Debt, unemployment, digitization: Glimpses at a post-pandemic LatAm


Debt, unemployment, digitization: Glimpses at a post-pandemic LatAm

While raising public and private debt is necessary to mitigate the worst effects of the pandemic in Latin America, expenditures in the post-pandemic scenario must focus on stimulating demand by restoring consumer and investors’ confidence.

That’s according to Andrés Cadena, who lives in Bogotá and is senior partner at business consultancy McKinsey. Cadena spoke at a webinar held Tuesday by the Inter-American Dialogue on the post-pandemic innovation and technology scenario.

McKinsey estimates that COVID-19 related spending across the region could surpass the 5-8% of GDP current fiscal stimulus packages include.

The consultant said indebtedness not just in Latin America will reach record levels, hence the need for careful and well-measured choices.

“If we are spending that amount of money and we are about to leave several generations with a lot of debt, we’d better do it wisely,” Cadena said. “We don’t just spend, we invest.”

The consultant sees three phases in counteracting the crisis. First is contagion and managing the pandemic, second is “stopping the bleeding,” and the third phase entails “rethinking and reimagining for the future” and setting the conditions so “people and companies, private and public, can invest back and create the demand.”

He added, “it’s a very large stimulus, but it’s basically a liquidity stimulus at this moment. But I’d say that this is not enough. It may stop the bleeding in terms of job destruction; it may allow for people to get their basic needs, but we need to restore investment and consumer confidence to move the circle again in the right direction.”

This implies the need to continuously spend and create the conditions for the region to receive international investment across different sectors, he said.

INNOVATION AND DIGITIZATION

In the third phase, innovation and digitization would play an even bigger role. 

Victor Muñoz, a national innovation and digital transformation advisor to the Colombian presidency, said COVID-19 has been a catalyst for digitization, advancing a scenario with teleworking, telehealth, teleschool, and so on that was expected only for the near future.

Agreeing with other analysts, Muñoz believes that the pandemic will speed up trends that were already underway in Latin America and the Caribbean, such as workforce automation or falling labor informality, among others.

Colombia is doing its part, he implied. The government has put digitization center-stage with policies like the digital transformation strategy and the Medellín digital transformation center, launched in 2019, Muñoz said.

Recently, President Iván Duque repeated he wanted the country to become a regional hub for innovation.

WORKFORCE AND REGULATION

Cármen Pagés-Serra, chief of the Inter-American Development Bank’s (IDB) labor markets and social security unit, said that it will be necessary to develop new offerings and strategies to capture those who are losing their jobs today. They had already occupations that were less prepared to meet digital demands.

“Workers need to incorporate those skills in order to continue in the labor market,” Páges-Sierra said, referring to the possible permanent loss of many occupations.

The IDB economist said the bank was ready to continue working with all countries in Latin America on these digital challenges.

Ángel Melguizo, vice president of external and regulatory affairs at AT&T DirecTV Latin America, urged governments to quickly advance smart regulations, saying it is necessary to “strengthen the institutions”.

Melguizo said digitization is urgent so economies must move fast to adapt to the digital world. “There’s no one who doesn’t see data as an asset now, rather than as a liability.”

Echoing Cadenas, he cautioned against hastened and unreasonable decisions. “We need to act fast and in the short-term, but we need to avoid short cuts,” touting global and regional arrangements to deal with the challenges a digital society will face.

The executive predicts a big economic shock in Latin America this year. He also thinks that a baseline scenario to estimate when economic recovery will really kick-in does not yet exist.

The region would recover the GDP levels of 2015 only from 2025, as Eclac is projecting 30mn Latin Americans will fall back into poverty as a result of the crisis, Melguizo said.

In late 2019, AT&T was projecting a 1-2% GDP growth for the region.

“This today would be great, but was already anemic back then.”



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