FINANCE IN LATIN AMERICA & THE CARIBBEAN

The goal of the World Bank’s Finance Group is to develop and disseminate among client countries a better understanding of new developments in the financial industry and its regulators. Financial systems play a key role in sustained economic growth. In normal times, the benefits of financial systems reach a broad public; financial intermediation allows for productive investments to grow, for payments to settle transactions, and for improved and more stable living standards for the elderly, the ill and the poor. The importance of financial systems on economic activity becomes dramatically evident during emergencies when the disruption of financial intermediation is reflected in a fall of employment and production.

The challenge of dealing with financial sector health is enormous and a coordinated approach among all major players is crucial. Among financial intermediaries, banks are the major players in the financial system. Their sound supervision and regulation is essential. Other components include institutional investors (mutual funds, pension funds, life insurance companies), non-bank financial institutions (leasing, factoring, finance companies), capital markets, and institutions providing capital for small and micro enterprises. Policy answers need to adapt to country specific conditions such as the level of institutional development and the exposure to external source of risks. The high level of dollarization of several economies in Latin America, for example, is a typical feature that affects the sensitivity of the financial system to external shocks.

The tools to deal with financial systems differ between periods of distress and of normal market conditions. During a crisis, bank and corporate restructuring and other emergency measures are required to speed the recovery process and limit the size of lost output. In normal times, when economic activity has resumed its growth path, financial policies shift their emphasis toward expanding access to financial services as a tool to sustain growth and improved welfare levels. Improved access to financial services refers both to a broader access to traditional financial services and to access to a broader menu of new financial services. Financial innovation has helped to dramatically increase the opportunities for accessing financial systems but has also posed new risks that the authorities have to balance to prevent systemic instability and losses for small savers.

The World Bank has developed a broad array of instruments to cope with the different challenges posed by financial sector management during periods of crisis and in normal times. The Finance Group has partnerships with key players including the International Monetary Fund; international standard-setting bodies such as the Basel Committee; other multilateral institutions, central banks and other national authorities in developed and developing countries; regional organizations; collaborative training institutions; and private sector partners.

The World Bank’s Finance Group offers a pool of talent that provides expertise spanning banking and banking regulation, payment systems, capital market institutions and regulation, pensions and contractual savings, insurance, housing, sub-sovereign financing, rural, and small, medium and micro credit finance. The Group aims to assist client countries with comprehensive solutions to a broad range of financial challenges. The ultimate objective is to work with govern­ments to create sound and sustainable financial sectors composed of strong institutions and well-functioning regulators.

THE FINANCIAL SECTOR ASSESSMENT PROGRAM (FSAP)

The program has been jointly developed by the World Bank and the International Monetary Fund to help strengthen financial systems in client countries. Since 1999, when it was launched, almost every country in the Region has participated in the program. The Finance Group organizes the FSAP missions in the Region in close consultation with country authorities and the IMF.

The Group is also involved in the post-FSAP dialogue with the authorities and in the definition of areas where the Bank can support specific reform plans intended to address some of the FSAP policy recommendations. Ongoing post-FSAP projects where the Group is involved include projects on housing finance, pension reforms, strengthening of creditor rights, securities markets.

More information on the FSAP can be found in the FSAP Handbook.