By Ryan Dube and Juan Forero
LIMA, Peru -- The pandemic has devastated hundreds of thousands
of businesses across Latin America, setting back the clock on the
social and economic gains made over the past two decades when a
global commodities boom powered breakneck growth.
From 2003 to 2019, poverty fell from 45% to 30% regionwide, and
poor Latin Americans by the millions, poised on the threshold of
middle-class life, took their first airline flight, bought their
own homes and paid university tuitions for their children.
Now Latin America's economy is expected to contract 9.4% this
year, according to the International Monetary Fund, the worst
downfall on record for a region that was already wrestling with
political turmoil and social unrest before it became a hot spot for
Economists predict it will take until around 2023 for Latin
America to return to pre-pandemic levels, the slowest rebound among
the emerging-market regions. The International Monetary Fund
forecasts developing economies will contract 3% this year, with a
4.7% fall in the Middle East and a 3.2% decline in sub-Saharan
Africa. The U.S. economy is projected to contract 8%.
The virus has dealt a hammer blow to businesses ranging from
department stores and construction companies to small, family-owned
restaurants and the neighborhood shops that are the backbone of so
many Latin American economies.
As a child 20 years ago, Jhon Castañeda filled potholes for
spare change in an impoverished Lima neighborhood populated by war
refugees. Earlier this year, he employed 10 people in his
furniture-making business in the same neighborhood, a manufacturing
hub that has helped thousands escape poverty.
With the coronavirus pandemic whipping across Latin America, Mr.
Castañeda has laid off workers and the business he named after
daughters Fernanda and Kamila, Ferkam Furniture, is on the verge of
closing. Myriad other entrepreneurs have already gone broke in
Villa El Salvador, home to an industrial quarter on the outskirts
of Lima that employed about 100,000 people.
"We've had absolutely no income," said Mr. Castañeda, 29. "We've
had to survive on our savings, and now that money is gone."
About 2.7 million businesses, or nearly 20% of the region's
companies, are expected to close for good, said Alicia Bárcena,
executive secretary of the United Nations' Economic Commission on
Latin America and the Caribbean. The demise of the mainly small
firms will destroy 8.5 million jobs.
Large corporations are also being battered despite having more
capital and the ability to take on debt. Argentina's Techint
engineering conglomerate laid off about 1,500 workers after
construction projects were halted. Chile's Cencosud, one of Latin
America's biggest retailers, is shutting its 11 Paris department
stores in Peru.
The crisis has so far led six corporations to default this year,
the same for all of 2019, according to Fitch Ratings. It says
another 40 corporations in telecommunications, oil and gas, and
construction are at risk of defaulting on more than $36 billion in
debt due to the pandemic, imperiling any economic recovery.
"If they go belly up, if they don't survive the crossing of the
desert, you are actually destroying the capital stock of the
economy," said Alberto Ramos, an economist at Goldman Sachs. "When
the doors do reopen, the recovery is going to be weaker."
Major regional airlines from Colombia, Mexico and Chile have
already filed for bankruptcy. In Argentina, emblematic theaters and
steak houses are struggling to stay afloat. Picturesque Caribbean
towns that once attracted throngs of tourists to sandy beaches are
all but abandoned. The newly unemployed, many with no safety net
after working in the vast informal labor force, are increasingly
destitute. The U.N.'s World Food Program warns there could be a
"This is the worst crisis in our history," Peruvian President
Martin Vizcarra said recently.
Luis Alberto Moreno, president of the Inter-American Development
Bank, said the challenges for governments up and down the region
are steep: Debt-to-GDP levels, which stood at 57% last year, are
expected to hit 70% or higher, he said, as trade volume and tax
income fall precipitously. Coupled with a 30% drop in the money
relatives in the U.S. and Europe send to support families, the blow
amounts to a financial storm unlike any in modern times.
"This is to me the Great Depression with the Spanish Flu at the
same time," Mr. Moreno said from Washington. "Latin America
probably will be hit as a region the hardest of any place in the
Latin America's three biggest economies -- Brazil, Mexico and
Argentina, with their 380 million inhabitants -- are on track for
about a 10% decline in their gross domestic product this year, the
Mexico has been powering up its formidable manufacturing sector
but the country can't avoid the economic and social cost. The
government estimates the number of poor Mexicans could rise this
year to 70 million, 57% of the population, from 61 million in 2018.
Those in extreme poverty could expand to as many as 32 million, up
from 21 million in 2018. Mexico lost 12.5 million jobs in April
In Brazil, 13 million people were already in extreme poverty in
2019, partly the consequence of a 2014-2016 recession and years of
sluggish growth since. Then came the pandemic, which has led to
more deaths and Covid-19 cases than anywhere save the U.S.
People like Junio de Jesus Oliveira, who migrated to São Paulo
eight years ago and started a locksmith shop and a bar in the
working class Brasilândia district, worry what the future holds. He
has already spent nearly all his savings, about $18,000, to keep
his businesses afloat. He had to close his locksmith business --
temporarily, he hopes -- and dismiss three employees. The bar may
"If things don't improve soon, I will need to close down
everything and go back" to his home state in southeast Brazil, he
said. "I came to São Paulo to improve my life. This pandemic was a
Far to the north, in the Colombian capital of Bogotá, José
Manuel Díaz, 62, has looked back with pride at decades of work at
some of the city's best-known restaurants. He rose from a
poverty-stricken childhood in the countryside to a professional
waiter who has bought his own home, car and put two children
"It's been very hard because not even one peso is coming in," he
said, noting that the country's quarantine has closed off much of
the service sector, leaving him at home. "We can't work. We can't
do anything. You have to abide by government measures, but it is
very hard, very hard."
At the dawn of the new millennium, things looked quite different
as the price of oil, soybeans, copper and iron ore -- among the
commodities produced in Latin America, all coveted by China --
began an inexorable rise.
Flush with cash, governments created social programs and funded
generous cash handout programs for the poor, which coupled with
fast-growing economies cut into poverty. Brazil lifted 30 million
from poverty amid a wave of optimism about the nation's future as
it prepared to host soccer's World Cup and the Summer Olympics.
Peru, emerging from a brutal guerrilla war and quasi-dictatorship,
saw poverty reduced from 58% in 2004 to 20% last year, according to
World Bank figures. Argentina's economy, in one nine-year stretch,
grew an average of 6.5% annually, slowing only briefly for the 2009
world-wide economic crisis. A 10-year expansion in Chile saw the
economy grow nearly 5% a year.
The robust growth slowed in recent years with the end of the
commodities boom. Brazil and Argentina, having failed to save
enough money during the good times, slipped into recessions.
Others, including Chile, Peru and Colombia, continued to grow at a
What's happened since March -- a multicountry economic crash
caused by the coronavirus -- is such that the United Nations said
the number of poor people across Latin America could rise this year
by 45 million to a total of 230 million. Those categorized as
extremely poor, people at risk of malnutrition and homelessness,
could grow by 28 million to 96 million.
"We've entered a tunnel, and we don't know how long it is," said
Alejandro Izquierdo, an economist at the Inter-American Development
Bank, or IDB. "One thing we know for sure is the region will emerge
more indebted, poorer and more unequal, and the risk of default is
going to increase."
Those toiling on the lower rung have been hit hardest. Seventy
percent of households in the lowest quintile of Latin American
society report losing at least one job, compared with 30% of
households with the highest earnings, according to an IDB household
survey of 17 countries in the region. The survey also showed that
nearly half of households with a business owner report having had
The economic blow is particularly devastating in what was once
Latin America's fastest-growing big economy, Peru. The IMF is now
predicting the economy will contract 14% this year, highest of any
of the region's large economies.
Back in the 1980s and early '90s, Villa El Salvador, a barrio on
Lima's edge settled by poor Andean migrants, was a metaphor for
Peru -- a place with little hope. Maoist insurgents fighting the
state destroyed electricity towers, detonated car bombs, and
assassinated local leaders, including a prominent activist who was
shot in front of her children before rebels blew up her body with
dynamite. Then the rebels were defeated, hyperinflation was tamed
and, in the early 2000s, democracy was consolidated.
It isn't a middle-class district, but Villa El Salvador has made
great strides. It is now on Lima's metro line, has private schools,
universities and a modern shopping mall. Its industrial sector is
home to nearly 3,000 businesses, which until the pandemic attracted
throngs of shoppers from across Lima buying beds, couches and
dining room tables.
Now half of those businesses aren't expected to reopen, a local
business association said, while private schools are shutting for
good and parents are withdrawing their children from universities,
unable to pay tuition.
Nelida Rodriguez, a 44-year-old single mother of three, had been
upbeat in March after getting a part-time cleaning job to
complement her income selling socks and slippers at a market
Now, she has lost both jobs and run out of money. A $110
government cash handout wasn't enough. Her family is eating once a
day. She and neighbors pool resources to pay for meals from a
communal pot of small sand crabs scavenged by men at a nearby
beach. And she's worried about her 9-year-old daughter, who hasn't
been able to study this year since schools have been closed.
"I thought I could provide a better life for my children," said
Ms. Rodriguez while she cooked 20 pounds of lentils over a wood
fire to feed her family and dozens of neighbors. "Now I have no
--Luciana Magalhaes and
Jeffrey T. Lewis
in São Paulo and Anthony Harrup in Mexico City contributed to
Write to Ryan Dube at email@example.com and Juan Forero at
(END) Dow Jones Newswires
August 06, 2020 11:51 ET (15:51 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.