For many years now particular attention has been paid to the large International Financial Institutions (IFIs), such as the World Bank and the International Monetary Fund. Their repercussions in Latin America as in other regions are notorious, ranging from financing various infrastructure projects with serious social and environmental impacts, to support for private investment; from reforms in social policies (such as health and education) to the conditionalities that these IFIs imposed on national development strategies.
Meanwhile in Latin America, a substantial political shift has taken place with the appearance of progressive governments in several countries (
For these reasons, little by little, other regional financial organisms have been exploring the niche vacated by the IFIs in the region. Their focus is
This article describes this group of Regional Financial Institutions (RFIs), identifies its members, and analyzes their main characteristics.
The Regional Financial Institutions
The RFIs have specific features that distinguish them from conventional IFIs. First of all, they are "regional," in the sense that they focus on and are designed to be active in
The Latin American RFI field is made up of at least the eight institutions listed below, many better known by their Spanish initials (in parentheses): The Andean Development Corporation (CAF), the Financial Fund for the Development of the River Plate Basin (Fonplata), the Central American Bank for Economic Integration (CABEI, BCIE in Spanish), the Latin American Export Bank (BLADEX), the Caribbean Development Bank (CDB), the Latin American Reserve Fund (FLAR), the National Bank for Social and Economic Development (BNDES), of Brazil, and the Bank for Economic and Social Development (BANDES), of Venezuela. The Bank of the South (Banco del Sur) is currently in negotiations, and will become part of this group when it begins to operate. Lastly, strictly speaking the IADB also has many attributes of an RFI.
The following sections briefly elaborate on some of the key features of these institutions.
The Larger Regional Institutions
As it currently stands, two institutions operate on a continental level: the Latin American Export Bank (BLADEX), and the Latin American Reserve Fund (FLAR). The Andean Development Corporation is also expanding its operations into new regions.
The Latin American Export Bank provides continent-wide coverage. It was established by an initiative of the Panamanian government in 1978 and approved by the presidents of the central banks in each country, although it now operates more along the lines of a private bank. BLADEX specializes in export loans, financing foreign trade, and as a middleman for IADB funds. Its ownership is distributed between the central banks and governmental agencies of 23 countries in the region, some international banks, and even investment funds, which categorizes it as a mixed organization. With its headquarters in
The Latin American Reserve Fund was created in 1991 as a vehicle to extend membership in the Andean Reserve Fund to other countries. Member countries include
The Andean Development Corporation was formed in 1966, but began operations in 1970 to promote financial services and encourage development, with clients from both the public and private sectors. The CAF offers loans, guarantees, and endorsement, as well as other financial services. It plays a key role in receiving and directing capital flows coming from large developed-country banks.
The CAF initially focused on the Andean countries, becoming the main source of financing for several nations, overtaking both the IADB and the World Bank. Between 2002 and 2006, it provided $12 billion to Andean countries (48% of all funds approved in that region by multilateral agencies). Since then it has extended its shareholders and membership is currently made up of 17 Latin American countries,
CAF currently funds projects in various parts of the continent, ranging from infrastructure, such as water and sewage, to border security, and expansion of the use of alternative energies. The corporation has become one of the main finance agencies for the South American Regional Infrastructure Initiative (IIRSA). The IIRSA includes an ambitious list of transport connections designed to promote the insertion of the region into global export markets. CAF’s loan portfolio has expanded from $6,172 million in 2003 to $9,622 million in 2007. The principle beneficiary countries were
The IADB can also be considered an RFI. Its area of operation is Latin America and the
The establishment of the Bank of the South (Banco del Sur) has progressed significantly. This proposal, which enjoys widespread support, particularly from the Venezuelan government, has experienced various advances and setbacks. In December 2007, Latin American presidents met in
Subregional Funds and Banks
A number of RFIs focus on specific sub-regions within
The Central American Bank for Economic Integration (BCIE) was founded in 1960 by five Central American countries. Its objectives were to support development projects and to offer technical cooperation and financial resources. The bank modified its founding agreement in 1992 to incorporate countries outside that region; current members include
The Caribbean Development Bank (CDB) operates in the
Fonplata, the Financial Fund for the Development of the
National Banks with Regional Coverage
Finally, among the RFIs, two banks merit mention because although they are national, their activities in different countries result in regional coverage. The Brazilian Development Bank is a public company of the federal government, under the Ministry of Development, Industry, and Foreign Trade. The development bank was created in 1952 and has its main office in
The BNDES resource portfolio is enormous; in 2006 it disbursed approximately $24 billion (with net earnings of $2.5 billion). Most of those funds are for projects within
On an international level, the BNDES promotes the "internationalization" of Brazilian companies. To this end, the bank approves loans, creates investment funds, and even participates in acquisitions and mergers. The bank finances Brazilian construction companies that operate in various Andean countries, or provides loans for Brazilian companies to acquire local companies (as seen in the case of the acquisition of Argentine and Uruguayan agriculture/food companies by Brazilian capital). The BNDES 2006 report lists, for example, financing for several gas pipelines in
Another example is JBS-Friboi that bought the Swift meatpacking company, headquartered in the
The Venezuelan Development Bank (BANDES) is under the Finance Ministry. It is a financial agent of the government used to support projects of economic decentralization and to stimulate private investment. Created in 2001, the bank was designated as a financial agent of
The Role of Regional Financial Institutions
The above-mentioned RFIs have received little attention and have only recently become recognized. Whereas in the past economic support was provided mostly by the IADB, the World Bank, and the IMF, today the RFIs have joined these institutions and play an ever-increasing role.
The structures, mandates, and operations differ between RFIs; some are government institutions and others are mixed—with the participation of private funds. Many offer financial services, incorporating services of investment analysis, cost/benefit studies, funding in the form of loans, and back-up guarantees for funds originating elsewhere. They have acquired enormous importance in capital flows in
Comparing assets, the BNDES eclipses all other institutions, with $14.07 billion in 2007. This places it just slightly behind the IADB, whose assets amounted to $20.353 billion in 2007. The BNDES is followed by CAF at $4.12 billion. Figures for the regional banks in 2007 are: BCIE $1.63 billion, BLADEX $612 million, and the CDB $506 million. BANDES assets top the rest at $4.56 billion. Finally, the reported assets of the FLAR are $1.797 billion (2007) and Fonplata $415 million (2006). The assets of all these RFIs amount to more than $27 billion.
The significant financial resources of the RFIs are essentially managed by their own Latin American governments, a significantly different state of affairs from that of the IFIs. In the case of the IFIs, the power to make decisions is sharply asymmetric, slanted toward industrialized nations, with roles for the
Almost all RFIs place priority on supporting infrastructure projects, such as roads, bridges, and energy infrastructure. This too is a policy promoted by new progressive governments. In
Despite the importance of the activities of RFIs, the potential impact of the projects they finance, and the fact that they are mainly in the hands of Latin American governments, the RFIs lack transparency. Access to information is difficult; in many cases there are no clear mechanisms for obtaining information on internal procedures, project progress reports, or the criteria used to evaluate them. In several cases, there are more obstacles in gaining access to information and more doubts about social and environmental guidelines within the RFIs than when dealing with the conventional international financial institutions.
It should be noted that several RFIs incorporate both social and environmental commitments. For example, the CAF affirms that it integrates social and environmental variables, and includes criteria for ecological efficiency and sustainability in its operations. The CBD subscribes to the Millennium Development Goals and the BCIE has adopted combating poverty as a strategic goal. The BNDES has, for example, a code of ethics, environmental evaluations, and mechanisms for providing information about its operations. However, these statements are not always expressed in specific and detailed operative directives in each institution. Several projects financed by the CAF and the BNDES reveal clear tensions and contradictions on social and environmental issues. In other situations, as found in the BANDES, the procedures are unclear, information available on the internet is insufficient, and institutional objectives did not adequately take into account the stated goals.
There are major gaps in defining operational guidelines and evaluation procedures for key issues such as indigenous groups, the environment, free access to information, procedures for legal recourse or complaints, revision mechanisms, etc. Some attempts have been made to carry out civil society consultations, but most of them merely provide information, or play a subsidiary role that does not affect decision-making in allocating funds.
When it comes to social participation, it is worth noting that citizen-based campaigns against the IFIs have achieved some advances in access to information and cooperation with civil society. They also helped to establish new rules of operation. Though in many instances these rules are not followed, they do provide a framework for filing complaints from other perspectives. But most Latin American RFIs are behind in these issues, access to information is more difficult, and the use of multidisciplinary tools has not been adequately evaluated.
The task is yet more complex in the case of the national banks BANDES and BNDES. They lack mechanisms to enable citizens of other countries to access information and take part in the international projects that they finance. This is a delicate matter, since national sovereignty is invoked to defend operations in other countries.
Undoubtedly, the presence of Latin American financial institutions is a step forward in gaining autonomy, faced with the imposition of IFIs. It is therefore very important to improve and maintain Latin American control. In some RFIs nations from other continents are becoming members (particularly European nations and
Moreover, civil society must influence Latin American RFIs to assure that the mistakes and shortcomings of IFIs are not repeated, that the RFIs are not simply channels for the intermediation of global capital, and that they don’t replicate practices of financing projects with high social and environmental impacts. The fact that control rests in Latin American hands is useless if institutions end up repeating the strategies of the World Bank or the IADB. It is therefore necessary to ensure that the projects financed really serve development interests and aid in the eradication of poverty, with tangible positive effects at local and national levels in all spheres, from economic to environmental.
The necessary tasks ahead are complicated. Nevertheless, some tasks can be outlined as examples. It is necessary to establish procedures for follow-up and evaluation of the Latin American government representatives to the governing councils of these institutions. It is important to determine the quality and efficiency of the evaluations made prior to allocating funds. Also important is to establish adequate supervision of compliance with conditions and requirements. It is especially important to attend to sensitive aspects that have traditionally been excluded, such as indigenous peoples, marginalized groups, and environmental impacts. Finally, it is necessary to assure working mechanisms of public information and channels for legal claims.
RFIs present great opportunities for autonomous regional development, but their operations require extensive reforms and updates. The fact that they are in the hands of Latin American governments is no excuse for avoiding reforms; rather it presents a mandate to carry out the necessary transformations.
Translated for the
Eduardo Gudynas <egudynas(a)adinet.com.uy> is an analyst at CLAES D3E, a research center for the promotion of sustainable development (www.integracionsur.com) and a collaborator with the
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