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Latin America has just experienced a real “golden decade” during which there has been a transformation in its political, economic and social situation. Development banks are still operating there. Some, like AFD, even started their activities during this highly prosperous period.Why does Latin America still need this financing? What do development banks finance? These questions were debated at the Agence Française de Développement.

Organizers

Latin America has just experienced a real “golden decade” during which there has been a transformation in its political, economic and social situation: per capita income has increased (between 2002 and 2012, from USD 9,000 to USD 15,000 in purchasing power parity, according to the IMF), there has been a sharp decline in poverty and extreme poverty (from 44% of the population to 28% and from 19% to 11%, respectively, between 2002 and 2012, according to ECLAC), and a middle class has emerged. Latin American countries have also successfully implemented their financing tools (bond issues, emergence of local banks and diversification of financial partnerships)…

Development banks are still operating there. Some, like AFD, even started their activities during this highly prosperous period. Why does Latin America still need this financing? What do development banks finance? Do they have an impact on the growth trajectories of Latin American countries? With the fall in commodity prices, will development banks once again have a countercyclical role to play in the coming years?

 

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Does Development Assistance still make sense in Latin America?

Date

Wednesday 03 June 2015

Hour

17h30 - 19h30

Place

Agence Française de Développement
5 rue Roland Barthes
75012 Paris

The conference-debate will be coordinated by Thomas Chauvineau, journalist at France Inter

With:

  • Adriana ARREAZA, Chief Economist, CAF
  • Catalina CRANE, in charge of supporting Colombia’s candidature for accession to the OECD, former Deputy Finance Minister
  • Régis MARODON, directeur du département Amérique Latine et Caraïbes de l’AFD

The debate was coordinated by Thomas Chauvineau, journalist at France Inter. The speakers were Adriana ARREAZA, Chief Economist, CAF ; Régis MARODON, Director of the Latin America and Caribbean Department, AFD ; Jean-Louis MARTIN, Head of Macroeconomic Research at crédit agricole, Specialist in emerging countries ; Carlos OMINAMI, ex Chilean Minister of the Economy.

 

Latin America is coming out of a decade of economic boom, marked by the improvement in public finances, a reduction in poverty and the emergence of middle classes. Democracy is stabilizing throughout the region. However, certain fundamental problems have not been resolved. These changes are prompting development agencies to renew their approach. They need to tackle their own specific challenges, such as the climate issue or the fight against inequalities, with a more complete set of leveraging tools than those of commercial banks.

The end of a golden decade: What prospects?

Latin America is emerging from an “exceptional cycle, the best in its history” (Carlos Ominami). From an economic and social point of view, there has been “strong growth and a reduction in the level of poverty” in the region (Adriana Arreaza), with an annual growth rate of over 4% and per capita income has risen in 10 years from USD 9,000 to USD 15,000. There has also been a marked change in the political sphere, with “the development of democracy” and increasing number of “progressive governments” (Carlos Ominami).

But certain fundamental problems have not been resolved: “Latin America has not come up with solutions to the structural problems it has been facing for a long time” (Adriana Arreaza). There is a lack of social cohesion: “All [the countries] have a major problem of social inequalities” (Jean-Louis Martin). The economies are characterized by a marked tendency for reprimarization: “the share of commodities in exports has risen from about 40% in the early 1990s to about 60%” (Carlos Ominami). Finally, foreign direct investments can no longer finance the current account deficit: at “about 2.7% [of the] gross domestic product (GDP)” of Latin America, it makes it “the region with the highest deficit in the world”.

After this golden decade, “the context is clearly changing” (Jean-Louis Martin).

 

Development actors need to address specific challenges

Because “a development bank does not have the same activities as a commercial bank” (Régis Marodon), it is required to respond to specific challenges.

The climate issue is “a major challenge” (Carlos Ominami). It is one of the “most interesting sources” for development institutions: “commercial banks will only get involved […] to a lesser extent”, just as they “will not venture” into the agriculture sector (Jean-Louis Martin). It is up to development banks to propose ambitious crosscutting approaches. Consequently, the integration of environmental impacts guides the development of AFD’s operations in agriculture: it supports an environmentally responsible approach for these smallholders who, “because they have no fertilizer or effective crop-growing method, destroy trees or burn hectares of land”, with a heavy impact on biodiversity (Régis Marodon).

Social issues are another typical field of action for development banks. Because “inequalities […] have impacts on the structural obstacles to growth” and “demand from Latin American countries” is very strong on these issues, AFD “is going to scale up its involvement” in the fight against social injustices (Régis Marodon). CAF (Latin American Development Bank) also aims to “support access [for populations] to basic services”, and especially widespread access to quality education (Adriana Arreaza).

 

Operating methods specific to development agencies

Development institutions address these issues with their own specific tools.

They rely on networks of local actors. For example, to reach small agricultural producers, development agencies rely on local operators: second-tier banks. Via various products (credit lines, administration methods)”, CAF provides its assistance to the “microfinance network [which] supports micro-producers” in Latin America (Adriana Arreaza). It is also by mobilizing field experts that development banks can build appropriate tools: to work on an issue, CAF “works closely with public policy managers, both at national and local level” (Adriana Arreaza).

Secondly, development agencies provide resources “which do not only concern financing, but also technical cooperation, policy exchanges and experience sharing (Adriana Arreaza). In Brazil, AFD is working “with the objective of cooperation and not simply financing” with the Île-de-France Region public transport authority (STIF) and public authorities on the development of “intelligent systems for intermodality and to improve the service for users” (Régis Marodon).

 

“Renewed approach to development”

For AFD, Latin America is ultimately an area for “a renewed approach to development” (Régis Marodon).

Development institutions demonstrate “an enhanced concern for the viability of projects” in the region (Jean-Louis Martin): AFD is committed to “giving priority to certain sectors and actors who are able to repay loans” (Régis Marodon), especially as it operates within a constrained budget framework.

Furthermore, development banks experiment in dialogue with new types of interlocutor: there are an increasing number of experiences of decentralized cooperation. CAF “has begun working with local interlocutors, regions, cities” (Adriana Arreaza). CAF and AFD are the only “bilateral international agencies to take a risk directly with local authorities, without requesting a sovereign guarantee” (Régis Marodon). The specificity of an agency like AFD lies in its ability to place actions undertaken at local level within macro issues: “[Its] role is to be a bridge for dialogue, through financing, in order to touch on global issues” such as climate change (Régis Marodon).

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