SUB REGIONAL FINANCIAL
INSTITUTIONS IN LATIN AMERICA
AND THE CARIBBEAN
DANIEL TITELMAN
ANDRAS UTHOFF
ECLAC
PRESENTED AT THE SEMINAR ON REGIONAL FINANCIAL
ARRANGEMENTS
DESA/ECLAC NEW YORK 14-15 JULY 2004
LAC countries face old and new financial
constraints:

Low domestic savings (particularly long term)
LAC: Saving and Investment
(Current prices)
24
Gross investment
22
20
Porcentaje del PIB
18
16
14
12
National Savings
10
8
6
4
2
Foreign savings
0
-2
1990 1991 1992 1993 1994 1995
1996 1997 1998 1999 2000 2001 2002 2003
LAC countries face old and new financial
constraints:


Low domestic savings (particularly long term)
Shallow and underdeveloped financial markets
–
–
–
–
Mainly banking
Weak financial intermediation
Highly segmented
Short term oriented
M3/GDP
M3/PIB
Latin America
Developed Countries
120
100
80
60
40
20
2000-2002
1994-1999
2002
2001
2000
1999
1998
1997
1996
1995
1994
0
SME interest rates vs prime rates
Colombia
Perú
Uruguay
Chile
Argentina
Brasil
1995
28.54
35.08
2996
27.77
27.91
1997
26.24
16.13
1998
18.80
19.96
1.37
37.09
1999
17.50
17.06
4.00
37.85
2000
17.43
15.35
3.53
33.59
2001
16.55
5.79
36.27
2002
18.46
6.01
42.01
36.62
13.05
2003
19.58
7.27
41.71
26.46
12.07
LAC countries face old and new financial
constraints:


Low domestic savings (particularly long term)
Shallow and underdeveloped financial markets
–
–
–
–


Mainly banking
Weak financial intermediation
Highly segmented
Short term oriented
Financial volatility has been added to the terms of
trade volatility
Economic cycle is increasingly dependant on
capital inflows volatility
Latin America
Net Capital inflows and GDP growth
8.00
6
Growth rate (weighted average)
7.00
capital inflows /GDP
5
6.00
Goowth rate
4
4.00
3
3.00
2.00
2
1.00
1
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-1.00
1990
0.00
América Latina includes: Argentina. Bolivia, Brasil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Haití, Honduras, México ,
Nicaragua, Panamá, Paraguay, Perú, Uruguay y Venezuela.
0
Capital inflows/GDP
5.00
Subregional financial institutions created in
the 60’s and 70’s to foster development

Traditional objectives
– Promote intrarregional trade linkages
– Complement domestic savings and financial markets
development
– Provide long term financing for productive investment
– Support balance of payments

New objectives
– Leveling the field for financial integration
– Short term financing for crisis prevention and
management
– Bargaining power
Subregional Financial Institutions
Andean Countries
BOLIVIA
COLOMBIA
ECUADOR
Central American
Common Market
PERU
VENEZUELA
CAF - ANDEAN
DEVELOPMENT BANK
CREATED 1968
COSTA RICA
EL SALVADOR
GUATEMALA
CABEI - CENTRAL
AMERICAN BANK
FOR ECONOMIC
INTEGRATION
CREATED 1961
HONDURAS
NICARGUA
CARICOM - Caribbean Common Market
BARBADOS, BELICE,
GUYANA, JAMAICA,
SURINAME, T.y TOBAGO,
Ay B, DOMINICA,
GRENADA,
MONTESERRAT, ST.KITTS,
ST.LUCIA, ST.VICENT
CARIBBEAN
DEVELOPMENT
BANK
CREATED 1969
BOLIVIA
COLOMBIA
COSTA RICA
ECUADOR
PERU
VENEZUELA
LATIN AMERICAN
RESERVE FUND
CREATED 1978
COSTA RICA JOINT
1991
Objectives

Subregional development banks to foster
economic development by
– Financing productive and social investment
Loans approved by regional and sub regional development banks
millions USD
Andean countries
CAF
IDB
World Bank
TOTAL
CAF/TOTAL
1991-1999
19,654
12,933
9,257
41,844
47
2000
2,323
925
1,227
4,475
52
2001
3,197
1,419
498
5,114
63
2002
3,290
927
632
4,849
68
1994-1999
3,631
3,482
1,911
9,024
40
2000
327
326
187
840
39
2001
399
608
471
1,478
27
2002
570
626
417
1,613
35
1993-1999
736
1,467
682
2,885
26
2000
183
262
50
495
35
2001
106
196
115
416
25
2002
122
149
176
448
27
MCCA
BCIE
BID
BANCO MUNDIAL
TOTAL
BCIE/TOTAL
CARICOM
BDC
BID
BANCO MUNDIAL
TOTAL
BDC/TOTAL
Loans approved by regional and sub regional development banks
% GDP
1991-1999
Andean Community
CAF/GDP
1.0
WB+IDB/GDP
1.2
IED/GDP
2.5
2000
2001
2002
0.8
0.8
3.0
1.1
0.7
3.1
1.2
0.6
1.9
MCCA
1994-1999
CABEI/GDP
1.3
WB+IDB/GDP
1.9
IED/GDP
2.2
2000
0.6
0.9
2.3
2001
0.6
1.8
2.5
2002
0.9
1.6
2.5
CARICOM
1993-1999
CDB/GDP
0.5
WB+IDB/GDP
1.7
IED/GDP
5.3
2000
0.9
1.3
5.9
2001
0.6
1.5
7.2
2002
0.5
1.5
1.1
SHAREHOLDERS 2002
CDB's Sharholders
China
Co lo mbia
8%
1%
Germany
7%
M exico
1%
Co lo mbia
4%
CAF's Shareholders
B rasil
3%
A rgentina
4%
Venezuela
1%
M éxico
1%
China
11%
Italy
7%
United
Kingdo m
9%
CABEI's
Shareholders
M embers
eligible fo r
lo ans
57%
M éxico
9%
Canada
9%
FLAR’S SHAREHOLDERS ARE ITS OWN MEMBERS
M embers
eligible fo r
lo ans
72%
M embers
eligible fo r
Lo ans
96%
CAF: Loans by sectors
Productive Sectors
Infrastructure
Social sectors
Fianancial intermediation and others
80
1.872
70
% of total approved for "execution"
1.667
60
50
5.383
1.290
40
985
4.209
30
536
362
20
353
10
311
195
922
122
172
528
0
1991-2000
2001
2002
Amounts approved for execution were 50% of total in1991-2000 and 80% in 2001-2003
2003
CABEI: Loans by sectors
60
Productive sectors
Infrastructure
Social Sectors
Others
50
% of total approved
40
30
20
10
0
2001
2002
2003
CDB: Loans by sectors
60
Productive sectors
Infrastructure
50
Social Sectors
As a % of total approved
Natural Disasters and others
40
30
20
10
0
2000
2001
2002
IDB: Loans by sectors
80
Productive sectors
Infrastructure
Social Sectors
Economic Reforms and others
4.719
70
60
2.626
As a % of total
50
23.819
40
2.978
19.488
2.430
30
1.750
11.373
1.408
674
20
673
7.751
695
579
456
10
226
0
1991-2000
2001
2002
2003
World Bank: Loans by sectors
60
Productive sectors
Infrastructure
Social Sectors
Economic Reforms and others
2.805
50
2.034
2.746
10.474
As a % of total
40
1.703
1.271
30
6.763
925
20
3.512
3.1823.
370
10
423
242
136
243
0
1991-2000
2001
2002
2003
2.538
Objectives

Subregional development banks to foster
economic development by
– Financing productive and social investment
– Medium and long term financial needs
CAF: Long and short term loans
100%
204
365
90%
817
910
794
80%
70%
60%
719
976
1,242
383
745
656
884
1,370
50%
2,696
1,958
40%
30%
20%
10%
323
531
1,366
1,441
1994
1995
1,595
1,762
2,815
2,545
2,420
2002
2003
1,524
727
0%
1991
1992
1993
1996
1997
1998
1999
2000
2001
Not a: Las aprobaciones de la CAF represent an un 81%del t ot al aprobado por la banca de desarrollo subregional en
el perí odo 1994-2003
Largo y mediano plazo ( y ot ras modalidades)
Cort o plazo
Objectives

Subregional development banks to foster
economic development by
– Financing productive and social investment
– Medium and long term financial needs
– Improve countrie’s access to financial markets.
– Financial smoothing (Countercyclical financing)
CAN
Bolivia
Colombia
Ecuador
Perú
Venezuela
CARICOM
Barbados
Belice
Guyana
Jamaica
Suriname
Trinidad y Tobago
Antigua y Barbuda
Dominica
Granada
Montserrat
Saint Kitts y Nevis
Santa Lucía
San V. y las Granadinas
MCCA
Risk rating ( Moody’s long term debt in foreign currency
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
B3
Ba2
Caa1
Ba3
Caa1
CAF 30% basilea (2002)
FLAR
A
Aa2
CDB 47% basilea
Aaa
CABEI 43% basilea
Baa1
Ba3
B1
B1
Ba1
Baa3
Ba2
B2
Caa1
Andean Community
Loans approved by CAF and GDP growth
Crecimiento del PIB de los países de la CAN
Préstamos de la CAF
10
3,500
Tasa de crecimiento del PIB
3,000
6
2,500
4
2
2,000
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
1,500
-2
-4
1,000
Préstamos de la CAF en millones USD
8
Central American Common Market
Loans approved by CABEI and GDP growth
Crecimiento del PIB de los países del MCCA
Préstamos BCIE
6
1,000
Tasa de crecimiento del PIB
5
800
700
4
600
3
500
400
2
300
200
1
100
0
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Préstamos del BCIE en millones USD
900
CARICOM: Loans approved by CDB and
GDP growth
Crecimiento del PIB de los países del CARICOM
5
300
Préstamos del BDC
250
4
3.5
200
3
2.5
150
2
100
1.5
1
50
0.5
0
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Préstamos del BDC en millones USD
Tasa de crecimiento del PIB
4.5
Objectives

Subregional development banks to foster
economic development by
– Financing productive and social investment
– Medium and long term financial needs
– Improve countrie’s access to financial markets.
– Financial smoothing (Countercyclical financing)

FLAR short term financing for crisis prevention or
management
– Balance of payment
– Central Bank liquidity
FLAR: Short term financing

Credit to support balance of payments:
– Maximum of 4 years, conditionality to macroeconomic
performance

Credit to public debt restructuring
– Co- financing with other multilateral, maximum of 4
years

Credit for liquidity purposes:
– Up to a year

Contingency financing
– Up to 6 month non renewable, to finance transitory
BOP problems due to external shocks.
Andean Community: Loans by FLAR and
GDP growth
10
1100
8
900
Crecmiento CAN
700
6
Prestamos Flar
500
4
300
2
100
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
-100
-2
-300
-4
-500
FLAR: Loans by sectors
100
90
80
Export credit
loans to Central Banks
Balance of payments
Debt restructuring
Contingency and liquidity
70
60
50
40
30
20
10
0
1978-1990
1991-1999
2000
2001
2002
The need for regional and sub regional
financial institutions for investment financing

Strengthen and develop instruments for better
financial intermediation and risk management
–
–
–
–
–
–

Debt instruments for long term
Guarantee funds
Securitization
Venture capital
Instruments to guarantee bond issues
Small medium enterprises
Complement with domestic development banks
For short term financing and crisis prevention
and management



Regional contagion needs regional institutions to change
investors perception
Increase resources
– Increased countrie’s contributions to the fund
– Industrialized country's contribution
– Contingency credits with Central Banks or commercial
banks
– Borrow in international markets
Regional fund for liquidity crises:
– Covariance are not that large and crisis expected to
diminish with the fund
– pooling reserves
Sub regional financial institutions can also
contribute to

Balance globalization
– Complementarities with global institutions
» Policy coordination
» Adaptation of codes and standards
» Surveillance

Specialization and ownership
» Voice matters
» Specifities are better recognized
SUB REGIONAL FINANCIAL
INSTITUTIONS IN LATIN AMERICA
AND THE CARIBBEAN
DANIEL TITELMAN
ANDRAS UTHOFF
ECLAC
PRESENTED AN THE SEMINAR ON REGIONAL FINANCIAL
ARRANGEMENTS
DESA/ECLAC NEW YORK 14-15 JULY 2004