With approvals for US$7.52 billion in 2008 CAF deepens its commitment to Latin America

On the current situation, García said, "it is not only a crisis of the financial system, which has jeopardized the flows of funds into the countries of the region and toward the rest of the world, but also a strong blow to the real economy." "What seemed to be exclusively a matter for the US mortgage sector is now affecting growth, employment and generating adverse conditions for all the countries of the world," he added.

Specifically he mentioned that the effects of the crisis would be reflected in a cycle of lower growth around the world and therefore in Latin America, with increased risk aversion in capital markets, and an unfavorable impact on Latin America’s terms of trade, remittances and capital flows. "This will lead to lower growth in the region, deterioration of external and fiscal accounts, and an important risk of reversal of the social progress achieved."

However, he explained that, apart from the adverse impact of the current situation, important structural challenges persist in the region. “The current level of domestic savings in Latin America is not sufficient to cover the investment requirements needed to sustain higher growth. Annual funds of at least US$120 billion of net external financing are needed."

The crisis: an opportunity

"We see the crisis as an opportunity for all institutions, which - like us - are involved in development, to play a very important anti-cyclical role," García said. "The idea is to stimulate measures that not only help us avoid this period of instability but also promote a model of more sustained and – above all – better quality growth in the region which is inclusive, economically efficient, creates productive employment, and respects cultural diversity and the environment," he said.

In this respect, he emphasized CAF support for its member countries in the crisis, reflected in an increase in credit operations and technical cooperation, improvement of the debt profile, contingent lines of credit, increased finance for trade and working capital, expansion of investment and catalytic finance, support for institutional and policy strengthening, improvements in financial conditions, and strengthening the Corporation's Compensatory Financing Fund.

Specifically, CAF brought into operation, in September, a contingent liquidity line of credit for US$1.50 billion to help partner countries which are having difficulties in accessing finance on capital markets; in addition the lines of credit that the institution currently provides for the financial system of the region were increased from US$1.50 to US$2.00 billion.

15% increase in approvals

This year the Corporation approved a record figure of over US$7.50 billion, an increase of about 15% from the year before. Of the total approved, 37% was for financing economic, integration and social infrastructure projects. The social development area, which includes governance and social capital, received US$544 million to finance projects in education, water and sanitation, disaster contingency, and environmental preservation.

A notable accomplishment in 2008 was that over half the operations approved (US$3.94 billion) were allocated to the productive sector. Specifically, over 75% of the amount was channeled through banks to meet the needs of the financial system of the region due to the restrictions that countries are experiencing in accessing capital markets. CAF`s growing activity in the microfinance and SME sector should also be mentioned.

In addition to its loan and project finance operations, CAF has an integrated support program which provides countries with non-reimbursable funds, particularly for institutional strengthening, promoting strategies and policies that stimulate economic growth, social inclusion and the cultural identity of the region. In 2008 a record amount of US$55 million was approved for funds of this type.

The CAF Latin American dimension

This year the Corporation continued to strengthen its Latin American dimension while moving ahead with its process of internationalization. García emphasized the progress made in formalizing the full membership of Argentina, Brazil, Panama and Uruguay, the forthcoming entry of Guatemala as shareholder, and the increase in capital by Chile. In addition in the next few days, Paraguay will sign the agreement to change from a C Series to A Series member, and in the near future Trinidad and Tobago will increase its capital in the Corporation.

The CAF chief noted the strengthening of the Corporation’s promotion work in Spain and the rest of the European Union, region with which it has ever closer ties. This year also witnessed the signing of the letter of intent for Portugal’s entry as CAF shareholder, and the approval, by the Italian parliament, of that country’s entry as shareholder.

Financial strength in favor of the region

The main challenge that CAF faces with a view to the future is to respond to the increased needs for financing of its shareholder countries and preserve its competitive access to international capital markets. CAF is the main multilateral source of financing for its founder countries and for infrastructure financing in Latin America. "This would not be possible without the institution’s financial strength as reflected in continuous growth of capital, consistent improvement in risk ratings - even during financial crises - and the irrevocable commitment of its shareholders, which enable it to attract funds in a stable and competitive way, strengthening its catalytic and anti-cyclical role," García concluded.