A push from development banks
In addition to directly financing projects, MDBs help to attract billions of private sector money into “green” infrastructure projects. They also give borrowers expertise and advice.
In 2021, the Inter-American Development Bank (IDB) allocated $ 19.5 billion in new loans to LAC, of which almost 70 % focused on climate change. The IDB plans to provide another $ 24 billion in climate and green financing over the next four years. All projects receiving support must conform to the Paris Agreement on climate change.
Similarly, CAF (Corporacion Andina de Fomento), the Venezuela-based Development Bank of Latin America which is owned by 19 governments and 13 private banks, is directing major resources to green recovery projects. It plans to allocate $ 25 billion in the next five years to help countries increase their climate resilience, develop renewable energy projects, reduce greenhouse gas emissions and strengthen biodiversity and conservation efforts.
Beyond providing direct financing, MDBs take the lead in structuring projects to attract private lenders while also protecting the interests of borrowers. Projects aimed at environmental improvement and social inclusion typically take many years to reach fruition. They also typically require low interest rates, flexible amortisation periods and generous conditions for collateral (such as repayment only from the profits of the project and not from the borrower’s other assets) if they are to be economically viable.
MDBs can create projects offering such terms by backing the projects with their vast networks of resources. For example, the IDB has signed a green finance partnership in LAC with more than 40 other development finance institutions. So far, this group has financed over $ 2 billion in credit line programmes and leveraged more than $ 6 billion in green private investments.
This support can be delivered to green recovery projects through a network of 72 national development banks in LAC, which also bring their own resources to the table. Together, these national institutions have $ 1.7 trillion in assets, a combined portfolio of $ 1 trillion, and nearly 80,000 branches throughout the region. Together, they can form a powerful force for driving a green economic recovery.
José Siaba Serrate is an economist at the University of Buenos Aires and at the University of the Centre for Macroeconomic Study (UCEMA), a private university in Buenos Aires. He is also a member of the Argentine Council for International Relations (CARI).