“We must act now.”- Lola Castro, WFP Regional Director while speaking about the Latin American region in 2023.
Latin America has been facing a combination of economic and social challenges in recent years. The region’s economies have slowed down, and inflation rates have risen, leading to social tensions. These problems have been compounded by the global COVID-19 pandemic, which has had a significant impact on the region’s economic recovery. In addition, the ongoing conflict between Russia and Ukraine has had indirect effects on the region’s economies, further exacerbating the economic challenges that the region faces.
The new United Nations report overview of Food Security and Nutrition 2022 found that 27.8% of Mesoamerica and 18.4% of South America cannot afford a healthy diet. This represents a drastic increase in food insecurity compared to 2019 and is due to the higher average daily cost of healthy diets in Latin America compared to the rest of the world’s regions, reaching in South America and Mesoamerica to USD 3.61 and USD 3.47, respectively. Food insecurity, unfortunately, will continue to rise due to the food and fuel price crisis caused by the conflict in Ukraine and the aftermath of COVID-19. In some countries, such as Venezuela and Nicaragua, there are reports of people going hungry due to the lack of access to food. In other countries, such as Brazil and Mexico, poverty rates have risen due to the economic slowdown caused by the pandemic.
The slowdown of economic growth in Latin America further threatens the region. The region’s economies have been growing at a slower rate than those of other emerging economies, such as those in Asia. The slow economic growth has been attributed to a combination of factors, including a decline in commodity prices, weak global demand, and low investment levels. In particular, the decline in commodity prices has had a significant impact on the region’s economies, as many Latin American countries are heavily dependent on commodity exports. With prices for commodities such as oil, copper, and soybeans remaining low, many countries in the region have struggled to generate the revenues needed to sustain economic growth.
Another major challenge facing Latin America is high inflation rates. Inflation has been on the rise in the region, and this has led to social tensions. Rising inflation has made it more difficult for people to make ends meet, as the cost of basic goods and services has gone up. This has led to protests and social unrest in many countries, including Venezuela, Argentina, and Bolivia. In some cases, governments have been forced to implement austerity measures to try to control inflation, which has further exacerbated the social tensions in the region.
Not to mention, the COVID-19 pandemic has had a significant impact on the Latin American region’s economic recovery. Many businesses have been forced to close, leading to job losses and a decline in economic activity. Governments in the region have implemented measures to try to support businesses, such as providing financial assistance and tax breaks. However, these measures have been insufficient to prevent a significant decline in economic activity in many countries.
The ongoing conflict between Russia and Ukraine has also had an indirect impact on Latin America’s economies. The conflict has led to a decline in global oil prices, which has had a significant impact on many Latin American countries. Venezuela, in particular, has been heavily impacted by the decline in oil prices, as oil accounts for a significant portion of the country’s revenues. In addition, the conflict has led to a decline in global trade, which has further hampered the region’s economic recovery.
In light of these challenges, governments in the region are facing significant pressure to address the economic and social challenges facing their countries. However, many governments in the region are struggling to implement effective policies to address these challenges. Political instability, corruption, and weak institutions are all contributing to the region’s challenges.
“We must act now, but how can we do it?”
International organisations must support governments in expanding social protection networks because as seen during the pandemic, social protection can be useful to improve the affordability of a healthy diet, preventing crises like this from hitting affected populations even more. To address the economic challenges facing the region, governments in Latin America need to implement policies that promote economic growth and job creation. This will require significant investments in infrastructure, education, and technology. In addition, governments need to implement policies that support businesses, such as tax breaks and financial assistance. This will help to promote entrepreneurship and innovation, which are key drivers of economic growth.
Governments have to keep interest rates high to bring down inflation, but at the same time need to increase public spending. This might present a bit of a challenge as many consumers will be unable to borrow, which will continue to reduce consumer spending, and reduce already limited government revenue that has to finance social spending programmes. However, all is not bleak, major Central Banks in the region should start to ease monetary policy later in 2023 and thus soften the blow to growth stemming from a global slowdown. Furthermore, potential supportive commodity prices could also offset some of the impact, as China´s economy reopens post COVID lockdowns.
To address the social challenges facing the region, governments will need to stay strong to improve economic outlooks and implement policies that address poverty and food insecurity. Soon, Latin America will be back on track to being one of the most promising emerging markets.
This article was written by Alyssa Nagrath, currently a student at the London School of Economics and Political Science, pursuing BSc Finance.