Development in Latin America & the Caribbean: Partnering with the IDB

1. Development in Latin America & the Caribbean: Partnering with the IDB 40th Felaban Annual Assembly Joaquim Vieira Ferreira Levy Vice President for Finance and Administration Inter-American Development Bank November 14, 2006

2. International and Regional Context for IDB Support • 1980s, 1990s: significant structural reforms to facilitate economic growth and development in LAC • Multilateral negotiations: suspension of WTO trade talks • Proliferation of bilateral and regional trade agreements: 40 LAC agreements since 1994 • Trade liberalization as an engine for growth: needs management and complementary policies to increase competitiveness and compensate transition costs • Multi-polar integration strategy: regional focus • PHYSICAL AND COMMERCIAL INTEGRATION

3. IDB Action Environmental Safeguards Physical & Financial Infrastructure Policy Framework Capacity Building Opportunities for the Majorities

4. IDB Group Bank PUB PRI IIC

5. Physical and Financial Infrastructure

6. Physical Infrastructure • IDB has traditionally supported investment in infrastructure projects, plus technical cooperation grants • Between 1995-2005, Bank approved loans and guarantees for 131 infrastructure projects, totaling some $8.4 billion • Focus on REGIONAL INTEGRATION: SIEPAC and IIRSA

7. Integration of Electricity Markets SIEPAC -Central American Electricity Interconnection System Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica & Panama

8. Initiative of Regional Infrastructure in South America- IIRSA

9. Initiative of Regional Infrastructure in South America IIRSA • Forum to create common agenda of projects and actions aimed at physical integration in transportation, energy and communications • Portfolio of 355 integration projects with investments of over US$ 37 billion • 31 PRIORITY PROJECTS/US$ 5.8 billion • Goes Beyond Public Works – Comprehensive approach

10. Contribution IDB to IIRSA • Support of Technical Committee • Developing Project Management Tools for Country Coordinators & Planning Tools for Comprehensive Strategy Development • Study social & economic linkages of infra structure projects • Reduce cost, implementation delays and environmental impact • Financing Projects • Publics, e.g., lending for Rota 14 in Argentina • Private, e.g., guarantee for PPP in IIRSA-Norte in Peru • Financing viability studies on non-reimbursable bases

11. Environment and Safeguards Policy • Environmental and social risk assessment • Monitoring to ensure compliance with Bank safeguard policies • A partner to countries to develop energy efficiency and leverage their strengths in helping address climate change (LAC contributes with 4%-8% of world carbon emissions only, and are developing innovative ways to preserve their natural resources)

12. IDB Strategy for Infrastructure • Fund for the Financing of Technical Cooperation for Initiatives for Regional Infrastructure Integration (FIRII) – US$20 million • Infrastructure Project Preparation Fund (Infrafund)-US$20 million IDB goal is to lend $12 billion for infrastructure during the next five years “Enhanced Infrastructure is an important factor to level opportunities in LAC”

13. IDB Strategy for Infrastructure • Improved Governance and Macroeconomic Outlook favor an across-the-board increase in investment • Financial innovation can open new opportunities, avoiding pitfalls of the first generation of project financing and multiplying the effect of multilateral lending PRIVATE SECTOR “Conditions are ripe for an acceleration in infrastructure investment”

14. Financial Integration • Private-Sector financial clearing of intraregional trade (netting of exposures) • Opening of Pension Funds to invest in Regional Securities • Micro/meso finance & recycling of remmitances • Harmonization of terms of issuance of Regional Local Currency Debt

15. Financial Support to TradeTrade Financing Program - TFFP • Counter-cyclical role for providing risk mitigation during times of economic difficulty • Catalytic role in broadening LAC banks’ funding base in international markets • Mitigation mechanism for country risk concerns of international banks on their LAC counterparts • A scheme fully consistent with leveling the playing field for regional integration and global integration

16. Program Description TFFP Main Structural Features (*) Due to the uncommitted nature of the credit lines with LAC banks, no aggregate limit has been established for approved credit lines.

17. Roll-out of Operations Operating Platform Development & Implementation Issuance of TFFP Guarantees Adequate internal infrastructure Comprehensive bank network Market positioning and promotion activities Environmental Social impact assessment and mitigation Steps to success

18. Main Achievements Building a comprehensive bank network • Issuing Bank Network (June 2006) • 18 Issuing Banks in 10 LAC countries • Approved credit lines totaling US$413 million • 70 Confirming Banks from 25+ countries around the world • Argentina • Bolivia • Brazil • Colombia • Dominican Republic • Ecuador • Honduras • Nicaragua • Panama • Peru

19. Operations Rollout • Issuance of guarantees as of September 30, 2006 • Partial credit guarantees issued: 27 • Total amount of guarantees issued: US$56 million • Int’l trade transactions supported: 74 • Total amount of int’l trade transactions: US$80 million • Average guarantee coverage: 73.5% • Average tenor per transaction: 230 days (7.6 months) • Market conditions have opened • up niche opportunities • Intra-regional trade (22.2% of total trade under TFFP) • Participation of less known LAC Banks Main Achievements

20. Policy Framework

21. Improved Creditworthiness … but a way to go Source: ING

22. Business Environment • Competition • Transparency • Regulations • Stability of taxes • Incentives for Human Capital Accumulation

23. Policy Framework Financial Sector: • Establishing credit bureaus • Easing regulations for microenterprise development and expansion • Strengthening financial supervision • Facilitating risk management (Basel II)

24. Policy Framework Trade: • Reduction in intra regional barriers • Harmonization of regulatory frameworks (including energy & telecommunications) • IDB PRODUCTS TO SUPPORT POLICY IMPROVEMENT: • Policy-Based Loans –PBLs • Technical Cooperations • $ 2.6 billion in 2005; $ 3.7 billion in 2006 (54 operations)

25. Capacity Building

26. IDB Investing in People

27. Public Sector Capacity Building IDB Actions Debt Management Education Environment Financial Sector Health Science & Tech Taxes Trade Strengthening Institutions for Trade : Trade Ministries through Trade FacilityLoans in 9 countries; Customs Modernization Loans in 11 countries

28. Trade Facility Loans Peruvian Ministry of Trade (US$5 million) • On-the-job training of negotiators • Expertise in different trade disciplines • Impact studies on trade liberalization • Strengthen consultation mechanisms with private sector and civil society

29. Customs Modernization Nicaragua –comprehensive modernization of customs administration paperless system of tracking transit of goods • Single window approach to service • Inspections system based on risk management

30. Technical Support • Technical and Financial Support in the Process of Trade Negotiations, Implementation and Adjustment

31. Empowering the Majority to Participate Effectively in Economic Life

32. Support to Private Sector • Projects in Multilateral Investment Fund Cluster for Facilitation of Trade and Investment - Regulatory Development & Harmonization of Standards - Support to SME’s to identify and take advantage of export niches - Support new economic opportunities to native people and majorities • Outreach activities and awareness building – preparing for new competition

33. Empowering the Majority

34. ACCESS TO FINANCIAL SERVICES CHALLENGES for MAJORITY IDB ACTIONS • Intensify IDB actions to help develop new products, improve regulatory environments, and strengthen institutions for micro-finance lenders: • Spurring private market to increase micro-finance from $5 to $15 billion annually by 2011. • The Majority does not benefit from formal financial system: • Only 10% of micro-entrepreneurs have access to credit.

35. 40th Felaban Annual Assembly