Tag: Bolivia

Latin America’s economic history has long been forged through crises and shocks that stem from the global system. But there is no historical precedent for the turmoil that is just beginning to unfold in the region.

The COVID-19 pandemic has struck at a time when Latin America’s economies were already facing some of the deepest slumps in recent memory. Countries that just a decade ago were riding a growth wave of 5, 6, or 7% seen growth rates fall to 1% or less. For several years, Latin America has been the slowest-growing region in the Global South. Now, the coronavirus shock will bring its economies to a tipping point.

Latin America is certainly not unique in this respect: the pandemic has delivered a one-two punch of health crisis and economic disaster almost everywhere it has spread. But the blow will be especially hard for Latin American countries because of their external economic dependence, dilapidated public sectors, and severe social inequalities.

Perfect storm

Latin American economies are particularly vulnerable because their growth models are pegged to trade and investment from the three epicentres of the crisis: China, Europe, and the United States. Demand from these countries for primary commodities like oil, coal, copper, and zinc had been a blessing during the “commodities boom” of high prices, roughly between 2002 and 2012. But growth propped up by this kind of external demand also disguised a curse, creating deeper problems of dependency, with hollowed-out industrial bases mirrored by inflated financial sectors.

Since the 2008-9 financial crash, when liquidity pumped into US and European banks flowed over into Latin America, creating unsustainable levels of debt, the region has been highly vulnerable to external shocks. The first crisis began in 2012, when overproduction inevitably brought global commodity prices crashing down.

Now, as demand for commodities melts away, panicked investors are rushing to transfer hot money to the safe harbour of US Treasury bonds. With exchange rates in free fall and corporate-bond bubbles bursting, the pandemic will shake the region’s economies to their foundations.

The scenario isn’t entirely new. The world economic recession of the early 1980s saw commodity prices collapse, triggering the “debt crisis” in Latin America. In the wake of the crisis, the international financial institutions (IFIs) notoriously imposed free-market discipline, forcing countries to service debts by slashing their public sectors and abandoning industrialisation in favour of a commodity-export strategy.

The crash of 2008-9 also quickly resulted in a commodities bust, which was only compensated for by growing Chinese demand for natural resources and financial speculation. Every time external forces rescued Latin America from the crisis, it emerged more vulnerable than before.

This time, there will be no such life support, and the repercussions will be far worse. Debt levels were already much higher, and Chinese growth will not recover as it did a decade ago. Other sectors like tourism have quickly evaporated, and remittances have dried up.

In its April 2020 World Economic Outlook, the International Monetary Fund (IMF) predicted an economic contraction of 4.2% across the region. This forecast, which if anything was overly optimistic, already points to a far worse recession than the “lost decade” of the 1980s or the 2008–9 crash.

The biggest economies will be the worst hit: Mexico, with its reliance on US exports, oil, and remittances, faces a contraction of 6.6%; oil-dependent Brazil will contract by 5.3%, and Argentina by 5.7%, while facing the further challenge of having to renegotiate $98 billion in debts. As trade enters an unprecedented decline, corporations go into bankruptcy, currencies are devalued, households default on debts, and unemployment soars, Latin American economies are bracing for a deep and prolonged depression.

Policy straitjacket

Situations like this require fiscal and monetary policy tools that allow countries to engage in expansionary and stabilising measures. But Latin American countries do not have the leeway enjoyed by advanced economies to adopt the kind of policies needed to weather the crisis.

Lowering interest rates to rejuvenate growth risks further destabilising currencies, while the path of deficit spending almost certainly ends at the door of the IFIs. By mid-April, 16 Latin American countries had already approached the IMF for emergency assistance.

The IFIs have an abysmal record in the Global South. Right now, however, they are the only institutions with the financial tools needed to address the problems Latin American governments face.

One demand that has gained traction is for the IMF to issue Special Drawing Rights (SDRs) to its members, giving countries additional funds to pay for health care and key imports. But without further measures, this newly printed “global money” could simply be funneled into paying off the existing debt burden — which currently adds up to around $3.5 trillion for the region.

Debt restructuring is therefore also crucial, as progressive Latin American leaders have recently advocated. The suspension of debt payments promised by the IMF will not help: only a complete cancellation can address a crisis of this scale.

Unsurprisingly, the IFIs have not stepped up to the plate. The United States has thus far blocked calls to inject cash into the world economy, since such measures would help countries that it is actively seeking to weaken. Why permit the IMF to help Venezuela, when Trump-imposed sanctions are intended to bring the Maduro government to a breaking point?

The $5.6 billion frozen in overseas accounts has seriously eroded Maduro’s capacity to respond to the pandemic, while the IMF has denied Venezuela access to its own SDRs. Instead of prompting the international coordination that many have called for, the COVID-19 crisis has created more space for US imperialism to tighten its grip.

Years of neglect

Public health care is the key to any country’s capacity to deal with the pandemic. But the virus has exposed the underlying problems of health care systems that have suffered decades under the knife of neoliberal reforms. Averaging just 3.7% of GDP, health expenditure is well below the 6% recommended by the World Health Organization (WHO). The number of health workers, ICU beds, and ventilators available is also extremely low, with the exception of Cuba.

Public-sector budgets have been first in the firing line when the US government and the IFIs ordered “structural adjustments” to make way for debt payments. In response to IMF pressure to service debts, Ecuadorian president Lenín Moreno slashed public health care spending from $306 to $130 million between 2017 and 2019, dismantling the pandemic treatment unit and cutting back on staff.

In February 2020, as the coronavirus began spreading worldwide, the Ecuadorian government laid off another 3,500 health care workers. In similar fashion, former president Mauricio Macri gutted Argentina’s public health care system to accommodate the conditions of another IMF loan. Last year, eight Latin American and Caribbean countries spent more on debt service than on public health care.

It’s not just funding cuts, but also the privatisation of public health care systems that has undermined their capacity to respond to the pandemic. Latin America’s dilapidated public systems are a product of World Bank–sponsored restructuring programs based on decentralisation. This involves offloading the responsibility for funding from central government to regional authorities, and various forms of privatisation within public health systems (contracting private providers, outsourcing administration, and subcontracting the most profitable parts of services and delivery).

In Mexico, for example, privatisation has resulted in a fragmented and uncoordinated system, with private and public providers competing for contracts. Separate hospital networks service government workers, private-sector workers, oil workers, and informal economy workers.

Most experts agree that dealing with the rapid spread of infections and surge in patients that the virus brings will require testing, personal protective equipment, ventilators, intensive care beds, and emergency quarantine hospitals. This demands long-term planning, productive capacity, and coordination between state institutions. However, Latin America’s hollowed-out, fragmented, and privatised public sectors will be quickly overwhelmed by a surge in cases.

The neoliberal onslaught against public health doesn’t just exacerbate inequalities: it also blocks public authorities from mounting a coordinated and comprehensive response to the crisis. While rich people in major cities enjoy access to world-class hospitals, with online consultations and home delivery of medicines through apps, everyone else is left scrambling for beds in public hospitals that have been stripped to the bone. In Brazil, the private sector monopolizes half the country’s ventilators and intensive care beds.

Private providers ignore rural areas that offer few opportunities for profit in health care, and governments have not stepped in. The mass graves of Manaus in Brazil offer a glimpse of the crisis in store for poor rural districts that utterly lack basic health services and infrastructure.

The global pandemic shows that the neoliberal principle of individual responsibility is not just a cruel and unjust way to address public health needs, but also a stupid one. As Jayati Ghosh points out: “The health of the elite ultimately depends on the health of the poorest members of society.”

Fragile legacy

The revival of public health care had been the flagship of the Pink Tide’s fightback against neoliberalism. Pink Tide governments in Argentina, Brazil, Bolivia, and Ecuador all dramatically expanded health care funding and access, and Uruguay moved toward an integrated national health system.

These administrations dramatically increased access to government assistance programs, with social security coverage extended from ten to thirty million people across the region between 2004 and 2014. However, these efforts were never able to overcome the challenges posed by costly private health systems and their fragmented public counterparts.

Left governments never managed to rebuild the kind of state-led, coordinated public sector with a strong capacity for planning that would be needed to fight the pandemic. In Mexico, Andrés Manuel López Obrador has brought in the army to take charge of procurement and logistics for hospitals because the fragmented health care system was not up to the task.

Venezuela’s Barrio Adentro health care program was the cornerstone of Hugo Chavez’s agenda for twenty-first-century socialism. In less than a decade when oil prices were running high, Venezuela doubled access to primary health care for some of its poorest citizens, expanding and developing health infrastructure, bringing in thirty thousand Cuban doctors, and training its own community physicians.

But the initiative was never integrated into the existing state-run public health system, operating alongside it instead. Now, US sanctions are preventing the import of medical supplies, twenty-two thousand doctors have emigrated, and Venezuela’s health services have all but collapsed.

Cuba has been the shining exception to this trend. With its long experience of dealing with crises, Cuba enacted a plan to shut down the tourist industry, shift production priorities to necessary supplies, and protect key workers before any cases had been announced.

While Europe and the United States scrambled over supplies of masks and ventilators, Cuba’s program of “medical internationalism” sent out medical brigades to more than a dozen countries. Cuba’s coordinated plan, rooted in solidarity, illustrates the difference between a socialist and a capitalist response to the pandemic.

Early warning

With hollowed-out health care, a COVID-19 outbreak risks tragedy in Latin America. The bodies piled up in the streets of Guayaquil in Ecuador are a warning signal of what an outbreak will look like in the context of gutted public infrastructure, and where the government lacks the popular respect needed to enforce a collective response.

The explosion of the pandemic across Europe offered an invaluable lesson to governments in Latin America: what they lacked in public capacity, they could only make up for with time. Government officials sooner or later came to realize that if they were to have any hope of coping with the virus, they would need to stall its arrival for as long as possible. That meant ensuring people stayed at home until effective measures for testing and protection were in place.

Some governments were quick to take advantage of the head start. Argentina, El Salvador, and Venezuela announced national lockdowns just a few days after the first cases were reported. Peru, Chile, and Colombia soon followed suit. By the end of March, eleven countries of the region were in firm lockdown, with others in strict isolation.

Countries that took early action have slowed the progress of the virus. In comparison, Moreno’s botched response and Jair Bolsonaro’s catastrophic interventions have led to more severe outbreaks in Ecuador and Brazil, respectively. But the virus continues to spread with alarming speed throughout the region, and in the absence of systematic testing, headline figures may well be deceptive.

The coming shock

Whatever the initial response, the crisis is going to be a massive blow for political leaders already in the throes of instability. Lockdowns might enjoy popular support so long as fear of the pandemic holds sway, but this can only last so long.

Most governments have promised rescue plans to deal with the crisis, such as credit lines for businesses and emergency assistance for the poor. But Latin American countries lack the financial firing power of advanced economies to implement the bailouts that are needed to meet the scale of the crisis.

The measures enacted so far are insufficient: they have frequently failed to arrive and cannot endure. Governments with larger foreign exchange reserves like Colombia and Peru might be able to buy more time, but sooner or later the shock will hit. Insurmountable debt and crippling austerity packages await just around the corner.

All the signs are that upcoming recovery efforts will be political projects to reinforce the power of the region’s ruling classes. The Colombian and Brazilian governments have responded to the emergency by pumping liquidity into banks and bailing out some businesses. Meanwhile, workers are being forced to shoulder the bill, with flexibilised labor laws facilitating wage cuts and layoffs.

Between 50-80% of the population in Latin American countries — around 140 million people — survive in the informal economy, and they will easily slip through safety nets that are already riddled with holes. Many live closely packed in slums, helplessly exposed to an outbreak of the virus. Across the region, millions of people do not have enough savings to survive for more than a week: as food supplies break down, looting is beginning to break out.

Colombia’s poor urban slums have already begun to rage with riots, cacerolazos, and roadblocks of laid-off and informal workers. As a popular slogan declares, it is better to die of coronavirus than of hunger. Thousands of red rags hung from windows are a symbol of hunger and socially isolated discontent. Similar forms of unrest are also breaking out across Brazil, Bolivia, Chile, and Ecuador.

In Chihuahua on Mexico’s northern border, thousands of maquila workers have walked out in wildcat strikes, refusing to work in the cramped, unprotected factories that have been fertile ground for the rapid spread of the virus. These actions are surely just a taste of what is to come.

Mobilisation blocked

The problem for many governments goes back much further. The balance of power in Latin America might have been tipping rightward for some years, but the right-wing successors of the Pink Tide lack the popular support of their predecessors, and their ruling coalitions are more fragile.

The most striking example of this is Brazil, where Bolsonaro’s open war with virtually every democratic and judicial institution in the country has been well-publicised. But clashes between central and federal governments have been common throughout the region, as governments struggle to preserve their already-waning legitimacy.

Moreno’s botched response has already seen his approval ratings dip to 12%, while President Sebastián Piñera in Chile has an approval rating of just 10%. The pandemic has exposed a chaotic, fractured, and incompetent ruling class that may only be able to cling to power by shutting down democracy. Meanwhile, mafia networks are filling the gaps left by governments, imposing quarantine and social distancing measures.

Even though Pink Tide political parties have been weakened by tactics of lawfare and soft coups, before the crisis struck, power had been coming back to the streets. Twenty-nineteen saw mass protests against right-wing regimes in Bolivia, Chile, Colombia, and Ecuador. Organisers were preparing for mobilisations to culminate in early 2020, with plans in motion for Colombia’s national strike in March, Chile’s national plebiscite in April, and Bolivia’s election in May. All three have now been postponed.

Social distancing by necessity eliminates mass political participation. With protesters in quarantine and security forces patrolling empty streets, collective action has faced heavy restrictions. Without the usual tools of pavement politics, movements are left unable to act in the coming political upheaval.

The organisers of the protests have warned of the social crisis in the making, but so far, they haven’t been able to mobilise widespread opposition. Meanwhile, Latin America’s military establishments, whose role was already being ramped up, will get the green light for repression, as the pandemic offers governments valuable cover for states of emergency and mass surveillance of populations.

The turmoil in Latin America set off by the COVID-19 pandemic is just beginning, and we can be sure it will last for many years. Whether or not the pandemic itself hits the continent with full force, the economic and political fallout is going to be colossal.

Kyla Sankey teaches in the School of Business and Management at Queen Mary University of London. She is an activist with Momentum and The World Transformed.

This article was published on Jacobin. Read the original here.