Latin America Risk Report - 25 June 2020

Latin America’s coronavirus problems will worsen further

Jun 25, 2020

In this edition:

Latin America’s coronavirus problems will worsen further

Earlier this week I published an article on Venezuela’s political situation, noting that Maduro’s financial situation has weakened even as his political control over the country has improved in the past month.

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Latin America’s coronavirus problems will worsen further

The Western Hemisphere accounts for nearly two-thirds of the world’s COVID-19 deaths in recent weeks, with poor leadership in Brazil, Mexico and the US leading to the worst outbreaks.

The NYT and WSJ both covered the growing challenge in Latin America. Bloomberg described Brazil as “the worst case scenario.” The Washington Post reported on how cases spread through Mexico City’s main market.

Above: Daily new cases continue to rise in much of Latin America. New spikes in cases in the US and Brazil are particularly troubling. Graph from Our World in Data.

An IHME model shows nearly 400,000 dying in Latin America before October. Every model has significant risk to the high side. The situation is unlikely to surprise us by being better than predicted, but the situation could end up a whole lot worse than predictions if a new and unexpected spike in cases occurs.

The worsening conditions lead to two conclusions:

The situation will get worse before it gets better. Most countries are still not at their peak of cases.
Even after the peak is hit, there will likely be a long and slow decline in cases and deaths in most countries. This crisis has many months to go.

Those pessimistic outlooks, however, do not mean that those countries that have been hit hardest will change their approach. History suggests that the leaders who have done poorly so far will continue to do poorly.

Latin America’s leaders will continue acting as they have acted

Cases are rising across Latin America, but there has been a clear divergence between the leaders that have made mistakes versus the leaders that have acted stupidly and irresponsibly. Specifically, the leaders of Brazil and Mexico have done poorly managing this crisis from the beginning (something I first wrote about in mid-March).

The divide is likely to grow in the coming months as the leaders who have done worse in this crisis double down on their own ignorance rather than demonstrate a change of heart. While we all wish that Presidents Andres Manuel Lopez Obrador and Jair Bolsonaro would look at the deaths in their countries and change their policies, there is not going to be a sudden conversion to science-based health policies in the presidential palaces in Mexico or Brazil. Given their personalities, as things get worse, AMLO and Bolsonaro are far more likely to continue their current governing styles than change for the better.

Perhaps one of the most startling outcomes is that Brazil and Mexico will experience two of the sharpest economic declines in the region. The presidents of those two countries failed to implement national lockdown policies early and pushed to reopen economies over the objections of public health officials. But trying to ignore the virus and keep economies open doesn’t work for improving health or growing the economy. Further, the lack of a serious counter-cyclical economic response in both countries, especially Mexico, exacerbated the economic challenges.

Part of their populist mentality means AMLO and Bolsonaro are embracing the controversy that their coronavirus responses have created. Bolsonaro, in particular, appears to relish the controversy about mask wearing and his denial of the severity of the crisis as a way to polarize the country and build enthusiasm among his base of support.

Other countries will adapt and improve

Across the hemisphere, the leaders who have tried to do their best will continue trying, at times making mistakes, but likely working towards improved health and economic conditions for their countries.

Peru and Chile are examples of countries that moved early and took the threat of coronavirus seriously, yet face rising cases now due to some bad policy choices and bad luck. Still, it’s a mistake to lump those countries in with Brazil and Mexico. Their presidents understand the challenges, feel the public pressure, and have a desire to do better.

That doesn’t mean those presidents should be immune from criticism. President Piñera’s attendance of his uncle’s funeral, even as many other Chileans remain under lockdown, was politically tone deaf and further damaged his administration’s already poor reputation. Peru’s president may have had his lockdown too tight before, but his reopening plan may cause a further rise in cases.

Countries that have seen slow but steady growth of coronavirus - including Argentina and Colombia - remain at risk for a sharp spike in the coming weeks. Although those countries continue to implement stricter lockdown policies, the experiences from Chile and Peru demonstrate that containment is difficult in urban areas of Latin America.

In spite of the rising cases, it is positive that the leaders of the four countries mentioned in the paragraphs above are taking the threat seriously and attempting to find policies to reduce the health risks and strengthen their economies. They largely listen to their advisors, are trying their best to balance the health and economic challenges, and respond to public pressure in generally constructive ways. It will take months, but those countries should be able to bounce back more swiftly than Latin America’s two largest economies.

Wave 1.5 in the United States hurts Latin America

China and Europe had swift and brutal first waves, but took action to reduce the infection rates. Latin America managed to slow the spread of the virus, but has seen a steady rise in cases and deaths that it has not been able to turn around.

The United States experience with coronavirus is a combination of the worst of both regions. The country experienced a swift rise in cases, particularly in large cities in the Northeast and Midwest, but now faces a slow steady and unrelenting rise of cases elsewhere in the country including Florida and Texas.

The rise in cases and deaths in the US, travel restrictions, reduced trade, and a worsening economy in the United States all make the coronavirus-related problems in Latin America worse.

Corruption Corner

Region - The NYT covered the regional corruption scandals tied to coronavirus contracts, highlighting a contract involving body bags in Ecuador

Mexico - Carlos Loret de Mola reported Minister Irma Sandoval has five properties in Mexico City and a million dollar property in the state of Morelos. Sandoval is married to John Ackerman, a professor who provides regular commentary on Russian-backed media. The two purchased the properties while working for universities. The properties are worth 60 million pesos (over US$2.5 million), multiple times what Sandoval disclosed on her asset disclosure statements as a government official.

Multiple cabinet officials and other politicians within Morena posted to social media defending Sandoval and claiming the media reports were incorrect. As often occurs, AMLO’s supporters used bots to promote their messages on social media and harass their opponents who attempted to highlight the corruption scandal.

The Sandoval controversy adds to the list of corruption scandals that AMLO has inside of his administration. AMLO’s corruption problems are also impacting his international image. The Financial Times says AMLO’s anti-corruption push is failing. Bloomberg covered a division within Morena about the use of party funds.