Coronavirus Brings American Decline Out in the Open [feedly]

Noah Smith: (Blooomberg) Coronavirus Brings American Decline Out in the Open
https://www.bloomberg.com/opinion/articles/2020-06-29/coronavirus-brings-american-decline-out-in-the-open

The U.S.'s decline started with little things that people got used to. Americans drove past empty construction sites and didn't even think about why the workers weren't working, then wondered why roads and buildings took so long to finish. They got used to avoiding hospitals because of the unpredictable and enormous bills they'd receive. They paid 6% real-estate commissions, never realizing that Australians were paying 2%. They grumbled about high taxes and high health-insurance premiums and potholed roads, but rarely imagined what it would be like to live in a system that worked better.

When writers speak of American decline, they're usually talking about international power -- the rise of China and the waning of U.S. hegemony and moral authority. To most Americans, those are distant and abstract things that have little or no impact on their daily lives. But the decline in the general effectiveness of U.S. institutions will impose increasing costs and burdens on Americans. And if it eventually leads to a general loss of investor confidence in the country, the damage could be much greater.

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The most immediate cost of U.S. decline -- and the most vivid demonstration -- comes from the country's disastrous response to the coronavirus pandemic. Leadership failures were pervasive and catastrophic at every level -- the president, agencies such as the Centers for Disease Control and the Food and Drug Administration, and state and local leaders all fumbled the response to the greatest health threat in a century. As a result, the U.S. is suffering a horrific surge of infections in states such as Arizona, Texas and Florida while states that were battered early on are still struggling. Countries such as Italy that are legendary for government dysfunction and were hit hard by the virus have crushed the curve of infection, while the U.S. just set a daily record for case growth and shows no sign of slowing down.

This utter failure to suppress a disease that most other countries managed to contain will have real economic costs for Americans, as fear of the virus drives people back into their homes and businesses suffer.

Reopening Comes With a New Helping of Fear

Change in restaurant seatings from the same day a year earlier

Source: Open Table

In addition to worrying about their jobs and livelihoods, Americans must now be subjected to months of images of Italians casually walking around on the streets while they cower in  their houses. It's a painful and stark demonstration of national decline. Even more galling, the U.S.'s Covid failure means that its citizens can no longer travel freely around the world; even Europe plans to impose a travel ban on Americans.

But the consequences of U.S. decline will far outlast coronavirus. With its high housing costs, poor infrastructure and transit, endemic gun violence, police brutality and bitter political and racial divisions, the U.S. will be a less appealing place for high-skilled workers to live. That means companies will find other countries in Europe, Asia and elsewhere a more attractive destination for investment, robbing the U.S. of jobs, depressing wages and draining away the local spending that powers the service economy. That in turn will exacerbate some of the worst trends of U.S. decline -- less tax money means even more urban decay as infrastructure, education and social-welfare programs are forced to make big cuts. Anti-immigration policies will throw away the country's most important source of skilled labor and weaken a university system already under tremendous pressure from state budget cuts.

Almost every systematic economic advantage possessed by the U.S. is under threat. Unless there's a huge push to turn things around -- to bring back immigrants, sustain research universities, make housing cheaper, lower infrastructure costs, reform the police and restore competence to the civil service -- the result could be decades of stagnating or even declining living standards.

And a biggest danger might come later. The U.S. has long enjoyed a so-called exorbitant privilege as the financial center of the world, with the dollar as the lynchpin of the global financial system. That means the U.S. has been able to borrow money cheaply, and Americans have been able to sustain their lifestyles through cheap imports. But if enough investors -- foreign and domestic -- lose confidence in the U.S.'s general effectiveness as a country, that advantage will vanish.

If capital begins to abandon the U.S. and the dollar in large amounts, the currency will crash and Americans will find themselves paying much more for everything from cars to televisions to gasoline to imported food. Interest rates will be raised in an attempt to lure back investment capital, and the country might undergo a period of stagflation worse than the 1970s. Large-scale unrest would undoubtedly result and -- in the worst-case scenario -- the U.S. could collapse like Venezuela.

This is an outcome to be avoided at all costs. But it's an outcome that is no longer out of the realm of possibility, thanks to the complacency, arrogance and misplaced priorities of U.S. leaders and the deep and bitter divisions among U.S. voters. If the U.S. goes from rich, world-straddling colossus to floundering dysfunctional developing nation in just a few decades, it will be one of the most spectacular instances of civilizational decline in world history. Every mind in the country should be bent towards the task of reversing the decline and restoring national competence.

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U.S. workers need more power [feedly]

U.S. workers need more power
http://larrysummers.com/2020/06/29/u-s-workers-need-more-power/

By Lawrence H. Summers and Anna Stansbury

Covid-19 has brought into sharp relief the contrast between the experiences of the higher-income Americans who receive deliveries and the lower-income Americans who fulfill them, between those who can work safely from home and those who must expose themselves to risk, often with inadequate protection, between those who have the power to safeguard their health and their living standards and those who do not. More broadly, it has highlighted the long-standing trends in the U.S. economy toward a falling labor share of income, rising income inequality and slow wage growth for most workers — even as corporate stock market valuations and profitability rise.

Economic analysis often ascribes these trends to some combination of globalization, technological change and rising monopoly power. But our research suggests that a more compelling explanation is the broad-based decline in worker power. As workers have become less able to share in the profits generated by their firms, income has been redistributed from employees to the owners of capital. That has contributed to higher income inequality along class and race lines.

The evisceration of private-sector unions is the most obvious example of the decline in worker power. At the peak, one-third of the private-sector workforce belonged to a union; that number is now 6 percent. But other factors also affect the degree to which workers can share in firms' profits. Because of increased shareholder activism, rising levels of debt, increases in private equity and changing corporate norms, businesses are increasingly run for shareholders rather than their stakeholders. Ruthless management tactics involving precise measurement of workers' day-to-day activity have become widespread.

Meanwhile, workers at large firms or in highly paid industries (such as manufacturing, construction or transportation) used to earn large wage advantages, as they shared in the profits generated by their companies, but these benefits have declined by half since the early 1980s. An increasing number of workers are outsourced domestically, employed by staffing or temp agencies or misclassified as independent contractors, reducing their ability to share in the profits of the main firm they work for. And the real value of the minimum wage is lower than it was in the 1970s.

Why did this happen? Some portion of the decline in worker power may have been an inevitable outcome of globalization or technological change. But our research — which examines shifts in labor shares and corporate profits across different industries — indicates that changes in policy, norms and institutions are the most important explanatory factors. This view is supported by the fact that the legal and political environment has been tilted substantially in favor of shareholders and against workers since the 1980s, a trend exemplified by the expansion of state right-to-work laws undermining unions' ability to fund themselves and the increasing corporate use of union avoidance tactics, both legal and illegal. The fact that the decline in unionization, the rise in income inequality and the fall in labor's share of income have all happened to a greater extent in the United States than in much of the rest of the industrialized world also suggests an important role for U.S.-specific explanations.

What should be done? A traditional economic argument is that policy should let markets function competitively and then rely on progressive taxation and spending to redistribute income afterward. It is this kind of thinking that lies behind advocacy of negative income taxes or, more recently, for a universal basic income. But progressive institutionalists have long argued for pre-distribution alongside redistribution, strengthening worker power by changing the structure of labor market institutions.

We believe both ingredients are required. Strengthening worker power can be an important countervailing force against firms' dominance in product and labor markets, as argued famously by John Kenneth Galbraith. And it's not necessarily the case that it is more efficient to reduce inequality through after-the-fact transfers and taxes than by strengthening unions beforehand. After all, taxes create distortions and alter incentives — and moving to a system with more centralized bargaining may actually reduce the distortionary effects of taxation. When something is a big problem — as is inequality in America today — it is appropriate to tackle it from multiple angles.

Of course, there is a risk that by raising wages, such policies might lead to an increase in unemployment. Indeed, our research suggests that the decline in worker power may have contributed to the long-term decline in average U.S. unemployment (until the current crisis). The risk of increased unemployment should not be dismissed lightly, particularly as unemployment disproportionately affects lower-income people and people of color. But it is possible to bolster the power of labor without excessively restricting hiring. There is reason to believe, for example, that allowing bargaining at a broader level than just the individual firm — such as sectoral collective bargaining — would reduce the negative effects of unionization on unemployment. We must also consider the type of unemployment that policies might create; an increase in short-term unemployment as workers spend more time searching for good jobs is less problematic than the development of a two-tier labor market where unprotected "outsiders" spend long periods in unemployment or are unable to access good jobs at all.

Overall, we believe that increasing worker power must be a central and urgent priority for policymakers concerned with inequality, low pay and poor work conditions. If we do not shift the distribution of power toward workers, any other policy changes are likely to be short-term and insufficient.

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CDC chief Redfield: 24 million may have coronavirus [feedly]

CDC chief Redfield: 24 million may have coronavirus
https://www.peoplesworld.org/article/cdc-chief-redfield-24-million-may-have-coronavirus/

WASHINGTON—The head of the federal Centers for Disease Control now estimates that 24 million people in the U.S., ten times the actual numbers recorded, may be ill from the coronavirus.

CDC Director Dr. Robert Redfield provided that estimate in a June 25 conference call with other reporters, the same day his agency expanded the list of pre-existing conditions that make people more vulnerable to the virus.

The CDC also removed age by itself today as a risk factor for infection because of the surge of positive cases among young people.

"Our best estimate right now is that for every case that's reported, there actually are ten other infections," Redfield told the health reporters.

As of 9:30 am on June 26, the most-authoritative data on the coronavirus pandemic, from Johns Hopkins University, showed 2,422,312 million people have been sickened since it was declared, and 124,415 have died.

And the U.S. overall, along with a group of Southern and Western states, set new daily case records on June 25. Utah's caseload rose so dramatically that the state health director, advocates a lockdown there. At its GOP governor's direction, Utah never closed down completely.

Redfield's warning flies directly in the face of the happy talk by GOP President Donald Trump and his political allies. Trump has talked about decreasing testing for the virus and his Health and Human Services Department closed more than a dozen federally funded testing sites in several states on June 25. And the GOP Trump regime has ignored CDC warnings while in effect muzzling Redfield.

Trump's also urged – indeed demanded – governors reopen their states for business, to try to end the depression resulting from continuing closures to ensure social distancing and stop the virus's community spread. Most state governors closed businesses when Trump refused to act and are now gradually reopening.

But Trump's reopening demand has boomeranged in almost two dozen states in the South and the West. Besides Utah, cases in Texas skyrocketed. GOP Gov. Greg Abbott, an early "re-opener" reversed course on June 25 and started closing bars and ordered Texans to wear protective masks in public. Houston public health officials told the Chronicle they expect 30,000 new cases in that city alone.

And the CDC issued a new warning on June 25 expanding who is vulnerable to the virus.

"Understanding who is most at risk for severe illness helps people make the best decisions for themselves, their families, and their communities," Redfield warned in that statement on CDC's website. "While we are all at risk for COVID-19, we need to be aware of who is susceptible to severe complications so that we take appropriate measures to protect their health and well-being."

"As more information becomes available, it is clear a substantial number of Americans are at increased risk of severe illness – highlighting the importance of continuing to follow preventive measures," the website adds.

Studies show higher risk from the coronavirus exists for people with chronic kidney disease, COPD (chronic obstructive pulmonary disease), obesity – a body mass index of 30 or higher, weakened immune systems after organ transplants, serious heart conditions, sickle cell anemia and type 2 diabetes, the agency said.

"An estimated 60% of adults have at least one chronic medical condition," including 40% who are obese, CDC said. "The more underlying medical conditions people have, the higher their risk."

And pregnant women "were more likely to be hospitalized, admitted to the intensive care unit, and receive mechanical ventilation" for the coronavirus "than nonpregnant women," CDC said. "However, pregnant women were not at greater risk for death from COVID-19."

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PK: America Didn’t Give Up on Covid-19. Republicans Did. [feedly]

The fascists care not at all. Its Beyond "partisanship".

America Didn't Give Up on Covid-19. Republicans Did.

Paul Krugman
https://www.nytimes.com/2020/06/25/opinion/coronavirus-republicans.html

Earlier this year much of America went through hell as the nation struggled to deal with Covid-19. More than 120,000 Americans have now died; more than 20 million have lost their jobs.

But it's looking as if all those sacrifices were in vain. We never really got the coronavirus under control, and now infections, while they have fallen to a quite low level in the New York area, the pandemic's original epicenter, are surging in much of the rest of the country.

And the bad news isn't just a result of more testing. In new hot spots like Arizona — where testing capacity is being overwhelmed — and Houston the fraction of tests coming up positive is soaring, which shows that the disease is spreading rapidly.

It didn't have to be this way. The European Union, a hugely diverse area with a larger population than the U.S., has been far more successful at limiting the spread of Covid-19 than we have. What went wrong?

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The immediate answer is that many U.S. states ignored warnings from health experts and rushed to reopen their economies, and far too many people failed to follow basic precautions like wearing face masks and avoiding large groups. But why was there so much foolishness?

Refer your friends to The Times.

They'll enjoy our special rate of $1 a week.

Well, I keep seeing statements to the effect that Americans were too impatient to stay the course, too unwilling to act responsibly. But this is deeply misleading, because it avoids confronting the essence of the problem. Americans didn't fail the Covid-19 test; Republicans did.

After all, the Northeast, with its largely Democratic governors, has been appropriately cautious about reopening, and its numbers look like Europe's. California and Washington are blue states that are seeing a rise in cases, but it's from a relatively low base, and their Democratic governors are taking actions like requiring the use of face masks and seem ready to reverse their reopening.

So the really bad news is coming from Republican-controlled states, especially Arizona, Florida and Texas, which rushed to reopen and, while some are now pausing, haven't reversed course. If the Northeast looks like Europe, the South is starting to look like Brazil.

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Nor is it just Republican governors and state legislatures. According to the new New York Times/Siena poll, voters over all strongly favor giving control of the pandemic priority over reopening the economy — but Republican voters, presumably taking their cue from the White House and Fox News, take the opposite position.

And it's not just about policy decisions. Partisanship seems to be driving individual behavior, too, with self-identified Democrats significantly more likely to wear face masks and engage in social distancing than self-identified Republicans.

The question, then, isn't why "America" has failed to deal effectively with the pandemic. It's why the G.O.P. has in effect allied itself with the coronavirus.

Part of the answer is short-term politics. At the beginning of this year Donald Trump's re-election message was all about economic triumphalism: Unemployment was low, stocks were up, and he was counting on good numbers to carry him through November. He and his officials wasted crucial weeks refusing to acknowledge the viral threat because they didn't want to hear any bad news.

And they pushed for premature reopening because they wanted things to return to what they seemed to be back in February. Indeed, just a few days ago the same Trump officials who initially assured us that Covid-19 was no big deal were out there dismissing the risks of a second wave.

I'd suggest, however, that the G.O.P.'s coronavirus denial also has roots that go beyond Trump and his electoral prospects. The key point, I'd argue, is that Covid-19 is like climate change: It isn't the kind of menace the party wants to acknowledge.

It's not that the right is averse to fearmongering. But it doesn't want you to fear impersonal threats that require an effective policy response, not to mention inconveniences like wearing face masks; it wants you to be afraid of people you can hate — people of a different race or supercilious liberals.

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So instead of dealing with Covid-19, Republican leaders and right-wing media figures have tried to make the pandemic into the kind of threat they want to talk about. It's "kung flu," foisted on us by villainous Chinese. Or it's a hoax perpetrated by the "medical deep state," which is just looking for a way to hurt Trump.

The good news is that the politics of virus denial don't seem to be working. Partly that's because racism doesn't play the way it used to: The Black Lives Matter protesters have received broad public support, despite the usual suspects' efforts to portray them as rampaging hordes. Partly it's because the surge in infections is becoming too obvious to deny; even Republican governors are admitting that there's a problem, although they still don't seem willing to act.

The bad news is that partisanship has crippled our Covid-19 response. The virus is winning, and all indications are that the next few months will be a terrifying nightmare of rampant disease and economic disruption.

The Times is committed to publishing a diversity of letters to the editor. We'd like to hear what you think about this or any of our articles. Here are some tips. And here's our email: letters@nytimes.com.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman

A version of this article appears in print on June 26, 2020, Section A, Page 26 of the New York edition with the headline: America Didn't Give Up on Covid-19. Republicans Did.. Order Reprints | Today's Paper | Subscribe

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How a Black Commons Could Help Build Communal Wealth [feedly]

Interesting take on reparations.

How a Black Commons Could Help Build Communal Wealth
https://www.yesmagazine.org/social-justice/2020/06/26/black-wealth-land-ownership

Underlying the recent unrest sweeping U.S. cities over police brutality is a fundamental inequity in wealth, land, and power that has circumscribed Black lives since the end of slavery in the U.S.

The "40 acres and a mule" promised to formerly enslaved Africans never came to pass. There was no redistribution of land, no reparations for the wealth extracted from stolen land by stolen labor.

June 19 is celebrated by Black Americans as Juneteenth, marking the date in 1865 that former slaves were informed of their freedom, albeit two years after the Emancipation Proclamation. Coming this year at a time of protest over the continued police killing of Black people, it provides an opportunity to look back at how Black Americans were deprived of land ownership and the economic power that it brings. An expanded concept of the "Black commons"—based on shared economic, cultural and digital resources as well as land—could act as one means of redress. As professors in urban planning and landscape architecture, our research suggests that such a concept could be a part of undoing the racist legacy of chattel slavery by encouraging economic development and creating communal wealth.

Land grab

The proportion of the United States under Black ownership has actually shrunk over the last 100 years or so.

At their peak in 1910, African American farmers made up around 14% of all U.S. farmers, owning 16 to 19 million acres of land. By 2012, Black Americans represented just 1.6% of the farming community, owning 3.6 million acres of land. Another study shows a 98% decline in Black farmers between 1920, and 1997. This contrasts sharply with an increase in acres owned by white farmers over the same period.

In a 1998 report, the U.S. Department of Agriculture ascribed this decline to a long and "well-documented" history of discrimination against Black farmers, ranging from New Deal and USDA discriminatory practices dating from the 1930s to 1950s-era exclusion from legal, title and loan resources.

The lack of ownership is crucial to understanding the crippling economic disparity that has hollowed out the Black middle class.

Discriminatory practices have also affected who owns property as well as land. In 2017, the racial homeownership gap was at its highest level for 50 years, with 79.1% of White Americans owning a home compared to 41.8% of Black Americans. This gap is even larger than it was when racist housing practices such as redlining, which denied Black residents mortgages to buy, or loans to renovate, property were legal.

The lack of ownership is crucial to understanding the crippling economic disparity that has hollowed out the Black middle class and continues to plague Black America—making it harder to accrue wealth and pass it on to future generations.

A 2017 report found that the median net worth for non-immigrant Black American households in the greater Boston region was just US$8, but for whites it was $247,500. This was because of "general housing and lending discrimination through restrictive covenants, redlining and other lending practices."

Nationally, between 1983 and 2013, median Black household wealth decreased by 75% to $1,700 while median white household wealth increased 14% to $116,800.

Freedom farms

Land ownership today could look very different. The idea of collective ownership has a long history in the United States. Even during slavery, a piece of ground was granted by slave masters for enslaved African subsistence farming. The Jamaican social theorist Sylvia Wynter called this land "the plot."

The principles of collective land ownership evolved in post-slavery Black America.

Wynter has explained how that these parcels of land were transformed into communal areas where slaves could establish their own social order, sustain traditional African folklore and foodways—growing yams, cassava and sweet potatoes. Plots were often called "yam grounds," so important was this staple food.

The connection between food, land, power and cultural survival was subversive in its nature. By appropriating physical space to support collective growing practices within the brutal constraints of slavery, Black people also demonstrated the need for common, shared mental space to enable their survival and resistance. Herbalism, medicine and midwifery, and other African American healing practiceswere seen as acts of resistance that were "intimately tied to religion and community," according to historian Sharla M. Fett.

With the end of slavery, these plots disappeared.

Fannie Lou Hamer, civil rights organizer, in 1964. Photo by GHI Vintage/Universal History Archive/Universal Images Group/Getty Images.

The principles of collective land ownership evolved in post-slavery Black America. It was central to civil rights organizer Fannie Lou Hamer's Freedom Farms, a cooperative model designed to deliver economic justice to the poorest Black farmers in the American South.

In Hamer's view, the fight for justice in the face of oppression required a measure of independence that could be achieved through owning land and providing resources for the community.

This idea of a Black commons as a means of economic empowerment formed a focus of W.E.B. DuBois' 1907 "Economic Co-operation Among Negro Americans." DuBois believed that the extreme segregation of the Jim Crow era made it necessary to ground economic empowerment in the cultural bonds between Black people and that this could be achieved through cooperative ownership.

Credit unions and co-ops

The accumulation of wealth was not the only desired consequence of a Black commons.

In 1967, social critic Harold Cruse argued for a "new institutionalism" that would create a "new dynamic synthesis of politics, economics, and culture." In his view, economic ventures needed to be grounded in the greater aspirations of Black communities – politically, culturally and economically. This could be achieved through a Black commons.

As the political economist Jessica Gordon Nembhard has noted in reference to Black credit unions and mutual aid funds, "African Americans, as well as other people of color and low-income people, have benefited greatly from cooperative ownership and democratic economic participation throughout the nation's history."

The long history of racism in the United States has held back Black Americans for generations.

The nonprofit Schumacher Center for a New Economics is working to rejuvenate the idea of Black commons. In a 2018 statement, the center proposed to adopt a community land trust structure "to serve as a national vehicle to amass purchased and gifted lands in a Black commons with the specific purpose of facilitating low-cost access for Black Americans hitherto without such access."

Meanwhile, shared equity housing schemes and community land trusts continue to grow, helping Black families own property, advance racial and economic justiceand mitigate displacement resulting from gentrification.

Digital commons

The disproportionate effects of the coronavirus pandemic and unrest over police brutality have highlighted deeply embedded structural racism. Organizations such as Black Lives Matter and the Movement for Black Lives are demonstrating a renewed vigor around collective action and a blueprint for how this can be achieved in a digital age. At the same time, Black Americans are also forging a cultural commons through events such as DJ D-Nice's Club Quarantine—a hugely popular online dance party. Club Quarantine's success indicates the potential for using online platforms to facilitate community building, pointing toward future economic cooperation.

That's what organizations such as Urban Patch are trying to do. The nonprofit group uses crowdsourced funding to build community spaces in inner city areas of Indianapolis and encourage collective economic development that echoes the Black commons of years past.

The long history of racism in the United States has held back Black Americans for generations. But the current soul-searching over this legacy is also an unrivaled opportunity to look again at the idea of collective Black action and ownership, using it to create a community and economy that goes beyond just ownership of land for wealth's sake.

This article was originally published by The Conversation. It has been published here with permission.

The post How a Black Commons Could Help Build Communal Wealth appeared first on Yes! Magazine.

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IMF: Outlook for Latin America and the Caribbean: An Intensifying Pandemic [feedly]

Outlook for Latin America and the Caribbean: An Intensifying Pandemic
https://blogs.imf.org/2020/06/26/outlook-for-latin-america-and-the-caribbean-an-intensifying-pandemic/

By Alejandro Werner

Español

Latin America and the Caribbean have become the new COVID-19 global epicenter. The human cost has been tragic, with over 100,000 lives lost. The economic toll has also been steep. The World Economic Outlook Update now estimates the region to shrink by 9.4 percent in 2020, four percentage points worse than the April projection and the worst recession on record. A mild recovery to +3.7 percent is projected in 2021.

Latin American countries should be cautious in reopening their economies and allow science and data to guide the process.

The pandemic

The rates of COVID-19 infections and deaths per capita are approaching those in Europe and the United States, with the total number of cases accounting for about 25 percent of the worldwide total.

 

Against this backdrop, countries should be very cautious when considering reopening their economies and allow science and data to guide the process. Indeed, many countries in the region have high levels of informality and low preparedness to handle new outbreaks, like a high occupancy of intensive care unit beds and low testing and tracing capacity.

Recent economic developments

Weaker economic data and more protracted COVID-19 outbreaks explain the significant downward revisions compared to our April forecasts. First quarter growth was worse than expected for most countries, while high frequency indicators – like industrial production, electricity consumption, retail sales, and employment – suggest that the decline in the second quarter will be deeper than projected in April. The pandemic's still rapid spread indicates that social distancing measures will need to remain in place for a longer time, depressing economic activity in the second half of 2020 and leaving more scarring going forward.

 

Despite the difficult outlook, external financial conditions have eased in recent weeks, largely reflecting strong actions by advanced economies' central banks, which have allowed some countries to issue debt abroad. However, financial conditions are still tighter than before the pandemic and are expected to remain volatile going forward.

Risks remain elevated. The pandemic could worsen and last longer, depressing economic activity, stressing corporate balance sheets, raising poverty and inequality, and rekindling social tensions across the region. Upside surprises could also happen. Some recent high frequency indicators for advanced economies have been better than expected. Global growth could be stronger than expected, supporting exports, commodity prices, and tourism.

Policy priorities

The immediate priority for fiscal policy is to continue protecting lives and livelihoods, which given the limited fiscal space in the region, will require reprioritizing expenditure and increasing its efficiency. Policymakers will need to find creative ways to reach different segments of society, especially where informality is high. The fallout from the pandemic and associated policy response will also raise medium-term debt sustainability concerns in several countries. Commitment to a medium-term plan of fiscal consolidation and growth-enhancing structural reforms will be key to mitigate these concerns.

Monetary policy should remain accommodative given the subdued inflation outlook, negative output gaps, and elevated unemployment. Additional policy rate cuts and measures targeted to specific markets should be considered where necessary and possible, to support economic activity and ensure proper functioning of financial markets.

Measures to maintain employment relationships, such as payroll support and financing of working capital will be important to avoid the closure of otherwise viable businesses, reduce long-term unemployment, support the recovery, minimize scarring and increase potential growth . Containment and mitigation policies should be appropriately calibrated to avoid a second pandemic wave and manage localized outbreaks.

 

In Argentina, GDP is expected to decline by about 10 percent in 2020, with heightened risks. Growth was revised down as the longer quarantine in the Buenos Aires metropolitan area, a sharply weaker external demand and worse commodity prices should more than offset the fiscal support package, which remains constrained by limited financing options. Uncertainties related to the debt restructuring process continue to weigh on confidence.

Brazil's , real GDP is projected to fall by 9 percent in 2020 amid high uncertainty, followed by a rebound of 3.6 percent in 2021. The authorities have responded strongly to the pandemic with decisive interest rate cuts, and significant fiscal and liquidity packages, including direct cash transfers targeted to vulnerable groups. The withdrawal of this stimulus however will weigh on growth in 2021 amid a domestic economy that was still shrugging off the 2015/16 recession. In this context, accommodative monetary policy will be essential to support the cyclical recovery while resuming the government's fiscal and structural reform agenda is key to preserving fiscal sustainability and boosting potential growth and investor confidence.

In Chile, real GDP is projected to decline by 7.5 percent in 2020 and rebound by 5.0 percent in 2021. Following a resilient performance in the first quarter, economic activity is expected to contract sharply in the second quarter owing to the strict social distancing measures, and to a lesser extent, weaker external demand from trading partners. A rebound in activity is expected to start in the third quarter and continue into 2021, supported by unprecedented fiscal, monetary and financial sector measures.

Colombia took early actions to limit the spread of the virus, but economic disruptions associated with the pandemic (including lower oil prices) are expected to generate the first recession in two decades. Following a weak first quarter, GDP is expected to contract by 7.8 percent in 2020, but growth should rebound to 4.0 percent in 2021 as the health situation stabilizes at home and elsewhere. In response, the central bank has cut policy rates and supported market liquidity, while the fiscal rule was suspended for two years to provide sufficient flexibility to respond to the health and economic crises.

The outbreak fallout for Mexico is compounded by the fall in oil prices, international financial markets volatility, disruptions to global value chains, and weakening business confidence as also reflected in declining investment pre-Covid. Real GDP is expected to fall by 10.5 percent in 2020 with growth in 2021 expected to recover a modest portion of the lost output. Monetary policy is expected to loosen further to accommodate the demand shock element of the crisis and preserve the functioning of financial markets. However, the fiscal response is the smallest among G20 countries, risking a deeper contraction and slower recovery with significant economic scarring. Mexico should ramp up spending now to protect lives and livelihoods and craft a credible medium-term fiscal reform that provides more short-term policy space and close fiscal gaps.

In Peru, the growth projection for 2020 has been revised down markedly to -14 percent, as weaker external demand and a longer than expected lockdown period have so far more than offset the government's significant economic support and translated into large employment losses. With the lockdown restrictions lifted in the second semester, economic activity is expected to gradually recover, reaching a 6½ percent expansion in 2021. Downside risks remain prominent, however, and are particularly linked to domestic and global challenges in bringing the Covid-19 pandemic under control.

Central America, Panama, and the Dominican Republic (CAPDR) will experience a deep recession in 2020 and a gradual recovery starting in 2021. Growth is being affected by domestic lockdowns and global spillovers through trade, tourism, and remittances. The contraction in trade will have a particularly strong impact in Panama, El Salvador and Nicaragua, the collapse in tourism in the Dominican Republic and Costa Rica, and weaker remittances in the Northern Triangle and Nicaragua. Idiosyncratic factors are also at play, notably natural disasters in El Salvador. A palliative is that falling oil prices are improving the terms of trade.

Countries in CAPDR have mitigated the pandemic by increasing health and social spending for unemployed and vulnerable households. Where feasible, monetary policy easing and credit guarantees are supporting financing for business, and tax deferrals and specific sectoral support through the budget are aiming at relaxing liquidity constraints in some countries.

The Caribbean economies have managed to flatten the COVID-19 curve, but their key lifelines have collapsed. With tourism coming to a virtual standstill and key source markets in advanced economies plunging into deeper recession, the region is likely to experience a very sharp and protracted contraction in economic activity. Despite the reopening of borders starting in June for some Caribbean countries, international tourist arrivals are expected to return to pre-crisis levels only gradually over the next three years. In addition, the steep drop in oil prices is hurting commodity exporters through a loss in exports and fiscal revenues. The ongoing hurricane season poses additional risks.

 

The IMF's support

The Fund has acted swiftly to support its membership with quick and significant injections of emergency financing. Of the 70 loans approved since the pandemic began, totaling US$ 25 billion, 17 were for countries in the region, for a total of US$ 5.2 billion. Additionally, access to the Flexible Credit Line was approved for Chile and Peru and renewed for Colombia. Together with Mexico, the total backstop provided to the region through the Flexible Credit Line amounts to US$ 107 billion.

We stand ready to use the IMF's financial clout, policy advice and capacity development resources to help Latin America and the Caribbean achieve a stronger recovery.

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