Social and Economic Impact of COVID-19 and Policy Options in Uruguay

The economic crisis caused by COVID-19 is an event without precedent in the modern economy and probably associated with the most disruptive effects since the Second World War, or even since the Great Depression. Evidence of this is the worldwide economic policy response, which also is without recent precedents. Within the orbit of the emerging economies, the situation is being aggravated by episodes of “flight to quality”, which brings additional pressure on the financial variables and access to financing in the international markets. In the case of Uruguay, the economy will go into recession in 2020, there will be a significant real depreciation of the peso and higher inflation. All this will have negative effects on employment, incomes, poverty and inequality. Although the measures adopted up to now are going in the right direction in the light of what has been experienced internationally, and the restrictions faced by the country, they are still insufficient to offset the affected activities and mitigate the impact on the most vulnerable population. In this context, the purpose of this document is to analyse the channels of transmission of the shock and the impact that it might have on the Uruguayan economy, and the measures that have already been taken and additional measures that could be deployed to soften the impact on the most vulnerable sections of Uruguayan society. UNDP Latin America and the Caribbean #COVID19 | POLICY DOCUMENTS SERIES 2 www.latinamerica.undp.org | United Nations Development Programme | 2020 POLICY DOCUMENTS SERIES UNDP LAC C19 PDS N°. 1 A Conceptual Framework for Analyzing the Economic Impact of COVID-19 and its Policy Implications By Constantino Hevia and Andy Neumeyer UNDP LAC C19 PDS N°. 2 Suggestions for the emergency By Santiago Levy UNDP LAC C19 PDS N°. 3 The economic impact of COVID-19 on Venezuela: the urgency of external financing By Daniel Barráez and Ana María Chirinos-Leañez UNDP LAC C19 PDS N°. 4 Social and economic impact of the COVID-19 and policy options in Honduras By Andrés Ham UNDP LAC C19 PDS N°. 5 Covid-19 and external shock: Economic impacts and policy options in Peru By Miguel Jaramillo and Hugo Ñopo UNDP LAC C19 PDS N°. 6 Social and Economic Impact of COVID-19 and Policy Options in Argentina By María Laura Alzúa and Paula Gosis UNDP LAC C19 PDS N°. 7 International financial cooperation in the face of Latin America’s economic crisis By José Antonio Ocampo UNDP LAC C19 PDS N°. 8 Covid-19 and social protection of poor and vulnerable groups in Latin America: a conceptual framework By Nora Lustig and Mariano Tommasi UNDP LAC C19 PDS N°. 9 Social and economic impact of the COVID-19 and policy options in Jamaica By Manuel Mera UNDP LAC C19 PDS N°. 10 Social and economic impact of COVID-19 and policy options in Uruguay By Alfonso Capurro, Germán Deagosto, Federico Ferro, Sebastián Ithurralde and Gabriel Oddone UNDP Latin America and the Caribbean #COVID19 | POLICY DOCUMENTS SERIES 3 www.latinamerica.undp.org | United Nations Development Programme | 2020 Disclaimer: Social and economic impact of COVID-19 and policy options in Uruguay May 2020 UNDP partners with people at all levels of society to help build nations that can withstand crisis, and drive and sustain the kind of growth that improves the quality of life for everyone. On the ground in nearly 170 countries and territories, we offer a global perspective and local insight to help empower lives and build resilient nations. Copyright © UNDP 2020 All rights reserved Published in the United States of America United Nations Development Programme | One United Nations Plaza, New York, NY 10017, USA The views, designations, and recommendations that are presented in this report do not necessarily reflect the official position of UNDP. UNDP Latin America and the Caribbean #COVID19 | POLICY DOCUMENTS SERIES 4 www.latinamerica.undp.org | United Nations Development Programme | 2020 Introduction to the series: Evidence, Experience, and Pertinence in Search for Effective Policy Alternatives Luis F. Lopez-Calva United Nations Development Programme Regional Director, Latin America and the Caribbean New York, March 2020 The Covid-19 pandemic is one of the most serious challenges the world has faced in recent times. The total cost in terms of human lives is yet to unfold. Alongside the cost of lives and deep health crisis, the world is witnessing an economic downfold that will severely impact the wellbeing of large parts of the population in the years to come. Some of the measures that are currently being used to counteract the pandemic may impact our future lives in non-trivial ways. Understanding the association between different elements of the problem to broaden the policy space, with full awareness of the economic and social effects that they may bring, is the purpose of this series. Thus far, the impossibility of targeted isolation of infected individuals and groups has led to policies of social distancing that impose a disproportionately high economic and social cost around the world. The combination of policies such as social distancing, lockdowns, and quarantines, imply a slowdown or even a complete stop in production and consumption activities for an uncertain period of time, crashing markets and potentially leading to the closure of businesses, sending millions of workers home. Labor, a key factor of production, has been quarantined in most sectors in the economy, borders have been closed and global value chains have been disrupted. Most estimates show a contraction of the level of output globally. For the Latin America and Caribbean region, the consensus forecasts are at -3 to -4%, and it is not until 2022 that the region is expected to go back to its pre-crisis output levels in scenarios that foresee a U-shaped crisis pattern. According to ECLAC, more than 30 million people could fall into poverty in the absence of active policies to protect or substitute income flows to vulnerable groups. We face a crisis that requires unconventional responses. We are concerned about the level-effect: the impact of the crisis on the size of the economies and their capacity to recover growth after the shock. But we are equally concerned about the distributional impact of the shock. The crisis interacts with pre-existing heterogeneity in asset holdings, income-generation capacity, labor conditions, access to public services, and many other aspects that make some individuals and households particularly vulnerable to an economic freeze of this kind. People in the informal markets, small and micro entrepreneurs, women in precarious employment conditions, historically excluded groups, such as indigenous and afro-descendants, must be at the center of the policy response. UNDP, as the development agency of the United Nations, has a long tradition of accompanying policymaking in its design, implementation, monitoring and evaluation. It has a mandate to respond to changing circumstances, deploying its assets to support our member states in their pursuit of integrated solutions to complex problems. This series aims at drawing from UNDPs own experience and knowledge globally and from the expertise and capacity of our partner think tanks and academic institutions in Latin America and the Caribbean. It is an attempt to promote a collective reflection on the response to the Covid-19 health crisis and its economic and social effects on our societies. Timeliness is a must. Solutions that rely on evidence, experience, and reasoned policy intuition –coming from our rich history of policy engagement– are essential to guide this effort. This series also contributes to the integrated approach established by the UN reform and aspires to become an important input into the coherent response of the United Nations development system at the global, regional, and national levels. Ben Bernanke, former Governor of the US Federal Reserve, reminds us in his book The Courage to Act that during crises, people are distinguished by those who act and those who fear to act. We hope this policy documents series will contribute to the public debate by providing timely and technically solid proposals to support the many who are taking decisive actions to protect the most vulnerable in our region. UNDP Latin America and the Caribbean #COVID19 | POLICY DOCUMENTS SERIES 5 www.latinamerica.undp.org | United Nations Development Programme | 2020