Economic Hardships:

The War in Ukraine Takes a Heavy Toll on Latin America’s Economy
Economic Hardships:
May 11, 2022

The recent conflict between Russia and Ukraine has ignited many debates and caused much concern among world leaders, especially as it highlights East European countries’ insecure and unstable sovereignty when it comes to their own decision-making and domestic affairs.

In South America, however, discussions about this conflict center more on the repercussions it could have on economic policies and new relations between many of the region’s countries. The initial concern was that there would be a new polarization along old Cold War lines between these closely related countries that may jeopardize current alliances. Moreover, this new division could compromise the future of economic blocks such as Mercosur, which is composed of nations with completely differing ideologies and politics.

The conflict has also wrought severe economic harm to this region’s countries, as market volatility intensified and inflation and the price of commodities rose. Further evidence of the economic hardships can be seen in increased fuel/food prices and wildly diverging socioeconomic divides.

Food Insecurity

The COVID-19 pandemic affected economies all around the world, causing a rise in unemployment rates, a reduction in family income, and an overall increase in poverty. In South America, the situation is even more dire due to mismanagement on the part of some governors and the precarious access to fundamental human rights.

In this way, the Ukraine-Russia conflict sheds light on a historical problem of the region that has only worsened due to the war: food insecurity. Food insecurity is defined as the lack of physical, social, and economic access to food that satisfies a person’s daily nourishment needs, thereby making it impossible to live a full, active, and healthy life.

Even though Mercosur governments have sought financial aid in the past few decades, as well as created programs to combat hunger and ensure access to essential nutrition, data from the Public Affairs Office (PAO) shows that South American food insecurity is still critical, and trending towards an even worse situation. Between 2019 and 2020, more than 33.7 million people became food insecure, representing 7.8% of South America’s population.

If we observe inflation data for the first trimester of 2022, we would note that the index doubled in countries like Brazil (10.38%) and Peru (6.33%), tripled in Paraguay (7.9%), and quadrupled in Colombia (6.9%). Organizations like the Food and Agriculture Organization (FAO), United Nations Economic Commission for Latin America and the Caribbean (ECLAC), and the World Bank predict that there will be no immediate improvement in the crisis. This is due to the fact that inflation on food prices went up by 12.6% in March, with the greatest impact being on the price of meat, wheat, vegetable oils, and dairy products.

Surging Poverty

South American countries have also been dealing with an upsurge in poverty and diminishing purchasing power, as the minimum wage in those nations have become incompatible with the prices of basic commodities. Up until March, the national minimum wage in Argentina (USD 350), Brazil (USD 217), Bolivia (USD 309), Chile (USD 457), Colombia (USD 257), Equator (USD 425), Paraguay (USD 320), Peru (USD 280), Uruguay (USD 424) and Venezuela (USD 28) was spent mainly on purchasing basic nutritional consumer products. During this same period, the price of basic foodstuffs in these countries represents anywhere between 22% to 110% of the current minimal wage.

Reports from the Pan American Health Organization (PAHO) estimated that 168.7 million South Americans found themselves in moderate to severe food insecurity in November 2021, representing 39.2% of the population and a 9% rise from the previous year. In other words, 4 out of every 10 people did not have access to food, or went at least one day without eating.

Another important piece of data to consider is that hunger did not affect everyone equally. In this region, women (42.2%) were more affected than men (33.3%) in terms of being uncertain about their ability to buy food for their families. Though this year’s numbers are still vague, the estimates are not very encouraging. South American economies are more fragile now than ever thanks to the conflict in Eastern Europe, which has only aggravated the region’s prevailing issues of food insecurity, inequality, and lack of opportunity.

Future Scenarios

The Ukraine-Russia conflict makes South America’s future all the more uncertain, especially since food prices are affected by transportation costs, which is directly related to the price of petroleum. Given that Ukraine and Russia are giant commodities exporters, the war has impacted the global market by reducing the availability of products like wheat, corn, fertilizers, natural gas, and petroleum, thereby causing their prices to skyrocket.

In this same vein, Russia and Ukraine together export 30% of the world’s wheat, which is a primary staple to South Americans. At the start of the conflict, the price of this product in particular reached USD 9.26 per bushel, and now currently hovers between USD 10 and USD 11 per bushel.

To add on top of all that, South American economies have been severely weakened by the impacts of the COVID-19 pandemic, reduced purchasing power, and increased poverty. Some South American governments are undergoing a period of political and social instability and cannot implement effective public policies to ease the effects of COVID-19.

The backdrop of the Ukraine-Russia conflict only heightens the food instability crises in South American economies and food supply chains, leaving more people in that region susceptible to hunger. As such, the longer that the conflict continues, the greater the negative consequences on the world economy will become, all of which will be felt more acutely in poorer countries.


Key Words:
https://www.interregional.com/en/economic-hardships/