Let the future be different from the past


Juan E. Notaro

FONPLATA Executive President

Actions taken to overcome the negative economic effects of the COVID-19 should avoid the return to commodity dependence

The governments of Latin America maintain their action to slowdown the spread of the COVID-19 in the region. While health-care challenges remain significant, there are also emergencies to be addressed on the economic front.

A recent report by the Economic Commission for Latin America and the Caribbean (ECLAC) forecasts the shutdown of almost three million companies as a consequence of the health crisis. As a result, employment loss will impact more than 8 million people in the region.

Perhaps, the biggest concern with this outlook is that most of the jobs that will disappear correspond to micro-, small-, and medium-sized enterprises (MSME).

Retailers, hairdressers, laundry and tourism services, restaurants, and other local food and beverage companies, as well as manufacturing, will be the most affected sectors.

Due to the slowdown in the economic activity, many companies are already unable to pay salaries, rents, taxes, or services.

Certainly, the pandemic has also hit bigger companies, but MSME represent more than 90% of all companies and generate 60% of formal employment, according to figures of the CAF-Development Bank.

Therefore, it is so important that governments and development agencies do as much as possible to ensure the survival of these companies.

The defense of MSME goes beyond their survival. It has to do with protecting the diversity of our economies.

“If the right policies to strengthen those productive sectors are not deployed, a regressive structural change will most likely take place, determining the reprimarization of the regional economies”, warns Alicia Bárcena, ECLAC’s Executive Secretary.

In other words, the decline of industrial capacity and activity, lack of innovation and other added-value factors would force us to return to primary commodities as the main source of export revenue.

Although it is true that a large part of the Latin-American economy is still based on the export of commodities, our attempts (remarkable ones, in some cases) of moving away from such model might go up in smoke due to the pandemic.

To broaden the terms and scope of intervention in terms of liquidity and funding for companies, as well as direct transfers and soft loans to self-employed persons, micro- and small-sized enterprises is one of the actions recommended by the ECLAC and already deployed by most of the countries.

Likewise, development banks in the region have made available lines of credit and more flexible loans to address the health emergency and to fund these protection plans for enterprises.

I would like to highlight, in relation to the initiatives of  FONPLATA – Development Bank, the institution I preside, the approval of USD 45 million to fund the “Financial Assistance Program for Micro and Small Enterprises” in Uruguay, led by the National Development Agency (ANDE), adding to the USD 15 million approved in April.

In this country, MSME represent 99.5% of all businesses and are responsible for about 70% of all jobs. Of a total of 200 thousand enterprises, 83% are micro enterprises and close to 14% are small enterprises.

The program provides approved credit with no personal guarantee and no interest rate to more than 65 thousand entrepreneurs. ANDE will also offer credit products in favorable financial conditions for working capital, investment, and debt reprofiling.

This initiative adds to the work of FONPLATA before the pandemic, carried out to support the MSME in our member countries, as we did in Argentina and Paraguay.

If we aim at overcoming the negative economic effects of the COVID-19, if we direct our efforts to support vital segments of the economy, and if we want the future to be different from the past, we must continue in this direction.

This is the commitment assumed by FONPLATA in line with the governments and the other development banks in the region. We will overcome this together.

Text originally published in the monthly column of Juan E. Notaro in the Huffington Post.