The Pandemic Heralds Extreme Poverty and Hunger for El Salvador’s Urban Households
The International Monetary Fund (IMF) has declared that El Salvador’s Gross Domestic Product (GDP) will fall by 5.4 percent, and the World Bank estimates a GDP decrease of 4 percent. The Economic Commission for Latin America and the Caribbean (CEPAL) has warned that in Latin America, 29 million people will enter into poverty, and the World Bank has estimated that El Salvador’s poverty rate will increase by 4 percent, meaning some 66,000 households will join the 491,000 already living in poverty, according to the latest government figures from 2018. In light of this situation, economist Jimmy Vásquez warns that the government must prepare by purchasing food products in advance. As El Salvador is a country that imports what it consumes, it will be vulnerable to a coming drop in international food production.
Vásquez is a social policy specialist in UNICEF and part of the team that led the implementation of a multidimensional poverty index along with the UN Development Programme (UNDP) in 2015. This methodology measures poverty not just by income, but also related to 20 “hardships” that families can suffer related to access to education, healthcare, basic services, food security, housing conditions, work, social security, and habitat quality. Given that the global financial crisis caused by the COVID-19 pandemic is now considered the worst economic downturn since the Great Depression of 1929, Vásquez asserts that urban households are set to be the hardest hit and foresees an increase in food prices that could exacerbate poverty. The economist warns that confinement and self-isolation could worsen the hardships that the poorest households already suffer.
“The purchase of corn, beans, and chicken announced by the government is the correct decision, as well as seeking liquidity by taking on debt. What comes next, and what could shoot up at any minute, is hunger,” said Vásquez. He says although it is still too early to conduct a real damage report, given El Salvador’s characteristics it is possible to predict that most households affected by the crisis are urban. He asserts that special attention must be paid to urban slums, which have a large concentration of underemployed people, who are those working freelance or informally and are not earning any income due to the quarantine. According to Vásquez, unlike in previous crises, remittances can decline sharply because the United States is reporting record levels of unemployment in sectors where Salvadorans tend to work: restaurants, retail, and construction. In 2019, remittances represented 21.3 percent of El Salvador’s GDP.
An expert on social policies at UNICEF El Salvador, Jimmy Vásquez, says the government should stock up on food because quarantines could cause worldwide food production to drop, which would increase the cost of the basic food basket. Photo courtesy of UNICEF.
The World Bank estimates a 4.3 percent reduction in El Salvador’s GDP, and a 4 percent increase in poverty in 2020. The last figures published by the government, in 2018, indicate that 26.3 percent of households live in poverty. COVID-19 could lead to 30 percent of Salvadoran households living in poverty.
Before understanding how many households will fall into poverty in 2020, we need to know the number of poor households there were in 2019. Last year, I do not think poverty was on an upward trend, because there was no reduction in incomes. Remittances increased by 4.3 percent and the economy grew by 2.5 percent from 2018 to 2019. There was no food shortage either. It’s possible that the baseline for poverty before the effects of COVID-19 was a few percentage points lower. There will undoubtedly be an increase.
What factors do we have to watch more closely?
The cost of the basic food basket was stable for the first two months of 2020 compared to 2019. During the period where measures were taken in response to COVID-19—March and April—the prices of basic food products were fixed. There may be no increases during this period. But after the quarantine, we should pay attention at the international level. We are net importers of the products we consume. If there is a decrease in worldwide food production, the basic food basket will increase. El Salvador must stock up on food before then.
The first scenario is that food production decreases, the basic food basket increases in price, and therefore there are more households that cannot afford the necessities.
If this scenario comes true, even if incomes remain the same, we will have higher levels of poverty, assuming economic activity restarts progressively in May. In some countries, workers who harvest food are not going to work. If there is less global production and El Salvador does not stock up on food, we will have higher levels of poverty later, due to food inflation.
But incomes can also decrease.
This other component has six parts to it: salaries, incomes from bonuses (overtime, seasonal bonuses, etc.), self-employment income (independent workers), income from agricultural activities, income from family remittances, and miscellaneous income (donations, government aid, vouchers, school packages, etc.). We must remember that to diminish the effects of COVID-19, there must be a vaccine, which takes between 12 and 18 months. The drop in salaries depends on the capacity of businesses—the workplaces of temporary employees, permanent hires, and owners—to stay afloat.
What about the informal sector?
The informal market—including the self-employed—makes up 24.8 percent of employed people. Here we can expect to see a big impact. Those who work independently or sell on the street are the typical underemployed people. When there is no longer a quarantine, these people can start working again, but the resources available to sell or what they will earn in a day might be the same as what they were selling before quarantine. I have the feeling that it won’t be, because there will be less money in circulation. Consumption could go down. We will have to take another look at how consumption is doing. Then we have another important source of income: family remittances. More than 300,000 households, one sixth of the population, receives family remittances.
How could the increase in unemployment caused by COVID-19 in the United States affect Salvadoran households?
In previous recessions, the amount of remittances did not fall quite as much, but while we may be tempted to say that this source of income will remain stable, that is not true. The effect of this pandemic is different due to the number of unemployment claims in the United States: 21 million. They say that represents all the jobs created since the Great Recession in 2008. Most of the unemployment claims are in sectors with high Hispanic employment: restaurants, retail, construction. When we start to see how fast those sectors are going to recuperate, we find that it will not be very fast at all. People are still going to fear going to restaurants, which are not going to open overnight. These unemployment claims include people with social security benefits, which many Salvadorans do not have. So, we can expect a large impact caused by the reduction in remittances.
Which households are going to be impacted the most by the COVID-19 crisis?
Urban households. Seventy percent of the population lives in cities, where we will undeniably see the largest impact. Cities have the highest concentration of underemployment, especially in vulnerable urban slums. Although I couldn’t give a specific number, most of the underemployed population lives there. How do we handle lost incomes among the self-employed? There will be an impact there. Agricultural income in rural areas is also at risk. The loss of income from remittances has a mixed effect, affecting urban areas as much as rural ones.
How would you evaluate the government responding to the emergency by purchasing beans, corn, and poultry?
The purchase of corn, beans, and poultry announced by the government is the correct decision, just as seeking liquidity by taking on debt is. Every day you wait… If you are looking for cash and already in debt, you know what that means: it will cost more, and nobody will want to lend to you. The government already made the $300 dollar transfer to families, which addressed the problem of consumption, but what is coming later, and can explode at any moment, is hunger. If your ability to make cash transfers is limited, you need to think of a combination of things in addition to food products. How can we reduce families’ hardships? The question is not when this will be over. The question is how we will move forward.
What measures are still needed?
You need to set in motion two public policy interventions: food purchases in advance and local production. COVID-19 did not tell climate change, “Right now it’s my turn, so stop.” That is still happening. The dry periods in El Salvador will continue, as will the periods of massive rainfall and flooding. We must anticipate this and, if you add to that the fact that food production will decrease, we absolutely must stock up. You have to promote local production. Of course, you need epidemiological enclosures and to assure local producers they will not get infected. It is a friendly reminder: it is fine to buy things from abroad, but there are certain aspects where you have to be autonomous. Next year’s harvest depends on what we do right now.
What sort of precautions should the government take?
We have no idea when there will be other outbreaks of COVID-19. South Korea and Singapore, for example, had a first wave and later a second. The United States, according to Morgan Stanley, could have a second outbreak in the last quarter of 2020. In El Salvador, the return of economic activity depends on children returning to school. If not, who will take care of children? We have to make sure, if the harvest will not cover domestic consumption, to import food products beforehand. The search for resources has to start now. It is important that people do not get sick, because the effect of the contagion can lead to vulnerable health conditions. If we keep a primary focus on preventing contagion, then we can begin to add other things: monetary transfers to avoid reduced consumption, for example. We are not Norway. We cannot take on much more debt, because we already have debt. If we go into more debt, the markets will punish us. If you are healthy but do not have an income, your most obvious concern is not going hungry. What’s left is to ensure people have enough to eat.
What sorts of consequences will there be from the population’s loss of income?
Income is like the circulatory system: if it stops working, other systems start to suffer. For example, we are in a quarantine. There is no school. School absences soar. Many households lose their source of income and, after the quarantine ends, they may decide not to send their children to school because they can’t afford transportation. Measures taken by the government will have intergenerational effects. When we lend money to deal with the pandemic, we have cash flow in the present, which is necessary. This measure implies fiscal tightening in the future: we will not have a large education budget, despite education being an area needed to build human capital. More and more, automation is increasing, machines are replacing jobs, and that is only going to keep increasing. We need to invest in children and adolescents so they are able to earn an income and participate in that automated world. We have to monitor the sources of income for households, as well as their other hardships, such as food insecurity. More and more families will start to struggle in other ways due to lost incomes.
What sort of country will COVID-19 leave us with?
We are all susceptible to infection, but we are also all susceptible to suffering changes to our wellbeing due to COVID-19. Not because we get sick, but because of the measures we must take to prevent getting sick. The lesson is that the effects of reduced wellbeing apply to the whole population. Nobody can save themselves by having lots of money. Everyone’s mental health is affected. You have to self isolate too. If mental health was not a pillar of our social policy before, then it should be in the future, just as it should have been when we put an end to the Civil War in 1992. But there are people who will be more affected in certain ways, and those who will be less affected. The middle class could be diminished, because families were living day to day in such a way that losing one of two salaries has an impact on them. One of the hardships families face is associated with insecurity, but now that people are staying in their houses, that isolation can cover up another type of insecurity: domestic violence against women, children, and the elderly. You also have people who were already very impoverished, who are now reaching new levels of poverty. There are families with 16 different hardships all at once. There aren’t many, but they exist. What can COVID-19 do to you? It just makes you sick. Then you have other families who had four hardships, but all of the sudden those four become seven, or they go from seven to ten hardships. Poverty gets worse because of COVID-19, but not because of the sickness. There you have, more or less, an idea of El Salvador after coronavirus.
What are the kinds of hardships that could increase because of the pandemic?
Hardships related to housing are not going anywhere: having a dirt floor, the materials used for roofing or walls. The number of homes with this type of hardship will either stay the same or increase slightly. This depends on weather events and the fact that you can’t afford to buy another piece of sheet metal to fix your roof. School absences will increase once the quarantine is over, because many people will not be able to send their children to school after losing their income. You stopped making money, so now what do you do? You have to make a decision. You have children—they can help you work. It is not because you are bad, but because you have no way of making money. In some cases, child labor will have to be closely monitored. Other hardships may increase more quickly, such as food insecurity due to a shortage of food products.
FI name: May 2020