WASHINGTON, D.C.– Founded in 1970, the Corporación Andina de Fomento (CAF), or the Development Bank of Latin America as it is known in English, has played a key role in the development process of Latin America. The Bank works to promote sustainable development and regional integration throughout the Latin American region. Its 18 member countries have agreed to work across a wide range of issue areas such as infrastructure improvement, social development, environmental sustainability and the financial sector.
Infrastructure improvement is vital to the economic development process. There are two types of infrastructure: hard and soft infrastructure. Hard infrastructure includes the physical networks that are necessary links between places such as roads and highways, subway systems, railways, ports and airports. Soft infrastructure includes the institutions that serve to support the functioning of a society such as healthcare, education, government, law enforcement or emergency services.
Having good quality infrastructure helps to increase the GDP of a country and decrease poverty because it provides a necessary link between rural areas and the marketplace. It also helps increase FDI in a given region because companies are more likely to invest money in an area where infrastructure is already in place for the efficient movement of goods or services.
The CAF helps to promote social development through its programs aimed at strengthening social institutions such as improving education and healthcare systems. Some of its programs include an Integrated Water Program to provide access to clean water to rural regions and a program designed to improve access to alternative forms of higher education such as technical education.
The CAF further finances projects aimed at lower carbon production through its Carbon, Clean and Alternative Energies Program. The CAF’s main work, however, is in the financial sector. The CAF supports the development of private enterprises in its shareholder countries by providing long-term credit to companies for purchasing goods or services, and by extending lines of credit to companies. Interestingly, in its long-term financing arrangements the CAF uses co-financing where the risk of extending credit is divided up between private or public companies or offers A/B loans where the CAF shares privileges with the debtor.
The CAF also releases periodic reports detailing its research into the effectiveness of public policies surrounding Latin America such as sanitation, access to potable water or infrastructure. In its mission to promote social inclusion, the president of the CAF, Enrique García, has announced that Latin America needs to grow more than 6 percent a year to solve the problem of inequality. Moreover, he also has stated that Latin America needs to move from a model of economic growth based on natural resources and low wages to one based on technology, innovation and creativity.
The CAF is also recognized as one of the most trustworthy financial institutions, with an investment-grade credit rating of Aaa3 from Moody’s and AA from Fitch. Such ratings demonstrate the high regard with which the CAF is viewed in international markets, where the CAF issued over $2.8 billion worth of bonds in 2012.
If it continues on this current trajectory, the CAF will continue to be a catalyst in attracting funding from international capital markets to promote its social and economic development projects throughout Latin America.