The implementation of social safety nets such as unemployment insurance, are necessary within Latin America and the Caribbean (LAC) to support poor and vulnerable nations during cyclical downturns, and prevent them from slipping back into poverty.
The World Bank, in a statement, has noted that the region, over the past few years, has not achieved its economic growth projections, and the “prospects for 2019 have deteriorated”. The statement noted that the weaker economic growth is having a predictable impact on social indicators, for example in Brazil, which saw an increase in monetary poverty of approximately three percentage points between 2014 and 2017.
“The LAC region grew 0.7 percent in 2018. The main reasons for the weak 2018 growth were Argentina’s 2.5 percent GDP contraction, a slow recovery in Brazil after the major recession of 2015 and 2016, anemic growth in Mexico due to political uncertainty, and the collapse of Venezuela’s economy,” it was stated.
“In 2019 the region is expected to grow 0.9 percent (excluding Venezuela, growth in 2018 was 1.4 percent and expected to be 1.9 percent in 2019). The three largest economies in the region – Brazil, Mexico and Argentina – are expected to have weak or negative growth in 2019, while Venezuela’s GDP is expected to fall a further 25 percent,” the Bank further explained. It was also noted that in 2018, South America grew by 0.1 percent and is expected to grow by only 0.4 percent in 2019; Central America grew by 2.7 percent in 2018 and is expected to grow 3.4 percent in 2019; and the Caribbean grew 4.0 percent in 2018 and is expected to grow 3.2 percent in 2019.
The statement noted that redistributive policies accounted for around 35 percent of the fall in poverty during the commodity boom at the beginning of the century, however, many LAC countries lack social programmes like unemployment insurance, which can act as buffers during cyclical increases in poverty. This is according to the latest semiannual report from the World Bank’s Chief Economist Office for Latin America and the Caribbean, “Effects of the Business Cycle on Social Indicators in Latin America and the Caribbean: When Dreams Meet Reality”. “Social programs that act as shock absorbers during economic downturns are common in developed countries but are not widespread enough in our part of the world… This is a pending social agenda for the region to make sure that those who recently escaped poverty do not slip back down,” said Carlos Vegh, World Bank Chief Economist for Latin America and the Caribbean.
The Bank pointed out that cyclical factors will have an impact on unemployment rates, unlike structural factors, which point to indicators for basic needs such as housing, education and sanitation.
