The pandemic takes its toll
Costa Rica’s second wave of the pandemic is on its way, as happened in other countries after restrictive measures were relaxed. The gradual reopening plan begun at the end of May was interrupted June 19th, after a hike of non-clustered cases, the most worrying indicator of eventual massive contagion. The strategy had been successful, but citizens’ lack of discipline, probably coupled with some “lockdown fatigue”, has jeopardized control over the pandemic. The toll in terms of economic activity and employment continues to be reflected in macroeconomic indicators. Lockdown restricted external demand severely, heavily impacting this very open economy, where foreign trade is equivalent to two thirds of GDP. Consequently, fiscal figures also worsened. No financial troubles have been perceived so far in the banking system, while the Central Bank keeps relaxing monetary policy, to assure avoidance of an eventual liquidity crash, as is natural in current circumstances.
In El Salvador, the pandemic finally reached the crossing point of two key trend lines: active and recovered cases. There’s no clear second wave yet, as in Costa Rica, since active cases have increased almost steadily since the first case on March 18th. Differences between the executive branch, Congress and the Constitutional Court continue to grow. Confrontations have also reached the private sector, suggesting that President Nayib Bukele could have been opening many fronts beyond what is desirable and manageable. Finally, the government issued a 10-week plan to start economic reopening this month, to end in full reopening by late August. This was formalized via executive decree, but criticized by some groups, because the Constitutional Court has stated that any measure restricting free movement and economic freedom requires congressional approval. As expected, most macroeconomic indicators have collapsed since March: short-term economic activity indicators, foreign remittances, external trade and government revenues. No destabilizing signs are currently perceivable.
The IMF´s Board on June 10th approved a $594 million facility for Guatemala. The assistance is part of IMF efforts to help mitigate the impact of the pandemic. The IMF staff report praised Guatemala’s handling of its macroeconomic policy, which brought a long period of macroeconomic stability, but pointed to weakness in some social developments, such as the health care system, chronic malnutrition and inadequate access to safe water.
Guatemala had recorded 16,930 COVID-19 cases by June 28th, with 727 deaths, and short-term economic indicators are already reflecting impacts. The monthly index of economic activity, original series, was down 10.7% y/y in April; private remittances were lower, on average, by 17.2% y/y in April and May; merchandise exports fell 6.1% y/y in April-May; and merchandise imports fell 12.8% y/y. Tax collection March-May was down 11.3% y/y. On the positive side, the exchange rate is relatively stable, inflation was 1.8% y/y as of May, and the Bank of Guatemala’s international monetary reserves as of June 22nd were $16.8 billion.
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