LatinFinance - September/October 2015 - 44
IMF/
WORLD
BANK
SPECIAL
As global investors become more selective on emerging markets, Latin America
must better develop local savings to drive development, says the chief executive of
the World Bank's private sector arm, the IFC. By Katie Llanos-Small
Jin-Yong Cai
Close to home
T
he International Finance Corporation's first-ever investment
was in a Brazilian manufacturing company in 1957. The $2 million
loan came from a small institution within the World Bank with
around 12 staff, set up to cut poverty. As emerging markets have
grown, so has the IFC. Today it is the world's biggest private-sector
focused multilateral, having lent some $18 billion to global projects in
the 2015 fiscal year.
In that year, the institution managed to bring in third-party investments worth $2.6 billion, topping its own commitments of $2.4
billion for the first time, says Jin-Yong Cai, who was named executive
vice president and chief executive of the institution three years ago.
The lender is set to become even more relevant for the region in
the years ahead, he says. Latin America's economies are set to become more service-oriented, capital intensive and closely integrated
with global financial markets and supply chains, says the 12-year
veteran of Goldman Sachs. "New private sector approaches will be
needed to complement limited public sector resources, and the IFC
intends to play a central role in that process," he says.
Post-crisis warning
Cai lists a series of hurdles that Latin America's private sector is set to
face in the years and decades ahead. A growing role of government
in the local economy since the onset of the global economics crisis in
2008 is one he highlights.
"This has created a challenge for the region's private sector by
introducing subsidies, trade protection, and a more direct role for
governments in bank financing," he says. "These were well-intentioned, but in many cases made it harder for markets to set prices
and allocate resources efficiently."
Additionally, Cai warns that Latin America can no longer rely on
flows of foreign capital for investment. The region, along with Asia,
was the "darling of markets" for over a decade as portfolio capital
streamed into the region looking for yield amid falling developed
world interest rates.
44 L ATINFINA NCE.COM - September/October 2015
CAI: LatAm companies should reduce debt
"aggressively" and bring in new equity
"But companies and banks, especially in Latin America, borrowed too much. Now they are at risk because investors are shifting
away from emerging markets and positioning themselves for the day
when interest rates go up in the US," he says.
"The region needs to save more and rely less on imported capital;
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Table of Contents for the Digital Edition of LatinFinance - September/October 2015
Contents
LatinFinance - September/October 2015 - Cover1
LatinFinance - September/October 2015 - Cover2
LatinFinance - September/October 2015 - Contents
LatinFinance - September/October 2015 - 2
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LatinFinance - September/October 2015 - 32A
LatinFinance - September/October 2015 - 32B
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