Transcript Development Banks - The UN Regional Commissions

Regional Financial Architecture
Side Event: The Role of Regional Cooperation and
Global Partnership in Financing for Development
Organized by United Nations Regional
Commissions
Follow-up International Conference on Financing
for Development to Review the implementation of
the Monterrey Consensus.
Doha, November 2008
Alicia Bárcena
Executive Secretary, ECLAC
The role of regional and sub-regional financial
institutions in Latin America
• Regional financial institutions must play an important role in the new
international financial architecture by complementing global financial
institutions:

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


•
Mobilizing financial resources for development.
Counter cyclical financing.
Reserve pooling.
Surveillance.
Macroeconomic coordination.
Regional financial institutions have specific characteristics which makes them
particularly valuable:
 They provide a sense of ownership of resources and of their destination.
 They posses the knowledge that is specific to the workings of the region.
 They have the capacity to act and provide a response in a timely manner.
2
The regional architecture in Latin America
• The regional architecture comprises:
 Development Banks
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
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
Inter-American Development Bank (1959).
Andean Development Corporation (1968).
Central American Integration Bank (1961).
Caribbean Development Bank (1969).
 Reserve pooling institutions
 Latin American Reserve Fund (1978).
 Mechanisms for Trade Facilitation.
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Development Banks
• The functions of development banks include:
 Investment finance.
 Provides loans and extend lines of credit to corporations, and banks
financing foreign trade and working capital operations.
 Provides the financial sector with credits for channeling resources to a
variety of productive sectors.
 Offer governments and government bodies development bank services
for special financing of physical infrastructure and integration projects.
 Provides financing for projects to promote human development and
integrate marginalized groups.
4
Regional and sub-regional development banks
have increased their relative importance
Loans by regional and sub-regional development
Banks in the region. 1990-2007 (US$ Bn)
10
8.9
9.7
9
7.2
7.1
6.6
7
5.3
6
5
3.9
4
2.8
2.7
3
2
1.1
Regional
IDB
Subregional Banks
2007
2005
2000
0
1995
1
1990
US$ Billion
8
5
Financing Investment
Andean development Corporation
Loans portfolio by sector of economic activity (Percentage of the total)
1997-2001 and 2003-2007 (% of total)
50
47.7
45
40
41.3
Percentage
35
30
25
25.0
20
15
16.3
15.5
5
13.5
12.2 12.7
10
8.2
7.6
0
Sectores productivos
Infraestructura
Social
1997-2001
2003-2007
Intermediación financiera
Otros
6
Financing Investment
Central American Bank for Economic Integration
Loan portfolio by sector of economic activity (Percentage of the total)
2007
Others
8%
Productive sectors
10%
Infrastructure
41%
Source: BCIE. Annual Report (2007)
Energy
27%
Financial
intermediation
14%
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Development Banks
• The functions of development banks include:
 Provision of liquidity.
 Andean development Corporation (CAF) established in 2008 a
contingency line of credit of US$ 1 to 2 billions
 Provision of countercyclical finance.
 Intermediation of financing funds from international markets to
the countries of the region.
 Plays an important role in stabilizing access to financial flows.
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The provision of counter-cyclical finance
GDP GROWTH, LOAN APPROVALS AND INFLOW OF PRIVATE CAPITAL
Andean Community
Millions of US$
GDP growth %
15,000
10.0
8.0
10,000
Loan approvals
6.0
5,000
Inflows of private capital
4.0
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2.0
-5,000
0.0
-10,000
GDP Growth
-2.0
-15,000
-4.0
Aprobaciones CAF
BF+E&O
Crecimiento
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The provision of counter-cyclical finance
GDP GROWTH, LOAN APPROVALS AND INFLOW OF PRIVATE CAPITAL
Central American Common Market
Millions of US$
GDP growth %
4,500
7.0
4,000
6.0
GDP Growth
3,500
Loan approvals
3,000
5.0
2,500
4.0
2,000
3.0
1,500
2.0
Inflows of private capital
1,000
1.0
500
0
0.0
1991
1992
1993
1994
1995
1996
Aprobaciones MCCA
1997
1998
BF+E&O
1999
2000
2001
Crecimiento
2002
2003
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Additional advantage that facilitates intermediation
of development banks is their investment grade
RISK RATING OF PUBLIC AND PRIVATE FINANCIAL INSTITUTIONS IN LATIN AMERICA
(745 INSTITUTIONS)
A
11%
NR
19%
A8%
A+
10%
BB
19%
B- BBB+
1%
Source: Fitch Corporate (2008)
CAF= A+
BCIE= A-
AA-AAA
32%
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The Latin American Reserve Fund
•
The Latin American Reserve Fund covers:
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•
Bolivia
Colombia
Ecuador
Costa Rica
Peru
The Latin American Reserve Fund’s main functions are:
 To provide financial support for its member countries’ balances of payments
complementing IMF financing (this is the main function of the FLAR).
 To improve the terms for its member countries’ reserves investments.
 To help harmonizing its member countries’ monetary and financial policies.
•
In order to provide balance of payments financing, FLAR operates as a credit
cooperation in which the member countries’ central banks are able to take loans in
proportion to their capital contributions. There are different credit facilities:
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
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Credits for balance of payments support.
Credits for restructuring the external national debt.
Liquidity credits Standby credits.
Treasury credits
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Latin American Reserve Fund
Granted credits per year for balance of payments support and liquidity provision
US$ Millions
1980-2005
800
700
600
500
400
300
200
100
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1995 1996 1998 1999 2002 2003 2005
Balance of payments
Source: On the basis of official data.
Liquidity
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The Latin American Reserve Fund
IMPACT OF FLAR ON FINANCIAL VULNERABILITY
(SHORT-TERM DEBT/INTERNATIONAL RESERVES, MARCH 2003
Bolivia
Colombia
Costa Rica
Ecuador
Peru
Venezuelan
(Bolivarian
Rep. of)
Subscribed capital
234
469
234
234
469
469
Paid-up capital
157
313
133
157
313
313
IMF Quotas
233
1 053
222
414
878
3 721
Short-term debt
370
3 800
1 499
2 316
2 335
3 720
International Reserves
893
10 844
1 497
1 004
9 721
12 107
Short-term debt/international reserves
(%)
41
35
100
231
24
31
Short-term debt/international reserves
(%)
26
33
82
149
22
29
Note: The quotient of short-term debt over increased international reserves is calculated by adding to international reserves the
debt capacity in FAR/FLAR, which is equal to 2.5 times the paid-up capital, except for Bolivia and Ecuador, where it is 3.5
times.
Source: Titelman (2006)
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Challenges in improving the regional financial architecture
• The process of financial globalization has heightened the need to strengthen
regional financial architecture to help reduce financial volatility and
vulnerability in the region.
• To deepen regional financial integration development banks should:
 Continue to provide countercyclical financing.
 Expand their functions to include supporting and facilitating the countries’
access to international financial markets.
 Actively support national and regional financial development.
• With respect to reserve pooling intitutions FLAR should:
 Support coordination of the macroeconomic and monetary policies of the
countries in the region.
 Contribute to establish common standards for regulation and financial
supervision.
 Expand its reserve pooling and countries coverage to improve its resource base
helping to reduce contagion between countries.
• New initiatives such as Bank of the South can complement the objectives
and functions of the existing regional financial institutions.
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Regional Financial Architecture
Follow-up International Conference on Financing
for Development to Review the implementation of
the Monterrey Consensus.
Doha, November 2008
Alicia Bárcena
Executive Secretary, ECLAC