Strengthening multilateral, regional, subregional and national development banks, while also improving cooperation and coordination among them, is key for responding to the region’s financing challenges in the context of the crisis prompted by the COVID-19 pandemic, Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), indicated today during a hybrid meeting (in person and virtual) organized by the Government of Costa Rica following the thirty-sixth session of the Commission’s Committee of the Whole, held at United Nations headquarters.
Regional and subregional development banks, such as the CAF-Development Bank of Latin America and the Inter-American Development Bank (IDB), and national development banks provided the strongest response to the pandemic, Bárcena emphasized upon presenting a work document prepared by ECLAC on the response of development banks to COVID-19 and their role in a sustainable recovery.
“For a sustainable recovery, the role of banks will be critical,” the senior United Nations official insisted.
The event was led by Rodolfo Solano, Foreign Minister of Costa Rica, the country that holds ECLAC’s pro tempore presidency. In his opening remarks, the Minister stressed that “our countries from the region have the demand to obtain financing that breaks with known models.” The goal, he said, is to arrive at the Fifth Meeting of the Forum of the Countries of Latin America and the Caribbean on Sustainable Development – to be held in March 2022 – “with a concrete, pragmatic proposal that can be implemented in the shortest amount of time possible, because our citizens, our vulnerable populations, cannot wait.”
Other speakers at the meeting included Humberto Rodríguez Guzmán, Head of Asset and Liability Management at the Central American Bank for Economic Integration (CABEI); Eric Parrado, Chief Economist and General Manager of the Research Department at the IDB; and Adriana Arreaza, Director of Macroeconomic Studies at the CAF-Development Bank of Latin America.
Remarks were also delivered by the High Representative of the European Union for Foreign Affairs and Security Policy, Josep Borrell (via a recorded message); Ambassador Juan Manuel Gómez Robledo, Deputy Permanent Representative of Mexico to the United Nations (on behalf of the pro tempore presidency of the Community of Latin American and Caribbean States, CELAC); Rodolfo Sabonge, Secretary General of the Association of Caribbean States (ACS); Armstrong Alexis, Deputy Secretary-General of the Caribbean Community (CARICOM); and Luis Antonio Lam Padilla, Extraordinary and Plenipotentiary Ambassador of the Permanent Mission of Guatemala to the United Nations, on behalf of the Central American Integration System (SICA).
Before the pandemic, Latin America and the Caribbean was already on a trajectory of stagnation, Bárcena noted. In 2020, the region experienced the worst contraction on record (-6.8%) and investment plunged (-10% in real terms).
In this context, ECLAC’s Executive Secretary reiterated that the region has limited capacity to mobilize domestic and external resources to tackle its investment challenges.
Latin America and the Caribbean is currently the most indebted region in the developing world: on average, gross general-government debt amounts to 77.7% of regional GDP, and the debt service represents 59% of its exports of goods and services.
National development banks have also provided substantial countercyclical support to the region’s economies, Bárcena emphasized. In addition to credit, guarantee schemes have become the most dynamic instrument for supporting Micro, Small and Medium-sized Enterprises (MSMEs) during the pandemic. These guarantees represent 32% of the financial support provided by national development banks, she indicated.
To achieve a sustainable recovery, the countries of Latin America and the Caribbean must notably expand their capacity to mobilize resources and channel them into public and private projects in strategic productive sectors, Bárcena stated.
Development banks’ lending capacity can be increased through greater capitalization, which should be coupled with a change in the composition of investment, ECLAC’s Executive Secretary said.
“We believe that regional and subregional banks can be critical for reorienting investments, for example, towards climate change. To increase financing using environmental criteria, it is necessary to develop innovative financing instruments, such as the issuance of sustainable bonds,” she underscored.
“This is a time of reflection about how we can achieve greater regional and subregional integration,” Bárcena sustained, pointing to such initiatives as the Plan for Self-Sufficiency in Health Matters prepared by ECLAC at the request of CELAC, and the Fund to Alleviate COVID-19 Economics (FACE) proposed by Costa Rica, among others.
“Coordination and articulation among development banks at different levels are fundamental for the region’s financing strategy,” Bárcena concluded.