Discipline in public spending, inflation control and restriction on the functions of the States were some of the “golden rules” for years in several Latin American countries. Faced with certain populisms and statisms, rather orthodox strategies affirmed fiscal balance and the promotion of investment; there was growth and some reduction in poverty.
The pandemic in the region revealed, with a painful social cost, the fact that spending on health or education was not considered as priority public investments. The current deficiencies in health systems are charging society for this omission.
The “new normal” generated by covid-19 is putting everything in question. Those “classic” recipes are left upside down and the priority in massive public investment appears as the main response. From once orthodox spaces, such as Europe and the United States, they aim towards different objectives from the traditional ones. Instead of less State and horror of the fiscal deficit, more State and massive public investment.
The region is suffering the largest economic contraction in 120 years, according to the evaluation of an entity of indisputable rigor such as the Economic Commission for Latin America and the Caribbean (ECLAC), the United Nations body responsible for promoting economic development and social of the region. This collapse is having more serious economic and social effects than any previous recession, including that of the 1930s. With a second wave hitting and the third already looming, the outlook does not look good at all and calls out for decisive turns.
With the emphasis on public investment today setting the tone in the United States, for example, analogies with successful responses that occurred in the past to similar crises come to mind. For example, the New Deal of Roosevelt in the 30s after the crisis of 29 or in Europe with the Marshall Plan after World War II, characterized by massive public investment.
The answers that today are raised from “orthodox” institutions are not to persist in the orthodoxy and medicine of lowering the weight of the public by overvaluing the private. The crisis is so serious that institutions such as ECLAC or the IMF have been identifying economic, political and investment priorities that leave much of the old orthodoxy behind.
The broad and varied proposals of ECLAC, for example, are summarized in two fundamental components.
On the one hand, a more active and leading role for the countries. Based, to a large extent, on the verification of the irreplaceable role of the State everywhere in the face of the attack of the pandemic. Regarding vaccination, assistance programs and emergency financing for companies. Responding to the crisis and “building a better future” makes the states more present and active throughout the world. Against ultra-liberal orthodoxy, which ad nauseam Some have preached, ECLAC proposes a whole program that prioritizes public investment, “universal social protection”, investment in environmental protection, inclusion, and direct taxes on those who have the most.
For instance, “favor the expansion of public spending on health and pay special attention to vulnerable groups, particularly low-income segments and the elderly “, within a strategy in which” priority should be given to public investment, basic income , universal social protection, support for small and medium-sized enterprises (SMEs), digital inclusion and the development of green technologies “reducing the weight of taxation” in direct taxes and those that tax property and assets ” .
On the other hand, these national policy approaches are connected to a more active and dynamic presence of multilateral institutions. But no longer to wield the whip of those who operate as standard bearers of creditor countries or institutions, but with the plan of channeling extraordinary resources to countries hacked by the crisis, providing the States with the necessary resources.
Thus, for example, ECLAC calls for extraordinary programs to channel resources; a kind of “mini Marshall plan”. It does not call on the IMF to travel the region with the creditors’ piggy bank but to issue 500,000 million dollars of Special Drawing Rights that would be equivalent to about 40,000 million additional dollars in international reserves to allocate to the economies of the region. A condition for this would be that the Group of 20 (G20) undertakes to capitalize the multilateral credit institutions with extraordinary resources. Among other effects, this could alleviate debt service in several countries affected by the crisis and allow the execution of the most urgent public investment and spending.
Will it be possible to move in that direction? We’ll see. It will depend on the convergence of a set of clear and coherent internal political decisions. In times when a succession of presidential and parliamentary elections is underway, there would, in theory, be a favorable scenario for this to be discussed and put in the focus of debates and electoral campaigns.
In reality, little of this has been happening since this new vision does not guide Latin American public policies today. In the presidential electoral campaign in Peru, for example, the absence of strategic visions in the face of the crisis is occupied by immediate and simplistic responses that do not seem to take into account the variations underway in global policies or the magnitude of the crisis.
Based on these trends and urgencies – which could be summarized as “more State” – some say that the region would be turning “to the left.” We must be careful with this because with that logic we would have to say that the IMF or ECLAC are “left-winging” and this does not seem to be the case because, simultaneously, strong authoritarian currents appear in the face of critical issues such as public security. Turning to the right, then?
The fact is that we are facing a crisis that has brought urgent and far-reaching urgencies to the fore, which should give way to common sense and a reasonable way of doing things including broad political and social sectors.
The ongoing polarizations can give space and legitimacy to authoritarian and distant discourse and proposals from the democratic order that have been very strong. For example, in more than half a dozen Peruvian presidential candidates. Therefore, you do not have to take anything for granted.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.