Coronavirus shatters Latin America's middle class dreams

Millions in Latin America’s middle classes are being dragged back into poverty as the COVID-19 pandemic exposes the fragility of welfare nets and governments’ lack of financial firepower.

Five of the top 10 countries in the world for infections are in the region, which accounts for 34% of global deaths despite having only around 8% of the planet’s population.

Epidemiologists cite poverty as a cause.

Many economists say the crisis has exposed Latin America’s neglect of long-standing weaknesses: reliance on low-productivity sectors such as mining and agriculture, failure to bring more workers into formal jobs, and lack of effective tax systems to redistribute wealth concentrated among a small elite.

According to Asier Hernando, regional director of the charity Oxfam, the pandemic could push 52 million more people into poverty – about the size of South Korea’s population – and leave an additional 40 million jobless. Women and indigenous groups will be hit particularly hard.

“There is no cushion. If you fall, you fall a lot,” he said. “This could break the social contract of the region and could lead to years of enormous social conflict.”

After protests in several South American countries last year, the pandemic has cast a further spotlight on hunger, inequality and lack of state support.

In Chile, where 2019 protests turned violent, the downturn is reviving anger. In Peru, Congress tried to oust the president and economy minister over lack of support for small businesses. In Venezuela, already spiraling into poverty before COVID-19, protests over shortages have intensified.

No work, no safety net

The pandemic is devastating Latin America’s economic growth – the region of 650 million people will see its economy contract more than 9% this year, according to U.N. estimates, the worst in the developing world.

It is also hitting the region’s businesses hard. About 2.7 million businesses, or nearly 20% of companies, are to shut, according to the United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC). The International Labor Organization (ILO) says 34 million people have already lost jobs.

That has left an army of self-employed workers and budding entrepreneurs exposed, which could hurt growth for years.

When the coronavirus hit Chile and abruptly cost Lorena Rodriguez her job, the 47-year-old nanny took a painful decision to pawn her jewelry - gifts from decades earlier - for cash.

Like more than half of Latin Americans, she worked in the informal sector, looking after two children in an upmarket area of the coastal city of Valparaiso but living comfortably on joint income with her husband of 700,000 pesos ($905) a month.

Then suddenly, worried about infection risks from Rodriguez’ bus journey to work, the family cut her job in March.

Without a contract, she could not receive benefits like unemployment pay or social support, despite living in one of the region’s wealthiest nations. A 100,000-peso ($126) emergency payment from the government soon ran out, forcing her to the pawnbroker.

“It was a last resort,” said Rodriguez, who swapped her rings and bracelets for a 340,000-peso loan to support herself and her husband, a retired member of the Armed Forces.

“I had a stable job. We lived pretty well - at least without too many worries. It’s hard to see now where all this will end.”

Strapped for cash

Governments in Latin America also lack the financial wherewithal to emulate stimulus packages in the United States or Europe. Most suffer from low tax incomes and high debt.

Economists warn the crisis will drive millions from salaried work into informal jobs with lower wages, fewer benefits and less protection.

Even in Mexico, the region’s second-largest economy, the left-leaning government of Andres Manuel Lopez Obrador has avoided a generous bailout amid concerns over its finances. As many as 10 million people, many from Mexico’s middle class, are expected to tumble into poverty, analysts say.

In Brazil, the region’s largest economy, President Jair Bolsonaro’s far-right government abandoned austerity policies for welfare payouts that in the short-term reduced poverty.

Despite Brazil’s welfare spending – which even the government admits cannot be sustained - workers looking to climb the social ladder have fallen on hard times.

Douglas Felipe Alves Nascimento, 21, moved to Sao Paulo at the start of the year for a job in a textile firm after years in part-time construction work.

The wages were enough to rent a room, buy basic homeware and begin finishing his high school diploma. But when COVID-19 struck, he was one of the first to lose his job.

By July, he had sold his things to cover unpaid rent and turned to a Catholic mission for food and warm clothing.

“Everything I had accomplished in those three months of work, it took a month of pandemic to lose it all,” he said.