Foreword

Latin America and the Caribbean has had unquestionable achievements in terms of development. In the last century, most countries in the region have made significant progress in terms of macroeconomic stability and deepening of financial markets. The region has also made significant progress in terms of inclusion. In the first two decades of this century, the incidence of poverty has been reduced by more than 10 percentage points. Under-five mortality has fallen by half and life expectancy has increased by 14 years. The fraction of households with access to electricity has increased by more than 10 percentage points, and the fraction of older adults with access to pensions has risen by around 13.

Unfortunately, this development process remains incomplete. Over the last 70 years, per capita income in the region has remained below 30 % of the per capita income of the United States. Furthermore, one out of every three Latin Americans and Caribbeans continues to live in poverty. Structural problems such as informality, limited levels of market competition, infrastructure gaps and weak states and institutions are barriers to escaping the underdevelopment trap and achieving sustainable development goals.

The coming decades present important challenges for the region. On the one hand, the aging of the population will put increasing pressure on social security systems, with significant consequences for public finances. On the other hand, it faces a double transition, digital and green. The digital transition in Latin America and the Caribbean must be inclusive and strategic, prioritizing universal connectivity, the development of digital skills and the modernization of key sectors to benefit from their comparative advantages. Likewise, the green transition requires a forceful response, with rapid adaptation measures to address the impacts of climate change, and emission mitigation strategies where consideration for inclusion and equity in costs is central.

However, the dual digital and green transition represents a unique opportunity for Latin American and Caribbean countries to modernize their economies, foster sustainable innovation and leverage their comparative advantages, such as their biodiversity and wealth of natural resources. The region’s abundant natural wealth is a fabulous lever for achieving sustainable development, boosting sectors such as agriculture, tourism and energy. The abundance of minerals, key to the energy transition, offers some countries in the region the possibility of integrating into clean energy value chains. The great potential for producing renewable energy gives the region the opportunity to develop an industrial sector in a world where the low carbon footprint of products will be a source of competitiveness. Finally, the richness and extension of the region’s forests, mangroves and ecosystems are a key element in the global solution to climate change, as each hectare of standing forest alleviates the restrictions imposed by the carbon equation in the global economy.

Turning challenges into opportunities requires access to financing and an effective roadmap, informed by evidence. CAF is a key partner on both fronts. On the financing front, the portfolio of loans, equity investments and guarantees has been growing consistently and geared toward initiatives aligned with the sustainable development agenda of shareholder countries. In 2023, the total portfolio exceeded USD 34 billion, representing a year-over-year growth of 9.8 %. The incorporation of new shareholders and the equity strengthening recently approved by the Assembly allow us to project that this growth dynamic will continue in the coming years. In addition, the institution is advancing towards its goal of becoming the green bank of Latin America and the Caribbean, with a commitment to reach 40 % green financing by 2026. By the end of 2024, these operations already represent 35 % of the portfolio.

To address the second front, CAF has developed a wide range of knowledge products, from detailed sector-country level instruments that contribute to the prioritization of specific programs, including country strategy documents that are the instrument for dialogue with the new administrations of member countries, to documents for analysis and discussion of policies with an integrating perspective for the region as a whole. The purpose of the Report on Economic Development (RED) is to bridge the gap between research and public decision-making in order to contribute to the formulation of evidence-based policies. This product also consolidates a vision that is close to the needs and reality of the countries of the region, each with different starting points and in search of a common purpose, which is the development and integration of the region. With this special edition to commemorate the 20th anniversary of our flagship report, the RED, CAF reaffirms its commitment to contribute to our member countries from the knowledge front. The first edition of the RED, published in 2004 under the title Reflections for resuming growth, addressed the central question of how to achieve a path of sustained growth, a question that is still relevant twenty years later. Economic growth, trade integration and productive transformation were the focus of the first editions, although always promoting a comprehensive vision of development. Over time, editions of RED have addressed social inclusion (education, employment and inequality) and, more recently, environmental protection and responses to climate change (global challenges and energy transition). In addition, State capacity building was explored with a territorial approach and specific editions on public finance, integrity and State effectiveness. Today, RED is a fundamental tool for CAF to initiate and sustain a fluid policy dialogue and provide an input of knowledge produced from, by and for the region.