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IDB's support for regional public goods

Development challenges often need regional solutions

South-South Cooperation (SSC) is about sharing and creating new knowledge, mutual learning, increased ownership of development solutions, the diversity of development practices and, increasingly, the net transfer of financial resources among countries in the South. SSC is also about establishing horizontal partnerships among developing countries to transfer know-how from one partner to another or jointly conceive solutions to common problems.

Neighbor countries often face similar development challenges as a result of shared economic, social, geographic, cultural, and linguistic factors. Latin American and Caribbean (LAC) countries are no exception; they share many challenges that can be often addressed more effectively and efficiently at a regional level, adding value to purely national policy interventions.

South-South Cooperation as part of the development effectiveness agenda

In 2008, the Accra Agenda for Action, adopted at the Third High-Level Forum on Aid Effectiveness recognized the importance of South-South Cooperation by calling on countries to adopt the development effectiveness principles of the Paris Declaration, drafted in a previous forum in 2005. In response, participating countries created a task team on South-South Cooperation to facilitate collaboration among policy makers, academia, civil society organizations and practitioners. The 4th High Level Forum on Aid Effectiveness in Busan, Korea (November 2011) is expected to consolidate South-South and Triangular Cooperation as a key pillar of the post-Busan Global Partnership for Development.

Inter-American Development Bank’s support to regional public goods

In 2004, the IDB created the Regional Public Goods Initiative to assist LAC countries address more effectively and efficiently the effects that may result from an increased movement of goods, services, and people across borders.

The Initiative provides incentives for regional cooperation by providing grant resources that support innovative public policy solutions conceived by means of collective action among the countries in the region. As such, it acts as an incubator of early stage regional solutions to address obstacles that prevent a regional public good from emerging.

The Initiative also promotes SSC by supporting South-South knowledge and technology transfer along with institution strengthening; it often provides strategic leadership by enlisting the IDB as a trusted partner in brokering regional collective action; and it acts as a knowledge hub and anchor of Triangular Cooperation by engaging strategic partners from the private sector, academia or civil society and donors from inside and outside the region.

Through an annual call for proposals, LAC countries submit ideas that have to meet the Initiative’s eligibility criteria of a “regional public good” and are aligned with the IDB´s institutional and sector priorities. In addition, proposals need to demonstrate that, through South-South collective action, countries are likely to achieve development gains they could not attain on their own or only at a higher cost.

Regional public goods and SSC as pillars of economic integration

This year, the IDB reaffirmed its commitment to actively foster SSC and the promotion of regional public goods by approving a new Sector Strategy to Support Global and Regional Integration as part of its capital increase process.

The Strategy emphasizes the importance of cooperation among the Bank’s borrowing member countries as one of the pillars for deeper and more effective integration through simultaneous investments in the software (policy and regulation) and hardware (infrastructure) of integration. SSC in LAC is both a direct result of integration and a missing link that often allows the countries to fully realize the benefits of economic integration.

This Bank’s renewed commitment to regional South-South Cooperation coincides with the Latin American and Caribbean countries’ active involvement that have been building up for the Fourth High Level Meeting on Aid Effectiveness. The IDB has taken this process as an opportunity to disseminate the Regional Public Goods (RPG) Initiative and some of the projects it has financed as an innovative way to promote South-South and Triangular Cooperation.

The following are some examples of this cooperation:

Tri-National Management of the Hydrological Resources in the Upper Lempa River Basin

The Upper Lempa River Basin shared by El Salvador, Guatemala and Honduras faces multiple environmental challenges: high levels of pollution, an ever larger population that depends on the river basin for its water supply, and overall poor management of the Basin’s resources. The RPG project supported the countries in creating and agreeing on (i) a tri-national agenda for the sustainable management of water resources of the Basin; (ii) a governance framework to implement the agenda; and iii) a shared vision among public and private stakeholders at the local, regional and national level about the importance of preserving and protecting the water resources of the Basin as a regional public good by means of an extensive process of consultation and capacity building. Since the conclusion of the project in May 2010, the municipalities of the region have further deepened their cooperation. As Hector Alonso Aguirre, Manager of the Tri-National League of Municipalities of the Río Lempa, explains: “The communities and authorities in the Lempa Basin are now aware of the importance of water as a regional public good and as a vital resource for the development of our communities.” That led to the initiation in 2011 of a tri-national, cross border public policy called Shared Waters.The objective of Shared Waters is to guarantee the joint and integrated management of the Basin’s hydrological resources.

Single Social Security System for MERCOSUR (Argentina, Brazil, Paraguay, Uruguay)

In 1997, the members of the Southern Cone Common Market (MERCOSUR) signed a Multilateral Social Security Agreement that recognized the rights and obligations of MERCOSUR citizens who work in one or more member countries. However, for many years the agreement lacked implementation mechanisms and therefore never produced the intended benefits. The RPG project managed to take an important step in that direction by creating the Single Data Base for Social Security Institutions (SDSI) in the MERCOSUR region. The SDSI integrates the social security systems of the MERCOSUR countries, allowing for the accrual of pension benefits. Since the single data base became operational two years ago, approximately 2,000 workers have signed up to take advantage of the opportunity to accumulate pension benefits across borders: dramatic reduction of the time workers must wait to receive benefits, and reduction of evasion of social security contributions. Chile also joined the System and the project became the basis for the Ibero-American Pension System.

The Caribbean Hotel Energy Efficiency and Renewable Energy Action Program (CHENACT-AP) (Barbados, Jamaica, The Bahamas. Other Caribbean countries are likely to join)

In the Caribbean, energy costs are a significant portion of hotels’ operational costs. Therefore, increasing energy efficiency (EE) and generating renewable energy (RE) is key to improving the competitiveness of the region’s tourism sector. The project CHENACT-AP, approved in 2011, is about to start its execution and expected to generate benefits at the regional level in three areas. First, the implementation of EE and RE measures will offer the Caribbean hotel sector an opportunity to market the region as a “green” tourism destination. Second, the project will allow participating countries to bundle carbon emission reductions (CER) and sell them as a bundle in the international carbon market. The preparation of a CER proposal is not cost-efficient for a single hotel or even for the hotels of one Caribbean island. Third, the project’s innovative regional approach to EE and RE has created a strategic alliance among public and private stakeholders in the countries, and it has attracted donors and specialized agencies from developed countries.

Regional Advisory Facility for Investor-State Dispute Settlement (Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama and Peru)

Since the early 1990s, Latin American countries have concluded approximately 500 bilateral investment treaties and more than 70 economic cooperation agreements with investment provisions. These agreements are intended to promote economic development and the generation of high quality jobs by providing a stable, predictable and transparent environment for foreign investment. However, when investor-State disputes arise, host countries have discovered that (i) investment disputes require highly specialized technical know-how; (ii) they are costly to conduct; and (iii) the arbitral decisions of awards can have an important impact on a country’s reputation as an investment location. It was against this background that ten LA countries negotiated and approved the draft for an international treaty to create a Regional Advisory Center for Investor-State Dispute Settlement. The Center will provide member countries with services ranging from full-fledged defense of cases, advice for the management of cases, and training of defense teams in the countries’ ministry lines.