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Brazil Is Least Prepared For Coronavirus Pandemic, But India Is Even Worse

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Brazil is the epicenter of the new SARS coronavirus in Latin America. No country has more cases, now standing at 14,034 as of April 7. To make matters worse, no country in South America is least prepared for the outbreak, at least as measured by BNP Paribas in a report released on Tuesday.

BNP didn’t include what many consider to be a failed state — Venezuela. But it does include Argentina, which on a scale of 0 to 1, with 1 being the most prepared, Argentina is 0.5. Brazil is around 0.38. Only India, Thailand and the Philippines are worse.

Why?

It’s not because Brazil’s President Jair Bolsonaro downplayed the coronavirus. The country is in quarantine, having done it around the same time as the U.S. as governors took action per recommendations of Bolsonaro’s own Public Health Secretary.

MORE FROM FORBESIn Coronavirus Versus Brazil, Bolsonaro Stands Almost Alone

For the French bank, emerging markets battling through the pandemic have bigger problems than just the virus itself. They have limited resources to fight it.

In their report on which emerging markets will fair best in the pandemic, BNP Paribas looked at healthcare resources and social needs to deal with unemployed workers forced home by government mandates as a guide to who can weather the storm.

Brazilians want to work and they need to work. Those who run their own small businesses, such as mini-marts in small villages that also serve as bars and restaurants, cannot afford to close down for a month. Many of them are part of the informal economy, practically of the state’s radar.

Higher unemployment creates risks that go beyond the demand shock of little business and consumer spending.

BNP also considered how the economies of 25 countries were doing just as the pandemic was starting to hit.

For Brazil, one of the bigger problems is that informal economy accounts for roughly 35% of GDP. Around a third of the Brazilian working class are considered poor.

Compared to India, only 18% of its GDP comes from the informal sector. But the informal, under-the-table market employs nearly 84% of the country, meaning they’re going to be hard pressed to be counted in government assistance programs if they are forced to close shop to stop the spread.

Brazil only has 2 hospital beds per 1,000 people, and 2 doctors per 1,000. Rival Argentina has like 3 times that.

India, on the other hand, is worse. They have 1 hospital bed per 1,000 and 1 doctor per 1,000, which is why Prime Minister Narendra Modi ordered a national lockdown for about two weeks before the SARS infection rate even hit 1,000. India now has 5,311 cases, of which 421 have recovered and 150 people have died, based on data compiled by Johns Hopkins University.

“Most countries have taken swift action to contain the spread of the virus,” says Luiz Eduardo Peixoto, emerging market economist for BNP Paribas in London. He did not single out any particular fast, or slow, movers.

In terms of monetary and fiscal policy responses, things are moving quickly in Brazil as well as in India. But so are the number of confirmed COVID-19 cases.

As far as the financial risks. Both India and China are two emerging markets that would be considered “too big to fail”, with both countries having enough foreign currency reserves to weather forex shocks if need be, or keep debts paid.

Compare that to Argentina, which pushed a roughly $9 billion payment out until the end of the year on Monday, citing concerns over spending needs associated with the public health emergency.

There is a significant risk of sovereign downgrades to come.

BNP Paribas is estimating that 15 out of 25 emerging market sovereigns are at risk. Brazil will go from BB+ to BB. India from BBB+, investment grade, to BBB, still investment grade.

The new SARS coronavirus, first discovered in China in December, is expected to go from a public health concern to an economic and financial concern in relative short order. Coupled with the costly financing needs of poorer nations like Brazil and India, the economic toll could lead to solvency issues in local markets, Peixoto believes.

In other words, Brazil and India won’t default on their debt because of the pandemic, but some issuers might. If they don’t, many private businesses, forced into quarantine, will fold.

China lost roughly 500,000 companies due to the outbreak, which shut China down for nearly three months.

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