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In 2006, the Latin America and the Caribbean region benefited from higher export volumes and revenues resulting from record commodity prices and high world growth. The region grew by 4.4 percent in 2005 and expects a growth rate of 4.6 percent for 2006, after experiencing its strongest growth in 25 years (6 percent) in 2004. The region’s main development challenge continues to be persistent poverty and high inequality. In a region rich in natural resources and human capital, nearly a quarter of the population lives on less than $2 a day.

The region’s political map is being redrawn in 2006: elections in almost one-third of the 30 countries the Bank serves will affect nearly half of the people living in the region. The Bank maintains dialogue with all major constituencies and candidates and is working with their respective governments to help ensure continuous support for the region’s poor.

WORLD BANK ASSISTANCE

The Bank’s strategy for the region is to respond to citizens’ needs for employment, safe and secure environments for their families, access to education and public services, a voice in their future, and effective and accountable government. The Bank is tailoring assistance to meet these needs, particularly in middle-income countries with high poverty. In Chile, for instance, the Bank has moved from financing a broad range of projects to supporting selected areas of focus (education, social protection, and innovation) that are part of the country’s overall strategy to ensure high growth with equity.

In fiscal 2006, Bank financing for Latin America and the Caribbean reached $5,654.1 million in IBRD lending, $179.5 million in IDA credits, and $76.9 million in IDA grants. This financing included a $601.5 million loan to Brazil to support microeconomic reforms needed to enhance the country’s long-term growth prospects and a $501 million loan to Mexico to help strengthen the financial system and reduce the risk of future financial crises. In Argentina, the Bank launched a new country assistance strategy that seeks to build an investment partnership to support sustained economic growth with equity, greater social inclusion, and improved governance. The new assistance strategy for the Organization of Eastern Caribbean States aims to help the six member states accelerate growth, improve competitiveness, and reduce vulnerability to external shocks, particularly natural disasters. Interim strategies for Nicaragua and Panama are supporting these countries’ efforts to reduce persistent poverty. Bolivia, Guyana, Honduras, and Nicaragua became eligible for 100 percent debt cancellation under the Multilateral Debt Relief Initiative in fiscal 2006. (See Initiating Multilateral Debt Relief.)

Another regional priority is helping countries tackle the issue of low public trust in institutions resulting from perceived corruption and inefficiency. For example, in Peru, the Bank is helping to modernize the justice system and make it more accessible to indigenous people and the poor. In Guatemala, the Bank has assisted in setting up a government e-procurement system that has increased transparency and competition among vendors, thereby improving efficiency and reducing costs.

The Bank’s latest major report on the region, Poverty Reduction and Growth: Virtuous and Vicious Circles, examines the ways poverty hampers achievement of high and sustained growth rates in Latin America and the Caribbean. The report recommends packages of policies to convert vicious circles of low growth and high poverty into virtuous circles in which poverty reduction and high growth reinforce each other.

BUILDING THE CLIMATE FOR INVESTMENT

The Bank is helping governments throughout the region improve the investment climate. For example, a $300 million loan to Mexico is helping small businesses participate in the formal market and improve competitiveness. A $250 million loan to Colombia is facilitating the creation and operation of businesses and improving access to finance. Perhaps most important, the Bank is helping governments address their development priorities through a series of development loans. These loans are intended to boost growth, reduce poverty, improve social indicators, reinforce macroeconomic stability, and increase the efficiency of the public sector. For example, El Salvador and Guatemala have received loans of $100 million, each under this program.

According to the Bank report Infrastructure in Latin America and the Caribbean: Recent Developments and Key Challenges, the region has experienced a sharp decline in investment in infrastructure, which is hindering economic growth, poverty reduction, and the region’s ability to compete with China and other dynamic Asian economies. Bank support for infrastructure in fiscal 2006 included new financing to improve access to electricity in rural areas of Honduras and Peru and to increase access to and reduce the costs of telecommunications services in rural areas of Nicaragua. Two Bank-financed projects in Peru have rehabilitated 13,000 kilometers of rural roads, reducing travel time by an average of 68 percent. The road rehabilitation has also increased school enrollment by 8 percent and visits to health centers by 55 percent.

A report by the Bank on the Central America–Dominican Republic–United States Free Trade Agreement found that it has the potential to increase trade and investment, thus boosting economic growth and poverty reduction in Central America. The report advises countries to undertake complementary investments and reforms to realize benefits for all. Its findings informed parliamentary discussions in all countries party to the agreement.

FOSTERING PARTICIPATION IN DEVELOPMENT

With equity, inclusion, and sustainability as its goals, the Bank is promoting efforts across the region to improve governance, stakeholder and beneficiary participation in projects, and access to and the quality of service delivery. The Bank also supports efforts to achieve an inclusive but affordable welfare system and promote effective natural resource use and environmental institutions. Major financing to the region in fiscal 2006 included loans for social protection and rural education improvement in Argentina; human development and social inclusion in Brazil; and school-based management, affordable housing, and urban poverty reduction in Mexico.

Other innovative projects include Bolsa Familia (Family Grant) in Brazil and basic education development in Mexico. To date, the Bank has provided $572 million for the Bolsa Familia program, the flagship of social policy in Brazil and the largest conditional cash transfer program in the world. Bolsa Familia combines four existing social programs into one to reduce poverty through transfers and to promote delivery of education and health services to the poorest families (see Conditional Cash Transfer Programs). The Bank has so far provided $715 million for a program that strengthened Mexico’s compensatory education program (CONAFE). The program has improved primary school math learning and secondary school Spanish learning and lowered grade repetition and failure rates. (See www.worldbank.org/lac.)

LATIN AMERICA AND THE CARIBBEAN FAST FACTS

LATIN AMERICA AND THE CARIBBEAN: COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING

CONDITIONAL CASH TRANSFER PROGRAMS

WORLD BANK LENDING TO BORROWERS IN LATIN AMERICA AND THE CARIBBEAN BY THEME AND SECTOR