Latin America’s Triple Sudden Stop
During a global pandemic, enforcing key health measures is essential to saving lives until a vaccine can be found. That is the only way to restart economies without multiple sudden disruptions and their crippling consequences.
WASHINGTON, DC – Few things are as terrifying for emerging economies as the sudden stop that occurs when foreign investors lose confidence, take their capital, and flee – usually triggering currency devaluations and recessions. Latin America and the Caribbean is now facing an unprecedented triple sudden stop involving major disruptions to human mobility, trade, and capital flows. Meeting this challenge will require astute policymaking, discipline, and creativity.
The first sudden stop involves the economic paralysis stemming from the lockdowns imposed to protect public health. A mobility tracker developed by the Inter-American Development Bank for 20 Latin American and Caribbean (LAC) countries shows that between the second week of March and the third week of June, the number of people traveling more than one kilometer daily fell by levels ranging from 22% in Brazil to 48% in Chile. Many people have been unable to earn money or spend it.
Travel restrictions have also affected international businesses and tourism. According to the Latin American and Caribbean Air Transport Association, airlines operating in the region carried just 1.08 million passengers in April, down from 35.3 million the previous year. Tourism, which accounts for one in ten jobs and an average of 18% of GDP in the smaller LAC countries, is also in a slump. It is still unclear when the sector will be able to reclaim its vital role in the region.