SEATTLE, Washington — For the past decade, Latin America has been plagued by globalization and rapid international community developments. However, the COVID-19 pandemic has brought Latin America into socio-economic disarray. Due to forced shutdowns of local businesses and halts on trade, the Latin America and Caribbean region expects to see the number of unemployed workers increase to 44 million and 231 million to suffer from poverty. The United Nations and the regional economic commissions predict that women, indigenous peoples and afro Hispanics will experience more significant impacts due to their vulnerable socio-economic circumstances. However, while it may seem like only developed countries such as the United States and China will weather the unprecedented circumstances, the recent reforms and policy initiatives in Colombia offer hope for its Latin American neighbors’ economic resurgence.
COVID-19 in Colombia
Since the initial outbreak of COVID-19, Colombia and other Latin American countries have been under extreme financial pressure. From drastic drops in oil prices to strict lockdowns, the Colombian government estimates that the second economic quarter’s activity will fall by 17%. It is also predicted that the country’s total revenue (GDP) will drop by 7.8%, increasing unemployment rates by more than 20% and leaving millions impoverished.
As the region’s fourth-largest economy, Colombia’s response to growing fiscal obstacles is incredibly vital to vulnerable populations’ survival. Fortunately, substantial efforts in Colombia toward economic resurgence are currently in the works. Colombia’s economic resurgence plan takes a unique approach, leveling monetary, fiscal and social policy to maximize market growth while prioritizing its citizens’ wellbeing.
Economic Policy in Action
In the wake of the COVID-19 pandemic, the Colombian government has executed the following actions to combat poverty and fuel economic resurgence:
- The Central Bank cut interest rates and injected liquidity into the market.
- The Central Bank implemented its first-ever bond purchase program.
- The government-sponsored existing cash transfer programs support low-income households.
- The Colombian government introduced new financial support programs for the nation’s poor.
The first unique aspect of Colombia’s financial approach is its expanded use of quantitative easing, otherwise known as “monetary policy.” Spiraling economic concerns are making inflation and government spending rise, making a recovery increasingly difficult. As a result, the Central Bank of Colombia has cut interest rates to improve investment and loan affordability.
Additionally, the Central Bank also jumpstarted a bond purchasing program that allows the bank to buy government bonds from at-risk citizens, providing them cash in return. The program also provides local banks and investors more liquid funds to support local poverty reduction programs.
Another way Colombia is resurging its economy is by introducing new anti-poverty programs and the expansion of pre-existing ones. One of these programs is Ingreso Solidario, which “provides unconditional cash transfers to 2.9 million poor and vulnerable households that, before COVID-19, were not beneficiaries of these programs.”
Moreover, the government also introduced Programa de Apoyo al Empleo Formal, a poverty prevention program that subsidizes payrolls and pays 40% of the minimum wage to struggling firms’ workers. In terms of program expansion, the government is increasing support for existing cash transfer programs to support vulnerable households. Furthermore, while many critics would argue that such programs cannot be fully funded, emergency spending for Colombia accounted for only 2.7% of its GDP this year.
Nevertheless, there is always room for improvement in economic resurgence plans. However, Colombia’s recent policy approach presents an accessible path to poverty reduction, one that other Latin American countries can adopt.
Plans for the Future
Colombia, much like many other Latin American countries, is not immune to poverty. Yet, it has maintained low COVID-19 cases and limits increases in poverty due to its active COVID-19 relief and anti-poverty programs. Moreover, Colombia does not have to be the only poverty-stricken nation in the region to make such swift and significant strides toward economic resurgence. Other neighboring countries can start implementing similar monetary policies.
Typically, Latin American nations cannot engage in global bond sales and purchasing programs due to their relatively weak currency and climbing debt. However, these countries can positively engage in regional markets. Building up from local to regional bond markets is a smart and stable way for Latin America to increase much-needed credit for economic resurgence, similar to what the U.S. did after declaring independence. Currently, trust in the peso, a common Latin American currency, is high in Colombia and other neighboring nations. Thus, due to mid-to-large-scale investment projects, Colombia is taking advantage of its current liquidity to increase funds for essential poverty reduction programs.
Besides achieving previously unattainable quantitative easing measures, Latin American nations need to revitalize and expand existing poverty reduction programs. While re-financing debt and tapping into reserves can help, international aid and investment are still vital. Thus, it is crucial that as we continue to combat COVID-19’s socio-economic impacts, we remember that being in the international community is not just a matter of following social distancing measures and staying safe. It is also about supporting impoverished nations with financial resources and humanitarian assistance.