The pandemic has highlighted two long-standing structural weaknesses in Latin America. The first is pervasive and chronic shortcomings in state capacity. It was not just a lack of fiscal resources, but also the lack of effectiveness in providing government support, that led to the sharp increase in the COVID-19 death toll across the region. Even today, classes and school activities remain suspended in many countries due to unresolved logistical problems. It is easy to imagine what will happen once a vaccine is available: Latin America will lag in the challenge of vaccinating the population at an adequate pace.
The second structural weakness is the dual labor market typical of the region: a minority of insiders who work in stable salaried jobs with access to traditional benefits (paid leave, unemployment insurance, severance pay), and a majority of outsiders who work in precarious, low-wage, high-turnover jobs.
This crisis is the region’s greatest opportunity in decades to strengthen state capacity and correct the dysfunction of the labor market. But the necessary changes are politically difficult. The risk is that the region will move in the opposite direction, with a looming fiscal crisis, a slow recovery, and a permanent destruction of “good” jobs that would deepen dualism in the labor market.