March 9, 2002

IDB’S IGLESIAS: INFRASTRUCTURE IS KEY TO LATIN AMERICA INTEGRATION South American Regional Infrastructure Integration initiative and Plan Puebla Panama highlighted at seminar held ahead of Bank’s annual meeting

FORTALEZA, Brazil – Physical integration, the building of infrastucture linking neighboring countries, is a keystone for Latin America’s integration, Inter-American Development Bank President Enrique V. Iglesias said today.

At the opening of the seminar Physical and Regional Integration: Plan Puebla Panama and South America Plan, held here ahead of the 43rd annual meeting of the IDB’s Board of Governors, Iglesias also underscored the advantages offered by integration to speed up economic and social development.

In his speech Iglesias noted that physical integration was long regarded as an ancillary issue to trade negotiations. “Today we know that, as we move forward with these efforts, that physical integration is a fundamental issue. It is more than just an adjunct, it is a basic fulcrum for integration. It was one for Europe, and it will certainly be one for us,” he added.

Brazil’s Planning, Budget and Management Minister Martus Tavares and Brazil’s ambassador to the United States, Rubens Barbosa, also took part in the opening ceremony of the seminar, which was organized by the IDB’s Regional Operations Departments 1 and 2.

The meeting brought together government officials, diplomats, academics, public utilities operators, bankers and officials from multilateral finance institutions to discuss two large-scale Latin American initiatives: the Plan Puebla Panama (PPP) and the South American Regional Integration Initiative (IIRSA)

The PPP, which was launched last year, involves the eight countries in the Mesoamerican region: Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama. IIRSA was launched in 2000 by Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Surinam, Uruguay and Venezuela.

In his speech Tavares remarked that IIRSA’s main premise was that economic integration would not happen absent physical integration. “Macroeconomic issues are absolutely indispensable, but they do not encompass everything. Physical integration is equally important to allow our nations to achieve the trade integration we aspire to,” he said.

As an example of how integration can yield results, Iglesias singled out the Electricity Interconnection System for Central American Countries (SIEPAC), a project that had languished for decades but is now advancing with impetus from the PPP.

This project, which has already obtained financing from the IDB and Spain, will support the creation of a regional wholesale electricity market and a more reliable regional power transmission grid linking Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. SIEPAC is expected to encourage investments in more efficient power plants that will help cut the high cost of electricity in the region.

South American Infrastructure

During the morning session of the seminar, Brazil’s Strategic Planning and Investment Secretary Jose Paulo de Silveira described the progress made in the IIRSA, which was launched by South American countries to to improve coordination of their infrastructure development plans, modernize their regulatory frameworks and harmonize their policies for three key sectors: transportation, energy and telecommunications.

De Silveira’s presentation was followed by commentary from leading executives of private sector utilities operators. Commercial bankers and officials of multilateral lending agencies discussed options for financing the South American plan.

IIRSA seeks to bring to a regional level the intense process of physical and economic integration that took place at binational and sub-regional levels in South America over the past decade as a means to raise productivity and competitiveness.

The South American initiative is based on 12 “integration axes” or development hubs and six “sector integration processes” that are not limited to upgrading the highways, ports and airports that connect this region with the rest of the world.

IIRSA is aimed at improving the 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.

Its projects will seek to improve living standards and create economic opportunities in the communities along the integration axes, taking into account the environmental and social impact of public works and including consultation and participation mechanisms.

To date, implementation of three of the 12 axes is underway: Mercosur-Chile, Andean and Inter-oceanic, which include 10 of the 12 countries in IIRSA. The process of integration of South America’s electricity markets has also begun. Four more axes and the remaining five sector integration processes are scheduled for implementation this year.

The IDB, along with the Andean Development Corporation and the Financial Fund for the Development of the Plate Basin, has provided technical and financial support to IIRSA. The IDB’s Regional Operations Departments 1 and 3 have established a special unit to support the South American initiative.

Plan Puebla Panama

During the afternoon session, two of the Plan Puebla Panama’s presidential commissioners, Mexican Counsellor Florencio Salazar and Costa Rica’s chief presidential advisor, Ambassador Constantino Urcuyo, briefed participants on the outlook for the Mesoamerican plan.Their presentations were followed by comments from legal and economic experts on political aspects of the PPP and its impact on the region’s competitiveness.

The PPP seeks to accelerate economic and social development and consolidate integration among the seven Central American countries and Mexico’s nine southern and southeastern states, a region covering more than 1 million sq. kilometers and 65 million people.

This region has higher levels of poverty than the rest of Latin America. Its deficient infrastructure hampers the region’s economic performance. Its geography exposes its people to all kinds of natural threats, from hurricanes to earthquakes.

The eight countries agreed on eight key areas or “Mesoamerican initiatives” in which they could cooperate fruitfully. The selected areas include sustainable development, human development, natural disasters prevention, tourism, trade facilitation, highway integration, electricity interconnection and telecommunications development.

The region’s leaders stipulated that PPP projects must be clearly regional in scope, practical and fiscally prudent, environmentally sound and respectful of local communities’ wishes. Projects will be supported by a consultation program to encourage civil society participation in its various phases.

To date, the plan’s portfolio includes 29 project profiles. Its initiatives foresee projects to boost economic and social development in rural, indigenous and Afro-Caribbean communities where poverty is deeply ingrained. These projects would include community participation in environmental conservation and sustainable management of natural resources and the strengthening of local government institutions.
Earlier in 2001 the IDB established a special unit within its Regional Operations Department 2 to support Plan Puebla Panama.

IDB support for Regional Integration

The promotion of regional integration is one of the founding mandates of the IDB. Integration, in the Bank’s view, holds many political and economic advantages. As a means of strengthening trust and cooperation among countries in the region, integration helps neighboring nations overcome old rivalries and misgivings. In the Western Hemisphere integration has even spawned mechanisms to defend democracy. Through regional integration participating countries improve their bargaining position vis-à-vis third parties in global negotiations.

In economic terms, integration is also an effective instrument for expanding markets and achieving economies of scale, two decisive factors in attracting capital and stimulating investments that help countries boost productivity and generate jobs. It also creates opportunities to diversify exports and reduces the risks of depending on the foreign sales of a few products whose price fluctuations Latin American and Caribbean countries cannot control or influence.

Over the past decade integration intensified at a regional level at the same time as countries in this region became increasingly interested in forging new trade agreements with industrialized nations in North America and Europe and in participating fully in the multilateral trade system. The IDB assisted in these efforts, supporting borrowing member countries’ preparations for negotiations, the implementation of agreements and the adaptation of national economies to changes at the regional and global levels.

Together with the Organization of American States and the U.N. Economic Commission on Latin America and the Caribbean, the IDB is a member of the Tripartite Committee that provides technical assistance to the groups negotiating the Free Trade Agreement of the Americas, a project to establish a hemispheric free trade zone by 2005.