World Bank Ready to Help Latin America Cope With Crisis

Contacts:

In Washington: Sergio Jellinek (202) 294-6232

sjellinek@worldbank.org

WASHINGTON, October 13, 2008— In a coordinated move with regional institutions, such as the Inter-American Development Bank, the World Bank and its private sector arm, the International Finance Corporation (IFC), announced today that Latin American and Caribbean countries facing the impact of the global financial crisis will be able to use additional funding from the International Bank for Reconstruction and Development (IBRD) --the lending facility for middle-income countries-- and the IFC to sustain jobs, social gains and inject liquidity.

“IBRD has the financial capacity to comfortably double its annual lending to developing countries to meet additional demand from clients. IBRD lending was US$13.5 billion last fiscal year,” said the Communiqué of the Development Committee, the governing body of the World Bank comprised of Ministers of Finance and Development from member countries.

This is especially relevant to Latin America as the region has accounted for 35-40 percent of IBRD lending.

The Committee's mandate is to advise the Board of Governors of the Bank on critical development issues and on the financial resources required to promote economic development in developing countries.

“During the last five years, Latin America managed to sustain growth at an average of five percent, reduce poverty, and for the first time in 30 years the region slowly started to reduce inequality. Countries in the region want to protect these gains, and the Bank is ready to increase funding for ongoing programs and inject liquidity where needed, while protecting the most vulnerable in society,” said Pamela Cox, World Bank Vice President for Latin America and the Caribbean.

Several countries have expressed interest in receiving additional financing.

The IFC will provide up to US$500 million for microfinance and loans to Small and Medium Size Enterprises (SMEs).

"IFC has been in constant communication with its private sector clients in the region. Some clients have already been impacted by the reduced availability of short-term credit. Others have expressed a desire for contingency plans to be put in place. Therefore, we are increasing the availability of trade finance and putting in place funding packages, such as the US$150 million package for housing finance in Mexico that we announced last week,” said Atul Mehta, Head of IFC’s Latin America Department.

According to a World Bank report issued by the office of the Chief Economist for Latin America, the crisis is spreading to the region through three channels:

a)      Financial contagion (slowdown in portfolio flows, large declines in stock price indexes and significant currency adjustments);

b)      External demand (the decline in the demand for LAC exports will be exacerbated by falling remittances, weakening commodity prices, higher borrowing costs and the lagged impact of tight monetary policies); and

c)       Changes in relative prices (over 90 percent of the region’s GDP and population reside in net commodity exporting countries).

The report emphasizes that regional economies are on average weathering the crisis significantly better than in the past, due to notable improvements in macroeconomic and financial policies, with countries showing a more diverse exposure and a reduced net dependency on external capital inflows.

Growth is expected to slow down from 5.6 percent in 2007 to an estimated 4.6 percent in 2008 and to between 2.5 percent and 3.5 percent in 2009.

“The deceleration will occur from a relatively high growth trend achieved in recent years,” said Augusto de la Torre, the World Bank’s Chief Economist for Latin America and the Caribbean.  “Compared with other periods, this is a positive development. In the past, the impact of such a global shock would have implied negative growth,” he added. 

Countries that are tightly linked to the U.S. economy, such as Mexico and Central American countries, are already feeling the impact through decreases in remittances, exports and tourism. Those countries more linked to other regions, such as Argentina, Peru and Brazil, will see a somewhat mitigated and delayed impact as long as China’s growth remains robust. China’s growth for 2009 is estimated at around 9 percent.