Luis Carranza, President of CAF: "It is fundamental to maintain the effort of greater globalization"
The Latin American economy has been hit particularly hard by the COVID-19 pandemic. In view of the magnitude of the crisis, the president of the CAF (Latin American development bank), Luis Carranza, is calling for international cooperation and insisting on continuing along the path of globalisation: more trade, more investment and more integration between the countries of the region.
Do you think that Latin America needs a kind of Marshall Plan in the face of this crisis?
That would be ideal. A plan focused on infrastructure. The infrastructure gap in Latin America is very important despite all the effort that has been made in the era of high commodity prices. And what is required is a very long term commitment to promote especially the infrastructure for regional integration and digital integration, where we see many deficiencies.
At a time when deficits and public debt are going to skyrocket, how can we comply with fiscal rules and at the same time build infrastructure?
The fundamental issue is to find sources of financing and to have spending structures that are sustainable in the medium and long term. Current expenditure obviously has to slow down, but infrastructure spending has to grow over time. We are going to have a differentiated composition of expenditure and obviously the financing of infrastructure has a positive impact because it generates greater productivity, better employment conditions and in this way it boosts growth. The size of the debt does not matter in absolute terms but in relative terms.
What is the role of private initiative?
The issue of private initiative needs to be worked on because it generates a greater possibility of increasing infrastructure without generating public expenditure. There are countries where the institutional framework is quite developed, such as Chile or Colombia, and other countries where this institutional framework must be supported in order to bring in private investment in infrastructure for public use. And this is an effort we are making in development banking.
What can Latin America do to overcome employment informality, which is going to increase with the crisis?
Basically, it is a matter of increasing productivity. We have an impossible trinity in terms of companies with low productivity, excessive regulation and the need to formalise it. How can we get out of this trap? By improving productivity, especially in small and medium sized enterprises. We have to work in terms of improving infrastructure, generating regional value chains, better training, a network of suppliers and fundamentally access to long-term financing on acceptable conditions for SMEs. This is an effort that we are coordinating with our governments and where Spain has had a very important leadership role.
There are various integration initiatives in Latin America (Mercosur, Pacific Alliance), but the feeling is that progress is very slow.
This is an essential issue. When one looks at the experience of Europe and Asia, an important source of growth is precisely the integration of these regions, which has not occurred in Latin America. And what we at CAF believe is that we must have instruments that are useful to the countries.
But the trade protectionism of recent years is interfering with collaboration between countries.
It is essential to continue in this effort of greater globalisation, of facilitating trade and investment flows for countries. This is in the long-term interest of all of us. In the short term we may have some sectors or industries that are harmed, but in the long term for societies in both developed and emerging countries, trade and investment facilitation is best.
The region got through the crisis of 2008 well, but in 2015 the economy turned around and now the forecasts for the next five years are very bad. Are you heading back to a lost decade?
If we do nothing, yes, and the effort is precisely to find sources of financing, to identify infrastructure projects that are powerful in generating employment and higher productivity in the countries, and to have a recovery policy agenda. And in identifying what the structural gaps are in each of the countries. Each country has its own reality and there are different constraints that need to be adjusted in order to promote growth and prosperity, and this is the effort we are making at CAF.
What do you miss in Latin America from central countries such as the EU or the United States?
What we want from Latin America is the best possibility to be able to trade and attract investments in the best conditions and in the most transparent way possible. Development banks play a key role in this, and we are in constant dialogue with Asia, North America and Europe.
