17/5/2021 Recovery Offers Chance to Build Back Better in Latin America and the Caribbean

Who We Are

PRESS RELEASE MARCH 29, 2021

R cov r Off rs Ch nc to Build B ck B tt r in L tin Am ric nd th C ribb n

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WASHINGTON, March 29, 2021 — Latin America and the Caribbean (LAC) su ered
more health and economic damage from the COVID 19 pandemic than any other
region, although there is potential for signi cant transformation in key sectors as
the region begins to rebound, according to a new World Bank Report.

Because of the pandemic, Gross Domestic Product (GDP) in the Latin America and
Caribbean region (excluding Venezuela) fell 6.7% in 2020. A return to growth of
4.4% is expected in 2021. That compares to the Bank’s late 2020 forecast of a 7.9%
GDP decline in 2020, and 4% expansion in 2021.

The immense disruption from the pandemic may lay the groundwork for higher
productivity through economic restructuring and digitization. Other growth
opportunities stem from innovations in the electricity sector, according to the
World Bank LAC Semiannual report Renewing with Growth.

“The damage has been severe and we’re seeing a lot of su ering, particularly among the
most vulnerable,” said Carlos Felipe Jaramillo, World Bank Vice President for the
Latin America and the Caribbean Region. “But we must always look ahead and
seize on this opportunity to embrace the transformations needed to ensure a brighter
future.”

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17/5/2021 Recovery Offers Chance to Build Back Better in Latin America and the Caribbean

The sharp contraction last year because of the pandemic had huge economic and
social costs. Unemployment rates have generally increased and poverty rates shot
up, although in some countries massive social transfers did much to cushion the
social impact of the crisis.

The Covid-19 crisis will have a long-lasting impact on the economies of the region.
Less learning and lower employment are bound to reduce future earnings, while
high public and private debt may create stress for in nancial sector and slow the
recovery.

Despite the challenges, there are some bright spots. Global trade in goods held up
relatively well, despite the sharp drop of trade in services, especially tourism. Most
commodity prices are now higher than before the Covid-19 crisis, partly due to
China’s quick rebound. This is good for exporters of agricultural and mining
products. Remittances to the region are up compared to before the pandemic,
which is very important to several countries in the Caribbean and Central America.

In addition, capital markets remained open to most countries in the region.

Borrowing from abroad actually increased, which helped mitigate the economic
and social impact of the Covid-19 crisis. Most countries in the region ran substantial
budget de cits since the beginning of the pandemic, with the additional spending
devoted to strengthening health systems, providing transfers to households, and
helping rms. At the same time proactive measures helped debtors and reduced
the risk of nancial crises.

“As economies rebound this year, some sectors and rms will gain and others will lose,”
said Martín Rama, World Bank Chief Economist for the Latin America and the
Caribbean region. “The pandemic has triggered a process of creative destruction that
may lead to faster growth but may also amplify inequality within and across countries in
the region.”

For example, hospitality and personal services may su er long-term damage, but
information technology, nance and logistics will expand. In the medium term, the
gains could be larger than the losses. The biggest transformation could come from

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17/5/2021 Recovery Offers Chance to Build Back Better in Latin America and the Caribbean

accelerated digitization, which could lead to greater dynamism in nancial

intermediation, international trade and labor markets.

Technology also brings the opportunity to transform the power sector. Latin
America and the Caribbean has the cleanest electricity generation matrix of all
developing regions, mainly due to the abundance of hydropower. The region
should have the cheapest electricity in the developing world, but instead has the
most expensive, mostly due to ine ciencies.

Firms and households in the region pay substantially more for the electricity they
consume than it would cost to produce it. Ine ciencies are re ected in frequent
power outages, technical and commercial losses, over-sta ed state-owned utilities,
and abuse of market power by private generators.

With the right institutional framework, technology could increase competition in

the sector, bringing electricity prices down and increasing the share generated
from renewable sources. For example, distributed generation could allow rms and
households to rely on their own power sources, such as solar panels, to sell
electricity to the grid or to buy from it depending on the hour of the day. In
addition, increased cross-border electricity trade could capitalize on di erences in
installed capacity, generation cost and the timing of peak demand to generate
mutual gains. However, these e ciency gains will only materialize if electricity can
be sold and bought at the right price.

While there are signs that the economies of the region are rebounding and hopes
that the disruption could have some positive outcomes, the outlook for this year
remains uncertain. Vaccine rollout has been slow in most the region, and herd
immunity may not be attained before the end of 2021 at the earliest. In addition,
new waves of infection may come as new variants of the virus emerge. While
actively preparing to build back better, protecting lives and livelihoods remains the
priority.

Bank Group Response to COVID-19

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17/5/2021 Recovery Offers Chance to Build Back Better in Latin America and the Caribbean

The World Bank, one of the largest sources of funding and knowledge for developing
countries, is taking broad, fast action to help developing countries respond to the health,
social and economic impacts of COVID-19. This includes $12 billion to help low- and
middle-income countries purchase and distribute COVID-19 vaccines, tests, and
treatments, and strengthen vaccination systems. The nancing builds on the broader
World Bank Group COVID-19 response, which is helping more than 100 countries
strengthen health systems, support the poorest households, and create supportive
conditions to maintain livelihoods and jobs for those hit hardest.

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PRESS RELEASE NO: 2021/131/LAC

Cont cts
Washington, DC.

Shane Romig
sromig@worldbank.org

Washington, DC.

Francisco Seminario
fseminario@worldbank.org

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