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Aid for Trade in LAC: Past Experience and Lessons Learned

American countries to facilitate trade integration intraregionally and with the rest of the world.16 The Puebla-Panama Plan (PPP), launched in 2001, seeks to improve the trade, growth and economic development potential of southern Mexico and Central America. The PPP addresses trade facilitation, infrastructure development (roads, telecommunications, energy), and tourism services.17 These are examples of how aid for trade could be used to provide seed money as an incentive for countries to cooperate on larger regional projects that also require lending for the implementation of national components. Regional approaches need innovative financial arrangements. Given the prominence and dynamism of integration in the region, LAC development institutions have been exploring innovative ways to support regional initiatives. Past experience shows that, though regional projects can deliver substantial development benefits, financial support to collective action faces two obstacles associated with coordination costs and the insufficient market provision of regional public goods. Bringing together regional public or private agents involves coordination costs related to externalities and free-rider issues. It is hard to design guarantees for lending operations on a regional basis, which acts as a disincentive. LAC’s nascent experience with regional public goods projects that finance the costs of coordination and create conditions for the collective production of such goods shows that innovative instruments to address regional issues may have a role in the aid-for-trade initiative.

16 The IDB, along with the Andean Development Corporation (Corporación Andina de Fomento, CAF) and the

Financial Fund for the Development of the River Plate Basin (Fondo Financiero para el Desarrollo de la Cuenca de Plata, FONPLATA) forms part of IIRSA’s technical coordination committee, which provides support to countries in all IIRSA-related topics. 17 The core PPP structure is comprised of the IDB, the Central American Bank for Economic Integration (CABEI), the UN Economic Commission for Latin America and the Caribbean (ECLAC), and the national governments. The IDB is the program’s financial coordinator and is a member of its technical committee. Envisioned as a multi-billion, multi-year program with stated goals until 2020, the PPP is financed by contributions from participating countries, the private sector, and bilateral and multilateral donors.

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