CSSN reporter: Liu Yue Camera: Pang Junxi Video Production: Zhao Yue

Interviewee: Enrique Garcia, Andean Development Corporation (CAF) executive chairman

　　Recently, the reporter of Chinese Social Sciences Net participate in one of the CASS Social Sciences Forum, the ILAS-CAF Symposium (2011: International Issue): Challenges to Sustainable Development: Infrastructure and Urbanization in China, Latin America & the Caribbean. During the conference, the reporter got a chance consult a specialist Andean Development Corporation (CAF) executive chairman Enrique Garcia on some practical problems including "middle income trap".

Reporter: Could you briefly introduce us to CAF and how it works in Latin America.

Enrique Garcia: CAF is a multilateral development bank, it was created 40 years ago, originally was a regional bank, with 5 countries. Today, it has 18 countries, 16 of the member countries are from Latin America (LA) and the Caribbean. We are very similar to the World Bank and the Asian Development Bank with one important difference: we are the only multilateral regional development bank that is essentially owned by emerging countries. The other banks have 50% ownership in the hands of the industrialized countries, and 50% in developing countries. In our case, with the exception of Portugal and Spain with about 3%, the rest is in the hands of LA and Caribbean, which makes a difference because there are donor countries which put money in and developing countries which receive the loans; in our case, everybody is equal – and that’s the important thing. And now our bank we have operations close to USD 11B/year. And we essentially finance development in different ways: basically investment in infrastructure and social sectors like education, health, and in productive sectors like mining and tourism, and also we have products that go from short, medium or long-term loans (and especially equity participation in private sector loans), guarantees and partial guarantees; and finally we have grant money to make studies or feasibility studies and institutional building in improving the quality of life of low-income people. So that’s essentially what we do. We are today one of the 3 big players in the multilateral development of LA, along with World Bank and Inter-American Development Bank.

Reporter: That’s impressive, and looking at the website one can see many projects you are working on.

Enrique Garcia: Thank you very much.

Reporter: You mentioned in your speech that there are much economic complementarities between LA and China. Could you elaborate on what those areas are?

Enrique Garcia: Actually, as things stand today, LA (especially South America), is very rich in natural resources, and China, with its very dynamic economy, has very high demand. That’s important because there is a natural market for us. On the other hand, LA doesn’t have sufficient internal savings. It only saves about 20% of GDP. But at the same time, China is a big saver, saving about 45-50% of GDP. So it can provide financing to have a LA invested, [so LA can save] not only 20% but maybe 27-28%.

　　In the short run, this has been very important, because thanks to that complementarities, LA has not been hit as hard as other regions by the economic crisis. And in fact last year was a great year for growth. But, in the medium term, I think we have to find ways to work together in a way that is not only related to the export of raw material (and the flow of financing for raw materials), but to try to have a more balanced relationship, so that there would be direct investment from China in Latin America for areas that are not necessarily related to the export of raw materials but that will have a more sophisticated industrial base, that can be very good so that we can compete also in the region and in the Western Hemisphere.

Reporter: Yes, that would benefit both parties.

Enrique Garcia: That’s correct.

Reporter: LA is growing very fast before the 1970’s. After that period, though, there has been a status quo for almost half century, in the so-called Middle Income area. Why is that?

Enrique Garcia: Well, it’s many things. First of all, the macro-economic policy framework was not really perfect, not very good, leading to several crises creating much inflation. That’s one thing. Secondly, I think we have not moved at the sufficiently high pace in incentivizing productivity growth in a way that is more compatible with sustained growth. Thirdly, as I said before, investment has not been sufficient for that purpose， and too much concentration on a few exports. That combination of factors made such that income disparity has remained very high. Although poverty levels have improved considerably in recent years, but the income distribution is not very good. In fact the region has the worst “jenny” coefficient – in other words, the difference between rich and poor is too big. And that has implications of course in society in employment and the capacity to create a middle-class. And that’s the big challenge I think we have to face, and which we are facing now.

Reporter: How will faster development of urbanization and infrastructure help the longer-term social economic development?

Enrique Garcia: Yes, well, infrastructure is a crucial component because if you don’t have good roads, good water and sewage, if you don’t have a good telephone connections, electricity you cannot be competitive. LA only invests about 3% GDP in infrastructure, and should be investing at least double – compared with China, which invests about 10%, so that’s very important. And there are other aspects important to the growth process as well. There many people moving from the rural areas to the urban areas. In that sense to create good infrastructure conditions, good services, and most important to discover competitive advantages of the urban centers so that you will create employment, and facilitate the incorporation to the benefits of growth --- that’s a crucial element. So, those two elements which are part of the forum we are having today I think are very important (although not the only) components in a long-term growth strategy.

Reporter: China has now entered this middle class income already, so we really would like to know the expert’s attitude about we might best proceed.

Enrique Garcia: Well that’s the big challenge. I think the difference between was happened in our regions is that maybe 10 years ago nobody was conscious about it, but this new concept came in a few years ago, and now from what I see from the speeches this morning, that you are very conscious of it and you are thinking in terms of how to solve this. And I think that that is very important. I think Latin America is conscious of that, but not as conscious as you. I think that you are going in the right direction.

Reporter: Well thank you for that comment and that does really cheer me up. Could you now please tell us something about the cooperation between CAF and Institute of Latin American Studies and what will be the content of that?

Enrique Garcia: Well that important because we are trying to share our intellectual capacities, and to make analyses to compare situations, and this will be a very good scenario for discussions on issues of development.

Reporter: Will that help both parties and, if so, how?

Enrique Garcia: Well it will help both because we will have an opportunity to learn much more about the issues of development here, and you will learn more about Latin America. Secondly, it’s not only knowledge as knowledge, but it will be very good instruments to think about new products and services that will facilitate a much closer relationship between China and Latin America.

Reporter: Yes, there has been great development between China and Latin America, and that relationship is said to have even helped both regions emerge better from the global economic crisis, which seems to show that we can benefit each other in many different ways.

Enrique Garcia: Well I think that that is precisely what has just happened. In this crisis, which China and Latin America were in no way part of the problem, but were a big part of the solution. That’s very important. What’s also very interesting to see is that China’s investment and trade with Latin America has become so crucial to those Latin American countries. If you go back 30, 15 years ago, there was none of that. But, now we have to build up in a long-term constructive relationship, thinking about these issues of middle incomes, thinking about the ways to solve these issues. And I think that you and we have the chance to work together on this.

Reporter: Yes, sometime one plus one is more than 2.

Enrique Garcia: It is indeed more than 2, it’s 3.

Reporter: Yes. Well I think that will be all. Thank you for your time.

Enrique Garcia: Thank you very much.