The Development Bank of Latin America (CAF), the second largest lender to the region, could be on the cusp of making history by becoming the first multilateral to incorporate Cuba as a member.
“Our message is that Cuba is important in the region and an organisation like the CAF needs to have a presence there,” president Enrique García told Emerging Markets. “I hope that in the near future we will have Cuba as a member.”
García said the potential inclusion of Cuba reflected the commitment to “support countries with a model that not only allows for more growth, but growth that is sustainable and efficient and can respond to economic fluctuations”.
CAF was founded in 1970 and is made up of 19 countries, 17 from the region as well as Portugal and Spain. The small Caribbean island of Barbados was the last to join, signing on in September 2014 with a capital contribution of $50m.
Shareholders approved a 50% increase in authorised capital to $15bn in March, which includes $10bn in paid-in capital and $5bn in callable capital. Its loan portfolio was $19bn at the end of last year, with non-performing loans remaining below 0.1% of the total. The CAF is second to the IADB in lending to the region.
Moody’s, which rates the CAF as Aa3, wrote in a report after the capital increase that it “demonstrates members’ commitment to CAF and affords the institution more room to boost its future operations and fulfill its countercyclical mandate”.
He said the IADB annual meeting in Busan, South Korea, should be as an example for Latin American countries. “What have the Koreans done? First, they have a long-term vision and, second, they have invested in infrastructure and education. This is what we have to follow.”
Latin America invests around 3% to total GDP in infrastructure, but this needs to be doubled if real progress is going to be made. CAF provides assistance on projects from the drawing board to implementation.
He said governments and multilaterals did not have the capacity to cover the massive demand for infrastructure financing. “The private sector needs to be involved with creative mechanisms.”
Infrastructure focus
A new trend in the region, which has been picked up strongly by Peru, is a mechanism that allows companies to use part of their tax payments for public works projects. Companies can invest in the geographic areas where they operate or in key sectors. Companies invested more than $200m last year in 154 projects. The amount this year will top $300m.
“The public works for taxes programme is a mechanism that lets companies undertake projects that help the most vulnerable populations and work on projects the state believes are important. Southern Peru believes this is a good mechanism, which is why it is the leading region in [using it],” said Oscar González, executive president of Southern Copper Corporation (SCC). SCC, which operates two mines in Peru, has investment more than $140m in the programme.
García said the downturn should not be seen as a cause for pessimism, but as an opportunity. “This is the right time to take a serious look at the long-term agenda, with a focus on more investment, better investment and concrete action that improve the region’s competiveness,” he said.