Speech

A Joint Response for Latin America and the Caribbean to Counter the COVID-19 Crisis

June 24, 2020

As prepared for delivery

Thank you, President Sánchez, for bringing us together to launch this collective response to the COVID crisis in Latin America and the Caribbean. I am grateful for this unique opportunity to address such an important group of leaders from the region.

Thinking of a joint response is the right approach for countries that share so much, history, language, values, culture, and—more recently—a deep and multifaceted economic relationship sustained by several trade agreements and deep trade and investment flows. This is why the Mexican novelist Carlos Fuentes once said if a Spaniard wants to understand his country, he should travel to Latin America.

As the pandemic expanded in many places in Latin America, the human toll has gone up. For this, you and the people in the region have my deepest sympathy and my firm commitment to stand by you as you strive to overcome the unprecedented twin crises—the health emergency and the economic recession.

Let me focus on three issues. First, our latest forecast for the global economy. Second, what it means for the region. Third, what the IMF is doing to assist now and as we look ahead.

On the forecast, today we released our latest assessment and have downgraded our growth projection for the world economy—a contraction of 4.9 percent for 2020. The recession will be deeper in 2020 and the recovery slower in 2021 than expected in our April forecast. We project a cumulative loss to the global economy of over $12 trillion over two years (2020-21)—and 10 percent of this total loss (about $1.2 trillion) stems from Latin America.

At the same time, countries’ monetary and fiscal actions have been strong and effective in helping prevent a massive wave of bankruptcies and unemployment. It worked—it put a floor under the world economy. Globally, fiscal actions now amount to about US$10.7 trillion; and monetary policy measures amount to over $6 trillion. A response like no other to a crisis like no other.

This is truly a global crisis, with nearly 95 percent of countries projected to face negative per capita income growth in 2020. Emerging markets and developing economies (excluding China) are projected to take a bigger hit to GDP growth than advanced economies in 2020-21. This translates into a risk of slowing down or even reversing the process of poverty reduction we have witnessed and enjoyed in recent years—and also slowing down the convergence between emerging market and advanced economies.

There are some signs of recovery, but it is going to be partial and uneven across sectors, countries and regions. While 75 percent of the world is reopening, we are not yet out of the woods. We are learning how to recover while we are still short of the scientific breakthrough towards a vaccine that we count on so much. Policymakers must remain vigilant, working towards recovery even as the pandemic remains with us.

Turning to Latin America and the Caribbean

Indeed, Latin America and the Caribbean has been hit particularly hard, with an expected contraction of 9.3 percent this year—its largest recession on record. The region has been impacted by the direct effect of the lockdowns and spillovers from the rest of the world through lower commodity prices, remittances and tourism as well as capital outflows. As the pandemic subsides and the world economy recovers, we are projecting a partial recovery in the region of 3.7 percent in 2021.

Within the region, the Caribbean economies are suffering even more due to their high dependence on one of the most dramatically impacted sectors—tourism—which, for some, accounts for 50 to 90 percent of GDP and employment. The approach of the hurricane season poses additional risks.

The policy response in the region has been swift. Central banks have intervened effectively, using all tools of monetary policy, through lower rates and expanded balance sheets. Given the scale of the crisis and unprecedented uncertainty, governments have had to also deploy fiscal measures to strengthen the health system, protect the most vulnerable and support employment and otherwise viable businesses. For example, Argentina and Paraguay have cash and food programs for disadvantaged families; Chile, Peru and Colombia are deploying wage subsidies and guarantees and loans to ailing SMEs. We have seen Ecuador—in a particularly difficult situation—targeting the most vulnerable. So far, the Caribbean countries have been successful in containing the virus better than others, and in expanding support for the most vulnerable.

Let me say again, this is the time to do all it takes to support those most affected by the crisis. So please spend whatever is needed but spend wisely and keep your receipts—both to return eventually to a sustainable fiscal position and to ensure the accountability of pandemic-related expenditures.

Governments should also strive for effective public policy interventions, stepping up testing and tracing efforts, delivering clear communications on health developments and policies, and reducing risks of contagion by diversifying transfer mechanisms, and increasing digital delivery—especially in the megacities of Latin America. And you are right to continue to focus on reforms to support competitiveness and growth—this is even more important today than before this crisis.

The role of the IMF

At the Fund, we acted swiftly to support our membership from the moment we saw this crisis coming. We stand ready to place our US$1 trillion lending capacity at the service of our membership.

We have doubled access to emergency funding, and we have approved requests from 70 countries for emergency financing, with disbursements totaling about US$25 billion dollars. This includes about US$5.5 billion of total financing to 17 countries in the Caribbean, Central America and South America. We also approved access to new Flexible Credit Line facilities to Chile and Peru, and renewed Colombia’s line, expanding our precautionary lending to the region to US$107 billion.

We will also continue our tremendous engagement with the region on capacity development and policy advice. As we live with the pandemic, governments must be agile and start planning for the eventual recovery.

First, by preparing for an eventual shift in policies—when the time comes to help workers transition back to employment.

Second , ensuring that the financial system is solid and reliable and can support the future recovery.

Third, using the fiscal stimulus wisely—not only to help boost growth and employment but to create a more resilient post-pandemic world. And as disruptions fade way, fiscal soundness and debt sustainability should become a policy priority.

Let me conclude by saying that if there is one lesson from this crisis, it is that we are in this together—that international cooperation is absolutely critical.

Our society is only as strong as its weakest member. This calls for solidarity with the most vulnerable people and with the most vulnerable countries.

I would like to praise Spain and the EU for leading the global partnership to make sure a vaccine is available to all. And I want to stress that the IMF works very closely with our sister organization—the World Bank—on debt relief, and with all development banks and partner organizations to mobilize and support for the membership in the most effective manner.

We have stepped up massively support for countries in need—and are seeking ways to do more.

We support the G20 initiative to suspend debt service payments to official creditors, that could make some US$12 billion available to 73 low-income countries. In the region, 5 countries are considering calling upon this initiative.

We are aiming to land on the other side of this crisis with an economy that is more resilient, greener, smarter, and fairer . That means supporting low-carbon and climate-resilient growth, unlocking the full potential of the digital economy, and investing in people through quality healthcare and education—to narrow the gap between the rich and the poor.

We at the IMF will do our part in this transformation.

Thank you for giving me the chance to be with you today.