News Highlights
Experts urge more instruments to prevent financial crises
Seminar participants urged to take advantage of good economic conditions to develop debt markets
Latin America must devise new methods to avoid financial crises, taking advantage of current favorable conditions in international markets, according to a study presented today.
But as IDB President Luis Alberto Moreno pointed out at the opening of a seminar, Latin America should not forget the lessons of its recent past, when access to international markets closed abruptly, leading to financial crises.
“An efficient response will require new methods to better manage the risks to which emerging economies are exposed,” he said. “The challenge for the region’s countries – in which the IDB expects to assist them – is to develop new alternatives now, in good times, which will be useful when we have to cross troubled waters.”
Among other ideas, the study urges the creation of financial instruments capable of automatically compensating for economic setbacks, such as bonds linked to commodity prices, national growth rates or the occurrence of natural disasters.
“Country insurance” facilities could be created to meet liquidity needs of emerging economies, financing them with the backing of the abundant international reserves accumulated by those same countries in different regions of the world.
A third possibility would be to set up a stabilization fund that would purchase developing countries’ bonds when their prices drop due to panics in markets. The fund would sell the bonds gradually as investors recover their nerve.
The IDB is supporting the development of local currency-denominated debt markets in Latin America through its own bond issuance program. Since 2004 the Bank has issued 19 bonds in Brazilian reais, Chilean pesos, Colombian pesos and Mexican pesos.
Condicional cash transfer programs win praise
Programs that provide cash stipends to families that use education and health services were held up as models as ways eliminate the inefficiency and inequity that persist in many areas of social policy, according to experts and senior officials at a seminar held today. The concept, which was pioneered in Brazil, has received extensive IDB support throughout the region.
“The promotion of growth with inclusion requires action in two areas: improve the productive capacity of the poor, and promote their access to job markets with greater opportunities for employment and wealth creation,” said Manuel Rapoport, IDB manager for the Southern Cone countries, in his opening statement.
“These programs are very attractive for Latin America and the Caribbean due to their benefits, their cost-effectiveness and their flexibility, as well as the institutional development they entail,” said Alicia Ritchie, IDB operations manager for the Andean and Caribbean countries at the state of a discussion of how these programs can influence future social policies in the region and in consolidating pending reforms to integrate programs or provide beneficiaries with access to credit services.
Among the participants in the event were Patras Ananias, Brazil’s minister of social development and hunger alleviation; Roberto Lavagna, ex finance minister of Argentina; Ana Teresa Aranda, social development minister of Mexico; Pedro Aguayo Cubillo, former vice president of Ecuador; Mario Marcel, researcher and former budget director of Chile; Carlos Eduardo Vélez, chief of the IDB Poverty and Inequality Unit; and Ricardo Paes de Barros, of Brazil’s Institute of Applied Economic Research.
Thirteen countries in the region have implemented cash transfer programs, in most cases with Bank support. IDB support for cash transfer programs between 2000 and 2005 totaled $4.5 billion. In 2005 alone, the IDB approved loans of $1.2 billion for Mexico’s Oportunidades Program, $700 million for Argentina’s Plan Familias and $57 million for El Salvador’s Red Solidaria.
How to help small firms compete in the global economy
How to change the regulatory framework for private investment and provide financial instruments and services to enable small and medium-size companies to improve their competitive position in the global economy was the subject of a seminar held today organized by the Inter-American Investment Corporation (IIC), Banco Itaú Europa and Banco Itaú, Brazil.
Participants reviewed developments in foreign investment and the business environment in Brazil, trends in private investment and the business climate in Latin America and the Caribbean, the impact of free trade agreements on the region, and new initiatives for international cooperation among the Corporation's non-regional member countries.
In the seminar’s inaugural session, President Moreno emphasized the need to improve the climate for private investment to maintain the pace of investment and growth and to improve income distribution as a means to reduce poverty. At present, he said, only limited financing is available for small and medium-sized firms, which reduces their ability to develop financial strategies and efficient systems of production and marketing.
Topics reviewed for governors’ agenda
Also taking place today was a preliminary session of the heads of delegation of the IDB’s 47 member countries. The delegates reviewed the main topics to be submitted to the Bank’s governors, particularly a proposal to expand the scope of authority for IDB financing without sovereign warrantees. The delegates also were given a presentation on the IDB initiative to target initiatives to help segments of the population at the lowest level of the social and economic pyramid.
The IDB’s Board of Governors is made up of finance ministers, heads of central banks and other senior officials from the institution’s borrowing and non-borrowing countries.
Reception hosted by the host city
In the evening, meeting participants gathered for a reception hosted by the mayor of Belo Horizonte. The event was held in the Pampulha Art Museum, whose building was designed by famed architect Oscar Niemeyer. The gardens of the museum contain sculptures created specifically for this setting.
New loan to Brazil
On Friday, IDB President Luis Alberto Moreno, São Bernardo do Campo Mayor William Dib, and Finance Department attorney of Belo Horizonte Cláudio Roberto Leal Rodrigues, signed a loan contract for the São Bernardo do Campo Urban Transport Program.
The US$ 72 million IDB loan will help finance transport projects, in particular the Via Anchieta Highway, which runs through the city.
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