Governments across the region have demonstrated mixed policy responses to the coronavirus pandemic in regards to business support and social distancing.
Mexico, home to a large informal economy, has come under fire for their government’s perceived delayed response to the crisis. Conversely,
Argentina and Paraguay have been praised for their rapid action.
Iván Chavéz, Executive Vice President of Mexican holiday resort group
Vidanta, told a webcast hosted by U.S. policy forum the Wilson Center that an early, strict lockdown may have pushed many Mexicans deeper into poverty.
“Mexico’s been criticized, unfairly, I think, for shutting down too late… It’s easy to say that from an outsider perspective. When you look at the news, they’re interviewing people on the streets and they’re saying ‘Are you worried about the virus?’ and the response is ‘I’m worried that I am not going to have anything to eat is my first concern,’” Chavéz said.
Chavéz’s remarks echo the International Labor Organization’s stark warning, which stated that informal workers “face an almost unsolvable dilemma: to die from hunger or from the virus.”
Economic Policy
Financial services company
Moody’s said that packages implemented by the region’s six biggest economies – Argentina, Brazil, Chile, Colombia, Mexico and Peru – will mitigate economic fallout but not fend off
recession.
“The packages vary widely by size, scope and degree of permanence, and while they will broadly help reduce some of the negative effects of the crisis, they will not offset rising recessionary momentum for most sectors,” the agency said in a coronavirus report.
Amid weak demand and damaged commodity prices, all major economies in Latin America are forecast to slide into recession this year and
bounce back in 2021 – but many with much higher debt.
“Multilaterals have stepped into the breach to help, with both
IDB and
CAF issuing debt – US $4.25 billion and US$800 million, respectively – to help underpin short- and long-term government support efforts.”
Business-focused measures implemented by governments across the region include soft loans, tax relief and payroll support. However, these measures tend to focus on SMEs – key job creators in Latin America – rather than large company bailouts. This is particularly true of Colombia, Mexico and Argentina.
Bailouts of major firms have not been reported, although in Brazil state development bank
BNDES has announced loan aid for airlines.
Chavéz is against major government intervention such as bailouts and believes companies will emerge from the crisis with a different philosophy.
“We don’t think it’s the governments’ role to solve that for companies. This crisis, I think, will change for the better how companies are run in the future. I think that companies in the future will run their business like people run their own finances. People are not expecting to be bailed out, by anybody,” he stated.
In addition, Chavéz added, “big companies, in particular, are so used to [the situation where] if they run into a huge problem there is the possibility of being bailed out because of their importance, because of the jobs.”
After the crisis, however, “people running these companies will re-evaluate and have a rainy [day] fund, just like people do. That is not to say that what governments are doing is admirable…nobody was prepared for this. We just have to adjust.”
Business Support in Latin America’s Biggest Economies
Brazil
Fiscal stimulus package: 6.75% of GDP
Latin America’s number one economy – which like Mexico has come under fire for its handling of the health crisis – has introduced tax and social-contribution relief and loan schemes. BNDES loan aid for airlines, among others, would be delivered in partnership with private banks.
Mexico
President Andrés Manuel López Obrador has been adamant in his
refusal to rack up debt, and the little support he has offered comes in the form of loans of around US $1,000.
Moody believes economic support will increase despite the government’s reluctance. But this support “is unlikely to exceed 1% of GDP,” the agency added.
Argentina
Fiscal stimulus package: 3.5% of GDP
The cash-strapped country has unveiled measures including a 60-day ban on
layoffs, reduced social security contributions, soft working capital loans and absorption of salary costs, Moody’s said in the report.
Chile
Fiscal stimulus package: 4.7% of GDP
Measures include tax and social security contribution relief, along with a guaranteed loan scheme and a program that amends rules governing access to unemployment insurance, easing the wage burden on companies.
Colombia
Fiscal stimulus package: Over 1.3% of GDP
Colombia has announced guaranteed loans, a scheme that does not encompass large firms, Moody’s said.
Peru
Fiscal stimulus package: 8% of GDP
Measures include income tax relief, working capital loans and other liquidity support.
