Latin America is witnessing political unrest due to the rising cost of living, which is caused by the conflict between Russia and Ukraine. While the situation during the pandemic in 2020 was certainly not good, the crisis in Ukraine has further contributed to the problems. Inflation across the region is all time high averaging 11.22 percent in 2022 as compared to 6.4 percent in 2020 (Statista 2022). The conflict has led to an increase in fuel,fertilizer, and food prices mainly due to disruptions in supply chains, which bears a direct impact in Latin America. Most Latin American countries import such essential commodities, for instance Brazil and Argentina are dependent on Russian fertilizers while countries such as Haiti, Chile, Ecuador and Cuba import huge quantities of wheat. This has resulted in widespread protests in Argentina, Brazil, Chile, Cuba, Ecuador, Haiti, Mexico, Panama, and Peru leading to citizens demanding subsidies, reduction in prices, and higher wages. Added to it the effects of the pandemic have not completely faded away, as lockdowns resulted in businesses closing down thus adding more stress to the economies of the region. Even though governments responded by slashing fuel prices and offering subsidies, these measures did not fully meet the expectations of the people. It seems that a long-term solution is currently difficult to arrive at, for the moment governments would rather tide over the situation. This paper seeks to examine factors contributing to the unrest in all these countries and the responses from the governments.
Causes for the protests
There has been a sharp increase in commodity and fuel prices. Increase in fuel prices affects transportation and logistics as well. Since global supply chains are disrupted; it becomes difficult for trade to occur smoothly. Rise in food prices have caused severe strain in the region leading to increased malnourishment and hunger (Hecimovich 2022). Russia is a major exporter of fertilizers, the supply of which has dwindled (Jaramillo & O’ Brien 2022), which has affected food production. While both Russia and Ukraine are major suppliers of wheat and cereals, the crisis has negatively affected their exports. Sanctions on Russia didn’t help either, as apart from Agro products oil and gas are major exports.
The crisis in Ukraine added to the economic fatigue already present in the region since the time of the pandemic, and no sooner did signs of recovery appear that this event worsened the situation. In absolute terms, the increased cost of living due to inflation hampered normal activity such as small businesses. People who have already felt prolonged stress have to deal with shelling out more for mere survival keeping in mind stagnant wages. In fact, 40 percent (Jaramillo & O’ Brien 2022) of the consumption basket for an average Latin American family is composed of food and energy; hence it is easy to understand the effect of inflation.
Current Situation
Economic growth in the region was at 6.9 percent in 2021 owing to the quick rates of vaccinations and reopening of businesses. Projected economic growth in 2022 stands at 2.3 percent (World Bank 2022), showing a sharp decline since last year and to make matters worse poverty level at the regional level hovers at 25.6 percent (World Bank 2022). Although all these countries are affected by an increase in prices, the degree of impact varies. Argentina is affected by persistent economic issues and on this occasion, the situation is far grave with a probability of inflation reaching up to 90 percent (BA Times 2022). Shortage of fertilizers, which is imported mostly from Russia has led to uncertainty regarding agriculture. Known for its agriculture, farmers are in a fix due to shortage of fertilizers and difficulties in preparing for the next crop. Being the biggest wheat exporter in South America, it could have gained a lot given the paucity in exports from the conflict zones of Russia and Ukraine (Donley 2022), however it is estimated that on the contrary production will be less this year. The unrest in Argentina was not only about price rise, food securitybut protesters also demanded that loan payments to the IMF be deferred.[1]
[1In January the Argentine government agreed with the IMF regarding a new repayment deal based on a US$ 44 billion loan that was granted in 2018. According to the deal, Buenos Aires has to progressively reduce its fiscal deficit. Protesters on the other hand claim that such a measure will hurt the economy even more, despite assurances from the government.]
Protesters demanded that at this crucial juncture with a faltering economy it is not necessary to repay the IMF, when these funds could be used for ensuring access to basic amenities for the citizens. The government has however defended its move, assuring the people that it is in their best interests. It is noteworthy that the IMF conducted a review of the loan repayment arrangement in October and was satisfied, leading to an immediate disbursement of US $3.8 billion (IMF 2022). In addition, truckers insisted on access to fuel in view of severe shortagesin order to carry on with their business, while farmers demanded access to finance, fertilizers, and the stability of prices of their products. People flocked the Plaza de Mayo Square in Buenos Aires seeking a response from the government. Protesters also demanded that the government introduce restrictions on the export of food grains and meat, to ensure availability for domestic consumption.
In Brazil, the economic situation turned out to be a key factor in the elections held in October 2022, that resulted in the return of Lula Da Silva as President. Incumbent President Jair Bolsonaro is tried to control inflation, while his opponent, former President Lula da Silva promised better governance. Prior to the elections, protests mainly centred on rising fuel prices with workers of the Brazilian Central Bank leading it, demanding adjustment in wages to keep up with inflation. Since 2021, fuel prices have increased by 33 percent, thus, compelling truckers to strike. Similar to Argentina, the issue of difficulty in procuring fertilizers turned out to be a serious challenge for farmers in Brazil, as both these countries are agricultural powerhouses. Current president Lula Da Silva who narrowly edged[2] out Jair Bolsonaro inherits a fractured economy, looming inflation and unemployment devoid of any permanent solution. Brazil is one of the economic giants in the region that depends on trade with countries such as Russia, the United States and China. Disruptions in global supplies and trade affected the previous administration which despite its best intentions could not provide enough for the citizens. Indeed, the conflict in Eastern Europe has certainly affected Brazil, as President Lula will have to not only continue with the emergency economic provisions, but also deal with a hostile conservative-dominated Brazilian Congress (Sabatini & Couto 2022). In addition to that, he would also have to assure international investors regarding investments in Brazil.
Chile, despite being a stable economy recorded its highest inflation in twenty-eight years at 13 percent aggravated by currency depreciation and rising costs. Chile also experienced a loss in revenue owing to lower commodity prices worldwide, which hit its exports particularly the mining sector. Of particular concern were rising fuel prices that led to truckers and taxi drivers to protest. Protests were also carried out by workers who demanded higher wages in view of the inflation. In response the administration created an economic recovery plan of US $3.7 billion, which consisted of 24 different items such as a US $ 1.3 billion payment to be credited directly to individual citizens, special measures for parents, workers and unemployed citizens. A US$ 1.4 billion for job creation in small sectors and financial support to small and mediumscale businesses (Harrison 2022). Chile’s economy already contracted this year and the IMF projects that a further contraction amounting to a percent (Burns 2022) may occur in the next fiscal year as well. President Boric’s approval ratings are gloomy which shows the disillusionment among the people. The IMF has warned that the impact of the conflict can bear long-term consequences, requiring the administration to speed up fiscal support (IMF 2022) for the vulnerable groups, yet maintaining economic discipline to maintain stability. Challenges will include reversing the downward trend in economic growth, sustenance of social spending schemes and maintaining a healthy fiscal balance. In Mexico, inflation reached 8.15 percent, which was the highest in more than twenty years, leading to an increase in the prices of consumables. As a result, protests were carried out by workers demanding wage hikes and controlling the prices of items for daily consumption. President Obrador introduced various measures such as subsidies for the worst affected sections of the society, and price control over various household goods. The Mexican government reached an agreement with various private companies to freeze prices of essential commodities, especially concerning the price of a canasta básica (basic food basket) which includes 24 essential items (Herrera 2022). In return, these companies were provided with temporary tax exemption. Additionally, tariffs on electricity, cooking gas were also fixed, so as to aid the citizens.
[2The elections results in Brazil exhibit that the margin of victory was quite narrow. While Jair Bolsonaro achieved 49.1 percent of the votes, Lula Da Silva managed 50.1 percent.]
Cuba’s economic dependence on Russia coupled with sanctions from the US restricts its ability to approach international markets for financial aid. It imports most of its fuel from Venezuela; however, reduced supply has caused shortages (Hernandez 2022), as Venezuela is facing economic challenges. Unfortunately, tourism which is the main source of revenue has not rebounded to pre-pandemic levels adding to the economic woes (Frank 2022). The crisis has severely hurt Cuba’s economic prospects, as it cannot suddenly transition to alternative means of energy, neither can it circumvent sanctions from the US. For Cuba, which is regularly at the receiving end of natural disasters, replacing older machinery and equipment becomes a difficult task as well (Miranda 2022), thus leading to frequent blackouts and denial of basic services.
The unrest also occurred in Ecuador, Peru,Panama, and Haiti which witnessed some amount of violence. In Ecuador, the unrest saw participation from workers, students, and truck drivers due to which violent clashes took place with authorities, leading to four deaths (CNN 2022) and injuries. In response, the government declared a state of emergency to bring the situation under control. Similar unrest developed in Peru where inflation averaged 8 percent and fuel prices increased by 37 percent (Cayetano 2022). Initially a strike was called by Peruvian truckers citing rising fuel prices, and it was joined by workers and farmers. Later on, however, the protests became violent which led to the death of six people (BBC 2022) while Peruvian President Pedro Castillo announced a state of emergency in Lima and the port city of Callao and appealed for calm.
Unrest in Panama began as teachers’ unions mobilized to protest against the surging cost of living. Support for the protest poured in from students and workers with the SUNTRACS[3] and the Veraguenses Educators Association formed an important part of these protests. The Pan-American Highway was blocked at several places, making it difficult for the transportation of goods. In response, the authorities took to crowd-controlling methods to stop the unrest from flaring further. Panamanian President, LaurentinoCortizo appealed for calm and said that the government was willing to listen to the demands of the protesters; however, he affirmed that the crisis in Ukraine was responsible for the economic woes (Zamorano 2022). Initially the demands in Panama were restricted to taming inflation and reduction in fuel prices; they widened to include an increase in spending on education, checking corruption, and inducing political reforms.
In Haiti, protests centered around growing scarcity of fuel and rising cost of living, in the wake of a ten-year high rate of inflation. The immediate reason behind such protests was the decision to hike fuel prices and reduce fuel subsidies. Protesters barricaded key roads in the capital, Port-au-Prince in the months of August and September demanding the resignation of Prime Minister, Ariel Henry (Maishman 2022). There were reports of shops being looted, attacks on warehouses and houses of wealthier citizens. Violent demonstrators clashed with the police, leaving several injured on either side. In addition to that, there has been a recent surge in gang violence (Cursino 2022), leading to difficulties in delivering humanitarian aid.
Responses from the Governments
In view of political unrest, governments tried to rein in inflation by introducing various measures such as subsidies on consumer items and fuel. Steps were also taken to fix prices on certain essential commodities, reduce taxes on fuel and increase the minimum wage.
Argentina’s government has to consider debt payments to the International Monetary Fund (IMF) and is simultaneously dealing with the economic crisis (World Bank 2022). There is a propensity for a political crisis, as already two previous Ministers of Economy resigned while Sergio Massa has been appointed as the current Minister to tackle the problem. The government introduced a series of measures such as freezing of prices on food items, along with a cap on grain exports. It announced fuel subsidies even though it has already spent US $ 11 billion (Buenos Aires Times 2022) in subsidies since last year while pressing for more import of fuel.
[3The SUNTRACS (National Union of Workers of Construction and Similar Industries) is one of the largest trade unions in Panama.]
Sergio Massa has been appointed as the current Minister to tackle the problem. The government introduced a series of measures such as freezing of prices on food items, along with a cap on grain exports. It announced fuel subsidies even though it has already spent US $ 11 billion (Buenos Aires Times 2022) in subsidies since last year while pressing for more import of fuel.
Brazilian President Jair Bolsonaro to tide over the situation increased the Auxílio Brasil[4] cash transfer from BRL 400 to 600 and offered more credit to farmers (Riberio 2022). The government also reduced taxes on fuel to temper the situation (Politi 2022). To some extent, tax cuts and fuel subsidies aided in dipping prices. Current President Lula da Silva faces serious economic challenges, such as continuing aid programmes for sections of the society as well as economic revival.
President Gabriel Boric of Chile rolled out a US$3.7 billion (Financial Post 2022) recovery plan and introduced a US$40 million (Funk 2022) fuel subsidy scheme. Mexico’s economic crisis is the severest in twenty-one years, even though it raised the minimum wage and subsidized 35 percent of fuel costs (Burns 2022). Mexico introduced fair pricing and increased the minimum wage by 22 percent (Monroy 2022) and President Andrés Obrador sought a deal with major companies to cap items on important items to combat inflation. Mexico’s anti-inflation policies may cost US $28 billion (Averbuch & Gonzalez 2022) annually but revenue earned from its oil exports may to some extent aid in financing such measures.
The Peruvian government in addition to capping fuel prices increased the minimum wage by 10 percent (Marina 2022). It also stabilized fuel prices and reduced taxes on food items. In Ecuador, President Guillermo Lasso fixed fuel prices in addition to handing out subsidised fertilizers (Pozzebon 2022),and subsidising essential commodities. In Ecuador and Peru, the Presidents faced impeachment attempts which could not be sustained and they continue to serve in office. The government in Panama reduced fuel prices and capped the prices of seventy-two household items. This was however not enough, and the unrest continued in Panama with several rounds of discussions to restore normalcy. In response, the government committed to initiating wider reforms, which led to the protest being called off in Panama. Haitian Prime Minister Ariel Henry addressed the nation, calling for calm and promised gradual changes such as price reduction and other economic reforms. The situation despite assurances from the Prime Minister has not improved in Haiti, and protests have not been called off.In all these countries except Haiti, the unrest gradually ended as governments, initiated relief measures, though discontentment with the economic situation still exists.
Similarities and Differences Among the Countries Regarding the Unrest
The cause and effect of the economic crisis are quite analogous in these countries which are witnessing unrest. The differences are the intensity of inflation in these countries and the extent of unrest. Demands by the protesters converge around certain specific requirements. They include a reduction in prices, introduction of more subsidies, and a steady supply of essential commodities such as fuel. Responses by the governments are also similar which include capping prices or reducing them and offering subsidies.
There are some differences. For instance, the unrest turned out to be violent in Ecuador, Panama, and Peru. In Ecuador and Peru, the governments had to declare a state of emergency. In Panama, the unrest paralysed highways leading to further shortages of commodities. In these three countries, discussions between protesters and governmental agencies took significant time due to the violent nature of the unrest. Cuba faces economic sanctions from the United States and difficulty in accessing fuel and fertilizers from Russia. Cuba’s logistical difficulties and dependence on Russia add to its economic concerns. Ecuador, Panama and Peru, Mexico, and Brazil are facing inflationary tendencies after a long period, despite registering positive economic growth in the past years. In contrast, Argentina has to deal with this crisis which has compounded its pre-existing economic problems and it has to manage its commitments made to the IMF. Haiti’s troubles are never ending, as not only the government faces serious challenges from criminal gangs which undermine its authority but also establishing a humanitarian corridor for relief efforts.
[4The AuxílioBrasil is a Brazilian Government social assistance programme to aid citizens financially by cash transfers.]
Conclusion
While the entire region is dealing with the economic crisis, some nations in the region are also affected by political unrest. The crisis in Ukraine has exacerbated the current economic situation, especially at a time when these countries are still recovering from the pandemic. The effect of the economic crisis is diverse across these countries; where violence took place in some countries that prolonged the unrest. Responses by the governments are aimed at reducing the impact of price-rise by offering subsidies and tax cuts. However, there are limitations to remedial measures adopted by these governments due to the ongoing crisis in Ukraine which has disrupted global supply chains.
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