MercoPress. South Atlantic News Agency

War in Ukraine to increase LatAm poverty, ECLAC foresees

Poverty in Latin America will grow to 33.7% and extreme poverty to 14.9% this year as a direct consequence of the war between Russia and Ukraine, the Economic Commission for Latin America and the Caribbean (ECLAC) has warned.

In a study released Monday at its headquarters in Santiago, Chile, the agency also forecast that the conflict will cause 7.8 million people to be added to the 86.4 million who are already in extreme poverty and suffer food insecurity.

According to the report Repercussions in Latin America and the Caribbean of the war in Ukraine: how to face this new crisis?, “these levels are notoriously higher than those observed before the pandemic and make the possibility of an early recovery remote.”

Inflation began to rise in Latin America in mid-2021, mainly due to aid granted during the pandemic and the increase in consumption. Last April, regional inflation soared to 8.1% and most central banks foresee it will remain high for the rest of the year.

“The impact of higher prices and lower growth on poverty will differ from country to country. In Colombia, Mexico, Paraguay, and Brazil there will be a strong setback in the fight against poverty,” the document stated.

The organization pointed out that inflation “harms not only the extremely poor but also households in the middle and lower-middle-income distribution” because “the share of food in the household consumption structure increases as income decreases.”

To deal with the unprecedented increase in food prices, ECLAC calls for not restricting international trade in food and fertilizers, maintaining or increasing food subsidies, and reducing or eliminating tariffs on imports of grains and other commodities.

In addition to inflation, “the external context of uncertainty and the deceleration of economic activity and trade in the region” is highly concerning.

After the economic rebound of 6.3 % recorded in 2021, the regional gross domestic product (GDP) will reach an average annual growth of 1.8 % in 2022, ECLAC projected last April.

Latin America is thus tending to return to the slow growth pattern of the 2014-2019 period, when the average annual GDP expansion was only 0.3 % annual average.

Higher commodity prices, rising transport costs, and disruptions in international supply chains will also impact the region's exports. In December 2021, ECLAC projected a 10% increase in the value of regional exports of goods and a 9% increase in the value of imports.

However, the increase in the prices of several of the main products traded by the region raises the projection for 2022 to a 23% expansion of both exports and imports.

ECLAC's Acting Executive Secretary Mario Cimilo said “the present situation should not be seen as an isolated phenomenon, since its effects are combined with those caused by more than a decade of accumulated crises: the international financial crisis, the economic tensions between the United States and China, and the [COVID-19] pandemic.”

Cimilo also urged nations to “expand fiscal space and increase revenues, allowing also to increase investments at the same time” and “increase the role of regional articulation in the responses to the crisis.”

“It is a region that united wins and separated loses in terms of food, hydrocarbons, energy... This is something we have to be very clear about if we want to advance towards regional integration,” he added.