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Background Papers

Jan 8, 2004

Integration

IDB SUPPORT FOR INTEGRATION IN LATIN AMERICA AND THE CARIBBEAN

Regional integration is one of the founding mandates of the Inter-American Development Bank, together with promoting economic and social development in Latin America and the Caribbean.

Integration strengthens trust and cooperation in the region. It helps countries improve their bargaining position in global negotiations, as well as expand markets and achieve economies of scale, stimulating investments that raise productivity and generate jobs. It also offers opportunities to diversify trade and lower the risk of depending on a few exports.

The IDB assists borrowing member countries in their efforts to forge trade pacts at the subregional, hemispheric and multilateral levels, helping them prepare for negotiations, implement agreements and adapt their economies to changing regional and global conditions.

Along with the OAS and ECLAC, the IDB is a member of the Tripartite Committee that provides technical assistance to the groups negotiating the Free Trade Area of the Americas (FTAA). In 2003 the IDB hosted the first donor-country meeting to address the trade capacity challenges Latin American and Caribbean governments face in the process of establishing the FTAA.

Through its Integration and Regional Programs Department (INT), the IDB also provided extensive support to Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, the five countries that participated in negotiations with the United States to establish the Central American Free Trade Area (CAFTA). It also carried out analytical work for the South American countries in Mercosur and the Caribbean nations in CARICOM.

The IDB pays particular attention to the participation of small countries in these negotiations. Its new Lending Program for Trade, Integration and Competitiveness helps borrowers address a wide range of issues in the transition to free trade. These needs can include fiscal and customs reforms, export and investment promotion, infrastructure upgrades, business climate improvement and assistance for small and medium-size enterprises, rural producers and displaced labor.

The IDB’s Trade Sector Facility assists countries in strengthening their technical capabilities to negotiate agreements and improving their capacity to draft, analyze and evaluate trade policies. In 2003 the IDB approved $5 million loans for Trinidad and Tobago and the Dominican Republic to support their participation in negotiations in the framework of the World Trade Organization, the FTAA and other regional trade talks. The Bank also granted Honduras a $10 million loan for a competitiveness and trade capacity-building program.

The IDB carried out studies on issues and scenarios in the FTAA negotiations, the effects of trade liberalization, alternatives to address declining customs revenues due to the elimination of trade tariffs, best practices in customs information systems and comparative analyses of regional trade agreements in the Americas and East Asia.

Through its Institute for the Integration of Latin America and the Caribbean (INTAL), the IDB supports research and technical training. The Buenos Aires-based INTAL finances WTO training courses for trade negotiators in the region. It also manages the INTAL-Mercosur Rules Database, the INTEG Bibliographic Database, the DATAINTAL System of Trade and Statistics of the Americas and publishes the journal Integration and Trade.

Integration and Infrastructure

The IDB supports two major regional integration ventures, Plan Puebla Panama in Mesoamerica and the South American Regional Infrastructure Integration initiative (IIRSA), which entail not only closer trade ties but also joint development and physical infrastructure projects.

Plan Puebla Panama was launched in 2001 by Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama to promote sustainable development and consolidate integration in Mesoamerica, a 1 million sq. km. region with some 65 million inhabitants.

The Mesoamerican plan addresses eight key areas: sustainable development, human development, natural disaster prevention, low-impact tourism, trade facilitation, transportation integration, electricity interconnection and telecommunications development.

During 2003 the IDB supported the participating countries in the preparation of agreements to cooperate on health, sustainable development, rural development and natural disaster prevention.

Significant progress was also seen in the plan’s infrastructure programs. Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama are participating in the SIEPAC regional electricity transmission project –– supported by a $240 million IDB financing package. The SIEPAC transmission line will help Central America develop a more reliable power system, as well as a wholesale market for electricity, encouraging further investments in cleaner and more efficient generation plants. The IDB also approved a $37.5 million loan to Guatemala to finance a transmission line that will link its power grid with Mexico’s.

Plan Puebla Panama’s highway program became a more comprehensive transportation initiative after the participating countries agreed to include ports and airports in their integration agenda. Negotiations continued to secure financing to upgrade and rehabilitate roads on the 9,000-km highway network, which includes two main corridors along the Pacific and the Atlantic coasts.

The South American Regional Infrastructure Integration initiative was launched in the year 2000 by the presidents of 12 countries. IIRSA seeks to improve coordination of the participating countries’ infrastructure development plans, modernize their regulatory frameworks and harmonize their policies for three key sectors: transportation, energy and telecommunications.

The South American initiative is based on eight "integration and development hubs” and seven "sector integration processes." IIRSA intends to improve regulations for the energy and telecommunications sectors and the markets for services such as shipping, insurance, warehousing and licensing. It also supports the formation of regional electricity markets as a step towards regional power integration.

Along with the Andean Development Corporation and FONPLATA, the IDB has provided technical and financial support to IIRSA.

More information:
Integration and Regional Programs Department
Plan Puebla-Panamá
IIRSA

 

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