The Global Financial Crisis - Current Situation, Outlook and Opportunities for a Multilateral Institution

Pablo Verra – Hub Leader for the Southern Cone for the Department of Financial Institutions at the International Finance Corporation

09h51 – Participats arrived, all ready to start!

09h55 – Mr Verra thanks the SABF for inviting him to this edition of the forum and thanks the attendees for participating. He starts the conference commenting: “Sorry I’m not wearing a tie, but you know, it’s Saturday” ;)

And he continues: What to talk about today? Crisis today creates a lot of challenges therefore we should get creative and come up with new ways of doing business.

The speaker explains the structure of the lecture:

• First he gives an overview of the IFC (International Finance Corporation)
• Then he’ll give a snapshot on current situaion of the global financial crisis
• To finally present a set of challenges and opportunities that the crisis “brings” to a multilateral institution.

Mr. Verra starts by telling us that it’s precisely during crisis situations that “clients” look at IFC, looking for help and advice, and we get into the topic.

IFC has offices in 14 countries across Latin America and the Caribbean, which manage investment and advisory services to 27 countries

The IFC is active in: Investment Services, Resource Mobilization & Advisory Services.

As of June 2009, the IFC has invested in 446 new projects in 103 countries and has provided advisory services to 299 projects in 75 countries.

The lecturer explains that countries go to the IFC because of strategical reasons – what differenciates the IFC from the private sector is that they call a project successful only if real developmental impact and value is obtained.

The current situation has lead the economist to foresee a conservative perspective of growth for the next 1-2 years. He continues explaining that growth will be weak because:

• Banks have a high leverage
• Financial system is just healing
• Corporates are feeling the pinch: production levels are low
• Emerging markets economies with weak fundamentals

With the aid of some graphs, he explains us the relationship between developed and emerging markets, he shows, i.e. how the declining of the GDP growth in the emerging markets, particularly in CEE, SECA but also in LAC. In some countries, such as Mexico, it’s very notorious the direct effect of the amercian crisis due to the proximity to the USA.

The graph also shows a less dramatic decline in MEAN and in some Asian countries (China, i.e.) where growth, although very moderate, will remain.

Little by little, Verra says, risk appetite returs and emerging markets reactivate their economies, but this is still volatile, he emphasizes. So, seeing the current scenario, what can we do? asks Verra, and he continues as follows:

Summarizing, we are in a “human crisis” that comes from a huge decrease of employment worldwide, that comes itself from the economical crisis produced by the global financial crisis triggered by the US subprime mortgage crisis.

This, says Verra, causes that today there is more poverty worldwide than a year ago. On the other hand this represents also great challenges for a multilateral company. He listed such challenges and presented how to face some of them as follows:

Lack of liquidity and bank recapitalization. The IFC has partnered up with JBIC  and established a $3bn fund, the IFC capitalization fund, to inject equity and quasi-equity in systemic banks.

Agribusiness sector halted. Verra stated that if you plant less you’ll harvest less and consequently you’ll sell less. The IFC has created a global food fund to respond to this challenge. Actually around 20% of the IFC budget is invested in agribusiness, he said.

Unavailable microfinance for SMEs through regular channels (commercial banks, governments, etc). The IFC faces this challenge by providing liquidity support through microfinance. Statistically, there’d be 130 million clients that account for $30 billion in assets and have a record of 15 years successful growth, however, resources for refinancing are quickly drying up locally and inertationally.

As a big conclusion, the speaker explains that it’s possible to reactivate the economy and overcome the financial crisis, as the latest markets news start showing, and that creating and sustaining development will bring the monetary success along. In time of crisis there are diverse challenges to face, he continued, and a multilateral corporation as the IFC is working on offering some responses.

11h25 – Little session of Q&A