Ongoing COVID waves threaten Latin American economies: IMF

The Washington-based International Monetary Fund (IMF), in a 60-page working paper, says Latin America was hit hard by Covid-19, both in terms of lives and livelihoods. While early lockdowns kept the number of cases in check during the second quarter of 2020, they did not “stop the pandemic from later wreaking havoc in the region,” says the organization.

The IMF analysis, authored by Bas B. Bakker and Carlos Goncalves, says COVID-19 infection patterns have differed in much of Latin America compared with North America or Europe. “Western Europe saw sharp explosions in the spring (second quarter) of 2020, very modest infections during the summer of 2020, and renewed explosions in late 2020 and early 2021. Latin America mostly avoided these explosions (which we here dub as ‘forest fires’), but also did not see periods of very modest infections.

Instead, in Central and South America the daily death toll “gradually increased (‘slow-burn’) and, in many countries, only peaked in the fall of 2020 or the first half of 2021,” write Baker and Goncalves.

Preventing the spread of COVID-19 with restrictions had a clear correlation with a decline in economic activity in the region, say the authors. “The sharp downturn in Latin America in the second quarter of 2020 was chiefly associated with tough and binding lockdowns,” they state.

A factor to keep in mind in those parts of Latin America south of the equator (Argentina, Chile and much of Brazil) is the reversal of the winter and summer seasons because of their Southern Hemisphere location. “A high level of mobility during the summer months may be consistent with a low level of infections. But keeping the same mobility level when winter approaches may lead to a sharp increase in infections,” write Bakker and Goncalves.

Looking back, they note, “Latin America avoided the second wave explosions in late 2020 and early 2021 that Europe and the United States saw because mobility had not picked up as much as in Europe, the share of the still susceptible population was lower and because it was summer in the Southern Hemisphere. But with winter approaching, and more virulent new variants, we are seeing new waves in many countries. Much more rapid vaccination will be key to stop the pandemic.”

The authors studied strictness of lockdown measures (stringency) and death rates to see which had a greater economic impact and concluded that protecting lives does come at an economic cost in Latin America (and likely elsewhere).

“In short, in Latin America, both stringency and daily deaths affected economic activity, but the impact of the former was quantitatively more important,” write the duo. “The stringent lockdowns in the second quarter of 2020 led to a sharp downturn in Latin America. Thereafter stringency was eased and the impact of stringency on activity declined, leading to a recovery in the second half of 2020. But for the year as a whole, the impact was significant.”

Looking forward, Bakker and Goncalves write, “It is likely that the pandemic in Latin America will only end when herd immunity has been reached.” Unfortunately, they add, “In most countries in Latin America, it is likely that too few people have been vaccinated to reach herd immunity” as of June 2021.

Using early June data, the IMF researchers indicate the rate of fully-vaccinated people in the five biggest countries in terms of population (Brazil, Mexico, Colombia, Argentina, Peru), ranged between 4 percent (Peru) and 11 percent (Brazil), compared with 41 percent in the United States and 59 percent in Israel.”

Bakker and Goncalves continue, “In the Spring of 2020, policies in Latin America focused on minimizing the spread of COVID-19. This was typically done through lockdowns, which had large economic costs. Moreover, lockdowns did not succeed in stopping the spread of COVID-19, which may have been because the share of the susceptible population was still too high.”

They conclude their report by writing, “The results in this paper suggest that boosting the economy while containing R-effective [virus reproduction or spread rate] means walking a fine line in loosening stringency. The higher the number of people that has already been infected, the more stringency can be reduced. However, if stringency is reduced too much, and mobility picks up too much, R-effective will increase to above 1 [a rising rate].”

For governmental and business leaders in Latin America, the increased procurement and use of vaccines seems to offer the only path forward between choosing between public health and public livelihoods.