NEWS

Latin American Association of Development Financing Institutions

PROMOTING GDP BONDS THROGH ALIDE WAS PROPOSED IN THE FIRST REGIONAL CONSULTATION "CHALLENGES OF NATIONAL DEVELOPMENT BANKS”

The First Regional Consultation sponsored by the Financing for Development Office of the United Nations and organized by the Latin American Association of Development Financing Institutions (ALIDE), in collaboration with the Financial Development Corporation (COFIDE) of Peru took place on the 12^th and 13^th of June, at ALIDE headquarters in Lima, Peru. During the meeting, new challenges that national development banks face were analyzed, with the presence of Doctor José Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs of the United Nations, Rommel Acevedo, General Secretary of ALIDE, Daniel Schydlowsky, President of COFIDE including an attendance of more than 80 development bank representatives from Latin America, China, South Africa, international organizations and organizations of cooperation (Economic Commission for Latin America and the Caribbean-ECLAC, Andean Development Corporation-CAF, Andean Community of Nations-CAN, International Monetary Fund-IMF, Inter-American Development Bank-IDB, International Fund for Agricultural Development-IFAD, German Technical Cooperation-GTZ, Organization of American States-OAS, etc.) academic organizations and civil society organizations.

José Antonio Ocampo, Assistant Secretary-General of the United Nations for Economic and Social Affairs; Rommel Acevedo, Secretary General of ALIDE; Below left Gonzalo Rivas, Former President of ALIDE and Daniel Schydlowsky, President, Corporación Financiera de Desarrollo (COFIDE), of Peru.

In order to control the procyclicality of credit, the use of an indexed bond on the basis of the growth rate of the product (GDP Bonds) was proposed. In accordance with the way this instrument works, if the country grows more, it pays more, and if the country grows less, the debt is reduced. This mechanism essentially stabilizes financing cycles. In fact, governments can stabilize their spending by attributing more fiscal space in order to compensate effects in an anti-cyclical manner, which in any other case would be amplified, seriusly damaging economic performance. The bonds also reduce the probability of defaults and debt crisis. The possible use of this instrument is not limited to one determined type of country and can benefit

developing countries. For investors, this presents the opportunity to participate in the countries’ growth, in addition to providing the possibility to diversify their portfolio and reducing the probability of crisis that can occur as a result of costly losses. It is worth mentioning that while more countries offer this type of bond, the possibility to diversify risks will also be greater. On  the other hand, the diversity of profits that are generated, justifies the need for public action in order to aid in developing this instrument, since the financial markets, although perceived as innovative, in reality are quite conservative, leaving a void that can therefore be reduced. In the meeting, it was suggested that this financing method be promoted through rapprochement with multilateral banks, such as the World Bank, that could act as “market makers”, purchasing these bonds and therefore supporting the funding of the issuing countries. Development Banks (DB) can either issue or sell the bonds to multilateral banks. Although this instrument does not currently exist, there is a precedent of similar instruments in the market, which indicates that a basis exists to begin applying the proposal.

In the meeting, it was indicated that a much more favorable environment currently exists that recognizes the need and the important role that DBs fulfill in promoting development in more democratic and more inclusive financial markets. In spite of this, it was also warned that most problems should not be solved through DBs, since their contribution could be important, but necessarily limited. The DBs must respond to a broader strategic framework that includes regulations and collaboration with other agencies, since inclusive financial systems need groups of institutions to promote the development of credit, in other words, appropriate framework for regulations, guarantee funds, training institutions for micro-entrepreneurs, institutions for technical assistance and technological support, national and international commercial agencies, specialized credit institutions (first tier), venture capital funds, among others.

In addition to filling the voids in the markets, public banks must fulfill a countercyclical function. Regarding this objective, it must be kept in mind that DBs are an instrument of public policy, but that at the same time, a whole range of public policies exists that should be jointly implemented in order to condition the economic cycle.

Regarding the topic of subsidies, it was mentioned that rules should be set obligating the DBs to finance them even if the subsidy is clearly identified and budgeted. The subsidies are legitimate if the objectives are legitimate; on the other hand, they are deficient if they do not guarantee funding or attribute due transparency.

In the meeting, it was proposed to use Venture Capital Funds (VCF) as an instrument to allow companies, which loose this condition in a situation of crisis, to become eligible for credit once again and therefore carry out a countercyclical practice every time credit flows are not interrupted. In the crisis, the debtors loose the ability to pay due to macroeconomic factors, resulting in over debt regarding earnings and assets. The traditional solution is the reorganization of the companies, but if as result of this, the new flow of resources is cut, bank assets are temporarily regained, but the debt is not resolved, worsening the recession and giving way to elevated tax costs. With the VCF, the debtors reduce their debt with the new capital resources, therefore regaining their assets and the ability to pay; the remaining debt is refinanced, but the ability to access new credit is restored and the debtor becomes eligible for credit again. As far as this is concerned, the tax cost is less because the total debt does not have to be paid in order to avoid bank provisions and losses. The DBs play an important role in promoting this instrument through development of professional agencies, both private and specialized.

Stephany Griffith-Jones, Professor, Sussex University, United Kingdom; Jan Kregel, Head, Financial Policy Analysis for Development, United Nations. Below left William Hayden, General Manager, Banco Nacional de Costa Rica and Mauricio Cabrera, Director, Cabrera & Bedoya, Banqueros de Inversión, Colombia.

ALIDE 36: DEVELOPMENT BANKING AS AN INSTRUMENT TO MAKE WEALTH MORE DEMOCRATIC

With “Latin American and Caribbean options in the current international economic context and the role of development banking” as its key topic, the Thirty-Sixth Regular Meeting of the ALIDE General Assembly was held in Havana,  Cuba, on May 25 – 26, with the presence of Dr. Francisco Soberón, Minister and President of the Central Bank of Cuba and Member of the Council of State, and the attendance of 150 participants from 17 Latin American countries, Germany, Spain and Japan, as well as from international organizations.

Gladys Hernández, Member of Cuba’s Research Center on World Economics (CIEM), analyzed the special topic, “The expansion of China and its impact on the Latin American and Caribbean economy,” and Atsuhito Kurozumi, Senior Representative of the Development Bank of Japan (DBJ) in Washington, was the commentator.

Among the topics commented on as part of the new world relations is the emergence of new leading actors in the markets, particularly China, a country that in recent years has taken its place as Latin America’s third most important trading partner.  Despite the opportunities China’s development offers, it also entails certain risks for the region; for example: the concentration in and excessive dependence on an export market that could become, at the same time, one of the main investors in the region and the risk of being eased out of international financial flows because of corporate movement toward China in search of cheap labor, which would accentuate Latin America’s status of raw materials exporter.

It was stressed at the meeting that no single development banking model exists and that each country should adopt the model that best meets its needs and stage of development, in accordance with its particular situation.  Insofar as regional integration initiatives are concerned, the importance of taking into account the contribution made by development banks was pointed up, such as in the case of Brazil, where Banco Nacional de Desenvolvimento Económico e Social (BNDES) incorporated into its mission the strategic objective of operating as a financing institution for integration and is accordingly funding important projects in the region.   The Bolivarian Alternative for the Americas (ALBA) was also presented, it being emphasized that the ALBA is not limited to arranging only for the opening of markets, but also reconsiders the terms for the region’s integration by incorporating cooperation, complementarity and solidarity objectives.  The meeting was also informed about the advances made by the Initiative for the Integration of Regional Infrastructure in South America-IIRSA, an institutional mechanism designed to coordinate the physical integration efforts of 12 South American countries in the areas of telecommunications, transportation and energy.  This coordination is intended to increase intraregional trade, help create production chains, allow the region to play a more competitive role in the international market, contribute to sustainable development and develop isolated spots that are not well integrated into the region.  IIRSA expects to attract US$ 37,880 million in investments, US$ 11,580 million from the public sector, US$ 6,000 million from the private sector and US$ 20,300 from an association of public and private funds.

As for the efforts of development banks to achieve the social inclusion of the poor population, the outstanding role played by these institutions was emphasized, such being the case of Banco do Nordeste do Brasil S.A. (BNB), which manages assets amounting to US$ 10,864 million, much of them long-term funds.  As a result of the Bank’s efforts, for example, its areas of influence have been invigorated through production chains, social inequality has been reduced, the purchasing power of the poor has been augmented and  migration from country to city has slowed.  It should be stated here that BNB  was the first public  bank in Brazil to offer microcredits

Auditorium where the plenary sessions were held during the Meeting of the General Assembly.

through the creation of its CrediAmigo Program, which at February 2006 had 199 thousand customers, 62% of them women, with a risk (default) rate of 1.07%. Furthermore, in response to its guidelines, less than two years ago it created the  AgroAmigo Program for the rural sector, developing special methodology for rural microfinance that makes it possible to:  streamline the lending process; extend coverage to family farming; get into closer contact with rural customers; and expand operational capacity at lower costs for both Bank and customer.

Several cases were discussed of business development promotion through the provision of technology and financing by development banks.  In Brazil, Serviço Brasileiro de Apoio as Micro e Pequenas Empresas (SEBRAE) has defined a strategy that provides for different ways to tackle the problems of micro and small enterprises, either by working with individual enterprises or groups of enterprises or through arrangements with local producers. These integrated strategies cover: business orientation, entrepreneurial education and the culture of cooperation, market access, technology and innovation, and financing.   In El Salvador, Banco Multisectorial de Inversiones (BMI)’s strategy has been to create a nationwide line of work based on information and communication technologies (ICT). The Program consists of: 1) Introduction of micro and small enterprises (MSE) to the new ICTs, where they are sensitized to their use and application through basic training in the use of PCs, electronic mail, and electronic commerce; website development and hosting, the opening of e-mail, incorporation of a directory of virtual enterprises, and training in Office; 2) SME formalization, as well as consulting services in management and accounting controls, accounting software, and financing for the purchase of hardware and connectivity, among other things.  In Cuba, Banco de Crédito y Comercio (BNDEC), in order to boost the shrimp industry, introduced a new variety and a financing system that is helping change production patterns in the industry.

URUGUAY TO HOST ALIDE 37

At the invitation of the delegation of Uruguay, through Banco de la República Oriental del Uruguay (BROU), the Thirty-seventh Meeting of the ALIDE General Assembly will be held in Montevideo, Uruguay, in May 2007.

NICOLA ANGELUCCI, PRESIDENT OF BMI OF EL SALVADOR, ASSUMES THE PRESIDENCY OF ALIDE

During the Thirty-sixth Regular Meeting of the General Assembly, Nicola Angelucci, President of Banco Multisectorial de Inversiones (BMI), of El Salvador, was unanimously elected President of ALIDE for the 2006-2008 period.

Thirty-six year-old Angelucci holds a doctorate in Economy and Trade from Universidad Degli Studi di Finanze of Florence, Italia, and has a graduate degree in Business Administration from Victoria University of Technology in Australia.

The other members of the Executive Committee for 2006-2008 are Vice-Presidents Demian Fiocca, President of Banco Nacional de Desenvolvimento Económico e Social (BNDES), of Brazil and Daniel Schydlowsky, President of Corporación Financiera de Desarrollo S.A. (COFIDE), of Peru. The Directors are: Mario Laborín, Director General of Nacional Financiera (NAFIN), of Mexico; Vicente Caruz, President of Banco del Desarrollo, of Chile; William Hayden, General Manager of Banco Nacional de Costa Rica; and Esteban Dómina, President of Banco de Inversión y Comercio Exterior S.A. (BICE), of Argentina.

ALIDE: THE FIRST INTERNATIONAL ORGANIZATION TO EARN ISO 9001 CERTIFICACION

ALIDE’s Quality Control System earned ISO 9001:2000 certification from SGS - System & Services Certification England, in accordance with the system used by the United Kingdom Accreditation Service (UKAS).

The Quality Control System covers ALIDE General Secretariat processes for furnishing products and services to development financing institutions through studies and information, training, project and business promotion, technical advisory services and assistance, and institutional relations, backed by management and financial control, planning, and social communications. 

This important accomplishment is in line with the objective of modernizing and strengthening the Association, in which Nacional Financiera S.N.C. (NAFIN), of Mexico provided valuable collaboration and advisory assistance.  

Rommel Acevedo, Secretary General, receives an ISO-9001:2000 quality management system certificate from Mr. Jorge Sanabria, Representative of Systems & Services Certification (SGS). They are accompanied by Romy Calderón, Quality System Coordinator.

BANCO DO BRASIL REJOINS ALIDE

Banco do Brasil, Latin America’s largest financial institution, with assets amounting to approximately 10 billion dollars and created in 1808 to facilitate financing operations and promote the development of national industry, was reincorporated as an active member of our Latin American Association.

Under the Presidency of Mr. Rossano Maranhao Pinto, Banco do Brasil promotes credit facilities in the interior of Brazil, identifies opportunities and discovers new areas in order to generate wealth and meet customer expectations and needs in each specific community.  The Bank is now seeking to add to the ideas of strength and trust it evokes, which are deeply rooted after almost two centuries of existence, those of efficiency and quality, which today the market considers highly important.   It reported first quarter 2006 net gains of a record US$ 1.09 billion, more than doubling the previous year’s figure, and attributed these results to its increased effectiveness and broader customer base.

Messrs. Ricardo Alves da Conceiçao, Vice-President for Agribusiness and Government of Banco do Brasil and Rommel Acevedo, Secretary General of ALIDE, studied and discussed the terms of reference for Banco do Brasil’s incorporation into ALIDE at a meeting held at the Bank’s headquarters in Brasilia in November 2005.

THREE OF THE WORLD’S FOREMOST ECONOMISTS DISCUSS COURSES OF ACTION FOR LATIN AMERICA AT THE BDMG – ALIDE- IDB SEMINAR

 Nobel prize winners for Economics, Douglas North and Joseph Stiglitz, and the “father” of the so-called Washington Consensus, John Williamson, spoke before an audience of more than one thousand people at the Seminar on “Latin American Financing and the Role of the Development Banks,” organized by Banco de Desenvolvimento de Minas Gerais (BDMG) and the Latin American Association of Development Financing Institutions (ALIDE) in Belo Horizonte, Brazil on March 30 and 31, as part of the IDB’s Annual Meetings of Governors.

Joseph Stiglitz, 2001 Nobel Prize winner for Economics and John Williamson, renowned researcher of the Institute for International  Economics, USA.

 Joseph Stiglitz, 2001 Nobel Prize winner for Economics and Douglass North, 1993 Nobel Prize winner for Economics

The President of the IDB, Luis Alberto Moreno, accompanied the economists during both days of the seminar, which was also attended by other eminent persons like the Vice-President of Brazil, José Alencar Gomes da Silva; the Governor of the State of Minas Gerais, Aécio Neves da Cunha; and the Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Doctor José Luis Machinea.

Professor John Williamson spoke on the subject “After the Washington Consensus: Growth and Sustainable Development.” The English economist, senior researcher at the Institute for International Economics and inspirer of the “Washington Consensus” (a set of economic stabilization measures for Latin America) admitted that the recipes formulated at the close of the 80s failed to properly consider the weight of the institutions in the economy and the need to combine economic growth with social justice.  

Despite admitting to the existence of gaps in the original consensus, he once again claimed that the recommended guidelines were correct and were assimilated with the adoption, by part of a series of Latin American countries, of a cautious macroeconomic policy, a step back for the State as entrepreneur, and the installation of the market as the moving force for the process.  He also minimized some isolated trends toward restatization.  

He proposed a macropolitical agenda, emphasizing the importance of fiscal policies capable of operating to reduce the effects of the recession, of the creation of reserves during periods of growth and of loans in economic performance-linked securities. With this model, a country pays more when it is growing than during periods of recession. 

From the macroeconomic viewpoint, he underscored the importance of micro, small and medium-size enterprises as generators of employment and income distribution, urging development banks to finance them. He concluded by citing as economic development priorities, technology, the formalization of economic relations and the commitment of enterprises to social responsibility.

Dr. Luis Alberto Moreno, President of the IDB and Dr. Aécio Neves da Cunha, Governor of the State of Minas Gerais

In his presentation on “Improving Latin America’s performance,” professor Douglas North, winner of the 1993 Nobel prize in Economics, affirmed that economic development is a complex process, “We have no body of economic theory that allows us to understand development fully.”  Determined to demonstrate how important institutions are for guaranteeing sustainable growth, he explained that a market economy needs a system of “impersonal changes” in order to operate.  The less personal the economic relations, the less subject to the intervention of people, politicians and the government, the greater the capacity for growth without major fears. This “impersonality” is obtained precisely by creating institutions that guarantee that the markets operate as closely as possible to Adam Smith’s perfect market.   To economist Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics, who presented the paper on “Latin American development and the post Washington Consensus,” one of the fundamental issues in today’s economy is

 that “global changes are going to affect everyone throughout the entire world,” not only the poorest countries.  Even in Europe, no one is capable of explaining to the workers why globalization, which should improve quality of life, has in practice resulted in a reduction of their pay.  

According to Professor Stiglitz, the Nordic countries offer an example of how it is possible to adapt to the new reality of the globalized economy.  On the one hand, these countries readjusted the Social Welfare State by, for example, bringing down unemployment insurance from 80% to 70% of wages, but at the same time, they maintained the system, including the high taxes.  And it worked, because --the economist maintains-- success based on technology calls for risks and the governments guaranteed a level of security for investments. 

As a final reflection, the three starring speakers debated on the same panel about the development banking system in Latin America and other topics that attracted the interest of the audience in the Seminar. 

In this part of the Seminar, Stiglitz maintained that the international economy has already gone beyond the Washington Consensus and is entering the Post-Washington Consensus era that attributes importance to creating jobs, the tax infrastructure, and social security, among other things.

Williamson answered him by stating that the Latin American governments lacked the necessary political will to break out of the vicious circle by implementing industrial policies.  He also pointed out that placing emphasis on the control of inflation does not mean failing to observe the other economic variables. North, responding directly to the argument wielded by Stiglitz --who maintained that countries like Brazil should pattern themselves

Auditorium where the plenary sessions were held during the Seminar

after Asia, which developed an economic model that includes active State participation, low percentages, exchange controls and incentivation of exportation--  stated emphatically that countries need to view the economy in broader terms and not to seek to repeat formulas that were successful in other geographic areas.

For North, seeking to copy experiences of the past or of other geographic areas is a recipe for failure: first, because today’s world is vastly different from that of yesterday.   “Yesterday’s policies may work today, but will probably not work tomorrow,” he stated. Second, because economists have not yet learned how to identify what motivates people to make certain decisions, or what makes certain beliefs proliferate within one population, and not another, making it possible for an institution to be meaningful in one country and an absolute disaster in another.  

ALIDE - ECLAC COOPERATION FOR THE PREPARATION OF STUDIES ABOUT DEVELOPMENT BANKING 

The Latin American Association of Development Financing Institutions (ALIDE) and the Economic Commission for Latin America and the Caribbean (ECLAC) have found it advisable to work together to jointly prepare a series of basic studies about different aspects of development banking activity and particularly about those specific instruments or programs that offer examples of good practices for application/adaptation by other development financing institutions, such as: Basle II and risk management, risk capital, financing for technology-based enterprises, production chains, factoring, trust funds and infrastructure financing.  It has also been agreed, in an initial phase, to formulate and develop studies of regionwide financial mechanisms that development banks could jointly implement, such as, for example, the Latin American Reguarantee Fund for SME.  

ALIDE INDEX PROJECT

 In order to rate the performance of the region’s development financing institutions, methodologies and indicators are needed that correspond to the activity and to the particular nature of these financial institutions.  In the absence of methodology and of a series of indicators that are clearly defined, ALIDE’s aim is to offer a performance evaluation instrument that will rate the development banks by drawing on the best practices.

In the second phase --already underway-- the methodology will be applied to five development financing institutions in five of the region’s countries.   Foreign consultants will be responsible for the initial application of the indicators, with the assistance of ALIDE and of the banks participating in the pilot project, to wit:  Banco de la Ciudad de Buenos Aires, of Argentina; Banco Nacional de Desenvolvimento Económico e Social (BNDES), of Brazil; Banco Nacional de Costa Rica; Corporación Financiera de Desarrollo S.A. (COFIDE), of Peru; and Nacional Financiera S.N.C. (NAFIN), of Mexico.

ALIDE y ADFIAP firman Memorandum of Cooperation
(City of Makati, Metro Manila, Philippines, this 12th day of April, 2005)

WHEREAS, the Latin American Association of Development Financing Institutions (ALIDE), and the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP), share a common vision that development financing is key to sustainable development.

WHEREAS, both regional Associations desire to help their members achieve their business and development objectives.

In pursuance of the obovementioned premises, both Associations hereby agree to jointly cooperate in the following programs and activities.

• ALIDE and ADFIAP will co-organize conferences and symposia on sustainable development issues such as, but not limited to, the environment, small and medium enterprise (SME), socially-responsible investment (SRI), and local economic development (LED).
   

• ALIDE and ADFIAP will jointly develop and promote training and capacity-building programs to enhance the professional and institutional capability of its member-banks and other financial institutions that share the same development objectives.
   

• ALIDE and ADFIAP will organize exchange missions for their members to encourage strategic alliances and business networking among themselves and their clients.
   

• ALIDE and ADFIAP will explore other areas of cooperation such as information exchange, publications, research and studies.

 

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