Download Carter Brandon - Integrated Risk Management in Latin America

Carter Brandon - Integrated Risk Management in Latin America
The magnitude and uncertainty associated with physical, economic and financial risks in Latin
American and Caribbean countries is increasing, whether measured in terms of % of GDP,
populations impacted, or the trend of frequency and severity of individual disasters. Improved
risk management is an essential element of national growth and development strategies, without
which, both economic growth and public welfare suffer. To date, risks have been mainly
analyzed and managed in a sectoral way. The gains made in recent years in Disaster Risk
Management (DRM), agricultural insurance coverage, and commodity price hedging have been
enormous. Nevertheless, the benefits to be gained through more integrated analysis of the
economic and fiscal costs of risk have not been achieved.
Governments want to be able to answer questions such as: “We want to invest in risk
management, but where will we get the biggest bank for the buck? Should we allocate more for
hurricanes, earthquakes, droughts, import commodity price shocks, export commodity price
shocks, or flawed PPP projections? How should we compare the marginal benefits of
expenditures for infrastructure investments, price hedging instruments, insurance programs,
catastrophe reconstruction bonds, or building retro-fitting?” How do we balance near-term vs.
long-term risks, such as climate change?
The World Bank is working to refine its economic and fiscal analytical tools for analyzing risks
through a consistent lens of economic and fiscal impacts, and will apply that methodology to one
or more case studies (to be selected) across the region. The scope of risks to be addressed
includes physical risks (disaster and climate change related), economic risks (primarily
commodity price fluctuation), and selected financial sector risks (liabilities associated with
guarantees and public-private partnerships, or PPPs). This approach does not include fiscal risks
associated with growth rate, interest rate and exchange rate movements, or financial sector risk
and issues associated with prudential supervision.
The Focus of this work is on the bottom four categories of risk
The economic analysis required will include a better assessment of the economic impacts of
risks, the explicit and implicit impact on budgetary expenditures, the impact on government
revenues, and the projected economic return on risk management alternatives. The benefits of
this approach would be a combination of (a) higher rates of return in government expenditures
on risk management, (b) reduced financial uncertainty in both the public and private sectors, and
(c) more fundamentally, reduced exposure of households, consumers and producers to largescale events beyond their control.