No. 12
Special Report
COVID-19
3 December 2021
An innovative financing for development agenda for the recovery in Latin America and the Caribbean Introduction1 The coronavirus disease (COVID-19) pandemic is the worst global crisis since the Second World War. It has had devastating economic and social effects across the globe, with greater intensity in developing countries, that will likely extend into the medium and long term.
Contents
Latin America and the Caribbean, one of the most affected regions in the developing world, registered in 2020 the worst economic contraction on record (-6.8%), which has caused a significant increase in the unemployment rate (8.1% and 10.7% in 2019 and 2020, respectively, representing 44 million people) and poverty levels (the number of people living in poverty rose from 185.5 in 2019 to 209 million in 2020). Moreover, the sharp decline in investment (-20% in real terms) will severely hamper future capital accumulation, as well as the ability of the region’s economies to generate growth and employment and recover.
A. First policy action: expand and redistribute liquidity from developed to developing countries.................................................................2
At the same time, the countries of Latin America and the Caribbean face greater limitations in mobilizing domestic and external resources. The high indebtedness resulting from a lower tax intake coupled with increased current transfers to support households and businesses has heightened countries’ liquidity needs, despite the considerable heterogeneity in their fiscal situation and debt vulnerability. At the same time, this situation has reduced the fiscal space to implement countercyclical policies, undermining the capacity to build forward better.
D. Third policy action: carry out institutional reform of the multilateral debt architecture...... 19
Latin America and the Caribbean is currently the most indebted region of the developing world. The gross general government debt averages 77.7% of regional GDP, and debt service represents 59% of exports of goods and services. The increase in debt service represents a significant opportunity cost owing to the diversion of resources from the provision of public goods toward the payment of debt obligations.
1
The cut-off date for the information used to prepare this report is 31 October 2021, unless otherwise indicated.
Introduction
B. Second policy action: strengthen regional cooperation by enhancing the lending and response capacity of regional, subregional and national financial institutions, and strengthening linkages with development banks..................................... 11 C. The rise in debt and the multilateral response.....15
E. Fourth policy action: expand the set of innovative instruments aimed at increasing debt repayment capacity and avoiding excessive indebtedness......................................24 F. Fifth policy action: integrate liquidity and debt reduction measures into a development financing strategy aimed at building forward better.......................32 Bibliography..............................................................35