and gradual growth of the middle class for 20 years and celebrated, four years ago, that the middle class in the region has become the class with the most people, but, unfortunately, the numbers that we have revealed in the last eighteen months have been declining again . Now the ruling class is weak and many people have fallen below the poverty line. This is a cause for great concern, but over the past three months we have started to see a recovery in most countries supported by the prices of basic products or ‘commodities’, especially those of exports. This is accompanied by an important and strong recovery of the economies of North America and China, the two great engines that ignited. This, fortunately, generates a positive case for the countries of the region.
Will the momentum of the US and China be permanent?
We view it as an enduring recovery in both countries. In China, it is driven by the early success of ending the virus with strict measures, more linked to travel restrictions. In the United States, it’s more about vaccination. I’m optimistic that the year will be a little better. We had bad years, before the virus, of low growth and stagnation in social numbers and inequality. We hope that countries will seize this opportunity to take active measures and reforms that will facilitate the return of an economy that is more inclusive and environmentally sustainable.
What do these reforms focus on?
The countries that are progressing are those with a medium and long-term vision, certain macroeconomic and policy stability, manageable debt, and efficient public spending and public investment. These are lessons that countries have been applying, but there are new things.
The first, in the short term, is the vaccination plan. It is important to improve health systems, especially to prevent and respond to this type of pandemic. Another medium and long-term issue, which we haven’t clearly seen before, is a digital issue. In this pandemic, it has become very clear that those who have access to the Internet, work, education online or telemedicine have advantages, but in Latin America only half of the population has access to the Internet and there we see inequality. Another issue is education, on which we conducted a rather dramatic study two months ago, which indicates that more than a year and a half has been lost in education in most countries. Those who manage to stay in some online education systems are the people with the highest incomes. It is therefore necessary to recover what was lost and reopen schools with all protocols. It would be important to invest in plans for the children to make up for lost time. It is a loss in human capital that, if not compensated, will have an impact on the rest of their lives.
At the end of 2020, the post-pandemic period was expected to be uncertain, uneven and at different rates in countries. Is this ever seen?
We’ll see many more tunes in the area, although I think it’s unfortunate that what we’ve seen in previous years can be reproduced. There are countries that have moved to facilitate investment and job creation; There are others who do not. These are uneven growth rates in the region and we will continue to see them. We must act quickly to reverse lost progress, particularly in increasing poverty and inequality.
In this new phase, what support does the bank provide?
We have a year (from July 2020 to June 2021) of high financial support for the region with loans of more than $10 billion, the highest number recorded since 2008. Mainly in two big areas: Mitigating the social impact of the pandemic (social protection programmes, vouchers, and nutrition) and support countries undertaking reforms so that recovery is more sustainable in the medium and long term. Ecuador is one of them, where we have funded, in the last three years, in an important way, special projects such as the reform process that we found very positive. We hope that President Lasso will continue.
What is the agenda for your visit to Ecuador on Thursday and Friday?
Ecuador will be the first country I have visited since I became Vice President. I chose it because it is an important country for us. There is a new government and we want to talk a lot with the head of state and his team, to see how we can continue to support. I hope we can continue to support this phase of recovery.
Will the aid be linked to the agreement with the International Monetary Fund?
I did not discuss it in detail. We have financed countries without agreements with or with the International Monetary Fund. We will talk with the Lasso government. We want to support positive reforms for Ecuadorians along the lines of what the Bank is working on.
Are there payments pending?
For now, it’s too early, we should talk first.
Carlos Jaramillo holds a Ph.D. in development economics from Stanford University. He held various positions in the World Bank. Former Minister of Finance of Colombia.