BLOG — Jul 07, 2021
Realistic Disaster Scenario: What if Latin America sees a surge in violent unrest?
By Carla Selman and Carlos Caicedo
We work with a significant number of clients with global footprints, especially in insurance, providing realistic disaster scenarios. The goal of these scenarios is to consider events that are unlikely but would be impactful if they happened. Our clients use these to evaluate their books of business against potential losses. We recently shared our RDS for a possible hightened risk of war in the Middle East. In today's post, we turn our analysis to Latin America.
Our current view on Latin America SRCC (strikes, riots and civil commotion) is that protests in major Latin American countries in 2021 are likely to maintain the trends observed in 2020, namely occasional protests by labor unions, students, and low-income informal workers in the main capitals. However, for this exercise, we considered what it would look like if instead, risks rose significantly in the region.
Scenario: Latin America enters a second year of economic recession, as the third wave of COVID-19 engulfs the region, with a surge in the number of COVID-19 cases overwhelming hospital facilities. This all combines to trigger violent protests across the region.
Intensive care units (ICUs) reach full capacity in several major cities, and lack of oxygen compounds the death tally. Governments are forced to introduce fresh strict lockdowns, resulting in the closure of all hospitality venues, while police-enforced quarantines cause a sharp decline in consumption and investment, pushing thousands of companies into bankruptcy. Millions lose their jobs, while populations fatigued by already lengthy lockdowns defy curfews. The situation is compounded by the depletion of public finances, preventing governments from maintaining emergency aid. Most cash transfer and job protection schemes that mitigated the fall-out from the pandemic in 2020 are withdrawn.
This results in fresh bouts of violent protests. Protesters' grievances across the region have significant similarities, including anger at growing unemployment; demands for economic aid, funding for education, and protection of the environment; and human and labor rights issues. This overlap sees protest movements over different issues and in different countries feeding off each other via social media campaigns, through which coordination of the timing of marches and a common platform is agreed upon. Levels of violence and business disruption in Chile, Colombia, Mexico, and Peru are particularly high. In these countries, hundreds of thousands of protesters congregate in the central commercial districts of the main capitals and overrun police forces trying to prevent marchers from reaching the seats of government.
Meanwhile, anarchist groups that have infiltrated the marches take the lead in attacking police officers with Molotov cocktails, setting police cars and public buses on fire, and damaging governments and commercial property. Security forces use force to disperse the protesters, but this backfires after dozens of protesters are killed by live ammunition, causing violent confrontations with the police to escalate. Looting ensues, with supermarkets in central locations, as well as in the periphery, being ransacked. Police retreat temporarily, and the protests extend beyond central commercial districts, with dozens of metro stations being vandalized and facades of bank branches damaged, while the headquarters of several multinational companies and nearby shopping malls suffer arson attacks. After two days of looting, the protests recede. However, occasional incidents of looting continue to happen in the aftermath, particularly at night. The protests and violence cease after two weeks after the governments accept a dialogue with the protesters and open criminal investigations over possibly unlawful use of force by the police. However, incidents of business disruption become more common via strikes, road blockades, and sit-ins in front of Congress and government buildings.
In Chile, the government reacts to the new wave of COVID-19 stringently, leading protests to take to the streets to demand President Sebastián Piñera's resignation. The marches are attended by hundreds of thousands despite a country-wide lockdown. They gather in Plaza Italia/Plaza Baquedano in the Santiago centre. Demonstrators confront the police, who react with excessive force. This escalates into wider spread protests, roadblocks, and vandalism throughout major cities.
In Colombia, social grievances that triggered protests in 2019 remain unaddressed. This, together with incidences of police brutality and frustration over COVID-19, leads to fresh anti-government marches, which escalate into extreme violence in Bogota, Cali, Medellin, and Barranquilla. Vandalism and looting are widespread in these places.
In Mexico, a spike in COVID-19 cases leads to a strict lockdown, which along with economic decline result in hundreds of thousands marching in central Mexico City, along Reforma Avenue and Zócalo Square. Protestors throw hard projectiles and Molotov cocktails at the National Palace, while riot police respond with tear gas, batons, and rubber bullets.
In Peru, low vaccination rates lead to a spike in COVID-19 cases and a subsequent national lockdown. Most of the population refuses to comply with lockdown measures and join nationwide demonstrations. Protests include roadblocks in the capital Lima and Arequipa, Peru's second-largest city. The protests block highways disrupting cargo deliveries to the main cities, including fuel and oxygen. The protests cause severe supply chain disruptions, including at main ports and in the strategic mining sector.
Listen to our podcast on our RDS scenario. The full report, including the full text for the individual countries, indicators that this scenario is becoming more likely, and damage factors, is now available.