Economic Impact of Covid-19 and Measures to Combat the Economic Crisis
The world is facing a serious economic crisis caused by the advance of the Covid-19 pandemic. International institutions (IMF, OECD, UNCTAD, etc.) and renowned economists are projecting a significant slowdown in world growth, in the best case scenario, or a global recession in 2020, in less optimistic scenarios.
The isolation and/or quarantine measures implemented to prevent the spread of the virus in the most affected countries caused the interruption of people's normal activities, demobilizing resources. This negatively impacted production, current consumption and investments.
Therefore, the severity of the economic effects of Covid-19 is due to its capacity to generate, at the same time, negative shocks in global supply and aggregate demand. Furthermore, there is enormous pressure on resources (physical and human) in the health area with the increase in cases of infected people, especially at the peak of the epidemic, which requires a kind of war economy in this segment.
As a result, many governments are adopting measures to: i) ensure that there is no shortage of goods and basic inputs, by monitoring distribution chains (transport and wholesale and retail trade) and, when necessary, intervening in producing sectors and emergency imports; and ii) stimulate the economy through monetary, fiscal and credit policies.
The Brazilian economy will be deeply affected by this critical situation resulting from the advance of Covid-19 in the country, which is aggravated by our previous situation of low dynamism and inability to recover production levels prior to the 2015-16 recession.
In this context, which was already worrying before the pandemic took hold, the Brazilian government's response to face the economic crisis (plan released on 16/03/2020) generates even greater concern by not proposing any new resources, only anticipating resources or deferred payments.
In addition, the Minister of Economy maintains the discourse that the best response to combat the economic crisis would be the approval of administrative and tax reforms. The reforms already approved (Constitutional Amendment 95/2016 of the “Expenditure Ceiling”, labor and social security reforms) were not able to provide the resumption of economic growth and, in some cases, increased vulnerabilities to face the current challenges of health crises and economic impact caused by Covid-19.
EC 95/2016, for example, changed the calculation of the constitutional minimum in the health area, which implied a reduction of more than BRL 20 billion in federal resources that should have been used for public health since 2018. rigid primary, this constitutional amendment prevents the implementation of countercyclical fiscal policies that allow, during the crisis, to maintain the income flow of the population, through instruments of income transfer and expansion of investments.
Given this scenario, the Brazilian economy is expected to plunge into recession in 2020, causing an increase in the number of unemployed and the population in extreme poverty. According to estimates made by Warwick McKibbin & Roshen Fernando (see The Global Macroeconomic Impacts of COVID-19: Seven Scenarios, CAMA Working Paper, Australian National University, 2020), the Brazilian economy should lose, in 2020, two percentage points of growth, in a best-case scenario, and up to eight percentage points in a worst-case scenario.
The recession is contracted and could have the severity of a depression if all available economic policy instruments are not used, especially fiscal ones, to combat the crisis. In an economy under the effect of Covid-19, there will be a depletion of installed capacity and a shortage of labor in the health sector, combined with unemployment and a lack of products and inputs in other sectors.
In this context, the need to prioritize the country's immediate objectives – the fight against the pandemic and contain its effects on economic activity – to the detriment of short-term fiscal balance is not an ideological issue.
The economic measures announced by the Brazilian government are palliative: they are just enough to prevent the collapse of the credit system without being able to stimulate the economy, since the increase in liquidity is likely to be pooled in the financial system. However, government spending policy should assume a central role in economic reactivation and in the war economy in the area of health.
To this end, additional spending than budgeted for infrastructure to combat the disease and coordination by the central government is necessary due to the low fiscal capacity of states and municipalities.
For these reasons, the undersigned professors of the Institute of Economics consider it their duty to publicly express their deep concern with the slow reaction of the economic authorities in the face of the seriousness of the crisis. In this situation, we advocate that the Brazilian government and Congress adopt the following points to combat the crisis:
1) Expansion of benefits and income transfer programs for families, formal and informal workers who lose or have their ability to generate income reduced by the crisis, especially for families affected by the pandemic with children of school age, ensuring that they can stay with their parents.
2) Elimination of the Bolsa Família queue and readjustment of the benefit.
3) Composition of the health budget in relation to the constitutional minimum defined before EC 95/2016 and guarantee of extra resources for the expansion of tests, beds and the acquisition of equipment for emergencies.
4) Recomposition of funds for Science and Technology, especially for areas capable of facing the pandemic, in order to guarantee our capacity to develop medicines and vaccines.
5) Alteration of other current fiscal rules, in addition to the Primary Surplus, such as the Golden Rule and the suspension of the Expenditure Ceiling, in order to create a legal space for the necessary policy of expansion of public expenditures.
6) Suspension of fine, interest and penalty on late payment of utility bills.
7) Fiscal aid to states and municipalities, either through transfers from the federal government or through debt renegotiation, in order to allow subnational entities to increase their expenses to face the medical emergency and its more immediate social impacts.
8) Credit expansion policy and debt extension using public banks, to help companies and families most affected by the pandemic.
Rio de Janeiro, March 17, 2020
1 Adilson de Oliveira
2 Alexandre Laino de Freitas
3 Alexis Nicolas Saludjian
4 Almir Pita
5 Ana Celia Castro
6 Ana Cristina Reif De Paula
7 André de Melo Modenesi
8 Angela Ganem
9 Ary Vieira Barradas
10 Bernard Karam
11 Caetano Christophe Rosado Penna
12 Camila Cabral Pires Alves
13 Carlos Aguiar de Medeiros
14 Carlos Eduardo Frickmann Young
15 Carlos Frederico Leão Rocha
16 Carlos Pinkusfeld Bastos
17 Celia de Andrade Lessa Kerstenetzky
18 Daniel de Pinho Barreiros
19 Denise Kind
20 Edson Peterli Guimarães
21 Eduardo Costa Pinto
22 Eduardo Figueiredo Bastian
23 Ernani Torres
24 Esther Dweck
25 Fabio de Silos Sá Earp
26 Fabio Neves Perácio de Freitas
27 Fernando Carlos Greenhalgh de Cerqueira Lima
28 Galeno Tinoco Ferraz Filho
29 Gustavo Daou Lucas
30 Helder Queiroz Pinto Junior
31 Helena Lastres
32 Isabela Nogueira de Morais
33 Italo Pedrosa Gomes Martins
34 Jacques Kerstenetzky
35 João Carlos Ferraz
36 João Felipe Cury Marinho Matias
37 Joao Luiz Maurity Saboia
38 João Luiz Simas Pereira de Souza Pondé
39 João Sicsu
40 José Eduardo Cassiolato
41 José Luis Fiori
42 Julia Paranhos de Macedo Pinto
43 Kaio Glauber Vital da Costa
44 Lena Lavinas
45 Leonarda Musumeci
46 Lia Hasenclever
47 Luis Fernando Rodrigues de Paula
48 Luiz Carlos Delorme Prado
49 Luiz Martins de Mello
50 Marcelo Colomer Ferraro
51 Marcelo Gerson Pessoa de Matos
52 Margarita Silvia Olivera
53 Maria da Conceição Tavares
54 Maria Isabel Busato
55 Maria Mello of Malta
56 Maria Silvia Possas
57 Maria Tereza Leopardi Mello
58 Marília Bassetti Marcato
59 Marina Honorio de Souza Szapiro
60 Marta Calmon Lemme
61 Marta dos Reis Castilho
62 Nicholas Miller Trebat
63 Norberto Montani Martins
64 In a Mazat
65 Paulo Tigre
66 Raphael Padula
67 Renata Lebre Rovere
68 Renee Carvalho
69 Ricardo Alberto Bielschowsky
70 Ricardo de Figueiredo Summa
71 Rodrigo Vergnanini
72 Rolando Garciga Otero
73 Ronaldo Bicalho
74 Victor Prochnik
75 Wilson Vieira
