Latin American and the Caribbean Fast Facts, Countries eligible for World Bank borrowing

After sluggish growth of just 0.4 percent in 2001, gross domestic product (GDP) in the Latin America and the Caribbean region contracted by 0.8 percent in 2002, primarily as a result of deep recessions in Argentina, the República Bolivariana de Venezuela, and Uruguay. As a whole, the other countries of the region grew by 1.6 percent, up slightly from 1.1 percent in 2001.

Argentina experienced a 10.9 percent contraction in 2002 following the abandonment of the convertibility plan, a sharp currency devaluation, default on the public debt, a severe banking and institutional crisis, and lack of consensus on a macroeconomic program. Although there were indications of a recovery in the second half of 2002, the country’s crisis hurt exports and tourism in neighboring Bolivia, Paraguay, and Uruguay, and reduced workers’ remittances to Bolivia and Paraguay. With Argentina’s freeze on deposits, Uruguay’s difficulties were compounded by massive withdrawals from Uruguayan banks. All told, Argentina’s shocks provoked an economic contraction of almost 11 percent in Uruguay. In Venezuela, meanwhile, a polarized political situation caused a major drop in investment, high capital outflows, and a national strike at the end of 2002, all of which culminated in an 8.9 percent contraction of GDP.

External factors battered all Latin American and Caribbean countries. Despite low interest rates in industrial countries, gross private capital inflows dropped by $31 billion, down 40 percent from the previous year. Net foreign direct investment fell from $62 billion in 2001 to $46 billion in 2002. Sluggish growth in the United States and Europe also depressed demand for exports from Latin America and the Caribbean, pushing the region’s export growth down to 1.2 percent in 2002, from 11.9 percent in 2000. Tourism revenues and worker remittances were also weak.

Despite sound economic fundamentals, uncertainties surrounding elections in Brazil and concerns about debt dynamics, as well as some financial contagion from outside and within the region, lowered investor confidence and slowed capital flows and economic recovery. Nonetheless, the economies of Chile, Colombia, Ecuador, Mexico, Peru, and most Central American and Caribbean countries showed remarkable resilience, despite low commodity prices and higher borrowing costs.

WORLD BANK ASSISTANCE

Increased poverty is the most devastating consequence of the economic shocks countries in the region have sustained. In Brazil, for example, peaks in interest payments on the country’s sovereign bonds have coincided, over the last decade, with increases in poverty. Although poverty figures were not available to assess the impact of the regionwide economic contraction in 2002, Argentine analysts estimate that more than half of that country’s people were living in poverty—an increase from about a third in the mid-1990s. The World Bank responded to resulting urgent demands for social assistance and financial sector support with $600 million for an income-transfer program for poor households in Argentina, and two adjustment loans totaling $303 million to help neighboring Uruguay cope with the crisis. This emergency assistance raised the Bank’s total lending to Latin America and the Caribbean to $5.8 billion in fiscal 2003. In addition to providing loans, the Bank developed revised assistance strategies for Colombia, Ecuador, Guyana, Honduras, Nicaragua, Peru, and the República Bolivariana de Venezuela; progress reports for Jamaica and Uruguay; and a country reengagement note for Haiti, while preparing timely policy notes for newly elected governments in Bolivia, Brazil, Colombia, Ecuador, and Paraguay. These strategies emphasize helping countries build the climate for investment and improve the situation of the poor by investing in their essential water services, health, education, power, and transportation sectors. (See box 5.6.)

BUILDING THE CLIMATE FOR INVESTMENT

In Guatemala a $150 million financial sector adjustment loan supports an ongoing ambitious reform program to strengthen the country’s financial system, including banking legislation, measures against money laundering, and increased access by the rural and urban poor populations to credit and financial services. The Bank has also provided $41.3 million for projects to enhance competitiveness in El Salvador, Guatemala, and Nicaragua. It has also provided analytical and advisory support to these countries as well as to Costa Rica and Honduras, as they negotiate a free trade agreement with the United States.

A healthy investment climate is linked to a country’s capacity to mobilize skills, technology, and innovation to increase productivity. A Bank study published this year, Closing the Gap in Education and Technology, recommends that governments invest in education while they create incentives for increased private investment in research and development. Although secondary school enrollment in Latin America and the Caribbean has doubled since 1970, many secondary school completion rates of countries in the region lag behind those of several other regions and thus create a “knowledge and technology gap.” Several Bank loans seek to bridge this gap by increasing access to and quality of education in Brazil, Colombia, the Dominican Republic, Jamaica, Mexico, Nicaragua, and Uruguay.

Effective governance is an important factor in attracting and keeping investors, in addition to its obvious benefits in delivering sound economic management and government services to citizens. The Bank is supporting diverse initiatives in this area, including judicial modernization projects in El Salvador and Honduras; a public sector technical assistance program in Guyana; support for administrative decentralization in Bolivia; and programs to improve municipal management in Brazil, Mexico, and Nicaragua, among others.

ACHIEVING THE MILLENNIUM DEVELOPMENT GOALS

As part of its commitment to help countries achieve the Millennium Development Goals (MDGs), notably reducing child mortality, the Bank is working with governments to expand water and sanitation services to poor people. Clean water is essential for healthy children and adults. Access to an improved water source in Latin America and the Caribbean had reached 85 percent of the population in 2000, but some countries remained below the 80 percent level. In its financing and technical assistance in the water sector, the Bank uses a variety of approaches involving both public and private sector investments to expand water and sanitation service to poor people. These approaches include a $50 million project to expand water service to 1.3 million people in rural Peru, as well as financing to rehabilitate water supply and sanitation networks and wells, promote water conservation, and improve efficiency and service at Lima’s public water utility. The project also expanded service to 600,000 previously unserved slum dwellers.

In many countries across the region, achieving the MDGs by 2015 will require new investment in health and basic education as well as infrastructure. Bank support for health care expansion continued in Mexico, building on the success of a project launched in 1996 that had extended basic services to more than 9 million people in remote and indigenous communities, many of whom had never before benefited from health care. Partnerships with governments were also strengthened to prevent HIV/AIDS, with new projects launched in Grenada and in St. Kitts and Nevis, and support continuing for similar programs in Barbados, Brazil, the Dominican Republic, and Jamaica.

The Bank’s support for environmental sustainability in Latin America and the Caribbean, which includes more than 80 active projects totaling about $2.3 billion, was highlighted in November 2002 when Bank President James D. Wolfensohn met with Amazon leaders in Belém, Brazil, to discuss the country’s strategy for sustainable management of the Amazon region. The Bank supported the strategy by coordinating the Pilot Program to Conserve the Brazilian Rainforest, a partnership funded with $340 million from Brazil, the European Union, the Group of Seven industrialized countries, and the Netherlands.

A similar biodiversity conservation effort is under way in Mexico and Central America, where the Bank is working with seven countries to protect the Meso-American Biological Corridor, a regional system of natural areas, buffer zones, and connectors that is home to nearly 24,000 species of flora and over 500 species of mammals. In December 2002 the Corridor’s host governments, donors, and partners agreed on a business plan that identifies another $70 million in projects, in addition to the $400 million already pledged.

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Table 5.5: World Bank Lending to Borrowers by Theme and Sector
Figure 5.9: IBRD and IDA Lending by Theme
Figure 5.10: IBRD and IDA Lending by Sector