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Coronavirus Could Test Latin America's Already Ailing Economy

A vendor sells face masks to protect against the coronavirus, in a market in La Paz, Bolivia, March 11, 2020.
A vendor sells face masks to protect against the coronavirus, in a market in La Paz, Bolivia, March 11, 2020.

PROGRESO, ECUADOR — For years, Dionisio Romero has relied for his livelihood on a magenta-colored dragon fruit that is wildly popular in Asia, planting dozens of the spindly trees at his farm near Ecuador's Pacific coast.

But as the coronavirus wreaks economic havoc worldwide, the 72-year-old farmer has watched demand for his fruit plummet and prices drop to astonishing lows, wiping away much of the profit he might normally expect.

“It's affecting all of the production of pitahaya in Ecuador,” he said on a recent morning from his farm, called Voluntad de Dios, or Will of God. “You don't want your fruit to grow rotten on the tree so you sell it for whatever price you can.”

The virus and its wide-ranging effects on business have Latin America bracing for a downturn that could test the resilience of the beleaguered region's already ailing economy.

China, where the virus emerged, has been making inroads into Latin America over the last two decades. It is now the region's second-largest trading partner, meaning any economic contraction there will have a ripple effect. Demand for products like Chilean salmon and Argentinian beef have dipped. The prices of all-important commodities like copper and oil have also declined.

Countries such as Chile, Peru and Mexico, with export-driven economies, are likely to see the most serious impact, while others like Brazil and Argentina, whose markets are more closed, could be somewhat shielded from the fallout.

“This is a cataclysm for our economy,” said Manuel Viera, president of the Camera Minera de Chile, an independent association representing mining interests. “We should have been thinking about the lean years when the price of copper was up.”

Trade between China and Latin America soared to $306 billion in 2018, up from just $12 billion at the start of the century. Exports to China now represent nearly 10% of all goods produced and sent for sale abroad.

“The region is so dependent on China and Chinese investments, so every country is going to take a hit,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics. “Those more dependent are going to take more of a hit.”

There are mounting signs that the entire global economy could sustain a blow, with stocks falling Wednesday as the World Health Organization declared the virus a pandemic. Oil prices fell Monday by the most in one day since the 1991 Gulf War. The selling stems from fear of the unknown. Many investors are trying to estimate how badly COVID-19 will hurt earnings.

Worldwide, the virus has infected more than 121,000 people. Latin America and the Caribbean thus far has had a fairly low caseload, with about 160 people diagnosed across the wide region, though health officials are confirming new cases almost every day and preparing for a wider outbreak.

For most people, the virus causes only mild or moderate symptoms, such as fever and cough. But for some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia. The majority of people recover.

The economic impact is likely to be felt on several fronts in Latin America: a devaluation of currencies as investors seek refuge in gold and U.S. dollars; a decline in tourism; and dips in demand for exports and prices.

In Colombia, flower companies say they've redirected fresh cut bouquets originally destined for China to other markets. In Chile, fruit exporters say crops like strawberries languished in Chinese ports as cities were quarantined and prices dropped. Ships carrying salmon slated for China were redirected to Brazil and the United States. In Mexico, there are concerns about interruption of supply chains impacting assembly plants.

Goldman Sachs has downgraded its growth forecast for several countries in the region, including Brazil, in part due to the coronavirus. Brazil's economy grew just 1.1% in 2019, its third straight year of meager activity after a crushing two-year recession.

Rubens Ricupero, a Brazilian who was secretary-general of the U.N. Conference on Trade and Development for nearly a decade, said the nation could be somewhat protected by its relatively small degree of integration into world trade. Nonetheless, he said the crash in oil prices Monday would likely be felt in lower export revenues for state-run oil giant Petrobras, among other side effects.

“There will be a mixed impact on Brazil, in general damaging,” he said.

Calamity in the oil industry could be particularly damaging for nations like Venezuela, which is already teetering on the edge. Venezuela's oil production was bringing in up to $37 million daily, but the sudden fall of crude prices has cut that to $20 million, estimated Russ Dallen, head of the Miami-based Caracas Capital Markets brokerage.

President Nicolas Maduro's government has been struggling to counter hyperinflation, an economic contraction worse than the U.S. Great Depression and mounting sanctions targeting the country's flagging oil industry.

Ecuador, where the economy was already projected to contract this year, could also be hurt by a sustained drop in oil prices because the country depends on those revenues to have sufficient liquidity, analysts said. Petroleum is the nation's top export, generating several billion dollars a year for the small Andean nation.

“We're facing a scenario that I wouldn't say is catastrophic, but is very delicate, very difficult,” President Lenin Moreno said Tuesday, later announcing measures to cut $1.4 billion from the budget.

At least one industry in the region is enjoying a bright spot: In Brazil, the 71-year-old Companhia Nacional de Alcool said demand has surged for its hand sanitizer. The company sold more than 1 million units of its most popular brand in February, up from 200,000 bottles during the same month a year before. They have added a second shift with another 20 employees and are weighing whether to start exporting.

“Our workers are very engaged in this, working a lot of extra hours,” CEO Leonardo Ferreira said. “They see how concerned their friends and relatives are.”

Back at Romero's farm in Ecuador, the price of his fruit, which usually fetches $2.50 a kilo (2.2 pounds) is now selling for around 80 cents, if he can find a buyer.

A lifelong farmer, he said he chose to grow pitahaya over a decade ago because he was intrigued by the nutritional benefits. The fruit comes in magenta or yellow and has a soft but thick exterior with green stems that look like succulents. The inside is filled with a delicate white fruit sprinkled with tiny black seeds.

Instead of throwing out the fruit he can't sell, he has chosen to give it to locals, many of whom had never tried it before. Before the crisis, nearly all his fruit went to the U.S., where it was popular in Asian communities.

“We've never tried it and it's delicious!” he said neighbors tell him.

Having observed economic rises and falls before, he's willing to weather the storm.

“That's the life we have, to produce,” he said. “At high prices or low ones.”