«The economic effects of the war in Ukraine will exacerbate the current global economic slowdown and weaken the recovery from the COVID-19 pandemic.»
Rebeca Grynspan – UNCTAD, March 2022
Just over a month after the start of the conflict between Russia and Ukraine, its impacts are already being felt across several continents, including Latin America and the Caribbean, which have also been unable to recover from the devastating consequences of the COVID-19 pandemic.
The economic effects of the pandemic have been described as the worst since the Great Depression caused by World War II. According to information from the Central Bank of Ecuador , in 2020 total losses reached $16.3 billion, representing 16.6% of the Gross Domestic Product (GDP). This meant a 7-year setback in terms of production and income. This situation has meant that the Ecuadorian economy has a 6.4% decrease in GDP in that year, which could represent a greater impact than that of the 1999 Bank Holiday [1] . This panorama has devastatingly affected the vulnerable, marginalized and discriminated population, increasing poverty and extreme poverty where efforts are required to not leave them unprotected. At the same time, the costs of the war also have an impact on public spending around the world, which puts more pressure on aid budgets, which were already low.
The IMF warned on March 15, 2022, that the conflict represents a major blow to the global economy. There has been a significant impact on commodity markets around the world, causing further setbacks in already fragile supply chains. Russia and Ukraine are major exporters of gas, oil, metals, and grains such as wheat and corn, whose prices have skyrocketed as a result of harsh Western sanctions against Moscow. The rise in energy and food prices affects the prices of basic goods, placing the most vulnerable groups around the world at greater risk.
Undoubtedly, the economic effects of the war in Latin America will be significant and even devastating, depending on how events unfold. The impacts may vary somewhat depending on each country’s economic situation, but those with very high debt may suffer much more complex consequences if the conflict continues and, for example, soaring inflation forces interest rates on debt to rise (IMF, 2022). Thus, despite the distance, this conflict also impacts the pockets of the population in this region, which remains the most unequal in the world.
In July 2021, ECLAC warned that one of the major obstacles to Latin America’s post-pandemic economic progress is its high level of external debt, which has made it the most indebted region in the world, at 56.3% of its GDP, and with debt service payments equivalent to 59% of its exports. Thus, the region’s prospects for making progress in reducing poverty and inequality will be very complex, making achieving the Millennium Development Goals (SDGs) a utopia.
In Ecuador’s case, in addition to the pressures of over-indebtedness, the armed conflict presents additional challenges related to its primary-export economy. On the one hand, while rising oil prices could be an opportunity and provide fiscal relief, this increase could be accompanied by inflation and low economic growth if the appropriate measures are not taken and if the government does not prioritize social and productive investment. On the other hand, the conflict prevents the country from sending products to the Eurasian market, one of the most important for the Ecuadorian economy. This situation threatens the productive sector , especially exporting companies, which have already reported losses of USD 2.5 million per week and warn of the risk to their sustainability and job losses (El Comercio, March 2022).
Similarly, in the early days of the conflict, Ecuador faced the humanitarian tragedy of the forced return of hundreds of students pursuing higher education in Ukraine. Now that they are in the country, they have no clear idea of their future, unable to finance continuing their studies due to the excessive costs of private education, and facing enormous difficulties completing their studies in public schools.
We also cannot fail to mention that Ecuador is experiencing an increase in unfavorable conditions for its vulnerable population—that is, those without income, dependent on the informal labor market, exploited, and without access to healthcare and care systems. Under these conditions, it is not surprising that more and more young people are seeking to migrate irregularly to countries in the North and are forced to resort to risk-coping mechanisms that ensnare them in drug trafficking and organized crime networks.
In Ecuador in 2022, poverty has grown exponentially. Of the nearly 18 million people, 35% live in poverty, with less than $2 a day per person. 40% of households are facing food insecurity. Nearly 8% of girls and boys dropped out of school in 2022 to work, engage in unpaid care work, or lack the means to continue their education online. Violence against women and girls continues to grow at an alarming rate, affecting 7 out of 10 women; while 9 out of 10 women migrants report facing incidents of violence daily. In the country, 7 girls aged 10-14 give birth every day; and maternal and infant mortality, as well as STI and HIV infection rates, have increased alarmingly. The impacts of the climate crisis and natural disasters in 2022 alone have affected more than 320,000 people in the country, who have lost their loved ones, their homes, and their livelihoods. This context of enormous fragility for our country should compel us not to lose sight of collective efforts to promote sustainable, structural responses and leave no one behind.
The country requires greater public and private cooperation, as well as multilateral financial support that incorporates conditions linked to the redistribution of wealth and income, and attention to the serious demands of at-risk populations, so that the poorest countries and developing countries, like Ecuador, experiencing enormous inequalities, can recover and withstand the financial and economic shocks caused by a conflict like this one, which seems distant but feels increasingly close.
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For media inquiries, please contact Jhoanna Abad, CARE Ecuador Communications Officer, at jhoanna.abad@care.org
CARE spokesperson available:
Alexandra Moncada – Country Director of CARE Ecuador
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[1] In 1999, Ecuador suffered the greatest financial and social crisis in its recent history, known as the Bank Holiday. The president at the time, Jamil Mahuad, decreed that banks suspend their services and freeze deposits. The consequences were terrible: inflation, devaluation, recession, bankruptcy, and the closure of 70% of Ecuador’s financial institutions. In 1995, poverty stood at 56%; while in 2000, one year after the Bank Holiday, it reached 69% (Larrea, C. 2009). In the case of the country’s main cities, such as Quito, Guayaquil, and Cuenca, unemployment increased from 8% to 17% between March 1998 and May 2000 (Larrea, C. 2009). Deaths and suicides also increased, and the largest wave of migration in the country’s history occurred. 47% of children were left without a parent or close relative ( Ecuador Anti-Corruption Observatory ). The total cost of the bank bailout amounted to $8 billion, and the state assumed the costs, passing them on to the population through various mechanisms, including reduced social spending and increased service costs. Ecuador lost its currency, the sucre, when the country dollarized in January 2000 at a parity of 25,000 sucres per dollar. Therefore, those who had frozen savings in sucres recovered only a fifth of their savings ( Banking Crisis Report ).