The recession caused by the measures taken by Latin American governments is the largest ever recorded. It is the culmination of a five-year period of low growth and decoupling from the path of the rest of the emerging countries.

This crisis is blamed on covid for two reasons: One, covid cannot defend itself, and two, it favors the policies of governments that seek to blame covid for the crisis to excuse their incompetence in managing the economies of which they are responsible.

At the end of last year, when the pandemic was nowhere near entering the risk matrices of governments and large corporations, the outlook was anything but rosy: the region deepened its stagnation with the least possible growth (0.1%) and put a sad ending to its worst economic five-year period since the end of World War II.

But the health crisis has finished throwing everything away: Latin America and the Caribbean are today the crudest face of the crisis and are exposed to a setback of almost two decades in their main development indicators if things do not improve soon.

In 2008, while the US and Europe set their eyes on risk premiums and Stock Exchanges that are trading in a huge recession, Latin America had all the signs to become the next trendy economy.

For five consecutive years of growth it didn’t prepare for the looming crisis that hit in 2009.

Twelve years later, progress is more at risk than ever. After the commodity boom, years of stagnation came, also in the social sphere, in which the combustion of the economy was already emitting gray smoke turning black.

At that moment, the virus arrived, which made Latin America’s GDP plummet between 7.2% and 9.1% in 2020. Projections that “may even fall further down”, are being made by Andrés Solimano, of the International Center for Globalization and Development.

The worst thing is that, in a crisis like this, unequal by nature, the hit on social indicators will be even greater: the number of people below the poverty line will go from 185 to 231 million —almost four out of every 10 Latin Americans— , an unprecedented figure since 2005, while the number of people living in extreme poverty will go from 68 to 96 million —slightly more than 15% of the population—, according to figures from the United Nations arm for regional development.

That distant boom in raw materials was more than a mirage in the field of social policy. Several governments in the region finally began to take seriously a problem that had been unsustainable for years: huge pockets of poverty, of citizens without hope for the future in what was -and still is- the most unequal region on the planet.

“Important things were done in social development, although afterwards progress slowed down,” says Stephany Griffith-Jones, from Columbia University. “But with the pandemic… With the pandemic we reversed almost everything. It is tragic ”.

The social counter returns to zero. “We are back to the first decade of the 2000s. A significant part of the population has lost their income, and in most countries there is no social and unemployment insurance,” adds Carlos Marichal, historian at El Colegio de México.

There are clichés that, despite being so, it is worth bearing in mind to become aware of the magnitude: the expression “lost decade” has returned with more force than ever to the analyzes of the most prominent economists in the region, and this is an indicator in itself. “Since we’re not careful, this will be the next one.

The next two or three years are going to be very hard, but the next ones too: a crisis of internal demand is combined with a very strong external one ”, points out Diego Sánchez-Ancochea, from the University of Oxford.

The real risk is that there are two lost decades, not just one, or more, if measures are not taken soon.

The flight of the Latin American plane depends, broadly, on the thrust of three engines: raw materials, services and remittances, and most measures taken by Latin American governments practically destroyed all three sources of income to the region.

The first has suffered a severe blow: there is no problem in depending on commodities when international trade is well oiled, but that is not the case right now.

The second, the tertiary sector, is the great loser of a the measures taken by governments due to their decision to shut societies down for months, with no scientific reason to do so. People accepted the draconian measures to abandon physical contact and travel: the influx of visitors continues to be at a low level, particularly targeting the small economies of the Caribbean subordinate to tourism. Only the third engine — remittances — holds somehow stable, and, together with public spending, which is also a noose to the inhabitants of the region, become the only meager source of income in the region.

Latin America is also affected by the negative inertia exhaled by governments. The raw material export model is fragile, especially if value is not added, but governments have refused, for decades, to truly develop their countries.

After years of promises of diversification, and despite the fact that industrial and productive development policies have not stopped gaining adherents in the academic debate – not in the political one – the results are discreet: Latin America continues to be the same.

This year’s drop in per capita income, even greater than that of Western Europe, will turn the clock back a decade. But the deterioration in the indicators of poverty and inequality will be even greater: if this crisis is distinguished by something, it is precisely because it is primed with the weakest link in some societies, Latin American, highly stratified, and with little social mobility.

Unemployment will rise to at least 13.5%, even more than during the financial crisis, but in a region where half the population works informally, without any type of legal support or protection, that is only a small part of the picture.

The quarantines have left millions of Latin Americans without income for weeks. And despite emergency subsidies approved by some governments, nearly all of them have had to dip into savings to survive.

The pandemic actually exhibits the weakness of Latin American welfare states.

Despite the regrets, which are many, some notes invite a slight optimism. In the financial field is the great contrast with the past: after the initial severe falls for all Latin American currencies, the bleeding has slowed in recent weeks. And, unlike what happened in the Great Recession of 2008 and in the Latin American debt crisis of the 1980s, the bolt of the debt markets has been counted in weeks and not years.

It is surprising and positive. We do not see a systemic crisis, and although two of the three global defaults this year are from Latin American countries, we can consider this chapter practically closed.

Financial stability seems guaranteed in the short term – no one has a total collapse on their roadmap and that, in a region that for years was going into crisis per decade, is already a lot. Banks are more capitalized than in the past and ultra-low interest rates are the best lifeline: with bonds yielding zero, or negative, in half the world, any alternative that offers interests, even if it is at the cost of taking more risks, makes investors’ eyes shine.

Some markets flooded with liquidity are, in short, caviar for the ears of the region. Not just for the public sector: most large companies have also been able to avoid bankruptcy. They have managed to protect their cash and have been able to reorganize and postpone payments.

The outflow of capital, triggered during the hardest part of the pandemic, is history and foreign investment is also returning little by little. The slightly higher prices of raw materials now and the weak dollar suggest that the recovery will be somewhat faster than we saw a few months ago.

In March and April everything looked very negative, and now some tailwinds are beginning to be perceived. Some light among so many shadows; a ray of hope after a fateful streak for a region that needs to grow again, and quickly, to close its very deep social gaps.

If there is not a rapid recovery of the economy, poverty will become entrenched again. That is the risk: that this setback is not a temporary downturn, but that it becomes something structural.

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