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Integration & Regional Development

Programs to strengthen cooperation and boost competitiveness

The promotion of regional integration is one of the founding mandates of the Inter-American Development Bank, together with the economic and social development of Latin America and the Caribbean.

For the IDB, integration has many political and economic advantages. As a means of building trust and fostering cooperation among countries in the region, integration helps neighboring nations overcome old rivalries and differences. In the Western Hemisphere integration has even spawned mechanisms to defend democracy. Through regional integration, participating countries can also improve their bargaining position vis-à-vis third parties in global negotiations.

In economic terms, regional integration is also an effective instrument for expanding markets and achieving economies of scale, two key factors in attracting capital and stimulating investments that help countries boost productivity and generate jobs. It also creates opportunities to diversify exports and reduce 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 Latin American and Caribbean countries became increasingly interested in forging new trade agreements with industrialized nations in other regions 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 support to the groups negotiating the Free Trade Agreement of the Americas, a project to establish a hemisphere-wide free trade zone by 2005. Since the initiative was launched in 1994, the IDB has contributed over $10 million to support the FTAA process. It recently approved a $3 million grant to support the FTAA Administrative Secretariat, which provides critical logistical services to the negotiations.

The IDB pays particular attention to the participation of the smaller and less-developed economies in regional, hemispheric and multilateral trade negotiations. Its Trade Sector Facility offers fast and flexible financing to help borrowing member countries strengthen their technical capabilities to negotiate and implement trade agreements. During 2002 the IDB approved a total of $15 million in trade sector loans for Bolivia, Nicaragua and Peru. In 2001 a trade facility loan was approved for Guatemala, and prior to that, two trade loans were granted to Argentina.

Early in 2002 the IDB and the World Trade Organization signed a memorandum of understanding to deepen their cooperation on providing technical assistance on trade negotiations and capacity building to Latin American and Caribbean countries. This collaboration may include joint programs to support, among other activities, regional and sub-regional workshops and meetings, training courses and tool kits for trade negotiators, distance learning courses and analysis of trade policy and multilateral negotiations issues.

Besides its financial and technical assistance, the IDB also plays a role of intellectual leadership in the field of integration. The 2002 edition of its Economic and Social Progress Report, Beyond Borders: New Regionalism in Latin America, analyzed the advantages and the hindrances of the process of regional integration and proposed an agenda for the region, focusing on the interaction among the existing sub-regional integration efforts, North-South initiatives such as the FTAA, EU association agreements and the multilateral trade talks under the Doha Development Agenda.

The IDB also supports two ambitious 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.

Integration and Regional Programs Department

The IDB’s Integration and Regional Programs Department (INT) provides technical support to the region’s trade and integration initiatives, including, among others, Plan Puebla Panama and IIRSA. It also supports the FTAA negotiations and the strengthening of sub-regional pacts. For instance, INT is working closely with five Central American countries to provide them with the technical assistance to confront the challenges emerging from the start of negotiations to create a free trade agreement with the United States.

A new IDB program managed by INT, the Special Initiative on Integration, provides borrowing member countries and sub-regional groups with support in three main areas: financing for studies and papers conducted by high-level experts on the most pressing issues of integration; examining the impact of regional integration and globalization through workshops and seminars; and assisting in outreach efforts on issues related to integration, particularly between developing and industrialized nations.

Through its Integration, Trade and Hemispheric Affairs Division, INT works on the IDB’s regional projects, the implementation of the Trade Sector Facility (supporting the IDB’s regional operations departments) and other integration projects. The department also organizes the Regional Policy Dialogue on Trade and Integration and carries out studies on these issues. INT also provides support in the area of customs and fiscal reforms.

The department’s Buenos Aires-based Institute for the Integration of Latin America and the Caribbean (INTAL) has contributed to the region’s integration for more than 30 years through its support of research and technical training. INTAL works with the World Trade Organization in financing 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.

Plan Puebla Panama

Plan Puebla Panama was launched in 2001 by Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama 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 known as Mesoamerica 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 involved in the plan agreed on eight key areas in which they could cooperate fruitfully: sustainable development, human development, natural disasters prevention, tourism promotion, trade facilitation, highway integration, electricity interconnection and telecommunications development. Plan Puebla Panama projects are designed to address concrete problems using environmentally sound means and respecting local communities’ interests.

During 2002 the plan made much progress in its infrastructure initiatives. The six Central American countries participating in the SIEPAC regional electricity transmission project – Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama – have ratified a $240 million financing package approved by the IDB. The new transmission line will help the region develop a more reliable power system, as well as a wholesale market for electricity, encouraging further investments in more efficient generation plants using cleaner fuels. The SIEPAC line will connect to Mexico and Belize in the future.

Under Plan Puebla Panama the eight participating countries also reached an agreement on the International Mesoamerican Highway System, a 9,000-km network consisting of two main integration corridors along the Pacific and the Atlantic coasts and a number of secondary and connection routes. Financing for more than half the estimated $3.6 billion cost of upgrading and rehabilitating roads in poor condition has already been secured.

Plan Puebla Panama has also served as a forum for dialogue among the Mesoamerican countries on the challenges they face. As a result of their discussions, governments agreed last year to collaborate on rural development and food security initiatives. The regional plan also includes projects to boost economic and social development in indigenous and Afro-Caribbean communities where poverty is deeply ingrained.

The IDB, which has established a special unit within its Regional Operations Department II to support Plan Puebla Panama, has approved financing for regional projects involving natural disaster prevention, trade facilitation and customs modernization and HIV/AIDS control and monitoring among migrant populations.

South American Infrastructure Integration Initiative

In 2000 the presidents of 12 South American countries launched a regional infrastructure integration initiative know by its Spanish acronym, IIRSA. The plan is aimed at improving coordination of their respective infrastructure development plans, modernizing their regulatory frameworks and harmonizing their policies for three key sectors: transportation, energy and telecommunications.

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 nine "integration axes" or development hubs and eight "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. IIRSA 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, preliminary work for studies and investment projects has begun in three of the nine integration axes: Mercosur-Chile, Andes and Interoceanic Region, which involve 10 of the 12 countries in IIRSA. Similar steps will soon be taken in four other axes: Peru-Brazil-Bolivia; Porto Alegre-Asunción-Jujuy-Antofagasta; multimodal transportation in the Amazon and Venezuela-Brazil-Guyana-Suriname.

In response to a request made by the region’s governments, the IDB and the Financial Fund for the Development of the River Plate Basin (FONPLATA) have commissioned a study for the development of a long-term strategy to ensure that regional integration initiatives are folded into national plans.

Along with the Andean Development Corporation and FONPLATA, the IDB has provided technical and financial support to IIRSA. In 2002 it approved a $750,000 grant for the initiative’s secretariat to finance the organization of meetings, seminars and technical studies, as well as the work of the technical groups that coordinate regional projects. The IDB’s Regional Operations Departments I and III have established a special unit to support IIRSA.

Integration and Regional Programs Department
2002 Economic and Social Progress Report
Plan Puebla Panama

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