The arrival of Venezuelans seeking better lives has strained the economies—and societies—of Latin American host countries

Venezuela’s Migrants Bring Economic Opportunity to Latin America

By Marco Arena, Emilio Fernandez Corugedo, Jaime Guajardo, and Juan Francisco Yepez

By promptly integrating migrants, the economies of host countries stand to increase their GDP by as much as 4.5 percentage points by 2030

More than 7 million Venezuelans have fled the country since 2015, with 6 million settling in other Latin American countries.  The region’s largest migration episode in history is driven by the collapse of the country’s economy, which has left Venezuelans struggling to meet their basic needs.

Between 2013 and 2021, Venezuela’s gross domestic product is estimated to have declined by more than 75 percent, the most for a country not at war in the last 50 years.  The COVID-19 pandemic compounded the country’s economic and humanitarian crisis, and in 2020 more than 95 percent of Venezuelans were living below the poverty line.

The arrival of Venezuelans seeking better lives has strained the economies—and societies—of Latin American host countries that are already balancing tight budgets, especially since the pandemic.

Colombia, which has received the most Venezuelan migrants, estimated spending about $600 per migrant in 2019.  This covered humanitarian aid, healthcare, childcare, education, housing, and job-search support.  With more than 2 million arrivals, this translates into $1.3 billion in assistance.  In 2019, this cost peaked at 0.5 percent of Colombia’s GDP.

In the long term, however, this investment has the potential to increase GDP in host countries by up to 4.5 percentage points by 2030, as we find in our latest research on the spillovers from Venezuela’s migration.

To reap the benefits from migration, host countries need to integrate the new arrivals into the formal labor force—and society—by promptly offering them work permits and access to education and healthcare.

Migration flows

After a brief interruption during the pandemic, when many countries closed their borders, migration from Venezuela has resumed and is expected to continue in the coming years, although at a slower pace.

We estimate that Venezuelan migrants will number around 8.4 million by 2025—more than 25 percent of the country’s population in 2015.

 

The characteristics of migrants have evolved as the economic crisis intensified.  The first wave of migrants were mostly professionals with high levels of education.  The second consisted of middle-class young people with a university degree.  Since the economy collapsed in 2017-2018, migrants have tended to be from low-income households and with lower levels of education.

Overall, the demographic profile of Venezuela’s migrants is like that of the local population in host countries.  Almost two-thirds are of working age and almost half are female.

Most have settled in other Latin American countries, while some have migrated to North America and Europe, mainly the US and Spain.

While Colombia remains the main destination, Chile, Ecuador, and Peru have also received sizable flows, with their combined number of migrants exceeding 2 million, more than 3 percent of the local population on average.

Effect on labor markets

Our research finds that Venezuelan migrants—many of them more educated than the local populations—face higher unemployment, are more likely to initially work in the informal sector, and earn less than the local workers. 

We didn’t find evidence that migrants are displacing domestic workers, although we have seen downward pressure on wages in the informal sector.

The wage gap between domestic and migrant workers grows with the level of education, which suggests a misallocation of human capital—workers’ skills, knowledge, and expertise—as educated migrants tend to only find unskilled jobs.  On average, domestic workers earn about 30 percent more than migrants.

Cost and benefits

Our analysis finds that providing migrants with humanitarian assistance and access to public services carries a sizable fiscal cost and puts pressure on the budgets of host countries, as the Colombia example shows.

 

But the analysis also identifies large medium-term gains in productivity and growth resulting from an increase in the labor force and better alignment of migrants’ human capital with jobs.  These gains are greater for countries that receive larger and more educated migrant flows relative to the domestic population.

We estimate that, with the right support and integration policies, migration from Venezuela has the potential to increase real GDP in Peru, Colombia, Ecuador, and Chile by 2.5 to 4.5 percentage points relative to a no-migration baseline by 2030.

 

We also project that the cost of integrating migrants would narrow over time as migrants join the labor force, increasing economic activity and expanding the tax base.

Continued support

Early in the migration crisis, countries in Latin America welcomed Venezuelan migrants and provided support in the form of visa waivers, mobility cards, and access to humanitarian assistance, healthcare, education, and childcare.  Migrants also received work permits and credentials to help them integrate into the labor market.

However, in 2018 and 2019, we saw a shift in policies as migration flows intensified.  While some countries introduced new programs to facilitate the integration of migrants, others made it harder for Venezuelans to enter by requiring additional documentation.

Countries should continue supporting migrants and helping them integrate into the formal sector so they can find jobs that are in line with their human capital and increase productivity in the economy.

This will require improving transitional arrangements and asylum systems, bringing in migrants into the health and education systems, and formalizing migrant workers by giving them work permits and accelerating the accreditation of skills and education.

To cover the costs of implementing these policies, countries should seek help from donors and international institutions.  The IMF is analyzing the impact of migration and coordinating with the United Nations High Commissioner for Refugees and other relevant agencies to help countries access funding sources.

Countries in the region should also agree on a coordinated response to the migration crisis, in which each one contributes its fair share to the support and integration of migrants.

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Polarization in Latin America and the Caribbean

"Reducing polarization, building consensus, building governance, makes it possible to design and implement public policies that make it possible to break out of the vicious circle into which several countries in the region have fallen recently and which end in protests and conflicts."

"The consequences of polarization are eventually the greatest risk facing the region because they impact governance, predictability, social peace, integral development and democratic institutions."

Vulnerabilities, Lack of Resilience and Polarization: Latin America and the Caribbean at the Crossroads 

By Adrián Contursi and Luis Porto

Latin America and the Caribbean face recurrent external shocks and the uncertainties and challenges of today's world: geopolitical struggles, the techno-productive labor transition (4th industrial revolution and the work of the future), the challenges of climate change, increased migratory flows, security problems and organized crime, and inequality, among others. 

To face this scenario, resilience is needed, but the multiple vulnerabilities, sometimes fragilities of States, leave countries trapped in vicious circles that do not make it possible to develop capacities.  If international prices help, exports can cushion some shocks, but this is not enough to reduce vulnerabilities and develop capacities. 

This is due to the well known reflection that economic growth does not mean development.  Increasing poverty, informality and inequality are a constant threat to the countries of the region. 

Investments are needed to facilitate structural change and export diversification (infrastructure, technological preparation, institutional strengthening), investments in sustainable development and investments to reduce vulnerabilities (education, housing, health, social safety nets).  In short, investments are needed in public goods and services that increase social returns and increase the attraction of private investment. 

This requires governance and consensus.  However, in some of the countries of the region, polarization is high and/or increasing.  To observe the current polarization in the Americas, one can turn to the Digital Society Project, which focuses on studying the interactions between politics and social networks.

The Digital Society Survey asks 35 questions to experts.  One of them allows us to observe social polarization: - How would you characterize the different opinions on major political issues in society? 

The categorization of the response considers the value 0 (zero) as high polarization and the value 4 (four) as a society with no polarization at all.  The question helps to measure social polarization, as it is a perception of the position of the parties.

Figure 1 shows that only Canada (2.75) is the country in the region that is close to a limited polarization (reference value = 3), where differences of opinion are only on some political issues, resulting in few clashes of views. 

Meanwhile, values 1 (one) and 2 (two) refer to a moderate polarization, differing in opinions on most political issues, and a medium polarization, where differences are found around half of the existing issues. 

Finally, the countries with values equal to 0 (zero) or close to it, are highly polarized, due to the fact that in almost all political issues there are differences of opinion, with constant clashes in the points of view.  It is also observed that the countries that are close to these values have been showing it for several years and, therefore, social polarization has been recurrently established. 

The first observation, as old as Hermetic philosophy (principle of polarity), is that polarization is a matter of degree.  Being a matter of degree, it can be stated that the absence of polarization can be due to either unanimity (a single pole) or perfect pluralism (multiple poles coexisting), with perfect polarization (in theory) being that where there are two homogeneous poles of similar size and diametrically opposed positions. 

Being a matter of degree, it is necessary to define a reference for the purpose of being able to determine when it is high or low and in reference to what.  In this sense, it can be defined with respect to, for example, a consequence of polarization. 

For example: What degree of polarization can lead to conflict, or uncertainty about the rules of the game and reduced investment?  The second observation that emerges from the graph is that there were some changes in social polarization in the year 2021 taking 2020 as the pivot axis, which coincides with the development of the pandemic and the renewal of authorities in the countries that express changes in their reference values. 

We do not have enough information to know whether these changes are linked to perceptions of cooperation between political parties to address the pandemic or to other causes, but it begs the question of the importance of small changes.  Can small changes in polarization lead to large changes in its consequences? 

To continue with the examples above, what is the change in polarization that is needed to reduce the risk of conflict or increase investment?  Note that this is not an indicator of polarization of populations but the perception that the surveyed experts have of the polarization of political parties. 

The polarization of populations, however, need not be as high as the polarization of (political) elites.  In general, the population tends to be less polarized than the elites, but can be strongly influenced by them. 

And when the social and economic situation is perceived with dissatisfaction by the population, indignation, protests, and conflicts are triggered and polarization prevents the construction of consensus, of a collective identity.  

The inability of formal and informal institutions to maintain social cohesion due to the lack of collective identity and consensus feeds back into polarization and potential or real conflict.  Reducing polarization, building consensus, building governance, makes it possible to design and implement public policies that make it possible to break out of the vicious circle into which several countries in the region have fallen recently and which end in protests and conflicts. 

Not doing so reproduces polarization and its consequences on the population, particularly on the most vulnerable.  This is the crossroads. The consequences of polarization are eventually the greatest risk facing the region because they impact governance, predictability, social peace, integral development and democratic institutions. 

To reduce polarization, it is necessary to delve deeper into its dimensions (economic, beliefs, moral, political) and its causes, and how it spreads from the political, economic and social elites to the population. 

And, although the difference of opinions is healthy and necessary for a democracy, it is also necessary to build bridges between the different options in a society.  Polarization is reduced by strengthening these bridges. 

The inability of formal and informal institutions to maintain cohesion at the economic, social and political levels, as well as the morphology of the structure of social, economic and political relations, are the causes of polarization. It is important to fill the gaps, it is important to strengthen the networks in the three arenas: economic, social and political. 

It is important to build bridges between actors from different poles.  Bridges to reduce polarization, build consensus, collective identity, governability, predictability for private investments, quality in public goods and services for greater social return. Bridges for democracy and development.

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The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine

OECD Interim Economic Outlook warns of pervasive global economic slowdown

 

"The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine..."

The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional upward pressure on inflation worldwide, according to the OECD’s latest Interim Economic Outlook.

The Outlook projects global growth at a modest 3% this year before slowing further to just 2.2% in 2023.  This is well below the pace of economic growth projected prior to the war and represents around USD 2.8 trillion in foregone global output in 2023.

The war has further pushed up energy prices, especially in Europe, aggravating inflationary pressures at a time when the cost of living was already rising rapidly around the world due to lingering impacts of the Covid-19 pandemic.  With businesses across many economies passing through higher energy, transportation and labour costs, inflation is reaching levels not seen since the 1980s, forcing central banks to rapidly tighten monetary policy settings faster than anticipated.

The inflation and energy supply shock stemming from the war has led the OECD to revise its previous growth projections downward worldwide.  Annual GDP growth is projected to slow to around 1/2% in the United States in 2023, and 1/4% in the euro area, with risks of deeper declines in several European economies during the winter months.  Growth in China has also been hit and is expected to drop to a projected 3.2% in 2022.  Except the 2020 pandemic, this will be the lowest growth rate in China since the 1970s.

Inflation is projected to recede gradually through 2023 in most G20 countries as tighter monetary policy takes effect and global growth slows.  Headline inflation is projected to ease from 8.2% this year to 6.6% in 2023 in the G20 economies, and fall from 6.2% this year to 4% in 2023 in the G20 advanced economies.

“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine.  GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” OECD Secretary-General Mathias Cormann said during a presentation of the Outlook.  “Inflationary pressures that were already present as the global economy emerged from the pandemic have been severely aggravated by the war.  This has further driven rising energy and food prices that now threaten living standards for people across the globe.”

The OECD points to substantial uncertainty about the economic outlook, with significant downside risks.  These include the possibility of further food and energy price spikes, which could push many people into poverty, as well as the possibility of gas shortages as winter progresses in the Northern hemisphere.  Reducing energy consumption and diversifying supply sources will be critical to avoid shortages, which would push global energy prices up, damage confidence, and likely worsen financial conditions and require a temporary period of enforced reduction of gas use by businesses.

Taken together, these shocks could reduce growth in the European economies by over 1¼ percentage points in 2023, relative to the Outlook’s central projection, and raise inflation by over 1½ percentage points.  This would push many countries into a full year recession in 2023, while GDP growth would also be weakened in 2024.

Other key risks are that the ongoing adjustments in Chinese property markets - combined with the high level of corporate debt in China and continuation of the country’s “zero-Covid” policy - could generate a more severe slowdown in the world’s second largest economy than projected.  This risk comes on top of continued costs from global supply chain pressures, and possible debt crises and financial contagion in many emerging-market and low-income economies.  

Further monetary policy tightening will be needed in most major economies to ensure that inflation pressures are reduced durably.  This will need to be calibrated carefully given uncertainty about the speed at which higher interest rates will take effect and spillovers from tightening in the rest of the world.

Fiscal support can help cushion the impact of high energy costs on households and companies, but should be concentrated on aiding the most vulnerable and preserve incentives to reduce energy consumption.  Fiscal actions to cushion living standards must avoid persistent stimulus at a time of high inflation.  Means-tested transfers to households broadly meet this criteria.

Managing the energy crisis requires renewed efforts to secure alternative supplies while ensuring all sectors of the economy are incentivised to reduce demand.  There is also an urgent need for governments to accelerate investment in energy security and invest in the green transition.

For the full report and more information, visit the Economic Outlook online. Media queries should be directed to the OECD Media Office (+33 1 4524 9700)

26/9/2022

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For people living in remote areas, where access to paper money can be difficult, Central Bank Digital Currencies, CBDCs could be a game changer - especially in cases of natural disasters

One of the countries taking the lead in Central Bank Digital Currencies - CBDCs is The Bahamas.  In October 2020, it issued the Sand Dollar, becoming the world’s first country to create a digital version of its traditional currency.  This represents a direct liability for the central bank and is backed by international reserves.

Is There a Future for Digital Currencies Issued by Central Banks in Latin America and the Caribbean?

by Victoria Nuguer - Cloe Ortiz de Mendivil

Boosting financial inclusion has long been essential in Latin America and the Caribbean, where more than 200 million people lack access to financial services and large numbers of citizens are unable to open a bank account because of poverty, geography, discrimination, and lack of proper identification.

Alternative systems, however, could be transformative.  They could be crucial in a region where greater financial inclusion can help combat poverty and inequality and promote savings and investment.

The Potential of Central Bank Digital Currencies

One potential solution lies in what are known as central bank digital currencies (CBDCs).  In dozens of countries around the world, central banks are weighing the possibility of issuing their own digital currencies that would not only promote financial inclusion and reduce the costs of financial transactions but preserve the crucial role of monetary authorities in managing the economy.  By creating digital records of transactions, they would bring more citizens into the tax system, aid in the distribution of social welfare payments, and help combat money laundering and other illegal activities that can occur with unregulated cryptocurrencies.  For people living in remote areas, where access to paper money can be difficult, CBDCs could be a game changer, especially in cases of natural disasters.

The Bahamas Takes the Lead

One of the countries taking the lead is The Bahamas.  In October 2020, it issued the Sand Dollar, becoming the world’s first country to create a digital version of its traditional currency.  This represents a direct liability for the central bank and is backed by international reserves.  To use Sand Dollars, businesses and individuals must enroll in an authorized financial institution. Their digital currency is then stored in an eWallet that can be accessed through a mobile phone application or a physical card.  It is safer than cash, easy to use, carries no transaction fees for individuals, allows for faster transactions, and creates a record of income and spending that can be used as supporting evidence for micro-loan applications.

As one of the first official retail digital currencies in the world, the Sand Dollar has had its share of challenges.  The central bank has had to ensure the interoperability between service providers and commercial banks, including the guarantee that the digital currency can always be converted to cash if the need arises.  It has also had to create measures to ensure cybersecurity and data privacy and develop a vast infrastructure of digital support.  Efforts to educate the population on how to use the new currency, as well as to trust it, are ongoing.  The fact that less than 1% of transactions through the central bank currently involve Sand Dollars means that the government still has to meet the challenge of adoption.

New Experiments in Digital Currencies

As of June 2022, several countries had officially launched their CBDCs, with nine of them in the Caribbean—The Bahamas, Jamaica, and all the Eastern Caribbean Currency Union members, except Anguilla, which was in the pilot phase.  Within the region, Belize, Brazil, and Haiti are currently developing CBDCs, while many other countries are in the research phase.

All of this indicates a potentially promising future for digital currencies backed by central banks in a region where boosting financial inclusion is crucial for prosperity.  The fact that CBDCs can remove barriers of access to the financial system, increase the speed of financial transactions, reduce their cost, and give governments a powerful tool to increase tax revenues and make welfare payments, indicates that their day may have come, even if the use of cash, as well as debit and credit cards, is likely to continue.

Source/Comment

Poverty declines in Nicaragua

NICARAGUA reduced poverty by 14% in 2012, according to data from a Home Questionnaire conducted by the International Foundation for Global Economic Challenge (FIDEG), with the rate dropping 1.4 percentage points to 42.7%, from 44.1% in 2011.

The information indicates that more than 84,000, among the country’s population of approximately six million, are no longer attempting to live on less than $2 a day and another 34,000 emerged from extreme poverty.

Enrique Alaniz, FIDEG research director, reported that contributing to the reduction in poverty were family remittances, which surpassed a billion dollars, 11.2% more than the $911,600 Nicaraguans received in 2011.

He explained that the poverty rate has, however, been consistently falling for the last four years. In 2009 it stood at 44.7% of the population.

Experts attribute progress to programs supporting the most vulnerable, implemented by the Sandinista government which returned to office in 2007. These efforts have benefited more than half a million people over the last six years.

One of the most recognized is Usura Cero, (Zero Usury) which has already this year supported some 2,528 women in launching small businesses and, by extension their families, according to its director Leonor Corea.

The Ministry of Family, Community, Cooperative and Associative Economics has reported the delivery of food benefits to 100,000 families with children, in addition to programs such as Crissol, serving 20,000; Alimentary and Nutritional Security (14,000) and the Micro-Small Business Service (46,000).

Additionally, 1,610 persons have benefited from the Juvenile Initiative; 5,500 through Procaval and 175,000 via Healthy Backyards, which supplies families with seedlings, allowing them to grow food in their own yards.

The United Nations World Food and Agricultural Organization has recognized the country’s efforts, in particular, the provision of a free school lunch, to all children in grades one through nine.

During the period 1989-2010, Nicaragua reduced malnutrition from 52% to 19%, supporting more than a million people, according to the UN organization’s reports. (PL)

July 18, 2013

Granma.cu

Bahamas Blog International

The UN and the Caribbean - A hope misplaced

by Rebecca Theodore

Eradicating poverty is the greatest global challenge facing the world today. The statistical surge of pictures of poverty around the world is not only manifested as a gross form of over representation by the media and other crusading organizations, but also shows the way in which poverty acts as a stigmata for entertainment and the way in which realism govern images in the capitalist press.

According to UNICEF and World Health Organization statistics, every 3 seconds a child dies from hunger and preventable disease. Yet, while we revel in the repute of a scientific and technological age, with tremendous advances in modern medicine and billion of dollars spent on nuclear armaments, the UN under the umbrella of the MDG fuels the flame by internationally declaring that 2010 is a defining moment in their fight against poverty.

It is clear that not only is this an insult to one’s intelligence but in accepting a daylight saving time mentality by pushing the date forward to an additional five years to further give a distinct character to poverty, the UN defeats its purpose of serving as a forum to set a global agenda, far less a pursuit of a vigorous development agenda, or the deliverance of humanitarian assistance to improve living conditions and alleviate poverty to those in need.

It follows that if Millennium Development Goals are supposed to be a solid, visual depiction between the world’s major economic players, i.e. poor countries’ improvement of policies and governance and rich countries’ provision of resources; then this is nothing more that an inflated statement of intent because it is rhetoric such as this that continues to muster and produce the poor among us.

Examples are clearly seen in the activities of the World Bank, and United Nations Development Program (UNDP), whose material operations are a consequence of the venality of poor people in the world at large.

In the same way that rhetoric did not fill stomachs in Nazi Germany’s day because the only goal of persuasive speech was to conquer the masses -- any means to that end was good and any means that did not serve that end was bad -- overcoming this delusion and developing a human development program through education, health, water, sanitation and job creation to eradicate poverty, to lift the poorest out of their isolation so that they can prosper and their talents and productivity can be unleashed will generate diverse return in terms of economic growth and social stability.

Statistics indicate that as many as 100 million people have fallen below the poverty line since the financial crisis began. Therefore a worldwide demand of civil society of the commitment to increase official development assistance is an economically solid and morally sound proposition.

In this regard, Caribbean states are also vulnerable in the face of poverty as economic and political problems that one state faces individually are common to all Caribbean states.

It is clear that Caribbean islands are experiencing climate change more quickly and visibly than other nations. Compressed with the malady of food security, marine and coastal resources, dependence on foreign aid and markets for financial growth -- a problem that sees fluctuation on global markets at an alarming rate, and dependence on imports for food and energy, then it is evident that Caribbean nations will have high debt burdens, which leave them vulnerable to economic problems, sinking deeper into the abyss of poverty and dehumanizing living and working conditions.

Hence, it is time to consider our vulnerabilities as leveraged strength and seek diasporic unity in the battle against poverty because the UN is no longer an immediate saviour.

It must be seen that UN conferences as MDG produces nothing but strife and bickering in its pledge to solve the sufferings of humanity, for if its purpose is to help countries build and share their own solutions to challenge urgent development needs, supporting coalitions for change and connecting individuals and institutions so they can share knowledge, experience and resources, then considering the UN’s deplorable track record in Rwanda, Darfur and Congo, committing hundreds of sex crimes against the people they were sent to protect; and until recently in Haiti where incompetence and corruption reigns supreme with its entrustment of billions of dollars to stabilize the lives of the Haitian people allotted to the salary and luxurious upkeep of its own workers, the question lingers -- Is there cause for optimism in its reconstruction of the Caribbean and its environs in the fight to eradicate poverty?

caribbeannewsnow

Bahamas Blog International