Development banks at the forefront in mitigating the economic and social impact of the COVID-19 in Latin America

  • Financial institutions participate in, and frequently lead, government programs to confront the effects of the pandemic by playing a counter-cyclical role, channeling resources and working to shore up the production system and employment.
  • This is revealed in the recent study prepared by ALIDE and based on an analysis of the measures taken in Latin American and Caribbean countries.

June 15, 2020.- The COVID-19 health crisis foreshadows a exert a sharp economic impact that will bring growth figures down to a historic low. Confronted by this scenario, Latin American and Caribbean governments have been expediting measures to mitigate the economic and social impact of the pandemic, many of which are being spearheaded by development banks.

The policies that have been adopted are heavily expansive and include reducing interest rates, easing monetary policy, purchasing assets, guaranteeing bank loans or expanding their coverage, and increasing the capital endowment of development banks and authorizing them to channel resources. In some cases, like that of Peru, measures of this kind have come to represent up to 12% of GDP.

Development banks are at the forefront in mitigating the impact of the pandemic through their efforts to design and implement government programs in cooperation with local financial systems and regional and multilateral financial organizations. The sector’s immediate aim is to provide liquidity to families by distributing funds allocated by the government through social assistance programs, and to the business sector, particularly those entities whose positioning makes them the most vulnerable.

Among the actions taken by development banks, the following stand out: maintaining contacts with clients affected by the pandemic; reviewing and amending the interest payment method; extending capital and adjusting interest rates downwards; valuing new operations; granting and revising loan guarantees and credit records; relaxing borrowing limits for financial intermediaries to endow them with more resources; and making preferential loans to specified segments, among others.

These were identified in a recent study published by the Latin American Association of Development Financing Institutions (ALIDE) and based on an analysis of the measures taken by Latin American and Caribbean development banks. An initial version of this study was presented to the World Bank as a collaboration towards identifying economic efforts made by different finance institutions across the world.

The document also points up the fact that development banks play an exceptional role in this economic scenario. It is so important that they are even involved in underpinning credit, providing liquidity and supplying short, medium and long term financing in joint actions with a variety of financial intermediaries.

Unlike during past crises and given the nature of this unprecedented situation, health and related enterprises have been given special attention. This assistance has targeted enterprises or entities that provide health services or that produce health supplies, as well as technological solutions for the monitoring and control of COVID-19.

See the complete study HERE.

ALIDE is the community of financial institutions that generates banking solutions for the development of Latin America and the Caribbean. Founded in 1968, its main objective is to contribute to the economic and social development of the region, through the good practices in development financing that it promotes among its associates, about 90 institutions with a presence in more than 20 Latin American countries and other regions of the world.

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