Make live or let die
Hard choices in times of COVID-19
With the COVID-19 outbreak, we have become observers of an unprecedented crisis that unfolds from the singular to the collective. We cannot shield ourselves from a pandemic: our faiths are interconnected.
As we grapple with its extent and severity of the COVID-19 outbreak, we are coming to terms with the idea that this crisis is not comparable to the 2008’s financial crisis nor to the Great Depression of the 1930s, analysts have referred to this period as one of war economy. We are required to (self)isolate and contemplate the imminent cessation of economic activities, breakages of supply chains and the inability to move labour around. The collapse of trade, FDI, banking and credit, insurance and merchandising are taking place concurrently and everywhere. We are all in uncharted territory. Collective efforts to flatten the curve have become urgent to mitigate a crisis full of unknowns but required to adapt to the limited capacity of healthcare systems — a result of years of underfunding. Economic policies devised to mitigate the cessation of economic activity around the world, are unable to subdue the elitist, gendered, racialised, ableist and ageist workings of the stratified systems that are in place. Policymakers did not anticipate a worldwide shutdown like this.
Economic, political, and social forces mediate a crisis like COVID-19. While advanced economies can inject liquidity in the system, in what resembles quantitative easing to the state, developing economies seem unable to contain the negative multiplier effect of this crisis. Global markets will take a while to recover even when the lockdown measures cease it might be impossible to return to a November 2019 scenario. The COVID-19 crisis intersects with aspects of precarity that were brewing in Latin American economies. The region had witnessed an increase in informal activities, mostly own-account work — usually at the lower-tier of the income distribution, to pick up the slack left by cost-cutting strategies and limited formal employment creation. The stark reality of informal workers has become evident through the implementation of mitigation measures, as they lack the economic security to take sick leave or cope with unexpected emergencies, including unemployment, sickness, or loss of income. Social (or rather, physical) distancing and lockdown, two of the critical containment measures implemented in the spring of 2020, remain privileges for formal workers covered by social security. Note that 53 per cent of Latin American workers operate in the informal sector. Informal and unpaid work, e.g. care work and the lower-tier of frontline health work where women are overrepresented, has intensified. Workers in the formal sector also have less protection, as the increased risk and uncertainty for employers make them unwilling to take any costs, including the protection of wages and observance of labour regulation. The debts of many workers, formal and informal, might not be repaid because operations have ceased. Informal dwellers, homeless migrants, own-account and casual workers, small businesses cannot afford to be idle nor stay home. Migrants are not allowed to move across and within countries, and as a result, many have lost their livelihoods. Entire populations are left to their means to navigate the harshness of markets without state-provided social protection or distrusting a state that is associated with violence instead of protection.
Given the interconnectedness of Latin American economies with global markets, the impacts of this crisis are manifold. Lockdown measures have disrupted global value chains, both goods and services. The volumes and values traded globally have severely decreased, also affecting merchandising and insurance. Given our production structure, Latin America is particularly affected by the slump in commodity prices. In the first month of lockdown measures, UNCTAD estimated that energy prices fell by 55 per cent — and are likely to stay low. ECLAC estimates that the value of Latin American exports to China, strategic partner for many countries in the region, could drop by as much as 10.7 per cent. Finance has reacted more intensively and rapidly. FDI has also come to a halt. However, despite the decline in new flows of capital to the region, we have seen a surge in capital outflows next to a tightening of financial conditions, as financial markets adapt to increased uncertainty and fragility, returning to safety. At the same time, the increase in the yield of bonds from emerging markets has made borrowing more expensive, next to currency depreciations that have increased debt costs that are denominated in foreign currencies. For Latin American governments to buffer the effects of external transmission of this crisis and ensure social protection for their population, coordinated efforts are needed to lift some of the financial constraints, including debt-resolution strategies. This crisis requires a change in global architecture to increase liquidity: the IMF suggested that 2.5 trillion dollars in extra liquidity would be needed to safeguard emerging economies. Although such a figure would appear unimaginable, it has been done before, reason why UN frames the recovery needed as a Global Marshall Plan. The severity of this crisis not only calls for debt restructuring but the introduction of capital controls to contain the haemorrhage of capital that developing economies have experienced amid this pandemic.
Considering the levels of volatility and external vulnerability exacerbated by this crisis, it would seem as if the region is headed towards another ‘lost decade’, with severe consequences in terms of poverty and inequality: ECLAC anticipates an increase in the number of people living in poverty to jump from 186 to 220 million in 2020. As Latin American labour markets are largely informal, discussions on basic income have become central, not to act as an equalising instrument, but merely to provide own-account and casual workers with some income support, for the informal economy does not exist in isolation, is but intrinsic and purposively integrated to the formal economy. Yet, this crisis has made evident the limited policy space. With reduced financial flows, balance of payment problems, and other foreign constraints, severe fiscal problems will emerge, and alternatives such as basic income seem unattainable. Considering these limitations and urgency of the response, it is time to think about unprecedented policy instruments. There is no possibility for the economies in the region to carry on without fiscal stimulus given the negative multiplier effect of lockdown measures. A bold response would be a helicopter drop: either printing money, or creating digital currencies, to give cash to people, no strings attached. To pre-empt concerns that this measure would be inflationary, it should be noted that at the moment there is a drop in labour income and thus, on demand. Inflation might come from production, but that has also come to a standstill and it is uncertain when it would pick up. As of now, printing money is necessary to have not only the economy but the people who depend on it, survive. But then again, the possibility to do so is mediated not only by economic but political forces, both domestic and global actors.
When it comes to systemic risk, we are required to do ‘whatever it takes’ — but even that is a privilege developing and emerging economies cannot afford. It is not necessarily the virus but the measures adopted which have uneven consequences on human lives, resulting in a system of make live or let die. When we eventually step out of this crisis, we would have learned about the global architecture, our governments and their priorities, our social protection systems, our networks, and mostly, ourselves.
