Presentation Economic Survey of Latin America and the Caribbean 2021

Principal messages ▪ Growing asymmetries between countries: access to vaccines, vaccination levels, wealth, and the ability to mobilize fiscal stimulus and investments to face the crisis and bolster recovery.

▪ Developing countries are adopting expansionary monetary and fiscal policies and industrial policies to mitigate the effects of the pandemic and to boost investments with environmental sustainability.

▪ The crisis aggravated the region's structural problems: low productivity and investment; high informality, unemployment, inequality and poverty.

▪ The region will grow 5.9% in 2021, sustained by transitory effects on aggregate demand and a statistical rebound. For 2022 a growth of 2.9% is expected.

▪ The recovery of employment, especially of women and young people, will require a comprehensive approach to sectoral, industrial and labour policies.

▪ The fiscal challenge will be to maintain emergency monetary transfers to mitigate the effects of the pandemic.

▪ Fiscal policy must accelerate public investment and encourage, attract and complement (crowding in) private investment towards sectors that are intensive in employment and that support environmental sustainability.

▪ The sustainability of fiscal policy and ensuring the financial sustainability of social protection, health, care and education systems will require strengthening tax revenues and reducing evasion.

▪ Fiscal policy must be complemented by monetary and financial policies to sustain growth in the recovery.

▪ Multilateral policies for access to liquidity and debt management are imperative to enable countercyclical fiscal and monetary policies in the region.

The world economy is expected to grow 5.9% in 2021 and 4,5% in 2022 with important differences among countries Selected regions and countries: GDP growth rates for 2020 and forecasts for 2021-2022 (in percentages)

6.9

3.9

3

7.0 4.8 2.92.6

4.7 4.4

-2.1 -4.6

-7

-3.5

5.7

-0.9

-2.0

-2.6

-1.8

2020

2021

2022

Emerging Asia

China

-7.3

Emerging markets and developing economies

Eurozone

Japan

United States

United Kingdom

-9.9

-12

Developed economies

4.03.7

-4.7 -6.5

World

4.5 3.6

2.3

-2 -3.2

6.4

6.2 5.0

▪ Globally, 24.5% of the population have been completely vaccinated.

European Union: 55.6% USA and Canada: 53% Latin America and the Caribbean: 24.8% 4.1 3.4 South America: 26,8% Central America and Mexico: 22,4% The Caribbean: 5,8%

Sub-Saharan Africa

5.5 4.2

Middle East and Central Asia

5.9 4.5

9.2 8.2

Emerging Europe

8

8.4

8.2

India

13

Asymmetries in access to vaccines:

Asymmetries in policy efforts: ▪ EEUU: new multi-annual packages for around 18% of GDP: American Families and Job Plans.

▪ UE: issuing bonds (20 billion Euros) to finance public investment (Next Generation European Union Fund).

▪ Australia and Canada: have budgeted new multi-annual packages for around 5% of GDP in their respective 2021 budgets.

▪ Latin America: new fiscal plans announced between January and June 2021 amount to 2.2% of GDP.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Organization for Economic Cooperation and Development (OECD), OECD Economic Outlook, May 2021; International Monetary Fund (IMF), “World Economic Outlook Update”, July 2021, World Bank, Global Economic Prospects, June 2021; and European Commission, European Economic Forecast: Summer 2021, Luxembourg, July 2021.

Note: In India, the fiscal year begins in April and ends in March the following year.

In 2021, the expected recovery of 8% in world trade volume is accompanied by an increase of 38%, on average, in commodity prices World trade volume: year-on-year rate of change, January 2011 – May 2021 (Percentages, on the basis of a seasonally adjusted index)

International commodity price indices, January 2018 – June 2021 (Baseline January 2018=100)

30%

150

25%

140

Agricultural commodities

130

Non-precious metals and minerals

120

Precious metals

20% proyección 2021 Forecast 8% 2021 8%

15% 10%

2017

Jul 2011 - Dec 2015 2%

5%

2016 1,4%

2018 3.5%

Energy commodities

140

115 109

110 101

100

90

90 80

0%

70

2019 -0,4%

60

40 35

Apr-20

Jan-20

Oct-19

Jul-19

Apr-19

Jan-19

Oct-18

Jul-18

Apr-18

Jan-21

Jul-20

Jan-20

Jul-19

Jan-19

Jul-18

Jan-18

Jul-17

Jan-17

Jul-16

Jan-16

Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jan-13

Jul-12

Jan-12

Jul-11

Jan-11

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Netherlands Bureau for Economic Policy Analysis (CPB), World Trade Monitor

Jan-18

30

-20%

Apr-21

-15%

50

Jan-21

2020 -5.4%

Oct-20

-10%

Jul-20

-5%

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Bank (The Pink Sheet)

The expansionary monetary and fiscal policies have benefited financial markets and financial flows towards emerging markets remain positive, but at a lower level than in 2020 VIX index of financial market volatility, January 2020 – July 2021

Non-resident portfolio capital flows to emerging markets, June 2019 – June 2021 (Billions of dollars)

90 80

Global economic recovery, development of vaccines and election results in USA

120

70

100

60

80

Financial volatility continues decreasing and it has reached pre-crisis levels

50 40 30

40 20 0 -20 -40

20 10

-60

Trade tensions and global slowdown

-80

Equity

Fears of premature tapering of Fed’s stimulus

Covid-19 spread and fears of global recession Bonds

Total

30-Jun-21

9-Jun-21

19-May-21

28-Apr-21

7-Apr-21

17-Mar-21

3-Feb-21

24-Feb-21

13-Jan-21

23-Dec-20

2-Dec-20

21-Oct-20

11-Nov-20

30-Sep-20

9-Sep-20

19-Aug-20

8-Jul-20

29-Jul-20

17-Jun-20

27-May-20

6-May-20

15-Apr-20

25-Mar-20

4-Mar-20

12-Feb-20

22-Jan-20

-100 1-Jan-20

0

Cuts in FED’s rates

60

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg.

Note: The VIX index, compiled by the Chicago Board Options Exchange (CBOE), measures expected volatility over the next 30 days and is derived from the prices of call and put options on the S&P 500 index.

Jun-19

Sep-19

Dec-19

Mar-20

Jun-20

Sep-20

Dec-20

Mar-21

Jun-21

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Institute of International Finance (IIF).

However, expectations of sustained inflation could translate in higher interest rates in developed countries, which could impact flows to emerging economies An eventual increase in US interest rates will impact emerging markets: ▪ Reduces the attractiveness of investments in emerging markets ▪ Create pressure on exchange rates ▪ Increase the cost of financing

United States: 10-year sovereign bond yield, January 2018 to July 2021 (in percentages) 3.5

3.0

2.5

2.0

1.5

1.0

0.5

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg.

Jul-21

May-21

Mar-21

Jan-21

Nov-20

Sep-20

Jul-20

May-20

Mar-20

Jan-20

Nov-19

Sep-19

Jul-19

May-19

Mar-19

Jan-19

Nov-18

Sep-18

Jul-18

May-18

Mar-18

Jan-18

0.0

Yields in the US are, however, still low from a historical perspective

The increase in international liquidity and the sustained decrease of sovereign risk have allowed countries in the region to access international financing at favourable conditions, with corporate issues more than doubling in the first half of 2021 Latin America and the Caribbean: Issues of debt in international markets, by sector, first half of 2020 and first half of 2021 (In billions of dollars) 88.791.3

Almost 80% of sovereign issues in the first semester were done by governments with an “investment grade” rating.

500

19.3

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Latin Finance and Bloomberg.

May-21

Mar-21

Jan-21

Nov-20

Sep-20

Jul-20

May-20

Mar-20

Jan-20

Nov-19

Sep-19

Jul-19

200

May-19

First half 2021

300

Mar-19

Total

400

Jan-19

First half 2020

2.8 3.6

Sovereign

Quasi-sovereign

4.8

4.2

Private

10.2

600

Supranational

18.1

800 700

38.339.6

39.1

Banks

100 90 80 70 60 50 40 30 20 10 0

Latin America: Sovereign risk measured by the Emerging Markets Bond Index from J. P. Morgan (EMBI), January 2019 – June 2021 (In basis points)

Favourable prices in 2021 will support a rebound in exports (24%) that will be accompanied by a larger increase in imports (27%) Latin America and the Caribbean (selected countries and groups of countries): projected rate of change in goods exports and imports, by volume and prices, 2021 (In percentages)

Exports 40%

30%

20%

Imports 10%

0%

0.0%

10.0%

20.0%

Latin America

24% 27%

25%

Mining exportersᵃ 24%

35%

Agro-indindustrial exportersᵇ

22%

33%

Mexico

18%

27%

Central America, Haiti and Dom. Rep.

30% Price

Volume

Hydrocarbon exportersᶜ

40.0%

27%

Brazil

35%

30.0%

24% 19%

a

Chile and Peru.

Argentina, Paraguay and Uruguay. c Bolivarian Republic of Venezuela, Colombia, Ecuador, Plurinational State of Bolivia and Trinidad and Tobago. b

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

8

The terms of trade improve on average for Latin America, although Central America and the Caribbean are disadvantaged by higher energy prices Latin America and the Caribbean (selected countries and groups of countries): rate of change in the terms of trade, 2019–2021a (Percentages) 20 14.5

14.3

15

11.8

10.2

8.6

10

7.9

7.7

5.6 5 0.6

0.5

2.3

0.6 1.5

3.4

2.2

0.5

0.7

0 -0.2

-5

-0.9

-1.0

-1.2

-1.7

-2.1

-0.5 -4.3

-3.4

-10

-15 Latin America

South America

Brazil

Mining exportersᵇ

Agro-industrial Central America, exportersᶜ Haiti and Dominican Republic

2019

2020

Mexico

Caribbeanᵈ

-13.3 Hydrocarbon exportersᵉ

2021

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a Projections.b Chile and Perú. c Argentina, Paraguay, Uruguay. d Excludes Trinidad and Tobago. e Bol. Rep. of Venezuela, Colombia, Ecuador, Plur. State of Bolivia and Trinidad and Tobago.

Remittances continue to play an important role in economic developments in 2020 and 2021 Latin America and the Caribbean (selected countries): rate of change in migrant remittance revenues, 2019–2021* (Percentages) Bolivia (Plur. State of) Colombia Costa Rica Ecuador El Salvador Guatemala Honduras Jamaica Mexico Nicaragua Paraguay Peru Dominican Rep. Average -20%

Selected countries of Central America and the Caribbean: remittance flows, 2019 - 2021 (Millions of dollars)

2019

2020

Accumulated Jan-Jun2 2021

El Salvador

5,649

5,930

3,658

Guatemala

10,508

11,340

6,966

Haiti

3,328

4,013

1,108

Honduras

5,522

5,737

3,477

Mexico

36,439

40,601

23,618

Nicaragua

1,682

1,851

858

Dominican Republic

7,087

8,219

5,263

70,215

77,692

44,949

42%

30% 22% 28%

2020 2021a

51% 43% 45% 46% 22% 23% 16%

6% 61% 32% 0%

20%

40%

Country

2019

60%

80%

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. * For Guatemala, the 2021 figures cover the period from January to June; for Colombia, the Dominican Republic, El Salvador, Honduras, Mexico and Paraguay, the period from January to May; for Jamaica, Nicaragua and the Plurinational State of Bolivia, the period between January and April; and for Costa Rica, Ecuador and Peru, the period between January and March.

Total

Annual accumulated1

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures 1 The figures for Haiti cover the fiscal year (October–September the following year) 2 Cumulative figures from January to April for Haiti and from January to May for Nicaragua

Together with external factors, increased mobility has favored economic growth Google Mobility Indices for Latin America, Central America and South America (Base level index January 3 - February 6 = 100) 120

100

80

60

40

20

Google Mobility South America (simple average) Google Mobility Latin America (simple average)

Google Mobility Central America (simple average)

Jul-21

Jul-21

Jul-21

Jun-21

Jun-21

May-21

May-21

Apr-21

Apr-21

Mar-21

Mar-21

Feb-21

Feb-21

Jan-21

Jan-21

Jan-21

Dec-20

Dec-20

Nov-20

Nov-20

Oct-20

Oct-20

Sep-20

Sep-20

Aug-20

Aug-20

Jul-20

Jul-20

Jul-20

Jun-20

Jun-20

May-20

May-20

Apr-20

Apr-20

Mar-20

Mar-20

Feb-20

0

Higher public revenues are expected in 2021, with lower spending compared to 2020 Latin America (16 countries): Central government revenues and expenditure, 2019 to 2021a (In percentages of GDP)

Revenue

Expenditure

35

▪ The reactivation of economic activity is boosting VAT collection.

▪ Higher prices of raw materials have favoured tax revenues in countries from nonrenewable natural resources.

35

Tax revenues

Other revenues

30

30

25

25

20

18.5

17.8

18.3

3.1

3.1

3.1

15 10

20

Interest payments Capital expenditure Primary current expenditure

24.7 21.4

2.7

2.5

3.4

14.7

15.7

15.1 5

0

0

2020

2021 (est)

3.5

15

5

2019

2.7

3.1

10

15.3

23.8

2019

18.6

17.6

2020

2021 (est)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and projections. a Estimated.

▪ In 2021, there is a continuation of fiscal efforts through public spending: to a lesser extent than in 2020 but higher than in 2019.

▪ New fiscal plans announced between January and June 2021 represent 2.2% of GDP. ▪ Interest payments remain stable, but with increasing pressure in some countries.

Fiscal balance are projected to improve, while public debt levels remain elevated

25

Latin America (16 countries): Central government gross public debt, at December 2020 (In percentages of GDP)

Latin America (16 countries): Central government fiscal indicators, 2010-2021a (In percentages of GDP) 24.7 23.8

120 10

21.4

100

20

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and projections. a Estimated.

28.8

42.0 Mexico

Guatemala

50.0 Nicaragua

29.5

55.9 Dominican Rep.

Paraguay

56.2 Latin America

32.9

59.0 Ecuador

Peru

58.9 Honduras

32.5

58.7 El Salvador

Chile

61.4 Colombia

Primary balance (right axis)

61.4

Total expenditure (left axis)

Uruguay

-10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (est) Overall balance (right axis) Total revenue (left axis)

20 0

-6.9 0

69.8

-5.5

Panama

-5

67.5

-4.2 -2.0 -1.7 -2.0 -2.6 -2.9 -3.1 -3.3 -3.2 -2.9 -3.0

40

88.8

0 -2.9

102.8

60

-0.3 0.1 -0.3 -0.8 -1.0 -1.0 -1.1 -0.9 -0.5 -0.4

Costa Rica

5

80

Brazil

10

5

Argentina

15

18.5 17.8 18.3

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. Data corresponds to March 2021 in Argentina, Chile, Honduras, Nicaragua and Peru.

The primary deficit is also projected to decline in the Caribbean, however public debt levels will remain at very elevated levels

2020

Overall balance (right axis)

2021 (est) Total revenue (left axis)

Total expenditure (left axis)

Primary balance (right axis)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and projections. a Estimated.

82.9

44.2

67.6

104.1

81.5

68.4

88.0

2019

CAR-13

2018

85.0

2017

Saint Lucia

2016

Saint Vincent and the…

2015

-10

Saint Kitts and Nevis

0

-6.2

Granada

-7.3

Dominica

5

Antigua and Barbuda

-5

47.4

-4.6

Guyana

-1.6

Trinidad and Tobago

-1.5

-2.7

99.0

-2.1

0

Suriname

-2.4

-3.1

5

99.5

15

26.6

Bahamas

0.5

24.4

103.3

1.2

26.6 1.1

Jamaica

0.7

1.3

118.2

25

10

10

28.2

30

20

32.7

Belize

31.6

160 140 120 100 80 60 40 20 0

142.3

35

The Caribbean (13 countries): Central government gross public debt, at December 2020 (In percentages of GDP)

Barbados

The Caribbean (12 countries): Central government fiscal indicators, 2015-2021a (In percentages of GDP)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

In 2021, inflation rates in the region remain low in most countries and central banks maintain their policies to expand liquidity and stimulate credit Latin America and the Caribbean: year-on-year growth in consumer price index (CPI) by types of inflation, weighted average, January 2017 to June 2021 (In percentages) 9%

Selected countries: Monetary policy rate, January 2019-June 2021 (In percentages)

9

8% 7% 20 countries with inflation less than 4%

6%

6.9%

8

5.4%

6

7

5%

5

4%

4

3%

3

3.0%

2%

2 1

0%

0

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr

1%

2016

2017

General index

2018 Core inflation

2019

2020

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May

2021

Food inflation

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

2019 Brazil Paraguay

Chile Peru

2020 Colombia Jamaica Costa Rica Uruguay

2021 Mexico

Policies to stimulate aggregate demand were complemented by other more specific ones, to protect employment and the groups most affected by the crisis Latin America and the Caribbean: Countries that have adopted social and employment protection measures during the crisis (Number of countries) Labour policies to protect employment and special job creation programs Special training programmes Programmes for job creation Use of vacation time Suspension of employment contract Changes in working hours Remote work Prohibit layoffs

Fiscal and credit policies to support the productive structure Payroll support programmes Social contributions measures Support of specific economic activities Tax measures Credit rescheduling Investment stimulus programmes Prohibition of cuts (reductions) of…

Business support - MSMEs

13 12 10 13 20 23 9

0

5

10

15

20

0

25

Policies to protect the employment of women and young people, and the care economy Youth training programmes Youth employment programmes Financing programmes for women Transfers to mothers with children Wage payment support Support for business activities of women…

Changes in work days for pregnant women Leave for care activities Leave for pregnant women (breastfeeding) 0

23 29 23 11 20 26 5

10

15

20

Strengthening of unemployment insurance

4 4 4

25

7

Food and/or housing support

6 17

9 8

35

21

Use of pension or unemployment funds

6

30

18

Support for informal and slef-employed

10

4

12

Other social protection policies for households

7 7

2

15

10 12 14 16 18

23

Emergency income and/or subsidies

26 0

5

10

15

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information and the COVID-19 Observatory in Latin America and the Caribbean ECLAC.

20

25

30

Latin America and the Caribbean will grow by 5.9% in 2021, due in large part to a statistical rebound, and growth of 2.9% is expected for 2022 Latin America and the Caribbean (33 countries): GDP growth forecast for 2021 and 2022 (In percentages) Guyana Panama Peru Chile Dominican Republic Argentina El Salvador Colombia Mexico Central America and Mexico Latin America Latin America y the Caribbean South America Central America Brazil Bolivia (Plurinational State of) Honduras Granada Guatemala Dominica Uruguay The Caribbean Paraguay Jamaica Costa Rica Saint Lucia Saint Kitts and Nevis Saint Vincent and the Grenadines Barbados Ecuador Belize Nicaragua Trinidad and Tobago Bahamas Cuba Antigua and Barbuda Suriname -1.0 Haiti -1.3 Venezuela (Bolivarian Republic of) -4.0

12.0 10.6 9.2 8.0 7.5 7.5 7.5 6.2 6.0 5.9 5.9 5.9 5.5 5.2 5.1 5.0 4.7 4.6 4.3 4.1 4.1 4.1 4.0 3.7 3.6 3.3 3.0 3.0 3.0 2.7 2.5 2.5 2.3 2.2 1.0

16.0

Guyana Saint Lucia Bahamas Panama The Caribbean Barbados Belize Jamaica Dominican Republic Central America El Salvador Peru Granada Cuba Guatemala Paraguay Colombia Honduras Dominica Costa Rica Bolivia (Plurinational State of) Central America and Mexico Saint Kitts and Nevis Uruguay Saint Vincent and the Grenadines Mexico Chile Latin America y the Caribbean Latin America Antigua and Barbuda Argentina South America Ecuador Brazil Trinidad and Tobago Nicaragua Haiti Venezuela (Bolivarian Republic of) Suriname

2021

8.5 8.2 7.8 7.5 6.4 5.7 5.5 4.6 4.6 4.4 4.3 4.1 4.0 4.0 3.8 3.6 3.6 3.5 3.5 3.5 3.3 3.2 3.2 3.2 3.2 2.9 2.9 2.9 2.7 2.6 2.6 2.2 1.9 1.8 1.0 1.0 0.1

32.0

11.9

▪ In 2021, only 9 countries will return to their 2019 GDP levels.

▪ In 2021 the English or Dutch speaking Caribbean grow less than the other subregions.

▪ In 2022, GDP in 5 additional countries will reach 2019 levels.

2022 Source: Economic Commission for Latin America and the Caribbean (ECLAC).

In terms of components, growth in 2021 is mainly explained by private consumption and, to a lesser extent, investment and exports Latin America: rate of GDP growth and contribution of expenditure components to growth, 2018-2022 (In percentages) 10%

▪ 60% of the increase in economic activity comes from the impulse of private consumption, mainly as a result of monetary transfers and migrant remittances.

8% 6% 4% 2% 0%

-2% -4% -6% -8% -10%

2018

2019

2020

Private consumption

Public consumption

Exports of goods and services

Imports of goods and services

2021 Investment

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

Note: 2021 and 2022 are projections.

2022

▪ Investment and exports show limited dynamism.

Historical characteristic of economic growth dynamics in the region.

Before the crisis, growth in the region was at its lowest rate in more than a century, and beyond 2021, the big challenge is to revert that dynamic Latin America and the Caribbean: GDP growth rate, 1900-2022 (in percentage)

▪ Before the pandemic, the region was already on a trajectory towards stagnation:

10 8

2014-2019: 0.3%

6

4 2 0

-2 -4

-8

Annual growth rate 6-year average rate 1901 1904 1907 1910 1913 1916 1919 1922 1925 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2022

-6

▪ The region posted growth of just 0.3% on average for the 6 year period between 2014 and 2019, lower than the 6 year average including the First World War (0.9%) and that including the Great Depression (1.3%).

▪ The structural problems of low investment and productivity, informality, poverty and inequality that limited growth before the pandemic were aggravated by the crisis.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Maddison Project Database 2020; J. Bolt y J. L. van Zanden, “Maddison style estimates of the evolution of the world economy: a new 2020 update”, Maddison-Project Working Paper, Nº WP-15, 2020; and official figures. Includes 20 countries of Latin America, Cuba, Dominican Republic and Haiti.

Investment and productivity are a structural problem in the region and condition the possibility of sustaining a recovery beyond the rebound in growth forecast for 2021

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

150

-5 -6

Labor Productivity (Growth rate in percentages) (Left Axis) LAC productivity gap with the United States (Percentages)

3.9 3.7

3.5

-5

Debt stock (US $ billions) (Left axis)

100

-10

Gross fixed capital formation (Rates of various percentage variation)

50 0

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of figures from World Economic Outlook April 2021 (IMF), BIS and official figures.

-15

Growth rate

0

-4

-7

0

4.1

200

2020

5

World Developed economies Developing economies and emerging markets Latin America and the Caribbean

-3

5

2019

10

4.3

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

15

250

2018

-2 17.6

4.5

2011

20

300

2017

-1

4.7

10

2016

22.0

0

350

2015

1

4.9

15

2010

25

26.3

400

2014

2

30

5.1

2013

3

USD Billions

32.9

2012

Latin America and the Caribbean: growth of labour productivity and labour productivity gap in LAC with respect to the United States, 1991 to 2020 (Percentages)

Investment to GDP ratio, 1990 to 2020 (Ratios based on current dollars, in percentages) 35

Latin America and the Caribbean: growth of gross fixed capital formation and stock of external bonds of the non-financial corporate sector, 2010 to 2020 (Percentages and billions of dollars)

Historically, the recovery of investment has been difficult: the region's investment cycle is more contractionary and less expansive than the GDP cycle Investment falls more than GDP during the contractive phase of the cycle and recovers almost the same as GDP during the expansionary phase of the cycle (2000-2020) 3

2.8

2.5 2 1.5

1.1

1

0.5 0

Amplitude in expansion

Amplitude in contraction

Source: Based on ECLAC (2021).

Note: For selected countries in Latin America (Argentina, Bolivia, Brazil, Chile, Costa Rica, Ecuador, Guatemala and Nicaragua).

Latin America and the Caribbean has been the region most affected by the COVID-19 crisis, both in terms of economic activity and employment World and selected regions: Growth of GDP and the number of employed persons in 2020 (In percentage)

B. Employment

A. GDP 0

0

-1

-1

-0.9

-2

-2.1

-3 -4

-1.8

-2.0 -2.6

-3.2

-5

-0.9

-2 -3 -4

-3.5

-3.7

-5

-3.4

-3.5

-3.0

-6

-4.6

-7

-6

-8

-7

-6.8

-8 World

Developed Emerging Emerging economies markets and Asia developing economies

Emerging Latin Middle East Sub-Saharan Europe America and and Central Africa the Asia Caribbean

-9

-9.0

-10 World

Developed Emerging economies markets and developing economies

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of IMF WEO (July 2021), ILO (2021), and official figures.

Africa

Latin Asia and the Europe and America and Pacific Central Asia the Caribbean

Similar to GDP, before the crisis the region exhibited low employment growth, and the recuperation expected for 2021 will not allow for a return to pre-crisis levels Latin America and the Caribbean: Growth rates of the number of employed and averages for decades 1951 to 2021 (In percentages)

Latin America: GDP and number of employed, first quarter 2018 to fourth quarter of 2021 (First quarter 2018 = 100)

10

110

6.7

8

6 4 2

2.6

2.7

3.9

3.2

2.4

2.4

100

1.5 95

0

90

-2

-4

85

-6

80

-8

-9.0

1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

-10

105

I

II

III

2018

IV

I

II

III

IV

I

2019 Number of employed

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Penn Table 10.0 and official figures.

II

III

IV

2020

I

II

III

IV

2021 GDP

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

Unlike previous crises, informal employment did not act as a buffer in the labor market and, on the contrary, fell more than formal employment Brazil, Chile, Colombia and Mexico: number of employed persons: formal, informal and total, first quarter 2019 to fourth quarter 2020 (In percentages)

A. Brasil 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 -16

B. Chile

C. Colombia

10

10

5

5

D. México 10 5

0

I

II

III

IV

I

2019

II

III

IV

2020

-5 -10

0 I

II

III

IV

I

2019

II

III

2020

IV

0 I -5

-15

-20

-10

-25

-15

II

III

IV

I

2019

II

III

IV

2020

Total

II

III

IV

I

2019

II

III

IV

2020

-20 -25

-20

-35 Informal

-10

I

-15

-30

Formal

-5

Formal

Informal

Total

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

-30

Formal

Informal

Total

Formal

Informal

Total

The unemployment rate is projected to increase in 2021 accompanied by a rise in the labour force participation rate Latin America and the Caribbean: Labour force participation rate and unemployment rate, total and by gender, 2019-2021 (In percentages)2019 2020 2021 62.5

57.7

61.1

Female

51.4

46.9

49.1

Male

74.7

69.6

73.9

8.0

10.5

11.0

Female

9.3

11.9

12.6

Male

6.9

9.3

9.6

1.7

-9.0

6.7

Female

2.2

-10.2

5.3

Male

1.3

-8.1

7.7

Unemployment rate (%)

Growth in the number of employed (%)

55

50

51.4 46.9 49.1

Labour force participation rate (%)

Female labour force participation rate, 1990 to 2021 (In percentages)

45

40

35

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information.

Note: Data for 2021 correspond to estimates.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

30

Employment of women and young people is concentrated in the service sector and in the informal economy, areas that have been most affected by the crisis Latin America (9 countries)b: Growth in the number of employed persons by economic sector and gender, 2019-2020 (In percentages)

Men

Women

37.5 38.1

44.6

50.4 46.5

82.0 82.5 84.7 71.1

74.8 74.8

56.6 52.8

86.9 89.2

58.7

66.2 64.4

57.7

79.2 81.3

68.5

63.2 54.7

47.8 45.5

36.2

Latin America

Bolivia

Honduras

Guatemala

Peru

Ecuador

Paraguay

El Salvador

Colombia

Argentina

26.0

Panama

20.7

Brazil

-5.22

25-64 64.6 67.2

Costa Rica

-20.17

-9.62

-8.12

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of household surveys.

Note: Data correspond to Argentina, Brazil, Chile, Costa Rica, Dominican Republic, Mexico, Paraguay, Peru, and Uruguay.

96.9

15-24

Dominican Rep.

Total

-9.00

-21.62

-30

-23.81

-25

-12.32

-20

-10.58

-4.40

-6.86

-5.46 -16.94

-8.97

-9.96

-7.73

-11.83

-11.66

-9.43

-8.08

-15

-8.56

-10

-2.67

-5

-1.73

0

100 90 80 70 60 50 40 30 20 10 0

Chile

5

Trade*

Non-commercial services (Public administration, Health, Education, Accommodation Community and and Food (7 other social countries)** activities)

Uruguay

1.77

Agriculture, Industry Livestock, (Manufacturing, Transportation, Business, Hunting, Mining and Warehousing professional and Forestry and Quarrying, and and financial Fishing Supplies) Construction Communications services

Latin America (15 countries): Percentage of informal youth (15-24 years) and adults (25-64 years), by country, 2019 (In percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of ILOStat.

Policy guidance to support a dynamic and transformative recovery

Increase investment with a strategic perspective Sustainable tourism

ECLAC has identified eight engines for a new style of development that can enhance competitiveness, employment, lower the environmental footprint, and reduce socioeconomic and gender inequalities.

Circular economy

Transition towards renewable energies

Sustainable mobility in cities

8 strategic sectors for sustainability

Care economy Bioeconomy and ecosystem services

Digital revolution: universalize access

Health manufacturing industry

28

Investment to universalize public services would generate jobs, and significant social and environmental benefits Benefits and costs of investments to universalize the coverage of drinking water, sanitation and electricity ITEM

WATER AND SANITATION

ELECTRICITY

Population of Latin America and the Caribbean without access

166 million people without safely managed drinking water 443 million people without safely managed sanitation

19 million people without access to electricity 77 million people without access to fuels and clean technologies for cooking

Annual cost of non-payment of water, sanitation and electricity bills, quintiles 1 and 2

0.12% of GDP per year

0.29% of GDP per year

Investment required annually until 2030

1.3% of GDP per year

1.3% of GDP per year

Cost-benefit ratio per dollar invested

USD 2.4 in drinking wáter USD 7.3 in sanitation

Not available

New direct jobs

3.6 million jobs per year

0.5 million jobs for year

▪ Improved public health and environment ▪ Bolster sustainable water and energy transitions ▪ Reduce CO2 emissions by roughly 100 MT ▪ Public-private partnerships ▪ Incentives for regional energy integration and complementarity ▪ Regulatory requirements: legal certainty, technological neutrality and effective public regulatory bodies

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

29

Achieving economic growth that generates quality jobs will require a comprehensive approach to productive, labour and care policies, especially for women and youth • Expand programs that promote formal employment, especially for women and youth -

-

Subsidy for hiring.

Training programs, with an emphasis on those that promote digital inclusion.

Financing programs for women and youth entrepreneurship.

Improvements in the coordination mechanisms between the supply and demand of labour.

• Expand and deepen support programs for MSMEs -

• Bolster the care economy -

• Promote sectoral policies for the reactivation of productive activities seriously affected by the crisis, such as the service sector (commerce and tourism) -

-

Sectors where more than 80% of female employment is concentrated.

Especially relevant in economies that depend on tourism and services (Caribbean).

Extend payroll support programs to new hires.

Financing and debt restructuring policies to boost investment.

-

Based on the principle of co-responsibility between men and women, and between the State, the market and families.

Adapt regulations for care licenses.

Maintain transfers (in cash and goods) for the households most affected by the health crisis.

30

Fiscal policy and recovery • Increases in public investment would positively impact growth: • Higher fiscal multipliers for public investment than for primary current expenditure.

• In the lower part of the cycle, the impact of public investment is greater and would attract private investment (crowding-in).

• Public investment in physical and digital infrastructure to catalyze private investment.

• Reorient tax expenditures to encourage private investment: • Tax expenditures reach 3.7% of GDP in Latin America, of which 1.4% of GDP are investment incentives.

• Incentivize (subsidies) investment in renewable energy, decarbonization, R&D, employment.

• Strengthen governance in the design and evaluation of incentives to maximize their effectiveness.

• Maintain emergency social transfers to mitigate the effects of the pandemic and ensure the financial sustainability of social protection systems, health, care and education.

• In 2021, without continuity of transfers, there would be 15 million more people in extreme poverty.

31

Strengthening tax collection capacity is crucial to make fiscal policy sustainable LATIN AMERICA AND THE CARIBBEAN (26 COUNTRIES) AND OECD: TAX STRUCTURE OF THE GENERAL GOVERNMENT, 2019 (Percentages of GDP)

▪ Eliminate tax evasion: tax noncompliance represented US $ 325,000 million, 6.1% of regional GDP. ▪ Consolidate income tax for individuals and corporations.

▪ Extend the scope of taxes on wealth and property.

▪ Taxes on the digital economy, environmental and related to public health problems.

▪ Review and progressively update royalties for the exploitation of non-renewable resources.

Latin America and the Caribbean 6.2

Income Property

OECD

11.5 0.9 1.9

Payroll

0.2 0.4

Other taxes

0.4 0.1

Total tax revenues LAC: 22.9% of GDP OECD: 33.8% of GDP 11.4 10.9

Goods and services

Social contributions

3.9 9.0

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Revenue Statistics in Latin America and the Caribbean 2021.

The region must influence the design of multilateral tax agreements to increase collection benefits ESTIMATED ADDITIONAL TAX COLLECTION, ACCORDING TO THE MINIMUM TAX RATE CONSIDERED (In millions of euros)

▪ Latin America should promote regional positions on the minimum corporate income tax: ✓ Push for a higher minimum rate.

15% (current proposal)

21% (USA proposal)

25% (ICRICT proposal)

Brazil

900

3,400

7,400

✓ Achieve a more equitable distribution of revenue between developed and developing countries.

Chile

200

800

1,200

Mexico

500

900

1,300

▪ In addition, the region should work to promote multilateral agreements to reduce tax evasion, eliminate the use of tax havens, the transfer of profits and illicit financial flows.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Barake, Neef, Chouc y Zucman (2021).

✓ Expand the universe of multinational companies to which the agreement will apply.

Fiscal policy must be complemented by monetary policy to sustain growth and the recovery process ▪ Maintain expansionary policies (with conventional and unconventional measures), to stimulate credit and financing of fiscal policies.

▪ Although monetary policy rates are at historically low levels, they have started to rise in Brazil, Chile, Mexico, Peru and Uruguay.

▪ Strengthen the management of reserves and the regulation of capital flows to mitigate macro-financial volatility.

▪ In the first half of 2021, the currencies of 12 economies in the region experienced a depreciation, while international reserves have increased in 14 countries, and have decreased in 17.

▪ Maintain domestic financial stability ▪ Preserve the solvency of financial institutions and debtors 34

Access to international liquidity contributes to the expansion of the fiscal and monetary policy space in the region ▪ The issuance of Special Drawing Rights (SDRs) equivalent to US $ 650 billion will strengthen the external position of the countries of the region, reduce risk.

▪ The region received the equivalent of US $ 51 billion from the new SDR issuance.

Latin America and the Caribbean: SDRs and USD received at the regional and subregional level

SDRs (billions)

USD (billions)

Share of total (%)

36.1

51.5

100.0

23,6

33.6

65.2

Central America

2.3

3.4

6.5

Mexico

8.5

12.1

23.6

The Caribbean

1.7

2.4

4.7

Latin America and the Caribbean South America

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of IMF (2021)

The issuance of SDRs should be complemented with reallocation mechanisms and other sources of financing ▪ Developed countries received US $ 375 billion (58% of the total) and developing countries US $ 275 billion (42% of the total) despite the fact that the former have a lower use of SDRs in relation to developing countries.

▪ SDRs received by developing countries strengthen reserve availability and financial stability

▪ Developed countries could channel SDRs that they will not use into multilateral / regional trust funds for the provision of financing for the benefit of developing countries regardless of their income level.

▪ The establishment of a trust fund for middle-income countries with SDRs as capital should be considered to finance projects linked to the fulfilment of the SDGs.

▪ The issuance of SDRs and their reallocation is not a panacea and must be accompanied by other initiatives such as the creation of multilateral funds (FACE) to distribute liquidity from developed countries to developing countries.

Initiatives to improve access to liquidity should be part of a broader reform of the international financial architecture Institutional reform of the multilateral debt architecture with a multilateral restructuring mechanism and a multilateral credit rating agency

Innovative instruments to increase debt repayment capacity and avoid over-indebtedness

Integrate liquidity and debt reduction measures into a development finance strategy aimed at building a better future.

• Middle-income countries represent 75% of the world's population, 62% of people living in poverty, and about 30% of global aggregate demand.

• Innovative instruments link the reimbursement capacity of countries with their exposure and vulnerability to natural disasters (as is done in the case of hurricane clauses) or to the ups and downs of the business cycle (as in the case of bonds linked to national income)

• Building a better future may be bolstered by growing interest in social and sustainable bonds issued in emerging market economies.

• Middle-income countries account for 96% of the public debt of developing countries excluding China and India.

• Data for the 2016-2020 period show that social bond issues increased from US$ 0 to US$ 17 billion, and sustainable bond issues, from US$ 300 millions to US$ 10.8 billion.

In conclusion ▪ The crisis exacerbated the problems of low investment and productivity, informality, unemployment, inequality and poverty, making it difficult to achieve a path of sustainable and inclusive growth.

▪ The growth paradox: a strong rebound in growth in 2021 supported by consumption, and a slowdown in 2022 in a context of deepening structural problems in the region.

▪ A strategic perspective is required to bolster investment and employment in environmentally sustainable sectors.

▪ Fiscal policy should accelerate public investment and encourage, attract and complement (crowding in) private investment. A priority for the sustainability of fiscal policy is the strengthening of tax revenues and the reduction of evasion.

▪ Sectoral and labour industrial policies will be required to stimulate job creation.

▪ Multilateral actions to expand the space for fiscal and monetary policy will be important to support the sustainable recovery of the countries of the region.