The EconomistFebruary 6th 2021 The Americas 272
Bello A grand bargain
I
n mexico cityand Lima covid-19 pa-
tients are once again being turned
away from hospitals with no beds to
spare, while in Manaus, in northern
Brazil, a new variant of the virus is killing
a hundred people a day. The pandemic’s
recession pushed 33m Latin Americans
below the $5.50-a-day poverty line last
year, according to the World Bank. Gov-
ernments in the region are struggling to
line up vaccines. So it may seem like a
strange moment to be talking of a new
social contract—an abstraction.
Yet the term has become a mantra in
Latin America. Both the United Nations
Development Programme (undp) and
the oecd,a group of mainly rich coun-
tries, are working on hefty reports relat-
ed to the subject. That is because the
pandemic has exposed long-standing
fragilities. The region’s health-care and
social-protection schemes are fragment-
ed and unequal. Its economies have
stagnated for the past six years, largely
because of low productivity. Political
systems are discredited. Citizens are
angry. People sense that Latin American
democracies cannot carry on like this.
The question is how much and how
quickly can they change.
For some on the left, a new social
contract offers a mirage of turning Latin
America into Scandinavia with a snap of
an international bureaucrat’s fingers.
Others think of a new constitution. In
Chile an assembly to write one will be
elected in April; it is likely to mandate
more state social provision. The left in
Peru also wants a new constitution, to
give a bigger economic role to the state.
Some people on the right fear a slide
towards socialism.
Some Latin American countries, such
as Uruguay and Costa Rica, have broad-
based welfare states. In others, Bis-marckian contributory social-security
schemes, set up in the mid-20th century,
have been overtaken. On average half the
population works in the informal econ-
omy and is outside these schemes. Gov-
ernments have offered some non-contrib-
utory benefits to these people, creating
incentives to stay informal. The more
sensible ideas for a new social contract
stress three things: creating a floor of
universal social protection; raising taxes
to pay for this; and increasing citizens’
involvement in politics in ways that
strengthen representative democracy.
The pandemic has highlighted the
problem of informality, with workers
violating lockdowns to gain their daily
subsistence. Reformers argue that all Latin
Americans, whatever their status in the
labour market, should be eligible for tax-
payer-financed unemployment insurance
and basic retirement and disability pen-
sions. That would mean reserving contrib-
utory financing for top-up insurance and
pension schemes. This would encourage
formal employment with lower payroll
costs. Conditional cash-transfer schemescan offer a minimum income for the
poorest citizens.
These changes would cost annually
around 3% ofgdp, reckons Luis Felipe
López-Calva, the undp’s boss for Latin
America. He thinks this could be paid for
partly by increasing property taxes,
which collect only around 0.5% of gdpin
Latin America, compared with around
3% in Europe.
Money will be especially tight for the
next couple of years, and there are many
pressing needs. These include, immedi-
ately, rolling out vaccination pro-
grammes and getting schools going
again. Many countries need to spend
more on transport infrastructure and on
education. Governments are piling up
debts they will have to service. Reformers
propose a plan whereby new social-
protection measures and taxes and other
reforms take effect in, say, three years.
There will be resistance. Take Colom-
bia. “The upper-middle class is saying
‘enough’,” says Sergio Clavijo, a Colombi-
an economist. He notes that the top
income-tax rate has gone up steadily (to
39%) and that well-off Colombians pay a
wealth tax. He argues for closing loop-
holes through which the rich avoid taxes
and expanding the tax base (only 1m
Colombians pay income tax). Both steps
will take time.
With legislatures and political parties
in disrepute in many countries, a broad-
er public debate is needed to set priori-
ties, bringing together politicians, busi-
ness people, trade unions and other soc-
ial and civic groups. One such exercise
will start soon in Panama. “If we don’t get
people together to discuss the way for-
ward, the alternative is very chaotic,
probably with a lot of discontent,” says
Mr López-Calva. “This is not easy. But it’s
the best way to weather the storm.”Debate rages about a new social contract in Latin Americathe right-wing Independent Democratic
Union, and Daniel Jadue, a Communist.
Paula Narváez, a spokeswoman for the So-
cialist government of 2014-18, will proba-
bly be the centre-left’s candidate. In April
Chileans will for the first time vote for re-
gional governors and for members of a
constitutional convention.
Chile’s temperate political culture, and
the need for compromise in the constitu-
tional convention, will push candidates in
the later national elections towards the
centre, says Kenneth Bunker of Tresquin-
tos, a political-analysis platform. Mr Lavínaspires to lead a “national-unity” govern-
ment. Mr Jadue would have to strike deals
with centre-left parties.
Central America is more worrying. Mr
Ortega, though unpopular in Nicaragua, is
not budging. A victory by Mr Bukele’s New
Ideas party in a congressional election will
tighten his grip. The probable candidates to
succeed Juan Orlando Hernández, whose
re-election as Honduras’s president in 2017
is widely thought to have been unfair, offer
little prospect of improvement. He is likely
to back Nasry Asfura, the mayor of Teguci-
galpa, the capital. In October prosecutorsaccused Mr Asfura of embezzling $1m of
the city’s money. Yani Rosenthal, who may
run for the opposition Liberal Party, was
serving a sentence for money-laundering
in an American prison until August.
In the messiness there are also reasons
for hope. Outside Central America there are
few budding strongmen. Elections channel
discontent, which is better than violent
protest. They offer “somewhat of a safety
valve”, says Christopher Sabatini of Chat-
ham House, a think-tank in London. But
massive problems await the winners.
Honeymoons will be short. 7