Guayaquil – The Epicentre of Latin America’s Coronavirus Crisis

In recent weeks Latin American analysts have been wondering how the region would cope with coronavirus. The crises in developed countries such as Italy or Spain boded ill for Latin America’s poorly-equipped health systems and indebted governments. The tragedy currently unfolding in Guayaquil suggests those fears were well founded. Investors are wondering if we will see these scenes repeated elsewhere in the region.

What went wrong in Guayaquil

‘The pearl of the Pacific’, Ecuador’s bustling coastal city of 2.6 million people has always been the country’s main port of entry for international goods, people and ideas. Unfortunately, that also meant it was quick to receive coronavirus. Ecuador’s patient zero was apparently a 71-year-old lady returning from holiday in Spain. Unlike most other parts of Latin America, Ecuador’s coastal region was on summer holiday during the outbreak, with schools and universities closed. That led to more people travelling to Europe and returning infected.

Given that sophisticated health services such as the NHS, which before the pandemic was rated by the WHO as one of the world’s best for disease control, struggled to contain coronavirus in its early stages it is little surprise that Ecuador’s underfunded public health system was unable to either. It lacked the equipment, protocols, expertise or facilities to trace and isolate early cases.

Yet Ecuador’s government acted quickly, enforcing a lockdown and closing international borders when it had just 111 confirmed cases. Governments around the world have been employing these measures – not just for their specific social distancing objective – but also because of the impact they have on a population’s behaviour. In Ecuador the lockdown sparked panic. This manifested itself in many positive ways, such as a deep respect for the new restrictions, which were widely adhered to. But there were also some unintended consequences. Funeral homes stopped collecting bodies – not just of confirmed Covid-19 cases but of any death – in Guayaquil. With cadavers decomposing quickly in a daytime temperature that averages above 30°C, families were left with no option but to dump their deceased loved ones on the streets. Needless to say, this created a whole set of new public health risks.

Health system failures

Another problem is that Guayaquil’s health system collapsed very quickly. Like most of Latin America, the city has a dual health system. Expensive private clinics, that can offer decent healthcare by international standards, exist alongside underfunded public ones that struggle to provide basic care in normal times. The panic created by the early lockdown further undermined the health system as it caused some professionals to stay away.

Like the rest of the world, Ecuador’s health system was not prepared for Covid-19. But its ability to respond and ramp-up in key areas was particularly weak. A scandal erupted when it emerged the Social Security Institute was buying n95 masks for $12 a unit. An investigation is ongoing but whether the cause was corruption or incompetence both are fatal attributes for public health bodies in a pandemic. The Ecuadorian health system also relies on strong family support for the patient. This isn’t just the case in public hospitals, where family members are expected to buy medicines and food for the patient during the course of the hospitalisation. But even the most exclusive private hospital rooms include spare beds and adjoining suites for family members to stay overnight. That cultural reliance on family care has proved costly during the pandemic as it has increased the spread of the virus. Indeed, because of the lack of key medicines, even in the most exclusive hospitals, family members are having to source them on the black market – making several journeys per day, when they should be self-isolating themselves.

However, there are some grounds for optimism. Ecuador’s success in restricting the spread of the virus outside of Guayas province has freed up national resources for the fight in Guayaquil, while the inauguration of a new 1,500-bed hospital this week will ease pressure on hospitals. Wins like these offer some positive examples to the rest of the region.

Will this be repeated across Latin America?

There are many other countries in Latin America that suffer Ecuador’s deadly cocktail of weak institutions, an ineffective state and an underfunded health system. And, sadly, we can expect more of the region’s cities to look like Guayaquil in coming weeks. However, the economic and public health impact of coronavirus will vary enormously between countries.

Most Latin American countries have better health systems than Ecuador. According to a 2018 InterAmerican Development Bank study, it has one of the least efficient health systems in the region. Chile, Costa Rica, Cuba, Uruguay, Dominican Republic, El Salvador, Argentina, Paraguay, Belize, Colombia, Brazil, Mexico, and Venezuela all have more efficient health systems than Ecuador. It’s not that Ecuador’s health system is worse than Venezuela’s. Rather that, for the amount of money it invests, it achieves worse results. That will matter in handling coronavirus, where countries will have to administer limited resources as wisely as possible.

corruption and incompetence are fatal attributes for public health bodies in a pandemic… "

Another clear disadvantage for Ecuador is the economy. A combination of financial recklessness from former president Rafael Correa - who was recently found guilty of bribery - falling oil prices and high, inefficient public spending meant that Ecuador has been running consistent fiscal and current account deficits. With international investors increasingly wary about lending the small Andean nation more money, it received a $10billion bailout from the IMF and other multilaterals in 2019. In return the Fund demanded austerity measures from Ecuador. That lack of cash mattered when coronavirus hit as it hampered efforts to bolster an already underfunded health system.

To the credit of both parties extra IMF money was quickly made available to Ecuador. However, the country’s poor fiscal position means that it can’t afford the type of counter-cyclical measures that some of its neighbours are using to mitigate the severe economic impact of lockdown. In a vicious cycle, the lack of economic support for poorer Ecuadorians makes lockdown measures less effective – as they have to leave the house to find money for food – and thus frustrates Ecuador’s efforts to control the spread of coronavirus.

Regional responses

Other Latin American countries are clearly in a stronger financial position, which will make their fight against coronavirus more effective. On the monetary policy front, Chile and Colombia have begun quantitative easing, with central banks buying government and corporate bonds. Meanwhile most other Latin American central banks, apart from Argentina, have cut rates and boosted banks’ liquidity by reducing reserve ratios. These measures are broadly inline with emerging markets around the world. But on the fiscal side, with the honourable exceptions of Peru and Chile, the regional response has been more muted, notes Quinn Markworth, Latin American economist at UK-based consultancy, Capital Economics. “At least part of the reason why these governments have pledged so little seems to be their weak public finances. The Colombian government’s fiscal deficit will widen dramatically due to the oil price rout. In Mexico and Brazil, policymakers will have one eye on already high debt ratios.” In Argentina, where coronavirus has pushed the country into a selective default, the financial position is even worse than in Ecuador.

With the exception of Mexico and Brazil, most Latin American countries were quick to enforce strict lockdowns – indeed they did so at a far earlier stage of their coronavirus crisis than those in Europe. That quick response deserves praise; however, lockdowns only serve to buy time. It remains to see how long these economies can sustain these restrictions and what their health institutions are doing with the extra time gained. Cuba, Chile, Uruguay and Costa Rica are likely to handle the crisis relatively well. They all have decent health systems and are small, well-managed countries although Costa Rica may regret its high debt load. Colombia, Peru, Paraguay, Panama and Bolivia may also surprise on the upside as their relative economic strength should help them sustain the lockdown while they prepare. The outlook is less certain for Argentina, which has one of the strictest lockdowns in the region but also one of the weakest economies. Brazil and Mexico were both slow to enter lockdown so we should see massive increases in case numbers in the coming weeks. The poor areas of their mega cities could be particularly vulnerable to an outbreak, while Mexico City's terrible air quality causes respiratory illnesses in normal times. Finally, you have Venezuela and the poorer Central American countries. The combination of weak economies and hollowed-out health systems makes for a bleak outlook. Young demographics may soften the blow in Central America but coronavirus could be particularly cruel for Venezuela’s population, which has already been weakened