Latin American Association of Development Financing Institutions
Fourth Meeting of Latin American and European Development Financing Institutions LATIN AMERICAN AND EUROPEAN DEVELOPMENT BANKERS REAFFIRM FINANCIAL COOPERATION IN DEALING WITH THE INTERNATIONAL CRISIS
nder the slogan “Latin American and European development banks: strengthening financial relations for investment and business promotion purposes,” development bankers from the two regions gathered at the headquarters of Banco Nacional de Desenvolvimento Económico e Social (BNDES) in Río de Janeiro, Brazil, on November 4 and 5. The Fourth Meeting of Latin American and European Development Financing Institutions was organized by ALIDE, BNDES and the Brazilian Association of Development Financing Institutions (ABDE), with the collaboration of Spain’s Instituto de Crédito Oficial (ICO). BNDES President Luciano Coutinho addressed Luciano Coutinho, President of BNDES (third from the the Meeting at the Opening Session, underscoring right) at the Operning Session the special importance of the anticyclical role The financial crisis can be viewed as either a national development banks can play in the difficult major problem or a great opportunity for development international economic situation. They should make financing institutions, which must be innovative in a proactive anticyclical effort, jointly with multinational contributing new solutions based on their experiences. financing institutions, to cope with the lack of credit and undertake specific cooperation initiatives. He An example of their response to the situation is their also called upon the banks and development financing adaptation of their traditional lines and modification of institutions of the two regions to maintain and increase their product offering. In addition, development banks their financial cooperation to support trade and are being offered a new role to play in the present situation: that of promoters of synergistic regional investment flows. relationships in order to keep trade and investment The President of ALIDE, Dr. Luis Rebolledo, for flows from disappearing. his part, stated that the global financial crisis threatens The institutions from the two regions that to bring on a worldwide recession propagated through four channels: 1) trade: affecting the terms of trade and participated in the Meeting ratified their commitment to having a profound impact on growth; 2) finance: the strengthen development-oriented financial cooperation credit squeeze pushes up interest rates and resource links, demonstrating the progress made and financial funding becomes a major challenge for national mechanisms for business and investment promotion. development banks; 3) stock market: expressed in Dr. Otaviano Canuto, Inter-American the drop in prices of stock market shares, with the Development Bank Vice President for Countries was a consequent loss in company value; and 4) production: special speaker at the closing ceremony. the financial crisis has spread to the production sector The papers presented at the Fourth Meeting and the role of development banks is to promote greater financial cooperation to keep credit for promoting are available at the ALIDE website, at the following address: http://www.alide.org.pe/vit_2008_Reunionesproduction from drying up. 09-Ponecias.asp
Development, Financing and Banking
INTERNATIONAL FINANCIAL CRISIS AND DEVELOPMENT FINANCING
he extraordinary growth in international capital movements and in stock markets in general made resources available in unheard-of amounts, but also created major problems for which there were no clear solutions. While it is true that the unrestricted internationalization of capital flows offered countless possibilities for access to external funds for financing the investments that underpin growth, it is also true that States, confronted by market volatility, found their autonomous decision-making capacity severely restricted, leaving their economic policies exposed to the direct or indirect influence of forces beyond their control. The increasingly larger and more damaging and contagious stock market and banking crises, as demonstrated by the current international financial crisis, reflect that situation clearly. Past experiences have shown that when States try to do everything or too much, they generally do so poorly, just as when everything is left up to the market, the results are crises as serious as or more so than the one we are experiencing today. Extreme positions have been shown not to be the best choice and it is now recognized that the State and the market have particular roles to play in boosting national development. The international financial crisis today confirms this because when markets fail, it is the State that is finally required to provide assistance for overcoming the problems. The position of Latin America and the Caribbean today is stronger that during other international crises, but even so the effects of todayâ€™s crisis are being felt in the cut in foreign financing lines, rising financial costs, dropping raw material prices, the slowing of exports, the decrease in flows of remittances from migrants, and the cut in public spending, among other things that we know will affect economic growth and, as a result, the countriesâ€™ wellbeing in the short term.
Responses to and measures to cope with the crisis have centered mainly on the Statesâ€™ direct intervention to prop up financial markets and avoid a more serious crash. This has tellingly revealed that States cannot wash their hands of the market -particularly the financial market--, leaving it to operate without any restriction whatsoever. Instead, they have an important regulatory and supervisory role to play and one of creating favorable conditions for the development of financial products and services. At the same time, States must act through their development financing institutions, always complementing the efforts of the private sector. It is not advisable to boost excessive growth of financial markets that is disproportionate to that of the real economy, to corporate performance, and to the production levels of goods and services, because, in the end, this would promote a virtual economy that sooner or later would put pressure on markets to correct themselves and make the necessary adjustments, leaving behind a sequel of bankrupt companies, banks and families, together with countries plagued by serious financial problems and greater unemployment and poverty. It is in situations of this kind that the presence of development banks is most needed to promote and finance the production and social sectors. Their efforts must not be isolated, but be a part of an organic series of measures and actions in our countries that encompass explicit financing policies to ensure the availability of financial resources to uphold investment, trade, the support of small business, innovative activities, and social sectors, which are the groups most affected by cuts in credit in these circumstances.
Development, Financing and Banking
LINKS BETWEEN CENTRAL BANKS AND PUBLIC DEVELOPMENT BANKS
Extract from the speech by Dr. Luís Rebolledo Soberón, President of ALIDE and President of Corporación Financiera de Desarrollo S.A. (COFIDE), of Peru, at the opening of the Latin American Seminar “Coordination between Central Banks and Public Development Banks” held in Buenos Aires, Argentina on August 21- 22, 2008.
n principle, central banks and development banks have different functions. Central banks direct monetary policy, which acts on the base money, sets reference interest rates, establishes the required reserve ratio, carries out operations in the open market, and influences the exchange market, among other things. By doing so, they should guarantee their countries’ economic stability, protect the value of their currency through low inflation rates, and administer their international reserves efficiently, among other functions for which they are responsible. Development banks, for their part, are committed to finance production, infrastructure, micro and small enterprise support, training, technical assistance, and enterprise formalization projects and to further social inclusion programs. Because of their different functions, these institutions are generally disassociated from each other in carrying out their missions. We consider that this Seminar can bring us closer together and tear down some of the walls or melt some of the ice barriers that probably separate central banks from development banks, in order to raise levels of coordination that are undoubtedly vital. It is our belief that there are three types of links between the two institutions: Many people consider that the financial system as a whole, and particularly development banks, are subordinate to central banks, which, as regulating institutions and those responsible for monetary policy, make the rest of the financial system adjust to their policies --reserve ratio rates and reference interest rates, for example-- and operate in accordance with the results of their monetary policies. If central banks change regulations, interest rates or monetary instruments in general, thereby affecting defined social inclusion programs, for example, development banks must adjust and amend their programs accordingly, above all if the measures were reportedly taken to fight exchange speculation or bring down the inflation rate. I will give you an example of this as President of COFIDE: early this year, we had to suspend a low-cost bond issue program (short-term and small denomination
with an interesting interest rate) in order to expand and deepen the capital market, with the idea of reaching possible small savers or investors that we call our customers on foot. The increase in the required reserve rate made the issue unviable because it raised the issue cost due to the larger reserve requirement established for the valid objective of reducing and/or eliminating the existing foreign exchange speculation that was significantly affecting the value of the sol against the dollar. Development banks accept this first link uncomplainingly and adjust as a concession to higher interests that establish national objectives, specifically monetary policy. The second link is their complementarity. Although central banks and development banks each fulfill their own functions, they have the following common objectives and targets: • Create and maintain favorable conditions for economic growth. Central banks should ensure economic stability by harmonizing monetary and fiscal policy and safeguard the price and employment stability that creates a peaceful climate for economic agents, particularly investors. For development banks, contributing to economic stability means deepening programs for access to credit, their contribution to the use of banking services, by opening branches or offices in zones or regions where there are no other banks, and creative enterprise formalization in our countries, where informality is rampant. In this way, the two institutions help to create and maintain the necessary conditions for economic growth. • Consolidate our countries’ economic growth. For central banks, this means appropriate management of the amount of money needed for high economic growth rates --neither too much, which will trigger inflation, nor too little, which will hinder business.
Development, Financing and Banking The efforts of central bankers should ensure the consolidation of our countries’ economic growth. For development banks, consolidating economic growth means financing production projects in all sectors, financing infrastructure to bring the people closer to the markets, and facilitating connectivity between regions in the countries’ interior. In this way, both institutions contribute to growth in our countries. • Strengthen the financial system. This is the natural task of central banks, which they accomplish by, inter alia, regulating the financial institutions’ lending capacity and interest rates and by supporting commercial banks as the lender of the last resort. Development banks play their part, particularly through their support for the microfinance system by granting credit lines for their operations and also by providing subordinated loans and technical assistance and at times even acting as lender of the last resort. In this way, both institutions contribute to strengthening the financial system. It is the third link that still requires work, willingness and a search for synergies: this link is the necessary coordination between the two. This work will be difficult, but, we hope, not impossible.
The starting point for this lies in the fact that many development financing institutions (development banks, microfinance system) and smaller financial institutions (small banks and finance companies) have no access to several of the central banks’ monetary instruments. Therefore, they have no access to the monetary market that has been created and, as a result of arbitration, have no access to the interbank market; consequently, their financial cost is larger than that of banks that have that access. We believe this affects central banks because their setting of competitive rates deteriorates and the performance of transmission mechanisms slackens, thus limiting the maintenance of financial stability. Coordination between central banks and development banks would result in higher levels of efficiency and competitiveness. By the same token, the valid and accepted subordination, the important complementarity and the necessary coordination are the links between central banks and development banks. We must retrieve that coordination, which is frequently difficult to achieve, in areas of interest to development banks.
Latin American Seminar: “Coordination between Central Banks and Public Development Banks” Below are some of the main points made by the speakers at the Latin American Seminar organized by ALIDE, the Center for Latin American Monetary Studies (CEMLA) and the Central Bank of the Republic of Argentina (BCRA) and held in Buenos Aires, Argentina on August 21- 22, 2008 evelopment financing institutions and in certain selected countries of Latin America, if with central banks are usually seen as certain disparities, reveals the importance of those disassociated entities. They each have their own banks in terms of total credits. Asset-wise, public mission and instruments that are, to a certain institutions account for 75% of all development bank degree, unrelated. Nevertheless, common areas assets, a figure which rises to 98% if institutions can be found in which coordination between the with mixed public-private ownership are considered, two is needed. Such is the case of the flow of as well. They are significant operators whose development bank credit within the central bank movements influence the central bank’s control switchboard, because public banking is very switchboard. As a result, the more important the important in Latin America and the Caribbean. participation of public banks in the financial system, The central bank’s supervisory and regulatory the more complex the central banks’ activities relations with development banks also need to be and prudential regulation become. This is an discussed in order to avoid corporate governance empirical judgment stemming from the practical problems. Lastly, there is the importance of keeping application of the central bank objective of applying the objectives and policies of the two institutions prudential standards to all banks, public and aligned. private. These standards refer, inter alia, to required Furthermore, the presence of development reserves, allowances for debtors, asset and liability banks is important in the Latin American countries. management, external audits and rating. Their The volume of credits granted by development banks implementation has not been and is not free from
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problems, especially considering Basel II’s vision of risk management. Insofar as supervision and regulation are concerned, there are areas where central banks can be viewed as being both “judge and party,” particularly in the cases of National Treasury operations or participation in open market operations. There is a conflict between autonomous institutions, with independent management and frequently politicized boards of directors, and government development plans with short-term aspirations. Development banks are confronted with how to harmonize proposals (I want to insist that this is possible) if, for example, the government indicates that they should support small producers, but the supervisory Central Bank orders them to heavily provision those loans, making them more costly or in some cases impossible to grant. Insofar as the function of development banks is concerned, they are asked to maintain a countercyclical credit policy. Is it compatible with central bank targets to extend loans during an economic downturn? Will overdue portfolios increase and the government have to step in in that case? Is the credit policy of public development banks aligned with inflation targets? And what would be the attitude of commercial banks? The attitude or actions of the parties involved in this area have not always been harmonious. Among the cases of coordination, we can mention that of Banco de la Nación del Perú (BN) and the Central Reserve Bank of Peru (BCRP). Operations involving fund withdrawals or transfers to the banking system are projected daily between the two, such as: (a) the clearing house result; (b) payroll payments; (c) tax collections; (d) other Treasury operations; (e) specific public enterprise operations; and (f) foreign currency buying/selling. At the economic policy level, the BCRP can draw on the deposits of Banco de la Nación (in the Central Bank) to give liquidity to banks that have
no certificates of deposit. The two institutions also coordinate to ensure the effectiveness of Central Bank operations in the Exchange Market. If the BCRP does not intervene in the foreign exchange market, the BN can operate freely, buying and selling dollars, but when the BCRP intervenes, it coordinates with the BN to refrain from operating in the foreign exchange market. When the BN needs to carry out special dollar purchase or sale operations, it coordinates with the BCRP to determine whether it will do this in the market or directly with the Central Bank. Brazil’s Banco Nacional de Desenvolvimento Económico e Social (BNDES) is another noteworthy case. Although less explicit, one of the objectives of central banks and regulatory bodies tends to be the promotion of capital market development. An objective in BNDES’s case is to further the development of this market by issuing securities, derivatives and structured products. It also possesses funds to encourage the financing of new enterprises through equity holdings and carries out angel investor, venture capital and private equity operations. It is known, as well, for structuring and guaranteeing large issues to finance infrastructure projects. Even so, as an agent in Brazil’s capital market, BNDES is subject to the same Central Bank regulations and limitations as any other institution. Among the most important regulatory limitations is the cap on capital immobilization, which has been set at 50%. This restriction could conflict with the public policy guidelines issued for BNDES to support capital market development. For that reason, the Central Bank has regulated the extension of the time limits for BNDES to adjust to this particular requirement.
Development, Financing and Banking
THIRTEENTH IBERO-AMERICAN FORUM ON GUARANTEE SYSTEMS AND FINANCING FOR MICRO, SMALL AND MEDIUM ENTERPRISES
rganized by the Brazilian Micro and Small Business Support Service (SEBRAE), the Brazilian Central Bank and the Ibero-American Guarantee Network (REGAR), the Thirteenth Ibero-American Forum on Guarantee Systems and Financing for Micro, Small and Medium Enterprises was held in Salvador, Bahía, Brazil, on October 16-17, 2008, under the sponsorship of ALIDE, SELA-IBERPYME Carlos Alberto Dos Santos, SEBRAE National Director, addressing the audience at the and IBERAVAL SGR Forum’s Opening Ceremony of Castilla and León, Spain and Sociedad de came up repeatedly in the various presentations: Investimentos S.A., (SPGM), of Portugal. the international financial crisis, the lack of The Thirteenth Forum examined the guarantee credibility of the banking system, Basel II and the systems in operation in Ibero-America through need to reinforce local and regional guarantee a presentation of the progress, experiences and systems in order to ensure a less difficult transition innovations of the guarantee systems, projects for small enterprises during this crisis. for international complementarity of guarantee The importance of consistent regulation and systems, new financial products associated with the guarantees, sector guarantee programs and, in supervision for a sound and broader guarantee general, the continued development of guarantee system was emphasized in regard to the topic of legal regulatory and normative frameworks attuned systems in the region. to the situations in each of the different countries, Mr. Jaques Wagner, Governor of the State of with their respective degrees of socioeconomic Matters like transparency, Bahía, welcomed the more than 328 participants development. from 19 countries, and expressed his concern that sustainability, governance and good practices the virtual economy --that of financial business-- were also included as part of the requirements. receives more attention than the real economy and The existence of credit market failures and that there is very little correspondence between the two. He emphasized that those who criticized information asymmetries, together with the scarcity the State for having brought on the current crisis of guarantees, lead public and market agents to were the first to run to it and request its intervention structure alternatives to give small businesses to save their businesses when things got worse. solutions to their problems. In this connection, Also present was the Governor of the State of the performance and results of credit guarantee Pará, Mrs. Ana Julia Carepa, who expressed her programs and associations in Ibero-America was support for and interest in guarantee systems as said reveal how they are helping to improve those alternatives for facilitating access to financing by enterprises’ access to financing. small enterprises. The experiences of support programs It was not surprising that a series of topics implemented by multinational organizations
Development, Financing and Banking for local guarantee systems and of national reguarantee and reinsurance efforts underscore the need for wholesale banking systems to strengthen or counter-guarantee local initiatives in order to facilitate the operation and further development of the credit system.
The alliance between banks and guarantee systems was emphasized as being vital for the consolidation of credible, expeditious and effective mechanisms. A transparent, complementary relationship focusing on the business is inherent to the rationale behind this alliance.
Emphasis was placed, from the customers’/ partners’ viewpoint, on the need to adjust products and services to the requirements of small enterprises, for effective participation in the institutions’ governance, and topics concerning added value.
It was mentioned, in regard to the topic of innovation in terms of strategies for creating and distributing guarantee products and services to the institutions, that the need for guarantees goes beyond credit of itself, inasmuch as electronic platforms, tools for sector rating and customized products for women entrepreneurs, and government procurement, etc. are also needed.
Attention was drawn to the normative and legal backing for public policies and their importance in promoting guarantee systems. Some of the alternatives suggested were the contribution of resources, technical and operational assistance, tax incentives and the reduction of tax rates, and the facilitating of access. It was stressed that the guarantee is an important strategy for promoting economic and social development because it facilitates access to credit by small businessmen.
It is important to stress the distribution during the Forum, of the publication “Los Sistemas de Garantía de Iberoamérica: Experiencias y Desarrollos Recientes,” edited and sponsored by ALIDE at the initiative of the Ibero-American Guarantee Network, with the collaboration of IBERAVAL, SGR, of Castilla and León, Spain; and Sociedade de Investimento S.A. – SPGM, of Portugal.
FAMILY AGRICULTURE IN CHILE: INDAP POLICY AND INSTRUMENTS FOR PROMOTING PRODUCTION Chile’s Agricultural Development Institute (INDAP), which is subordinate to the Ministry of Agriculture, is a technical institution for promoting production that serves more than 116 thousand farm families of small and micro Chilean rural entrepreneurs through 13 Regional Bureaus and 111 Area Agencies.
Agriculture’s total budget, which are disbursed mainly to promote the consolidation of agricultural production units as an integral part of Chile’s strategy for becoming a food and forestry power --in other words, placing the country among the world’s ten foremost food producers.
The Institute has sought, since its founding in 1962, to support the productive development of small farmers through direct loans, so that they can participate in the market. Its efforts have been made in different spheres, inter alia, financing, technical assistance, promotion of customer associations to obtain credit, agricultural insurance, and business management. Its mission is “to promote conditions and create capacities for and support the sustainable productive development of peasant family agriculture and its organizations through promotional measures.”
All of the INDAP’s efforts and programs are accordingly aimed at promoting the production of rural dwellers with at least 12 hectares of irrigated land and no more than US$ 96 thousand in working capital, who till the land directly, regardless of their system of land tenure, and whose farm is their main source of income.
PROMOTION OF PRODUCTION a) Context
With the advent of trade opening and INDAP manages an annual budget of economic globalization, a more complex peasant 100,000mn pesos (approximately US$191mn), farming world is taking shape. On the one hand, representing about 60% of the Ministry of there is a dynamic agriculture linked up with ALIDE-NEWS
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production and trade chains in products that are in wide national and international demand and, on the other, a traditional agriculture with limited production resources (water, land, capital), whose members engage in agricultural and nonagricultural activities.
creation of differentiated forms of support for both peasant producers capable of taking advantage of market opportunities and those who need instruments to overcome possible disadvantages or position themselves progressively within the current economic scenario. Consideration is given to their productive environment and their cultural In addition, the entry into new foreign trade attributes are emphasized in a context where spaces and arrangements have created fresh new and important elements of competitiveness demands that put more pressure on the peasant are emerging, above and beyond those related to farming sector and reveal the extreme fragility production and consumption. of its structure and of the necessary conditions for taking advantage of the benefits of economic In a broader sense, INDAP’s promotional development. Even so, a market filled with policy is designed within the Ministry of Agriculture’s opportunities can be glimpsed, given the potential strategic guidelines for 2006-2010, which have existing in the sector and in the agricultural food demands of the PRINCIPLES OF THE POLICY FOR PROMOTING most demanding markets. This PRODUCTION scenario has forced INDAP into a complete readjustment of its » Empowering, capable of creating capacities above and beyond instrumental offering, but this the action of assistance. time taking into account the » Inclusive, enabling all peasant farmers to accede to marketing characteristics of small-scale opportunities, but under differentiated actions that recognize the agriculture in its interrelationship diverse needs of peasant family agriculture. with development agents in the » Guided and intentional, with the services responding to different territories where it operates strategies designed in keeping with the products and territories and in its need for more equitable access to the opportunities offered involved. To this end, segments are established that confirm the various requirements within peasant family agriculture. in this new context. From the viewpoints of public policy to promote production and of the multiple needs of those who seek to supply markets increasingly and steadily, equity takes the form of creating forms of support adapted to market demands. In this way, the new policy for promoting production that INDAP has assumed considers the
» Voluntary, the producers are responsible for the production and marketing decisions. » Allied with public and private institutions. » Emphasizing the creation of associations, dialogue and the establishment of channels for participation. In short: High-quality flexible and pertinent specialized services centering on the needs of the user, whether individual or associative, and adapted to the conditions existing in the territory where the user is located.
Development, Financing and Banking INDAP takes charge of preparing promotional the following objectives: to make Chile an agricultural food power and to promote inclusive measures aimed exclusively at correcting market rural development with support for peasant family imperfections and inequitable endowments of production factors, such as (1) Lack of market agriculture. transparency and other information asymmetries; This new government agricultural food policy (2) Barriers to access to production and also takes into consideration the recent orientations management technologies and capacities for laid down by the Program for a Competitive AFC innovation; (3) Poor physical capital endowment (peasant family agriculture) in areas concerning: and/or access to financial capital; and (4) Barriers the development of human capital, development to market entry by reason of volumes and/or of productive capital, new financing platforms, and quality standards. market access, together with product and service quality and differentiation. Furthermore, it gives producers support for b) Types of Family Farmers implementing production projects involving: increasing production and profitability; creating Generally speaking, there are two or adding value to production; acceding to new distinguishable subsectors in small-scale markets or increasing production and sales. agriculture: Multiactivity Producers. These are temporary, part-time producers whose activities are aimed at self-consumption and the sale of the surplus, mainly to the domestic market and whose aim is to improve their production systems in order to reduce expenses and/or increase their earnings to be supplemented by other income of non-agricultural origin.
d) Operation Model 1. Intervention Model: The promotion policy is carried out, first, by making different placement, adjustment and delivery arrangements for services to promote production so that they offer a better technical response to AFC demands, in order to strengthen interlinkages with the different markets. It includes both INDAP services and those arranged for with other parties. Second, by structuring user demands technically, starting with how to improve the management of their undertakings or businesses, considering their positioning in the agribusiness sector in which they operate (agribusiness management with a commercial sector or item vision.)
Commercially-oriented Producers for both the domestic and export markets. This segment includes former multiactivity producers now engaged in small undertakings, with a precarious, but stable position in the market. Also included are producers with stable links to the market, who strive to become more competitive and who, in some cases, are part of new agribusiness models linked to highly dynamic and demanding markets, 2. Organization and Management: This both domestic and foreign. centers on the integrated and coordinated Today, both sectors show a capacity to operation of three platforms: demand, services undertake, risk and decide, and are linked to the and support.
markets, with differences determined by their â€˘ Demand Platform: It is made up of characteristics, such as types of market, volumes elements that permit the appropriate structuring traded, etc. of the usersâ€™ technical demand, such being: (a) c) The Promotion Policy Territory: definition of the territory or territories to be served through the institutionâ€™s intervention; (b) The purpose of this policy is to strengthen Product: In the light of the intervention approach, sustainable AFC links with its current or potential one of the main elements is the definition of the markets. To this end, it is necessary to arrange products to be served; (c) User segmentation: key different placement, adjustment and delivery element within the product or agribusiness sector, conditions for services to promote production, in it uses interlinkage with the market and economic order to provide a better technical response to objectives as its main criteria; and (d) Intervention AFC demands, including both INDAP services tools: these are tools to be used for the interventions and those arranged for with other parties. in the different user segments, by product, in a given ALIDE-NEWS
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territory, to support the determination of critical points or gaps in management that need removing or closure to improve the positioning of the users’ undertakings in the buyer markets. There are two kinds of instruments: competitiveness strategies by product and development plans by product. To sum up, in order to structure the demand, INDAP will support different producer segments, focusing its promotion services on critical points or gaps in competitiveness whose resolution the buyers of their products demand, in this way assessing the impact of its intervention. The regional strategies for competitiveness by product and the national plans by product are the instruments it will use to make its intervention operational. Based on these strategies and plans by products in the different territories, transversal platforms of requirements will be raised, broken down by farmer segments within these products and territories, in order to adjust the contents, size and intensity of the promotion services accordingly. • The Service Platform: It has been perfected from both the operational viewpoint and that of its service to users, based on the market requirements of the different AFC segments. The platform is characterized by its high quality and relevance, 10
with differentiated services whose application is flexible, and its content, intensity and magnitude are fed from the first platform. The table below shows the key instruments that comprise INDAP’s Service Platform. The promotion policy recognizes credit as part of the service platform for institutional promotion and, as a result, will also be oriented in accordance with the intervention model demand platform --in other words, to ensure access to financing, either direct or coordinated, for prioritized products and producer segments and for the gaps or critical points identified by the Product-Oriented Competitiveness Strategies and Plans. Notwithstanding the foregoing, the promotion policy recognizes and maintains financial discipline as the guiding element for the INDAP’s credit policy. Each loan placement must be evaluated not only in terms of its appropriate targeting, but also of its payment capacity, together with other economic and financial variables that will guarantee the repayment of the funds and the viability and sustainability of the institutional credit model, and to avoid borrowing above and beyond prudent risk limits for users, both individual and associative. It recognizes, as well, the broadening of access to financing, in terms of quality and coverage, as a key aim of the credit policy, where the incentive and loan should complement each other in striving ALIDE-NEWS
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to achieve that aim. In that way, the appropriate targeting of incentives at the key points or gaps in competitiveness of the various producer segments will contribute to reducing the loan placement risk, thereby enlarging the possibilities for access to financing, especially that coordinated through the banking system.
it possible to: (a) Continuously improve the intervention model processes and practices in order to reach a level of excellence in the mid or long term, above all in the interface with users, among other benefits; and (b) Guarantee the intervention model platform processes and practices through their quality assurance (ISO standard).
• Support Platform: It provides the inputs Final Considerations --capacities, tools and information, etc.,-- so that the model can operate. The platform considers at INDAP created the Financial Coordination least the following three spheres of operation: Bond (BAF) within the context of this policy to promote, coordinate and manage a broad 1. User service model: form in which the and expeditious AFC financing system. This user’s demand is received and taken up and then instrument seeks to eliminate barriers to the entry rapidly, efficiently and effectively linked up with the of new actors by covering the higher transaction instruments defined in the service platform. cost of agricultural loans granted by other financial institutions. 2. Area agency management model: organizational structure assumed by the Area In this connection, INDAP’s results reveal Agency in accordance with the existing and that cooperation agreements have been signed potential competencies of the Area teams, in order with 18 institutions, among them 3 commercial for the User Service Model to operate effectively. banks. In 2007, US$57.6mn in loans were granted using this modality. The Delegated Administration 3. Service providers: group of artificial and Fund (FDA) has also been implemented as part of natural persons who provide services to users the BAF. It consists of INDAP resources that go in order to back up their access and successful to financial institutions and cooperatives so that participation, as well as the fulfillment of the they can finance the agricultural sector through established objectives of the service platform. wholesale banking operations. Insofar as processes and results are concerned, the operation of these three platforms will incorporate the management excellence model, for the promotion policy considers it and its components to be a tool for technical discipline and for the accomplishment of its objectives of delivering more efficient development services to the institution’s users, inasmuch as it makes
Development, Financing and Banking
BNDES AND ITS SUPPORT FOR ENVIRONMENTAL SUSTAINABILITY
razil’s Banco Nacional de Desenvolvimento Económico e Social (BNDES) is known for being one of the regions’s pioneering institutions most committed to environmental sustainability. It has an explicit environmental policy and within its financing activity considers the preservation, conservation and recovery of the environment to be guidelines for its operation, thereby maintaining its commitment to present and future generations. Furthermore, as a development financing institution, it understands that investments made to improve the environmental performance of production and infrastructure activities are conducive to economic and social development. For that reason, it makes resources available to promote environmental quality and sustainable environmental activities.
institutions, as well as among public institutions. Insofar as financial instruments are concerned, BNDES operates through lines, programs and funds oriented toward financing the implementation, enlargement, recovery and modernization of production units, innovation and technological development, the provision of services, infrastructure investments and social investments. The assessment of the financings and their structure offer incentives for improving the beneficiaries’ environmental performance. In this way, BNDES’ efforts make it possible to combine the use of economic instruments and those connected with government intervention to encourage investment in environmentally sustainable activities. Furthermore, within the framework of its environmental policy, the Bank has designed specific rules and conditions for operations classified as “environmental.” These are the Environmental Lines, through which three methods of financial support are offered: (1) Support for environmental investments, aimed at the financing of environmental investments in general; (2) Support for energy efficiency– PROESCO; and (3) Support for the Reforesting of Carajás REFLORESTA. It should be stressed that these are multisector lines, inasmuch as opportunities for environmental investments are understood to exist in all sectors of economic activity.
BNDES is equipped with financial and nonfinancial instruments to implement and pursue its Environmental Policy aims. Among the latter are mechanisms for disseminating BNDES’s environmental efforts; internal procedures for project environmental analysis and risk assessment (that are part of its lending methods); the organizational unit responsible for environmental matters; and internal measures aimed at enhancing the institutional commitment, which also serve as an example to other financial institutions and government organizations. The non-financial instruments For this reason, a project’s environmental generally serve as support, legitimizing the Bank’s merit is defined during the operational process, financial activities in support of the environment. based on the guidelines presented in Table No. 1. Dissemination, in particular, plays an essential part in the spread of good practices and It is important to point out that PROESCO’s environmental awareness among other financial operations can be carried out through both direct 12
Development, Financing and Banking
support and financial institutions authorized by means of a transfer or a specific mandate. The financing line for PROESCO projects operates according to three modalities: (1) direct operation with BNDES; (2) indirect, non-automatic operation in which the accredited financial institution assumes the entire value financed and the credit risks; and (3) operation in which the risk is shared between BNDES and the accredited financial institutions. The interest rate, in all of these cases, cannot exceed 11.15% a year. In the shared risk operations, BNDES can assume responsibility for up to 80% of the value financed and the accredited financial institutions a minimum 20% share. Projects are submitted to BNDES together with the analysis prepared by the accredited financial institution, once the technical viability per trained institution has been certified. The most favorable conditions in terms of time limits, amounts and interest rates are reserved for small and medium-sized enterprises. Table No. 1 contains further details about the financial support lines.
refuse to grant financial assistance because of the environmental risk. The operational procedures in the case of direct operations follow the flow order shown below.
Preliminary assessment of the project’s environmental aspects (location, environmental impact, enterprise visions and practices, licensing status and environmental liabilities) based on the information supplied by the enterprise. During this stage, the project is classified by Environmental Category, according to the sector and type of activity, its location, size and attributes of the environmental impact inherent in the undertaking. The different procedures to be followed during the operational analysis and accompaniment phases will depend upon this classification, according to Table N°3.
During the operation analysis phase, its regularity is assessed with respect to the Although the Bank, in keeping with its environmental body and legal units. Furthermore: policies and guidelines, gives special attention (a) project energy and environmental aspects to the environmental aspects inherent in the are evaluated; (b) occupational health and safety enterprise or undertaking, it is pertinent here to matters are assessed; (c) project alleviation and/or indicate the operational procedures that enable compensatory measures are requested. it to internalize those policies and make them During the operation approval and hiring or operational. Observed during the analysis phase contract phase, the project’s environmental regularity are the specific sector standards; the validity is checked, conditional upon the presentation of of licenses; and the approval of environmental the Installation License and other environmental impact assessments and other studies required authorizations granted by State environmental by the legal norms. The Bank may simultaneously bodies, or by the Instituto Brasileño de Medio conduct complementary studies and request Ambiente y Recursos Naturales Renovables y de further information, recommend the project’s la Amazona Legal (IBAMA), and the approval of reformulation; and offer resources to reinforce Environmental Impact Studies and Assessments is alleviation measures; and, in extreme cases, noted. ALIDE-NEWS
Development, Financing and Banking Lastly, the operation accompanimentphasewillencompass the project’s environmental regularity assessment (Operating License should be presented 180 days after the final portion of the disbursement) and the fulfillment of possible alleviation measures, obligations in terms of the adjustmentofbehavioranddetermining factors present in the contract and in the Prior and Installation Licenses. Among the environmental commitments assumed by the Bank, we can mention the signing, in 1994, of the International Declaration of Financial Institutions on the Environment and Sustainable Development, after which it joined the United Nations Environment Program – Financial Initiative [UNEP-FI]. It is also a signatory of the Green Protocol --Charter of Principles for Sustainable Development-- signed in 1995, together with Banco do Brasil, Caixa Econômica Federal, Banco do Nordeste and Banco da Amazônia.
Table N°2 BNDES Environmental Policy Guidelines •
Ecoefficiency promotion by incentivating the use of cleaner technologies, the increase in energy efficiency, and the use of renewable resources to prevent and control pollution, reduce waste, recover natural resources, recycle materials, and for operations with purely environmental objectives that can also help to improve urban order.
Development and continuous improvement of instruments for loan environmental risk assessment and project environmental analysis, observing the concept of environmentally sustainable development.
Operation in the area of preventive action and environmental damages by supporting and incentivating projects and programs to resolve environmental liabilities.
Incentivation of the implementation of environmentally more appropriate products and processes and for the adoption of environmental management systems by the entire production chain, including large enterprises and their suppliers.
Promotion of the continuous development of environmental awareness in BNDES that will result in environmentally responsible individual and collective attitudes.
Build-up the array of information about the energy and environmental profile of the economic sectors and the evolution of technological routes, giving special attention to current and prospective innovations.
Enhancement of knowledge about the environment in general and relevant environmental aspects of the sectors it supports by holding events and training programs for technical personnel and contracting for the conduct of studies.
Consideration by BNDES of Economic Ecological Sanitation in its project financing procedures.
Supporting of agricultural and forestry projects associated with the
As part of these opening up of new areas only when they comply with the Economic Ecological Sanitation. commitments, in 2007 it allocated US$ 100mn to set up the BNDES Clean Development Funds are created in the form of equity funds Program, whose aim is to encourage initiatives governed by the Brazilian securities law and involving the adoption of clean technologies by have an investment committee empowered to promoting the creation of carbon credits in the deliberate about proposals for the investment and Brazilian market. The Program is responsible disinvestment of the funds. for selecting Investment Fund Promoters for The criteria used to evaluate possible enterprises and projects that have the potential to produce Emission Reduction Certificates. The promoters are: (1) the team’s suitability for and
Development, Financing and Banking experience in structuring CDM projects; (2) the team’s experience in structuring risk capital operations and its history of joint teamwork, together with an appropriate management support model for micro, small and mediumsized enterprises; (3) presentation of prospective business: presentation of the prospective projects or enterprises portfolio for the Fund’s prospective investment; (4) the Manager’s participation as a
shareholder: define the value or percentage of the Manager’s participation as a shareholder in the risk, in relation to the Fund’s committed equity; (5) capacity to attract investors for the Fund; (6) management rate (cost in terms of the rest); and (7) performance rate (cost in terms of the rest). BNDES can hold up to 40% of the shares issued by the Fund.
» ACTIVITIES PERFORMED KfW BANKENGRUPPE SHARES ITS BEST PRACTICES WITH ALIDE MEMBER BANKS In order to give them a knowledge of KfW ankengruppe’s management and practices, ALIDE organized a Mission of High-Level Latin American
Development Bank Executives, who visited the Bank between August 19 and 22 in the cities of Frankfurt, Bonn and Cologne, Germany. Participants had the opportunity to learn on-site about the work KfW performs as a wholesale bank and to interact with its directors and promoters regarding the Bank’s policies, strategies and operations in the significant areas of, inter alia, fund raising, securitization, SME loans and studies, environmental protection, export financing programs and projects, and risk control. A series of important bilateral meetings were also held.
CANADA’S BDC HOSTS SUCCESSFUL PROGRAM FOR DEVELOPMENT BANKERS The Business Development Bank of Canada (BDC), an ALIDE Member institution in Montreal, Canada, hosted the Program for development bankers “Foreign development banks training & sharing program” at its headquarters on September 23-25, to share expertise and experiences with development bankers worldwide. The Program examined a series of topics like: best
practices for promoting entrepreneurs; BDC products and services for small and mediumsized enterprises (term financing, mezzanine financing, risk capital, and consultancy services); risk management; and development bank governance. JeanRené Halde, BDC President and CEO, opened the Program with a speech in which he underscored the important role played by SMEs in Canada’s economy and the government mechanisms for their promotion, which are the BDC and a Ministry of Industry guarantee program. In Canada, BDC operates as a “Crown Corporation,” an institution with public policy objectives but operating under private sector efficiency models.
Development, Financing and Banking SEMINAR ON OPERATIONAL RISK MANAGEMENT IN BANKS AND FINANCIAL INSTITUTIONS Some 50 representatives of banks, financial institutions and banking supervision organizations
in Argentina, Brazil, Chile, Costa Rica, Ecuador, El Salvador, Honduras, Mexico and Paraguay participated in the International SeminarWorkshop on Operational Risk Management in Banks and Financial Institutions. Held in the Manuel Belgrano Auditorium of Banco Ciudad de Buenos Aires, in Buenos Aires, Argentina on October 7-10, 2008, it was organized by ALIDE and BCBA with the collaboration of Global Risk Management S.A.C. on academic aspects.
CORFO OFFERS IN-SERVICE TRAINING IN FINANCING AND PROMOTION FOR INNOVATIVE ENTREPRENEURS In-service training in “Financing in the SME and Innovative Entrepreneur Business Cycle,” was offered at the headquarters of Corporación de Fomento de la Producción (CORFO) in Santiago, Chile, on September 4-6, 2008. Mr. Carlos Álvarez, Executive Vice-
President of CORFO opened the event, at which the Corporation shared its experiences with and good practices in the management and development of its instruments for financing and promoting SMEs and innovative entrepreneurs, incubator programs, preinvestment support programs, seed capital financing, and support for the formation of angel investor networks and venture capital investment funds. Directors and executives of 12 development financing institutions in Argentina, Brazil, Costa Rica, Mexico, Peru, Uruguay and Venezuela participated in the training event.
VENEZUELAN DEVELOPMENT BANKING OFFICIALS RECEIVE ADVISORY ASSISTANCE IN PROJECT ANALYSIS AND ASSESSMENT The Advisory Assistance-Workshop “Project Analysis and Assessment for Development Financing Institutions” organized by ALIDE with the collaboration and sponsorship of the Venezuelan Banco de Comercio Exterior (BANCOEX) and Sociedad Nacional de Garantías Recíprocas para la Mediana y Pequeña Industria S.A. (SOGAMPI), was carried out successfully in Caracas, Venezuela this past September 15 - 19. Support tools for improving development project analysis and assessment were presented and examined during the event through the construction of models designed to meet technical, managerial and
other objectives. The event, conducted by Dr. Iván Gartner, Brazilian consultant and researcher, brought together a group of 40 executives and professionals from different Venezuelan institutions.
Development, Financing and Banking
ALIDE E-LEARNING Some 143 representatives of banks, financial institutions and banking supervision agencies in Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela were trained through the distance learning course Operational Risk Management in Financial Institutions (July 7 - August 6). The course was designed to give participants a complete picture of operational risk management from its underlying theory to its application as a management tool. The Business Plan and Creating Value in Financial Institutions, another course lasting six weeks (September 29 – November 8), provided training for 40 representatives of banks and financial institutions in Argentina, Colombia, Dominican Republic, Ecuador, El Salvador, Paraguay, Peru, Uruguay and Venezuela. Its aim was to increase the participants’ knowledge of and experience with the techniques for formulating, implementing, following-up on and evaluating the Business Plan, in order for Latin American and Caribbean financial institutions to obtain better results in generating value and healthy risk taking.
» INSTITUTIONAL NOTES
LUCIANO COUTINHO RECEIVES PRIZE AS THE ECONOMIST OF THE YEAR 2008 Economist Luciano Coutinho, current President of Banco Nacional de Desenvolvimento Econômico e Social (BNDES), on August 18 was awarded the prize as Economist of the Year 2008 by the Brazilian Order of Economists. Born in Pernambuco, Luciano Coutinho holds a Doctoral degree in Economics from Cornell University (USA). He teaches at the University of Campinas (Unicamp) and is a guest professor at the Universities of São Paulo, Paris XIII, and Texas and the Ortega y Gasset Institute. This prize is awarded in recognition of economics professionals and their contributions to Brazil’s construction and development.
Development, Financing and Banking
» PUBLICATIONS ► ALIDE PUBLISHES BOOK ABOUT IBERO-AMERICAN GUARANTEE SYSTEMS At the initiative of the Ibero-American Guarantee Network (REGAR), this book was published and sponsored by ALIDE, with the collaboration of IBERAVAL, SGR, of Castilla and León, Spain and Sociedade de Investimento S.A. – SPGM, of Portugal. Entitled “Los Sistemas de Garantía de Iberoamérica: Experiencias y Desarrollos Recientes,” it starts off by presenting an overview of the region as a whole, in order to give each guarantee institution a general point of reference for identifying and positioning itself from the viewpoint of its individual situation. This is followed by a thorough review of the different guarantee systems and schemes in Ibero-America that points up the heterogeneity and complexity of this universe, and their transformation from the moment the first steps were taken to their current state of consolidation in many countries. Also presented are the experiences of the guarantee systems/institutions for micro, small and mediumsized enterprises in Argentina, Brazil, Colombia, Costa
Rica, Chile, El Salvador, Mexico, Peru, Uruguay, and Venezuela, as well as in Spain and Portugal, with regard to aspects relating to their national situation and context, legal framework, operational model, products, portfolio, and financial performance, together with proposals for improving and boosting the guarantee systems and making them available to a larger number of enterprises. The book closes with a section about the vision and action of international organizations like the Andean Development Corporation (CAF) and the Inter-American Investment Corporation (IIC) with regard to this topic.
► MICROCREDIT IN BANCO DO NORDESTE DO BRASIL: THE CASES OF CREDIAMIGO AND AGROAMIGO This ALIDE publication explains the key public policies on access to credit implemented by Brazil in recent decades to enhance social inclusion and fight poverty, with the country’s federal government as the main promoter. It stresses the dimension of the role being played by Banco do Nordeste do Brasil to facilitate access to credit and its efforts to improve the availability of financial services for the country’s small homes and enterprises through its CrediAMIGO and AgroAMIGO Programs. The characteristics of the Directed Productive Microcredit Program – CrediAMIGO are described in reference to its operational model, products and services, target public and customer profile, the Program’s methodology, with emphasis on the external and internal training policy of Instituto Nordeste Ciudadanía (INC) – CrediAMIGO, which is responsible for training the officials in charge of providing this service, and the operational and financial
performance in relation to the volume of loans, operational efficiency and profitability ratios. Key aspects of the National Program for Strengthening Family Agriculture (PRONAF) and of the BNB Rural Microcredit Program -- AgroAMIGO, are discussed with regard to rural microcredit, and its operational role, methodology, the role played by the microcredit adviser and the program’s operational and financial performance are described.
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