Financing for the Development from a Vision International – Dr. Andra Uthoff

Interviews to Dr Andras Uthoff, Coordinator of the Unit of Special Studies of the Economic Commission of United Nations for Latin America and the Caribbean (CEPAL). Dr Uthoff is Commercial Engineer graduated in the University of Chile, and has studies of Doctorate in economics in the University of California, Berkeley, USA. He has made investigations in subjects of poverty, employment and population; saving and finances for the development; capital flows and macroeconomic policy; reform of the systems of pensions; among other subjects.

1.Which is your perception on the vision of the international organisms and the governments of the developed countries with respect to the problems of the financing in the developing countries?
I consider that the International Conference on Financing of the Development held 18-22, march, 2002 in Monterrey, Mexico was an historical landmark about the problems of developing financing in countries. Sponsored by the United Nations, it acquired a particular look since becuase included aspects of economic development within of the program of the international financial institutions. The fact that in such event have been present forty chiefs of state and governments, more than 200 ministers of foreign affair, trade, development and finances, and the main authorities of the multilateral financial institutions, guaranteed that the problems of development financing have a preponderant place in the global agenda.

The structure of the Consensus of Monterrey, specially in which it refer to the actions to follow, offers a very comprehensive vision of the problem and indicates diverse way for its solution. It included proposals to improve the domestic and international efforts to mobilize resources for the development; emphasized the importance of trade to get such objectives; not avoided the discussion about importance of the official development assistance in some countries. It did not omit references about problems of external debt either; and, finally invocated to improve the coherence and cohesion between the international institutions responsible of the financing and trade subjects.

2. In that vision what role is assigned to the development bank in Latin America?
The role of the development bank in Latin America is fundamental in the solution of two structural problems that are derived from the administration of risks with market criteria. They are, assigning financing with horizons of long term, and, make it in benefit of agents and sectors that are excluded by private financial systems to be expensive and of greater relative risks.

3.Which is your balance of the Summit of Monterrey after more of a year of held it? What must be expected of her for more ahead?
A year is a very brief term for evaluating advances from the proposals of the Consensus of Monterrey. Mainly if the period post Monterrey has been characterized by events that have affected of significant way the scene of the global markets. I prefer to talk about the present challenges that mean to transform this consensus into lines of effective action. From this perspective I dare to emphasize the following challenges:

In the domestic plane, the increasing necessity by countercyclical macroeconomic policies, for which it is useful to extend the concept of macroeconomic equilibrium beyond the nominal equilibriums, incorporating real aspects like the stable economic growth. It also emphasizes the development ordered and regulated of financial markets strong, specially to solve the traditional problems of lack of financing of long term, and its allocation towards the productive units that in spite of their potentials lack access to this one.

In the international plane the challenge is that of the volatileness of the private sources of financing and of the form as the international financial institutions can influence in the decisions of the private investors, reducing the factors of ” contagion” and effects “herd” that have characterized it. In the particular case of the Direct Foreign Investment the preoccupation exists to link it to national objectives that promote the development through improvements of the competitiveness, the integration of productive processes, of the human and managemental resources, etc.

In the plane of the commerce, we see the necessity that the Agreements of Commerce consider in explicit form monetary and financial developments that facilitate the diversification and growth of the commerce, in order to harness their impact on the employment and the equity.

In the plane of the official development assistance, we observed the necessity that the developed countries fulfill with the aid offered to developing countriess, but that its use be supervised, in special when is to support national programs of fight against the poverty.

In the case of tha debt worries us the situation in that are left the countries that have serious problems of Debt, and the difficulty that they have solve their problems of liquidity after this has been restructured. In such sense the agility and complementariness with that are used the resolution mechanisms must be a priority, and the condicionalidad must be in line with the national strategies of development that are established via democratic institutions.

Finally, the increasing efforts of coordination and coherence that the multilateral organisms make, must be harnessed throught regional agreements that induce the coordination of macroeconomic policies, provide with liquidity in contingency situations, facilitate the access to funds for the development financing and promote trade agreements with advantages for the region.

4.In many countries of the region the funds of insurances, funds of pensions, and others, manages important amounts of resources How to do so that those resources are going to finance the national productive sector, What can make the development banking to help to that it is possible?
A problem of “agency” in the case of funds of insurances and pensions exists. The premiums and/or contributions are not voluntary but obligatory, and therefore the State must assume the responsibility to avoid that fraud, laziness, conflict of interests or a political use of the fund exist, and that finally its cost is assumed by the affiliated.

In order to solve the agency problem the State must adopt and enforce regulations and supervisions in the types of investments where the accumulated funds can be invested of way to protect investement of these resources, but it generates trade off between yield and risk. The development bank could play a role in the solution of this dilemma designing financial instruments that provide with resources for investments in projects of “social interest” or of “economic development of the country”. Such instruments must maximize the returns and diminish the risks for the affiliated ones so that they are attractive for the directory of the funds, under the established regulations. A regional particular case has been the one of the mortgage promisory notes and the securitización of assets in developed countries.

5.To make something new implies a cost. In the case of the development bank if the innovation is successful the traditional bank enters to compete there, then the development bank is pressed to leaves that business, can not perceive completely the benefits of its innovation. ¿How to distribute those costs so that they do not affect the results of the development banks?
To avoid compete with commercial financial institutions, the development banks must to avoid create a permant and stable universe of clients, and only support them in the initial stages their financial stories, and so soon “graduated” leave for the commercial banks. The development bank must not reprogramar neither the credit nor either capitalizes interest, specially so it is supported in greater subsidies and state guarantees. Despite it, they must “leverage” efforts ampler but destined to the development of the national markets of long term.

The development bank must complement and add resources without competing with the commercial bank. The financial innovation cost has to be assumed by contributions of the state. The most important is that such subsidies have to be designed well, be transparent, and that their fiscal cost be explicit and properly financed with resources from budget, so that the banks can obtain earning of its current operations and of that form obtain additional resources in the financial market.

6.Like instruments of the financing policies of the State, the development banks are exposed to too many external interferences in their administration, would animate you to suggest how and what do to protect them of this?
To avoid the political use of its resources, the development banks must improve the transparency of its risk of portfolio by means of the permanent scrutiny of these, advancing towards its budgetary autonomy and being put under calification of risk of portfolio by external organizations. It means separate the functions of evaluation of its portfolio; from financing of projects; and of subsidize to the innovating or high-priority agents. This simple separation of functions would demand of properly countable registries and would force to the development banks to improve the handling of risks and its policies of recovery of loans.

For obtain this greater autonomy, their directories must assume legal responsibility with respect to the results of their management. The equal that the autonomous central banks, the development banks must to render accounts annually to some authority, The Congress of the Republic, for example, on the results obtained in function to its objectives, and be under a periodic calification of its portfolio of risks by external auditors.

7.With respect to the financing for the development what projects have CEPAL in this subject, Could briefly comment us something on these projects?
We are worried for the financial development. It is to say, the support to the construction of solid financial markets in opposition to the simple vision of liberalize these markets. Given the challenge to recovery the path from the growth in the region, in a first project we have considered to review the role, the función of the financial system as far as its development and modernization. Within that interests to us to examine the form how the development bank can complement and add resources of long term, for destining them to sectors excluded by the commercial financial institutions due to its high cost in financial systems oriented by market criteria. The hypothesis is that the development banks can superate the problems of information asymmetries that characterize to the financial markets, finishing with the rationing and the segmentation of credit market that has affected mainly to the small and medium companies, small agricultural owners, and the constitution of technologically innovative companies.

Given the challenge to reduce the volatileness of the external financing, in another project we have considered fortify the coordination and cohesion between the multilateral and regional organisms of development with the national financial institutions. It worries us to the role of these institutions in periods of shortage of private financing or in the design of instruments such as the guarantees to assure the stable participation of the countries of the region in the private markets. The central hypothesis is that an appropriate network of international and national institutions of financing and provision of liquidity can reduce the volatileness of the private financing and stabilize the growth of the region.

For the accomplishment of these projects we counted with the support of the Interamerican Development Bank (IDB) and the German Agency of Cooperation (GTZ). In both cases we contemplated to develop its activities in coordinated form with Asociation Latinoamerican of Development Financing Institutions (ALIDE).

June, 2003