The Economic Crisis

Effect of the crisis

Photo: UNDP
Reduced global demand for services will affect Mexico's tourism industry.

Latin America and the Caribbean are facing the global economic crisis after six consecutive years of positive economic performance and stability. The region is better prepared to face this crisis than previous ones because of its improved overall macroeconomic situation. In addition, many countries are implementing important social programmes, such as Conditional Cash Transfers (CCTs) – which encourage receipt of financial aid to poor families depending on compliance with requirements, such as ensuring that children attend school. Today, nearly 85 million Latin Americans benefit from these subsidies. 

But in 2009 the region will not grow – and will become poorer. The most optimistic forecast, from the UN Economic Commission for Latin America (ECLAC), predicts 1.9 percent growth; a decline compared to previous growth rates of 5.5 percent (2006), 4.6 percent (2007) and 4.6 percent (2008). The IMF has forecast 1.1% growth for 2009, while other sources, including private banks are forecasting negative growth.

The transmission channels through which the global economic crisis will be conveyed to the region are many, and the real costs will most likely be high and unevenly distributed. A steep decline in the global demand for the region’s exports, such as oil, soy and copper, is resulting in a decline of commodity prices, a decrease in production and a hike in unemployment. At the same time, reduced global demand for manufactures and services will affect key industries in the region such as tourism in Mexico, the Caribbean and Central America. All of this will be accompanied by a decline in foreign direct investment, mainly as a result of the liquidity crisis in the money markets, and a significant decline in remittances, which is already being felt in countries such as Mexico, El Salvador and Jamaica.

According to a recent ILO study, there may be 4 million new unemployed in the region between 2007 and 2009. This deterioration of the living conditions of the population, especially in already vulnerable urban groups and youth, may become a social time bomb in the region. Past experience shows that in times of crisis, poverty has become entrenched with permanent effects on the welfare of next generations. It is important to prevent millions of people from sliding back into poverty. Achievements of the Millennium Development Goals are at stake.

What are we doing?

UNDP is working with governments in Latin America and the Caribbean to help countries adjust their national planning, continue their track towards long-term development and to protect the most vulnerable, taking into account the particular situation in that country.

In Belize, this includes focusing on agriculture as a vehicle for rural poverty reduction, while in Paraguay we are providing training to families so they can make more productive use of remittances particularly for young people in the country. In Ecuador, UN agencies are supporting the government help migrants returning from Spain resettle and rebuild their lives, helping create job opportunities, particularly for the youth.  From August 2008 to date, the number of jobless Ecuadorians in Spain has doubled: from 25,000 to 50,000, and the number of inquiries about the Voluntary Return Programme has increased seven-fold in the last four months.

UNDP is also helping build consensus and partnerships within countries in the region so that they have a comprehensive, effective and long-term response to the economic crisis with special emphasis in most vulnerable populations, particularly woman and marginalized sectors of societies. UNDP is advocating that the effects of the crisis be tackled with integrated social protection programs. CCTs must be enlarged and fine-tuned in order to have the flexibility to include those hit by the crisis. Where CCT are not in place, specific programs to retain children and youngsters in school should be implemented, and health schemes for mother and children strengthened. Employment-creation schemes should also be discussed as a potential policy option, with special emphasis on women and urban populations.