Opportunities for Stronger and Sustainable Postpandemic Growth 2021 Latin American and Caribbean Macroeconomic Report

By Eduardo Cavallo, Andrew Powell

The COVID-19 shock was a significant and traumatic crisis for Latin America and the Caribbean. The pandemic dealt the region what I previously described as an unprecedented triple sudden stop, with major simultaneous disruptions in human mobility, trade, and capital flows. This was immensely dangerous. As human mobility was paralyzed by lockdowns and fear of contagion, investments fell, and trade was upended, the triple sudden stop challenged the region like few things in the past. Undoing the dam – age it has caused will require astute policymaking, as well as discipline and creativity, in the months and years ahead. The 2021 edition of the IDB Latin American and Caribbean Macroeconomic Report identifies opportunities for policymakers to lead their economies out of this crisis and toward stronger, inclusive, and sustainable growth. This crisis began to unfold as countries were already facing a complex set of preexisting conditions, including low levels of productivity and simmering social discontent. Perhaps a fitting analogy to describe the situation would be that, in 2019, the region was flying with one broken engine. In 2020, its other engine also took a hit. The challenge we now face is to fly this aircraft to safety, rescue the passengers, and prepare for the necessary repairs. Getting the region back off the ground will require greater spending on healthcare, government transfers to the poor, and loans to struggling firms. Meanwhile, tax revenues have plummeted due to unemployment and a drop in consumption, and fiscal balances and public debt have deteriorated considerably since the 2008/09 global financial crisis. Against this backdrop, public outlays and stimulus will be extremely difficult to achieve.

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