WASHINGTON DC, March 11, 2009- On the eve of the G-20 Finance Ministers and Central Bank Governors Meeting, the World Bank urged the international community to act together to meet a US$270-US$700 billion financing gap in developing countries triggered by the global financial crisis. This financial drought–both private and public–will have dire consequences for developing countries, affecting infrastructure investment , foreign direct investment and anti-poverty measures. According to the Bank, developing countries now face the great challenge of implementing policies that protect or expand key expenditures in these areas with fewer resources. For Latin America, faced with a drastic drop in its economic growth from five percent in the last five years to the 0.3 percent estimated for 2009, this crisis presents an opportunity to preserve the gains achieved through economic and social policies, said Pamela Cox, World Bank vice-president for Latin America and the Caribbean. Investor interest
Cox said that the region has shown a greater capacity to confront a global economic slowdown of this magnitude, and “thus will continue to be an important part of investment portfolios.” She added that the World Bank has significantly increased its countercyclical financing role by almost tripling its investment projects to US$13 billion. Meanwhile, Latin America remains attractive to investors even when it has to compete for funds with other apparently less-risky alternatives. Several countries in the region are relying on innovative World Bank financial tools, such as Deferred Payment Options, which consist of contingent lines of credit, to shield themselves against this crisis. These have strengthened fiscal management, competitiveness, the business climate and environmental management in countries like Peru, Colombia, Costa Rica and Uruguay, where outlays totaled US$1.645 billion. Another US$915 million have been proposed for the rest of the year.
These efforts are being complemented by the fiscal stimulus packages adopted by several countries in the region, which are supported by the Bank through policy development loans or direct investment in infrastructure. The multi-million dollar fiscal stimulus initiatives for Argentina, Brazil, Peru, Mexico and Chile could link short term progress such as the creation of jobs and higher consumption with long term goals like increasing their presence in global markets through a sustained investment in infrastructure, trade facilitation, educational and logistical quality. 
Cox has confidence in the region. |
Furthermore, at the end of the Ibero-American Finance Ministers meeting in Porto, Portugal, last week, a declaration was issued in support of “the adoption of countercyclical budgetary and monetary policies in order to reduce the financial crisis’ impact on the real economy and alleviate the social costs inherent to it through the promotion of job creation, stability and economic growth, without endangering the long term sustainability of public finances and the stability of prices.”
Protection for the Poor
Meanwhile, the World Bank is reinforcing social protection networks for the most vulnerable with extra funding and technical expertise. This year the Bank will provide more than US$2 billion to expand Conditional Cash Transfer programs such as Brazil’s ‘Bolsa Familia’, Mexico’s ‘Oportunidades’ and similar programs in Colombia and Central America to meet increased needs. It is also considering further expansion of social protection initiatives. “It is possible that these programs may be insufficient as the crisis deepens, and we are preparing some recommendations based on global experiences as a platform to expand our assistance in that area,” said Augusto de la Torre, World Bank chief economist for Latin America and the Caribbean. Finally, Cox said that emerging economies should play an important role in the new financial architecture that emerges from the current crisis. “There will be no end to this global crisis without global participation in the solution, even regulation, and that’s why the G-20’s actions, along with the active participation of emerging economies, are vital,” Cox said. A future system “will imply providing a larger voice to emerging economies, whose financial systems are more relevant by the day, and whose experts are already seasoned by the financial crises they had to confront in the past,” she added. |
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