Multilateral banking and development financing in a context of financial volatility

Abstract In the 1990s, the economic performance of the Latin American and Caribbean economies was highly dependent on capital inflows into the region. Access to external financing coupled with better macroeconomic management, boosted growth and brought inflation down considerably. However, the processes of expansion and contraction on international financial markets led to volatility in international capital movements, which resulted in an unstable growth path. The paper discusses the composition and volatility of financial flows into Latin American and Caribbean countries. Indicators of external vulnerability and macroeconomic performance are also analysed. The study also points out the role of multilateral banking in financing development in Latin American and Caribbean economies. Multilateral banking has played a significant role in support of public and private investments projects in the region, and by providing contra-cyclical financing when the private capital flows were volatile. To date, such banks have concentrated mainly on financing investment projects in different sectors. Indeed, in recent years, much emphasis has been placed on financing for the support of State and social sector management reforms. In the near future multilateral banks should assume a leading role in improving access to private and public international resources. In this regard, the Andean Development Corporation (Corporación Andina de Fomento (CAF)), the Inter-American Development Bank (IDB) and the World Bank have already achieved positive results.