Overview | World Bank support | financial products | Reducing poverty and inequality | Partnering with MIC countries | Working on global issues | Contacts Economic Overview
The Latin America and Caribbean (LAC) region grew 5.1 percent in 2007, as commodity exporters benefited from record prices and rapid growth in global demand. The achievement marked the fourth straight year of growth in excess of 5 percent — its healthiest spurt since the 1970’s. This level of growth was well above levels in the OECD countries and slightly higher than in the East Asian tigers, albeit lower than in China. Governments in the region have taken advantage of favorable external developments to reduce macro and financial vulnerabilities. Public debt has declined significantly and monetary reserves are equivalent to nearly seven months of imports on average. Poverty rates —long the region’s Achilles’ heel— have fallen, albeit modestly. These declines are linked to the steady economic growth of the past few years coupled with more pro-poor public expenditures, including targeted cash transfer programs. The most pronounced declines have occurred in Mexico, Argentina, Colombia, Chile and Brazil. Poverty has also declined in Central America, but remained static in the Caribbean. At present, about 8 percent of the population, or 47 million people, live in extreme poverty. There has also been some decline in average inequality in the region, but progress is slow. The overall decline is a result of significant inequality reduction in Brazil, and a smaller, but still significant, reduction in Mexico. Still, in LAC the richest 10 percent of the population receives about 41 percent of total income while the poorest 10 percent gets just one percent. The challenge for LAC today is to sustain growth and continue to reduce poverty and inequality in a much less favorable global environment. Of most concern in the immediate term is management of the impacts of the twin challenges of the economic slowdown in the US and rising fuel and food prices. As the region with the most direct links to the United States for trade, financial flows and remittances, LAC has traditionally been known to “catch a cold when the U.S. sneezes.” Although LAC has shown improved resilience, deterioration in the global environment is considered likely to weigh down regional growth for the remainder of 2008. Despite the severity of the U.S. financial turbulence, many countries are expected to weather the crisis much better than in the past because of the notable improvement in macroeconomic and financial policies. Many Latin American economies have significantly reduced their net dependency on external capital inflows. Still, the recent intensification of the U.S. financial crisis could accentuate the cyclical slowdown in growth that is envisioned for the region. GDP gains are projected to ease to 4.5 percent for the rest of the year, with further moderation to 4.2 percent by 2010. The extent to which individual countries in the region will be hurt by stagnation to the north will depend on the intensity of their trade linkages with the U.S., their reliance on primary exports, and their ability to retain access to financial resources in less favorable times. For example, the slowdown in the U.S. construction sector is already cutting into the flow of remittances to Mexico, Central America, and other countries, affecting the poor first and foremost. The challenge of rising global prices of food, fuel and other commodities also has asymmetric effects, across and within countries. In broad terms, the boom in commodity prices implies significant terms of trade gains for South America but terms of trade losses for Central America and the Caribbean (with the exception of Trinidad and Tobago). Within countries food and fuel are especially sensitive and their rising costs are causing socio-political stress due to uneven distributional effects. Given the higher weight of food in the consumption baskets of poor households, those that are net food consumers (most urban poor and many rural poor households) are hit especially hard by high food inflation. back to top
World Bank support In fiscal 08, the World Bank Group provided $4.6 billion in financing for 58 projects in Latin America and the Caribbean. This includes about $4.3 billion in loans from IBRD and $300 million in grants and credits from IDA. An additional $1.1 billion loan to Rio Grande do Sul (Brazil) was approved by the World Bank Board July 30, and next year lending is expected to reach $5 billion. The largest borrowers during this fiscal year were Brazil, Colombia and Mexico, with 18 newly approved projects in areas such as climate change, education, transportation and health. Transportation, public administration, law and education received the largest percentage of funds in the region. Lending for agriculture rose 300 percent from last year and energy was up 1,200 percent. The World Bank’s strategy for Latin America and the Caribbean is based on four pillars: (i) Sustaining growth and job creation; (ii) Leveling the playing field by increasing opportunity; (iii) Strengthening institutions and governance; and (iv) Providing support on the global agenda (on issues such as climate change, trade, energy and migration). The Bank has adapted its regional strategy to meet the increasingly diverse needs of its partner countries in the region. For middle-income countries, the Bank offers an integrated package of services, including analysis and advice, country dialogue, new financial products, and assistance with the implementation of financed projects. For low-income countries, the Bank provides concessional financing, donor coordination, and specialized support for fragile states. back to top
A customer oriented Bank offering new financial products
Last year, the World Bank announced that it would reduce loan costs and simplify management procedures for loans to middle-income countries and creditworthy low-income countries. In March of this year, Colombia became the first country to benefit from a new Bank policy that significantly extends loan maturities. The Bank’s Executive Board approved a $300 million loan that will support the country’s efforts to finance higher education for low-income students. The longer maturities help Colombia match the terms of the student loans with its borrowings from the Bank. During the past fiscal year, the Bank also became the first foreign issuer to launch a public bond in Uruguayan Pesos, its first ever to be issued for the purpose of a back-to-back disbursement of a specific loan. Many countries in the region have welcomed the improved Deferred Drawdown Option (DDO), a product that allows countries to defer disbursements for up to three years and, upon renewal, for another three years. The product is designed for countries that have no immediate need for funds but that might suddenly need them if unforeseen events occur, which make it difficult for them to access the capital markets. In September of this year, the Bank approved a$65 million loan to Costa Rica for the firstCatastrophe Deferred Drawdown Option (CAT DDO) aimed at providing the country –which is particularly vulnerable to floods, earthquake, hurricanes and volcano eruptions – with a source of immediate financing in the aftermath of a major natural disaster. back to top
Reducing poverty and inequality, improving governance When citizens have a wider choice of economic opportunities, they have a better chance of lifting themselves out of poverty. For that reason, the World Bank is working with countries across the region to increase access to education, health, and public infrastructure. The increase in food and commodity prices has been a growing policy challenge for both middle-income and low-income countries in the region. While the region as a whole is a net food exporter, food price inflation has had a detrimental impact on the income and health of poor consumers and could force millions more back into poverty. Seven countries in the region saw double-digit food price inflation last year, with a direct effect on overall inflation as food costs are weighed heavily in the consumer price index. To support countries affected by rising food and energy prices, the Bank is providing policy advice and financial support, including a $10 million grant for Haiti – the first of its kind to be approved under the newly introduced fast-track food facility–, as well as a US$10 million interest-free loan to Honduras to support the income of the poorest sectors of the population and to expand the supply of agricultural products, particularly basic grains such as beans, corn, and rice. The World Bank is also helping countries in Latin America and the Caribbean develop effective and sustainable ways to promote good governance and transparency through for the strengthening of country systems, improving accountability for service delivery and monitoring and evaluating results. - In Guatemala, the Bank is continuing to support government efforts to increase transparency in public procurement and fiscal management with a $100 million development policy loan.
- In Mexico, the Bank is supporting the ongoing effort to implement, administer, and publicize the country’s Freedom of Information Act, one of the first laws of its kind in Latin America.
- In Honduras, a $27 million IDA loan will develop decentralized health care clinics to improve health outcomes.
- A program on investigative reporting focused on transparency and ethics was delivered by the Thomson Foundation and reached journalists in eight countries.
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As countries in the region advance to middle-income status, they require new services and lending arrangements not traditionally part of the region’s portfolio. The Bank has introduced several innovative programs and signed new country partnership strategies with the aim of better responding to these countries ’increasingly sophisticated agendas. Some of the highlights of the Bank’s work with middle income countries include: back to top
Countries in the region are emerging as key players on issues of global concern and the Bank’s role is to support their efforts by partnering through innovative platforms for an enlightened dialogue and action on the ground, as well as supporting South-South cooperation. In February 2008, more than 100 legislators from the G8 countries and five emerging economies (Brazil, China, India, Mexico, and South Africa) gathered in Brasilia to participate in a major international forum on climate change, the GLOBE G8+5 Legislators Forum. Participating lawmakers discussed and agreed on a “Post 2012 Climate Change Framework,” and a Bio-Fuels statement, which were formally presented to G8 leaders ahead of the G8 Hokkaido Toyako Summit in Japan July 7–9. The Summit was co-hosted by GLOBE and the COM+ Alliance (of which the World Bank is a founding member). The Bank has been working closely with the World Trade Organization on the “Aid for Trade” agenda and participated in several sub-regional gatherings that addressed the competitiveness challenges ahead. With respect to climate change, the Bank is helping LAC clients at country, sub-regional and regional levels to assess the implications of the climate change agenda. A key element of this effort is the Bank’s upcoming regional flagship study which is focused on climate change. In addition, the Bank worked with the countries in the Caribbean, among the most vulnerable in the region to climate change impacts, to create the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the world’s first multi-country catastrophe-insurance pool, which will help participating countries recover more quickly from hurricanes and earthquakes. IDA provided $23.2 million to help poorer Caribbean states to participate in the facility. *** Contact: Sergio Jellinek (202-458-2841) sjellinek@worldbank.org Updated September, 2008. |
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