Coronavirus in Latin America

From curfews in Ecuador to mass music meets in Mexico – Latin American countries have taken very different approaches to handling coronavirus. We look at some of the consequences for the region...

From curfews in Ecuador to mass music meets in Mexico – Latin American countries have taken very different approaches to handling coronavirus. Most countries in the region, apart from its two largest economies – Brazil and Mexico – have stopped flights from Europe in a bid to contain the spread. Some, such as Bolivia, Argentina, Chile, Ecuador, Honduras, Guatemala, Costa Rica, Colombia, Peru and El Salvador, have gone a step further and closed their borders. What’s remarkable about these measures is that they are so early in the cycle. For example, Ecuador shut its frontiers when it had 111 cases and just two confirmed deaths – at that stage China, which some commentators now praise for its quick response, was still sending planeloads of people from Wuhan to different parts of the world.

It’s notable that the region’s smaller countries have taken the most dramatic steps. That’s because their underfunded public health systems were already struggling to cope before emergence of the pandemic. They are especially lacking in the specialist equipment, such as intensive care beds and ventilators that critical cases of coronavirus require. Moreover, they lack the epidemiological facilities and protocols that allowed some developed nations, such as the UK, to delay the outbreak in its early stages.  From a pure public health perspective, the aggressive actions – closing borders, banning non-essential travel, shutting schools and workplaces – should help contain the virus.

What next?

The rapid response of the Latin American countries reflects the weakness of their health systems to cope with a widespread outbreak of Covid-19. The author spent last week discussing the issue, off-the-record, with different cabinet members of a South American government that will remain unnamed, and the general feeling was, “if Italy can’t cope then here it will be even worse”. The frank acceptance of reality and the quick response deserves praise. In a region known for ineffective states, it has been refreshing to see such prompt action and coordination between government bodies.

"Countries like Ecuador… will eventually be forced to make a decision between containing the virus and maintaining social order…"

But it’s not just Latin America’s health systems that can’t cope. Taking such dramatic action so early in the curve will put enormous stress on job markets, economies, public security and basic services in the region. The decision to close schools, restrict transport and, in some cases, enforce a curfew, will all force some workers to stay at home. But that will have major implications for these labour-intensive economies where cheap workforces and weak investment meant low-paid employees have often been used in lieu of technology. Poor infrastructure, for example cooking gas and drinking water is often delivered in bottles rather than piped directly into houses, means a daily fleet of delivery drivers is needed to maintain basic survival. Poor public security – Latin America is home to 42 of the most dangerous 50 cities in the planet – means countries often rely on an army of privately-hired security guards. Now restrictions on worker movement will hamper the delivery of those basic services. That will be exacerbated by the weak economies, where large swathes of the workforce are informal and lack protection. With a range of businesses from hotels to nurseries, forced to close, many Latin American households will find themselves without an income. Low household saving rates mean there will be little for them to dip in to, while precarious fiscal positions and weak welfare systems across the region will limit the help they can expect from the government.

Of course, this is a sweeping generalisation. Chile, for example, is in a much stronger macroeconomic position and was already in the process of improving its welfare system. Brazil has announced a relatively sophisticated financial response.  Yet in the region’s poorer countries – the majority - it seems fair to say that the current draconian restrictions may contain the virus in the short-term but are not sustainable in the long-term. Countries like Ecuador, which is actually implementing an austerity programme while the US or UK is considering coronavirus payments to its citizens, will eventually be forced to make a decision between containing the virus and maintaining social order.

Possible grounds for optimism

Despite the challenges listed above, Latin America may have some protection against the virus. According to health experts – no one in the LatAm INVESTOR Team is in any way qualified to make statements about the nature of Covid-19 – young people are very unlikely to die from the disease. Not all of Latin America is young – Chile and Costa Rica’s demographic profiles are now more similar to Europe’s for example. However, the majority still have very young populations. Take Paraguay, where 70% of the people are under 30, or Guatemala, the youngest in Latin America, where almost half are under 19, or Peru, where the median age of the population is 28. According to UN figures, Latin America is younger than Europe, North America and Asia, with Peru, Bolivia, Colombia, Paraguay, Ecuador, Mexico and all of Central America (apart from Panama and Costa Rica) having particularly young populations.

"Despite the challenges listed above, Latin America may have some protection against the virus…"

Another plus is sunshine. Again, LatAm INVESTOR is not a public health expert, however, early reports suggest that Vitamin D may help immune systems counter coronavirus. Another plus is that better weather allows for social activities to take place outdoors, where viruses are less likely to spread than in small, confined spaces. Finally, Latin America does have experience fighting other epidemics, such as Dengue, Zika and Swine Flue. That’s given public health bodies, and wider populations, experience in designing and following protocols.

On the economic front Latin America’s commodity-reliant export economies should start to feel the benefits of a recovery in Asia even while they are struggling with Covid-19 themselves. Early reports out of China suggest that infection rates are falling. It’s too soon to tell of course. The big question is what happens when China lifts the restrictions. But if China does manage to emerge first from the virus, which would make sense given that it originated there, then its demand for raw materials would help give a boost to Latin American economies when they need them most. Latin America will be one of the first beneficiaries of the Chinese coronavirus stimulus plan. Likewise, the massive increase to liquidity that we’ve seen from the US Federal Reserve, and followed by other central banks, should help Latin America. Most of that excess liquidity will go to fund managers who will be looking for ‘safe assets’ where they can park the cash and earn real returns. For the last decade we’ve seen Latin America’s major economies develop a host of infrastructure programmes through public-private-partnerships. Those types of high-yield investment opportunities will look particularly attractive now.

Finally, the infectious nature of coronavirus has exposed one of Latin America’s biggest flaws. Home to entrenched wealth inequality, generations of Latin American elites have done little to improve public health systems. Excellent private hospitals flourished alongside underfunded state ones – and all the while, the top business and political figures knew they could send their loved ones to the best hospitals in the US if required. This author had a surreal experience in Costa Rica a few years ago where the minister of supposedly left-wing government boasted about having once used a public hospital – something that is commonplace for most of our readers in the UK. But coronavirus makes no exception for wealth and even private hospitals will be lacking sufficient numbers of the intensive care units and ventilators needed. Moreover to defeat Covid-19 the whole population needs to be protected, which gives the elite a clear incentive to ensure the health of the poor. It’s likely that most Latin American health systems will be overwhelmed by Covid-19, leading to a strong political reaction in years to come. If that leads to increased investment in public health then coronavirus could end up saving more Latin American lives in the future than it takes in the present.