World Bank: Economic Growth, Inequality And Opportunity Creation In Latin America And The Caribbean With Close To US $8 Billion

WASHINGTON, September 4, 2007. The World Bank Group (WBG) mobilized close to US $8 billion financing to public and private sector projects and programs in Latin America and the Caribbean, aimed to address the persistent inequality in the region and foster sustainable growth during fiscal year 2007, ending June 30, according to figures released by the WBG today.

World Bank

Latin America and the Caribbean (LCR) became the largest beneficiary of lending services provided through the International Bank for Reconstruction and Development (IBRD). IBRD committed US $ 4.35 billion, over 40% of total IBRD lending, and International Development Association (IDA) committed US $200 -US $132 million in credits and US $ 68 million in grants-totaling US $4.5 billion.

"We are responding to these challenges with customized lending services, innovative financial tools coupled with global analysis, technical advice and knowledge", said Pamela Cox, World Bank's Vice President for Latin American and the Caribbean. "Countries in the region vary considerably in levels of economic and social development as well as access to private financial investments, and we are adapting our modalities of support to these circumstances".

In spite of recent progress, Latin America and the Caribbean is still the region with the highest level of inequality in the world after Africa.

IBRD aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services, and IDA helps the world's poorest countries by providing interest-free loans and grants for programs that boost economic growth, reduce inequalities and improve people's living conditions.

Recipients in LCR are using these funds in 56 projects designed to overcome poverty and enhance growth - for example, by improving education and health services, promoting private sector development, building infrastructure, and strengthening social equity, governance and institutions. Argentina, Colombia, Brazil and Peru were the largest borrowers, receiving World Bank lending of US $3.6 billion for 26 projects in areas such as public health, infrastructure, education and rural development.

New lending in fiscal 2007 included a US $300 million loan to Argentina to expand the government's health care program, Plan Nacer, which is helping reduce infant mortality by increasing access to basic health services for uninsured mothers and children; a US $300 million loan to Colombia to promote business productivity and investment, and a US $150 million development policy loan in Peru that will help to define standards and set goals in primary education, health, and nutrition so that families can better measure their children's progress.

The region's main development challenge continues to be persistent social inequality. Some 47 million people (more than 8% of the population) still live in extreme poverty. IBRD's mission is to help LCR countries achieve sustained growth with equal opportunity access to jobs, services, and assets: reduce poverty and inequality; and strengthen natural resource management.

Latin American governments have adopted conditional cash transfer programs to break the cycle of poverty. The programs provide cash to poor families on the condition that they make verifiable investments in human capital, such as regular school attendance or the use of basic health care services and the World Bank supports them in countries like Brazil, Colombia, the Dominican Republic, Ecuador, El Salvador and Jamaica.

LCR is richly endowed with natural resources and holds the world's greatest concentration of biodiversity. Sustainable use of these resources poses many challenges, including in the area of water, land, forest management and strengthening environmental policy and institutions. Countries in the region are increasingly playing a leadership role in efforts to address global issues such as climate change and the World Bank is supporting both country-specific and regional initiatives in the areas of clean energy and carbon finance.

International Finance Corporation (IFC)

IFC has also been very active in the region, with another record year of investments in the private sector, and a strong emphasis on addressing market gaps and on sustainability.

"Although market conditions have improved significantly, many segments of the region's economy continue to be underserved, including small and medium enterprises and people with lower and middle incomes. IFC is expanding its focus in these areas," said Atul Mehta, IFC's Director for Latin America and the Caribbean. "We also continue helping clients raise their environmental, social, and corporate governance standards to be more competitive in an increasingly global marketplace," he added.

This fiscal year, 25 % of IFC's commitments in the region were focused on micro enterprises, SMEs, and housing finance, with a total investment of US $437 million in 18 projects. With this strategy, IFC has increased its developmental impact in the region. For example, in 2006 IFC's microfinance clients reached over 2,656,000 micro entrepreneurs with loans of up to US $2.2 billion, while IFC's banking sector clients reached 99,320 SMEs, with loans of close to US $7 billion.

In fiscal year 2007, IFC committed US $1.78 billion for 68 private sector projects in Latin America and the Caribbean and mobilized an additional US $1.12 billion through syndicated loans and structured finance, making it another record year. IFC has tripled its local currency financing in just two years, with 30.3 % of commitments representing US $540 million equivalent.

IFC's advisory services in the region have also expanded significantly with emphasis on improving the business environment by simplifying municipal regulations and procedures. This program has helped register more than 20,000 new firms across the region, bringing them into the formal economy and improving their access to finance.

Multilateral Investment Guarantee Agency (MIGA)

Also active in the region is MIGA, a member of the World Bank Group. During the fiscal year 2007, MIGA supported six projects with US $501 million in guarantees and undertook five technical assistance projects in the region. At year-end, MIGA's gross guarantee exposure stood at US $1.5 billion, 28 percent of the agency's outstanding portfolio. Projects supported by MIGA have delivered significant development, particularly in helping to address the region's pressing infrastructure needs.

For example, during the fiscal year, MIGA provided US $61.4 million in investment insurance for the construction of three new energy transmission lines in Brazil. The projects respond to a need to compensate for low investment levels in the country's energy sector, a result of austerity programs in the 1980s. Given that most of Brazil's energy is produced by hydroelectric dams subject to fluctuations in water levels due to drought, the interconnected electrical system will allow for a more efficient and reliable delivery of energy.

"MIGA's involvement in Brazil illustrates the added value of the World Bank Group when it comes to middle-income countries," said MIGA's Executive Vice President, Yukiko Omura. "Critical infrastructure projects are often exposed to a unique set of risks, including oversight from local municipalities which may be less experienced in dealing with private sector issues. MIGA specializes in mitigating this type of 'sub-sovereign' risk, working with governments and investors to keep investments and their development benefits on track."

Source: World Bank

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