MEXICO CITY — The new coronavirus pandemic could send economies tumbling by 4.6 per cent this year across Latin America and the Caribbean, forcing governments to take ownership stakes in struggling major businesses, according to a World Bank report issued Sunday.
The bank’s Latin America and Caribbean branch projected that gross domestic product for the region will fall by 4.6 per cent before rebounding by 2.6 per cent next year. Venezuela, which has already seen a dire economic plunge, was not included in the prediction.
That’s even more dramatic than the contraction of 1.8 per cent to 4 per cent projected earlier this month by the U.N.’s Economic Commission for Latin America and the Caribbean.
The disease has slammed tourism, demand for the region’s products and crucial remittances sent home by migrants in the U.S. and elsewhere.
The bank said governments will need to rapidly ramp up existing social assistance programs while also supporting financial sector institutions and key sources of employment.
“To support jobs and firms, governments may need to take ownership stakes in strategically important firms. To avert a financial crisis, they may need to recapitalize banks and absorb non-performing assets.”
Humberto Lopez, the bank’s acting vice-president for the region, said, “We need to help people face these enormous challenges and make sure that financial markets and employers can weather the storm. That means limiting the damage and laying the groundwork for recovery as fast as possible.”
The bank warned that aid for businesses must be seen as “transparent and professional” to maintain confidence and avoid the appearance of corruption. “This may also allow decision makers to take urgently needed measures without fearing prosecution in the future,” it said.
During the Great Recession that began in 2008, the United States took stakes in companies including General Motors through the Troubled Asset Relief Program.
Many Latin American governments already were facing economic problems when the crisis hit and have little room to manoeuvr without running into debt problems. That will complicate efforts to help their citizens.
“The hardship from the crisis will be enormous for large segments of the population,” the bank noted. “Many households live from hand to mouth and they do not have the resources to cope with the lockdowns and quarantines needed to contain the spread of the epidemic.”
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