Trade liberalization has played a key role in the structural reforms of Latin America and the Caribbean over the past two decades. Agreements such as the proposed free trade accord involving the United States, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua (DR-CAFTA) can act as a catalyst, creating opportunities to modernize the region’s economies and promote growth and poverty reduction. In recognition of the potential effects of these reforms, the Inter-American Development Bank has long supported its borrowing member countries through innovative programs designed to help them to maximize the benefits and mitigate the potential costs of opening their markets to foreign competition.
The DR-CAFTA can help these six Latin American democracies build stronger, more prosperous and stable economies by establishing market-based rules and obligations that will govern trade with their most important commercial partner. The agreement can also make them more attractive destinations for long-term investments, which can foster technology transfers and stoke the demand for skilled workers and managers, giving millions of young people more chances to escape poverty.
However, the IDB recognized from the start that to obtain such results, the DR-CAFTA countries needed to strengthen their capacity to negotiate intelligently, implement their new obligations efficiently and manage the transition to free trade with a view to achieve greater social equity.
To those ends, the IDB provided them technical support for the preparation of National Action Plans for Trade-Related Capacity Building. In 2003-04 it approved nearly $600 million of trade-related capacity building loans, technical cooperation and projects that corresponded to needs outlined in those action plans.
Our work on the DR-CAFTA, however, is far from done. We anticipate mobilizing upwards to $10 million of grant funds from the Multilateral Investment Fund, technical cooperation and bilateral sources to support the enforcement of labor standards, environmental protection and institution building in the six Latin American countries.
Our loan pipeline for the DR-CAFTA countries stands at $1.6 billion, which includes financing for the “complementary agendas” these countries have drafted in order to address the challenges of the transition to free trade. For example, the IDB soon will present to its Board a $116 million loan proposal that combines support small and medium-size enterprises, technological innovation, rural roads rehabilitation and trade management strengthening in Costa Rica. Similar efforts will be made in its neighboring countries, with the twin goals of increasing their competitiveness and cushioning the impact of the reform on disadvantaged sectors.