Download PRESENTACIÓN - Daniel Titelman

“EMERGING TRENDS IN FINANCING SUSTAINABLE
DEVELOPMENT IN LATIN AMERICA AND THE
CARIBBEAN”
FIRST MEETING OF THE LATIN AMERICA AND THE CARIBBEAN
MEMBERS OF THE COMMITTEE OF EXPERTS ON FINANCING
FOR SUSTAINABLE DEVELOPMENT
SANTIAGO DE CHILE, 14TH JANUARY 2013
Daniel Titelman
Director, Financing for Development Division, ECLAC.
The past decades have witnessed some changes and emerging
trends in the financing for development framework…
 A widening array of priorities within a post-2015 development agenda that
demands a huge mobilization of resources
 New set of Sustainable Development Goals (SDGs) that will build on the MDG
challenges and at the same time
o Address in a balanced way all three dimensions of sustainable development:
social, economic and environmental dimensions
o Address the impending issue of climate change and, more in general, the provision
of global public goods
o Address the issue of protecting the global commons (atmosphere, oceans,
biodiversity, forests)
 Changing relevance of different sources of finance with an increasing importance
of private flows
 In consonance with these trends, changes in the players, instruments and
mechanisms through which financing is intermediated
Sources of finance: a taxonomy from national accounts (open economy)
(1) GDP = C + I + G + X –M
(2) GDP – T = C+ I + G – T + X – M
(3) (GDP – T – C) + (T – G) = I + X – M
(4) (GDP – T – C) + (T – G)
+ NY + NCT = I + CA = I - KA
Domestic
Domestic
Private Savings Public Saving
(5) Domestic + Net income +
savings
from abroad
e.g. income on
debt (interest)
Using BoP identity CA + KA - ∆RIN = 0
and assuming no change in reserves
Net
current
transfers
e.g. Worker´s
remmitances,
ODA grants
+ Capital = Investment
and
Financial
Account
FDI, Portfolio
Investment, Loans
(including ODA
loans, cross border
bank loans,etc.)
In the case of Latin America and the Caribbean, net ODA has represented
decreasing shares or regional GNI across time …
Net ODA disbursements towards Latin America and the Caribbean
(in percent of GNI )
01%
01%
01%
01%
01%
00%
Source: on the basis of WDI, World Bank
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
00%
1961
00%
Migrant remittances have become an important flow of financing towards
LAC…since the beginning of the 90’s they represent a larger share of GDP than
ODA does…
Remittances and Net ODA towards Latin America and the Caribbean
(in percent of GDP)
3%
02%
2%
remittances
2%
01%
1%
1%
2010
2008
2006
2004
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
Source: on the basis of WDI, World Bank
2002
ODA
0%
2012
00%
5
Among capital flows, Foreign Direct investment (FDI) is currently the most
important and is well above ODA and remittances….
FDI, Remittances and Net ODA towards Latin America and the Caribbean
(in percent of GDP)
6%
FDI
5%
4%
03%
3%
remittances
2%
01%
1%
ODA
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
Source: on the basis of WDI, World Bank
2012
00%
0%
6
Portfolio flows have at times been a relevant source of finance for the region but they
have been volatile and during the nineties they were highly procyclical…
8%
03%
Real GDP, yoy % change, left axis
Private portfolio flows, net, in % of GDP (right axis)
03%
6%
02%
4%
02%
01%
2%
01%
00%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0%
-01%
-2%
-01%
-4%
Source: on the basis of WEO, IMF
-02%
7
Even though a larger mobilization of private resources could be potentially
beneficial, some very important issues arise from a financing for
development perspective…
 Public and private flows obey a different logic and respond to
different incentives
 Private capital mostly driven by the profit motive (economic
profitability)
o Private sector will under-invest in certain areas relevant for
development if the expected return -on a risk adjusted basisunderperforms other investment opportunities
 Public resources play a unique role, providing financing for sectors
that do not attract private flows sufficiently (social profitability)
 But there is also space and mechanisms for public policies to gear
private capital towards development objectives
o Requires an adequate regulatory environment and incentive scheme
New trends in financing sources have been accompanied by changes in
the players channeling this finance…
Some players have the potential to increase their relevance in the
financing for development landscape
Private philanthropy
o At the global level it now amounts to nearly US$ 60 billion
per year, equivalent to almost half the net ODA disbursed in
one year by DAC donor countries
South-South cooperation and non-DAC donor countries
Private and public institutional investors: Pension Funds,
Insurance Companies, Mutual Funds, Sovereign Wealth Funds,
etc.
o With growing assets under management and the potential to
provide long-term financing they can become important
players in development finance
Consistently with these trends, mechanisms and instruments for
development finance have also been changing…
 New initiatives that use limited public concessional resources (grants) to leverage
sizeable non-concessional resources (loans)
Eg. Latin American Investment Facility (LAIF), 2010
o Its primary objective is to finance key infrastructure projects in transport,
energy, social and environmental sectors in LAC region
o Uses limited funds (grants) contributed by the European Commission to
leverage sizable loans from multilateral or bilateral public European
Development Finance Institutions, Regional Latin American
Development Banks and own contributions from partner countries in
Latin America.
o Since its inception (in 2010), grant contributions amounted to aprox.
€ 160 million, leveraging total new investments of about € 4.2 billion
(i.e. 26 euros raised for every euro contributed by LAIF)
Consistently with these trends, mechanisms and instruments for
development finance have also been changing… (cont.)
 New initiatives that use public resources to mobilize private investment towards
development objectives
 Eg. Issuing Development Impact Bonds (DIBs)
o DIBs transform social problems into “investible” opportunities
o Private investors provide working capital -and assume risk- for
development programmes which are then carried out by specialized
service providers
o Donor funding is used to repay capital (plus a potential return) once
clearly pre-defined and measured development outcomes are achieved.
Consistently with these trends, mechanisms and instruments for
development finance have also been changing…(cont.)
Other Innovative financing mechanisms have been increasingly
discussed in view of shortfalls in ODA and comprise basically four
broad categories:
 Those that generate new public revenue streams (such as global taxes
or auctioning of emission permits)
 Debt-based instruments and front-loading (such as debt swaps and
international finance facilities)
 Public-private incentives, guarantees and insurance (such as advance
market commitments (AMCs) and sovereign insurance pools)
 Voluntary contributions using public or public-private channels (such
as person-to-person giving).
The mobilization of private resources for financing
sustainable development must take charge of…
 Issues regarding volatility of private flows
 Conciliation of economic vs. social profitability and relative
price issues
 Private investments search for economic profits
 Issues of social profitability are mainly left aside
 Incentives provided to attract private financing should be
accompanied by proper regulatory frameworks and regulation
 LAC lessons from private-public financing mix
o Concessionary contracts and PPPs
o Provision of social services (health, pensions, etc.)
13
Financing sustainable development has to search for a balance between
financing from abroad and larger domestic mobilization of resources to
avoid an excessive dependence on foreign capital and possible current
account problems…
Promoting the internal mobilization of funds requires a set of
economic and financial policies to promote the generation of
savings for long-term financing and to further develop countries´
financial systems
The ability and effectiveness with which the financial system
channels financing towards productive activities depend on
o The provision of low-cost intermediation services
o The development of financial markets, instruments and
institutions which can adapt to the productive sector´s
varied risk profiles, liquidity needs and financing periods
In the case of Latin America, the level of resource mobilization at a
domestic level has been historically stagnant at low levels.
Domestic Savings
(In percent of GDP)
50
Latin America & Caribbean (developing only)
45
East Asia & Pacific (developing only)
40
South Asia
35
30
25
20
15
10
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: WDI, World Bank
Also the development of financial systems has proved to be a
complex process in the region…
Size of different components of the financial system
(in percent of GDP)
700
Domestic credit provided by banking sector
600
Stock market capitalization
Stock of public bonds
500
Stock of private bonds
400
300
200
100
0
Japan
USA
United
Kingdom
Eurozone
Source: On the basis of WDI and GFDD, World Bank
China
East Asia and
Pacific
India
South Asia
Middle East
and North
Africa
Latin America
and Caribbean
Europe and
Central Asia
(developing
only)
But a larger pool of domestic savings is insufficient; sustainable
development requires also the implementation of public policies
to promote financial inclusion…
The capacity of financial systems to support processes of
economically, socially and environmentally sustainable
development relies not only on their ability to mobilize large pools
of domestic savings and to channel these into productive
investment but also on their capacity to be inclusive
 Providing access to finance to a broad range of firms and
individuals.
This is a challenge that is still present in most developing
countries
A majority of people in developing regions still do not have
access to formal financial institutions
Population (>15 years) with an account in a formal financial institution
(2011, in percent)
100
90
90,5213
90,5372
Zona
Euro
Euro Area
AltosIncome
Ingresos
High
(OECD)
(OECD)
80
70
60
50
39,3286
40
44,9283
50,4922
54,9389
32,9624
30
20
17,7203
10
0
América
Latina Europa
Asia
Medio
Oriente South
Asia del
Sur Latin
Europeyand
Asia
America
Middle-East
Central
Asia
yand
el Caribe
Central
y Africa
the
and
Northdel
Caribbean
Norte
Africa
Mundo
World
Source: ECLAC, Financing for Development Division on the basis of World Bank (2012)
Asia
del Este
East Asia
and y
Pacific
Pacífico
It is normally poorer people that are left out… with obvious
consequences on inequality and poverty…
Population (>15 years) with an account at a formal financial institution, by income level
2011
100
2,5
90
Equal access
80
2
70
60
1,5
50
40
1
30
20
0,5
10
0
0
Euro area
High income:
OECD
Europe &
Central Asia
(developing
only)
income, bottom 40%
World
South Asia
income, top 60%
East Asia &
Pacific
(developing
only)
Latin America Middle East &
& Caribbean North Africa
(developing (developing
only)
only)
higher income/lower income (right axis)
Source: ECLAC, Financing for Development Division on the basis of World Bank Global findex database (2013)
In the case of the productive sector, SMEs have much more
difficulty in accessing financing than larger firms…
Percentage of firms with bank credit or credit line
(2011)
80
03
70
03
60
02
50
40
02
30
01
20
01
10
0
00
East Asia & Pacific
(developing only)
Europe & Central Asia
(developing only)
Small
Sub-Saharan Africa
(developing only)
Large
Latin America &
Caribbean (developing
only)
South Asia
Large/Small (right axis)
Source: ECLAC, Financing for Development Division on the basis of World Bank G-20 Basic Set of Financial Inclusion Indicators
Public banks and development banks can play a key role in improving financial
inclusion
 Even though these banks have increased their share in the provision of credit they must make
efforts to further their role as liquidity providers
Public financial institutions’ participation in Latin American banking systems loan portfolio balances
In percent, 2007-09
60
50
40
30
20
10
0
Source: De Olloqui and Palma, 2012, based on Latin American Association of Development Financing
Insitutions (ALIDE) data.
Development Banks may foster financial inclusion through the
implementation of innovative financial practices …
• Innovations in the financial system´s institutionality
 They affect the financial system as a whole
 New ways to make financial operations (internet).
 Establishing new types of financial intermediaries
 Changes in the legal and supervisory structure of the financial system
• Innovations in financial instruments
 Introduction of products and/or services to satisfy the demand for certain
financial services
• Innovations in financial processes
 Introduction of new capacities, competencies and rutines to improve efficiency
 It is often associated to technological improvements
 Processes of credit scoring/visits to determine the payment capacity of a client
• Innovation in processes and products are associated with risk
management.
In summary…
• The financing for sustainable development architecture
faces important future challenges
 Take charge of a widening set of development objectives
and priorities
While at the same time being articulated in a coherent and
orderly way
 Take charge of policy issues that arise from the growing
importance of private financing
 Take charge of the necessary balance that should be
maintained between foreign and domestic resource
mobilization