Extreme poverty, inequality spike across Latin America as pandemic deepens social and health crises

BUENOS AIRES, Argentina (CN) — Five million more people now live in extreme poverty than in 2020, affecting 13.8% of Latin Americans — a problem compounded by the Covid-19 pandemic, an annual United Nations report reveals.

Argentina, Colombia and Peru all recorded increases in extreme poverty of at least 7% since the pandemic, the highest in the region, climbing to levels last seen 20 years ago.

The pandemic has deepened the vulnerabilities of national health care and social systems in a region that has been the hardest hit by Covid. Home to 8.4% of the global population (653 million people), Latin America and the Caribbean has seen 28.8% of total Covid-19 deaths worldwide.

The impact of the pandemic has also accelerated economic and health care inequality in the region. Its Gini coefficient — an economic index used to measure inequity in wealth distribution — increased by 0.7% while its Atkinson index (which is more sensitive to changes in the lower sections of income distribution) rose by 3.3%. The largest increases were felt in Peru, Chile, El Salvador, Bolivia and Colombia.

In terms of vaccine rollouts, 59.4% of the region's population had been fully vaccinated by the end of 2021 — meaning the region will likely miss the World Health Organization's target of 70% by mid-2022. Yet the landscape is marked by visible inequality, with Chile (86%), Cuba (85.5%), and Uruguay (76.8%) having fully vaccinated most of their populations while Saint Vincent and the Grenadines (23.6%), Jamaica (19.1%), and most starkly Haiti (0.6%) struggle for vaccines and the infrastructure to roll them out more efficiently.

Economic inequality stretched as lower-wage jobs saw sharp declines in income while the super-wealthy got richer. “The loss of wage income was the largest contributor to the increase in inequality,” the report by the U.N.'s Economic Commission for Latin America and the Caribbean (ECLAC) read. “In countries where inequality increased, the wage income of the poorest quintile plummeted by 39.4%.”

Emergency cash transfers paid by governments helped mitigate the further widening of inequality.

At the same time, billionaires in Latin America, with a combined wealth of at least $446.6 billion (or 11% of the region’s GDP), saw their wealth increase by 14% between 2019 and 2021 — albeit with sharp fluctuations. Their wealth dropped by 19% between 2019 and 2020 before spiking 41% between 2020 and 2021.

Most Latin Americans have gotten poorer since the Covid-19 crisis, with downward movements into the low and lower-middle income groups that now make up 75.8% of the population.

After two decades of progress in reducing poverty and inequality across the region, driven by labor market growth and more inclusive social policies channeled through strong commodity prices, progress has halted and even begun to unravel. “The reduction of poverty and inequality during the 2000s was primarily a result of changes in the labor market (growth in formal jobs for people with primary and secondary education, increases in the minimum wage) and, to a lesser extent, improvements in social policy,” said Diego Sánchez-Ancochea, head of the Oxford Department of International Development, and author of "The Costs of Inequality in Latin America: Warnings and Lessons."

“When economic growth slowed after 2015, maintaining the increase in formal jobs became much harder than before and social spending stopped growing as fast,” Sánchez-Ancochea said. “Those negative forces accelerated during the pandemic due to the economic crisis; in addition, the lockdowns affected many informal workers who did not have protection and could not work from home more than other groups, making things worse.”

Informal workers — temporary laborers, independent contractors and those paid under the table — young people and women have been affected most. The outflow of women from the labor market has dropped to 50% compared with 73.5% for men. Despite dropping out of the workforce, women are still more likely to be unemployed (11.8%) compared to men (8.1%), and youth unemployment rose to 23%.

The largest dips in employment since the pandemic have been in Peru and Costa Rica (-14%), Colombia (-11%), Brazil (-9%), and Argentina, El Salvador, and the Dominican Republic (-6%).

The desertion by women from the labor market stems from women’s greater presence in jobs most affected by the pandemic — in restaurants, hotels, commerce, paid domestic work — coupled with the increased burden of unpaid house and care work.

At home, the knock-on effects of school closures increase the risk of domestic violence and food insecurity, as school meal programs and lower house incomes puncture efforts to feed children regular healthy meals. Pre-pandemic, 85 million children in Latin America and the Caribbean relied on schools for breakfast, lunch or snacks.

For a region suffering from combined social and health crises led to the prescription of long-term remedies, the U.N. commission says recovery requires “universal, comprehensive and sustainable systems of social protection,” such as stronger unemployment insurance, universal health care, cash transfers for children and policies that incentivize formal labor and redistribute care work.

“I fully share ECLAC’s proposals and believe that they point to the direction of travel more than to policies that will be adopted from one year to the next,” said Sánchez-Ancochea. “It is true that the economic conditions may not help, but one should remember that in most Latin American countries, taxes as a percentage of GDP are lower than one would expect based on their income levels. This means there is room to improve public income if countries were willing to adopt complicated tax reforms.”

To build better avenues to facilitate this, the U.N. commission makes clear the need to strengthen regional cooperation in areas such as tax policies to tackle tax avoidance and evasion as well as vaccination programs to speed up national rollouts.

“In an ideal world, regional coordination would be really useful in the promotion of regional markets so that manufacturing activities could grow in Latin America and in the coordination of social policy so that, for example, migrants could be equally protected in various countries,” Sánchez-Ancochea said.

In the current political environment, “it is hard to see how regional organizations such as Mercosur or the OAS would become engines of policy change,” Sánchez-Ancochea added. “This means domestic politics and the change in country policies will remain much more important.”

With regional cooperation currently shackled by diverging politics and protectionism, international actors play larger roles, including the U.N., nonprofit groups and major economies such as China.

An increasing number of Latin American countries have signed up to the Belt & Road Initiative, China’s global infrastructure development project.

“This has been an important move and will continue in the future,” said Sánchez-Ancochea. “The main benefits are more resources for infrastructure and Latin America’s ability to play investing countries against each other, benefiting from the competition between the U.S. and China.”

Bringing China closer to the region also presents potential issues. “The main risks are overborrowing, clearly a problem in a country like Argentina, the lack of attention to human rights in some of China’s projects, and the extent to which the projects will be linked to the promotion of natural resources,” which would restrict the region’s ability to diversity its economies, Sánchez-Ancochea said. 

For the short-term recovery, the U.N. commission stresses the need for countries to maintain their emergency protection measures, so that most of the population — particularly the poor and those in informal work — have enough to cover their basic needs.

Courthouse News correspondent James Francis Whitehead is based in Buenos Aires, Argentina.

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