Sustainable Development and the Private Sector: A Financial Institution Perspective

Corporacion Andina de Fomento (CAF) is a multilateral financial institution which supports the sustainable development and integration efforts of its shareholder countries of the Latin American region. Its shareholder countries include Bolivia, Colombia, Ecuador, Peru, Venezuela, Brazil, Chile, Mexico, Paraguay, and Trinidad and Tobago. Shares of CAF are also held by 22 private banks in the region. CAF serves the public and private sectors, providing multiple financial services to a wide variety of customers, ranging from member states to corporations and financial institutions. Social and environmental considerations are incorporated into its managerial policies, and it includes in its operations eco-efficiency and sustainability criteria. As a financial intermediary, it attracts resources from industrialized countries to Latin America, serving as a bridge between the international capital markets and the region, as well as promoting investments in business opportunities. CAF’s total assets were $3.4 billion in 1996. The present article presents CAF’s approach toward sustainable development and eco-efficiency as the pillars that guide its operations. It also presents examples of the projects that are currently being undertaken with the private sector. Based on these experiences, the article presents some important insights on the role of the private sector in the region’s sustainable development and on the importance of the need to build strong bridges between the public and the private sector in the region. THE CHANGING ROLES OF GOVERNMENT AND THE PRIVATE SECTOR The wave of economic and political reforms that has spread across Latin America over the past few years has transformed the economic and political landscape. With democracy reigning in the region, most countries have opted for economic policies increasingly based on market solutions to the problems of resource allocation and economic growth. Prior to these reforms, a number of economic activities, now more efficiently performed by the private sector, were either in the hands of the public sector or heavily regulated by it. Over the last decade, most countries have abandoned their inward-oriented import substitution regimes of the earlier period for macro-economic return combined with outward looking policies. Although there were differences in the way that these reforms were applied, most countries went through a significant reform period. Most of these reforms were of the “first generation” type–fiscal and monetary discipline, trade reform, financial sector reform, and privatization. They were driven by the need for economic stability as the foundation of economic growth and by the common philosophy that private sector activity had to be the primary source of wealth generation.