CAF approves record operations for $3.33 billion

(Caracas, December 10, 2003).- The CAF ended 2003 with a record figure of approved operations totaling $3.33 billion, the executive president of this multilateral financial institution, Enrique García, told a press conference today in Caracas. He said that Latin America would end the year with modest economic growth and improve its performance in 2004.

García said that after a period of recession, a moderate recovery was forecast for the economies next year, reversing the trend of previous years and opening the way for sustained recovery. He added that the institution that he heads forecast that Latin America would end 2003 with growth of around 1.2% of GDP, which could increase to near 4% in 2004 due to the recovery of almost all the economies and more favorable international conditions for the region.

For the Andean region, growth is expected to improve from a fall of -2.1% in 2003 to 4.4% in 2004, due to the stimulus of the export sector, stronger domestic demand and the recovery of the Venezuelan economy. "The macroeconomic environment has been characterized by greater stability in most of the countries of the region, including inflation which on average fell again to a single digit," he said.

According to García, the positive aspects of the year included, mostly in the second half, a large increase in foreign private capital flows, although the levels achieved in 2003 are substantially lower than the average from 1998 to 2000. This situation was accompanied by a sharp reduction in the spread paid by Latin American issuers. The EMBI for Latin America in December was below 500 basic points, less than half the figure at the start of the year. The CAF expects this positive trend to continue in 2004.

The chief executive explained that the brighter outlook for Latin America comes after a recession during the last five years which worsened social conditions in most Latin American countries, as revealed by the latest unemployment and poverty indicators.

On the regional integration process, he mentioned as positive aspects important progress in Andean Community-Mercosur relations and in the integration of regional infrastructure in the framework of the IIRSA initiative (Initiative for the Integration of South American Regional Infrastructure), the renewal of Andean Tariff Preferences (ATPDEA), and the stimulus of the less ambitious approach to the FTAA which isolates the controversial issues that were hindering the process. García added that, aside from the free-trade agreement between the United States and Chile, progress was made in negotiations between the United States and Central America, and negotiations were started between the United States and several other countries of the region.

He warned, however, that in a situation of relative optimism, there are elements of risk for the region; among them, the fiscal situation in various countries which continues to be fragile due to the weight of public indebtedness and growing borrowing requirements.

"Another serious limitation on the region is its low level of competitiveness," García said. The challenge in Latin America will be to improve the quality of its integration into the global economy based on permanent improvements in productivity, in a context of greater regional integration.

He mentioned the persistence of problems of governance and loss of confidence in the institutions of the countries of the region, which have created social and political tensions in several countries. However, these conflicts have been managed democratically with respect for the constitutional framework, which is an important step forward in the region’s political maturity.

Despite the complex situation in the region, the chief executive said, the Corporation made important operating and financial achievements during the year. In addition to a record amount of approvals ($3.33 billion), the CAF continued to play an anti-cyclical and catalytic role, which resulted in substantial net positive flows of funds to member countries. This success was made possible by the financial strength and profitability that have always characterized the multilateral lender. On this basis, the leading risk rating agencies - Moody´s, Standard & Poor´s and Fitch - confirmed the Corporation’s grade A investment rating.

García said that these achievements demonstrate the organization’s permanent commitment to supporting member countries in the definition and implementation of a renewed development agenda. "This agenda must promote efficient and equitable integration into the global economy and reduce disturbing levels of poverty and existing inequalities. To do this, it is important to go beyond the objectives of macroeconomic stability to achieve high-quality sustained economic growth, which is also inclusive, participative and respectful of cultural diversity and the environment."

He added that this agenda must be integrated in the sense of adopting policy instruments that make the objectives of macroeconomic stability, efficiency, equity and solidarity simultaneously compatible. This will only be possible with the involvement of all the actors in society, government, private sector, civil society, and the international community in the framework of shared long-term agendas.

To conclude, the executive president said that the CAF was instrumental in supporting this agenda through programs to improve regional infrastructure and logistics (especially the IIRSA Initiative), environmental management, programs that favor competitiveness, governance, foreign trade, small and medium-sized enterprises and microenterprises, along with cultural, community and human development programs.