Verónica Frisancho

Interview

Knowledge, in any multilateral development bank, is fundamental for two main reasons: the first is to guide operations, to guide the future portfolio of any development bank, in the sense that research and knowledge, in general, are a little more ahead of what may come, precisely because they have that view from outside the business and outside the day-to-day. There is also a fundamental pillar that knowledge brings to the business, which is to guide the current actions of operations, direct technical support, whether for operations that are in the pipeline or operations that are underway. Depending on the institution, whether it is a development bank with a different governance structure to CAF, this can operate in different ways. In the particular case of CAF, what we try to do is to be close to the business, given that we do not have a way of producing cross-cutting knowledge, but rather it is housed in the same place and, therefore, that role becomes even more fundamental. We are an area of service to the business, of service to operations and, in that sense, that vision of knowledge is fundamental for the operation of development banking.

The RED is CAF’s flagship report, it is the report that concentrates most of the efforts of the research group within the Knowledge area. Every year we choose a key development agenda issue for the Latin American and Caribbean region and we delve deeper into that issue. These reports do not seek to make a diagnosis or a reading of what the literature says at the moment, but above all to try to go deeper into what the appropriate public policies for the region are, given the diagnosis. A key factor of our report compared to similar reports from sister institutions is that it is a report made from and for the region. We have a vision that is very close to governments, very close to the local reality of the countries and also lately a focus even at the subnational level, not only at the national level when thinking about public policy.

I believe that the RED has been consolidated over the years as a report very close to the reality of the region. In fact, it celebrated its twentieth anniversary in 2024. The celebratory report we produced, now with this publication, does the job of reviewing the development of the region, not just the twenty years of RED, because that is what we are trying to do, to contribute directly to the development of Latin America and the Caribbean.

I think another fundamental factor of our report is that it becomes a public good for the region. Obviously, in the process of generating the report, there are studies that we commission or that we do in-house. They serve as background studies for the production of the book. Databases are generated, particularly for the report. When we come across a topic such as local and regional governments in 2025, for example, where there is a severe lack of data, the institution makes a significant effort to collect up-to-date information that allows us to make the necessary diagnosis and then focus on public policies. All these efforts to carry out additional studies or collect data become a public good for the region. And finally, I think it is important to emphasize that, in the case of the RED, there is a focus on the region, on the region as a whole, not on the member countries of CAF, but on all the countries of Latin America and the Caribbean. And we make a great effort to have this representation throughout the report. In recent years we have tried to strengthen the focus on the Caribbean, also because the membership has changed, the face of our partners has changed, and we think it is important to include these different visions of development in our reports.

Although the gross domestic product (GDP) per capita has increased in the region in the last twenty years, the gap with developed countries has certainly not closed in the slightest. We are still a long way from the inclusive growth we aspired to and which has not materialized in any of the cases. In the book we go into this in more detail, but it is essential to think about the three “I”s of productive development: informality, innovation and insertion.

Informality, first of all, because it is a problem that became even more serious in the post-pandemic period and we have not managed to reduce the advance of informality in our countries during the pandemic; I believe that it not only has problems of low productivity and little social inclusion, but also does not allow us to advance in an inclusive way and I believe that we must understand the problem of growth together with the problem of social inclusion. When we divorce these two pillars we are making a serious mistake because they are not problems that we have to solve separately, but rather one feeds back into the other and, without inclusive growth, there is no sustainable growth to which we can aspire. So, I think the issue of informality is key and fundamental to solve. At the moment we don’t have a clear policy agenda that will deal with this problem in a comprehensive way and in the book what we try to do is to put on the table different proposals on how to visualize the problem of informality from a productive point of view, but also from a social inclusion point of view.

The second key issue is innovation. We are at a crossroads and in the book  we try to describe this in depth in the sense that we are going through three transitions with different opportunities and challenges for the region and different ones across the countries of the region. The demographic transition, the digital transition and the green transition. In this context there are different needs for the adoption of some technologies, for adaptation because the labor markets are going to change, green jobs are going to be created, but some other jobs in hydrocarbon sectors, for example, are going to disappear. We are also going to suffer, in some countries that are rich in hydrocarbons, some shocks that will reduce  tax revenues. All these environments, in addition to the accelerated aging of our population, require us to find opportunities to navigate this triple historical crossroads that we are facing. Now, in order to take advantage of the opportunities opened up by the digital transition or the green transition, we need to invest in innovation, in digital skills, in knowledge that will allow us to navigate the best ways to take advantage of the wealth that the region has and that can be useful at this time.

I think that thirdly there is the issue of insertion, which is an issue very close to CAF since its foundation. The bank was born as a regional integration initiative, it has in its DNA very strongly this motivation to strengthen intraregional trade and trade with other parts of the world. But the truth is that we have made little progress as a region in consolidating ourselves in that dimension. There are different policies that we know we have to implement. There is also the opportunity to explore new markets such as, for example, the export of renewable energy. This opens up as an opportunity in the midst of the green transition. But we still have a pending agenda in terms of facilitating trade and promoting our insertion.

Power-shoring is an opportunity in the sense that we can probably attract other companies that want to come and produce in the region given our wealth of clean energy production. But, to do that, I return to the previous point: it is necessary to make investments in innovation, in time. We need to start taking seriously the fact that these opportunities are already here and that it is not an investment that we can wait for many years, but that we have to start down the road to innovation now. The previous report, the energy transition report, the 2024 Network, goes into great depth on these issues. I believe that the fundamental starting point is that this transition has to be fair. And the other fundamental point is that it has to be at the pace of each country in the region. In particular, Latin America, as a region Latin America and the Caribbean, has not been the one that has generated most of the historical emissions. In fact, we are only responsible for 11% of historical emissions, while developed countries have produced 45% of them with the modes of production and consumption that we have been familiar with up to now.

It is something we have to start facing and it is a path that may be worth taking, it is a path that opens up opportunities because we are a region rich in minerals that are critical for the transition, copper, lithium, cobalt, among others, rare earths are also found in some countries in the region, obviously distributed unevenly throughout our territory, but we are also a country with great potential for generating green energy, renewable energy, whether wind, hydro or solar. So, these pillars that always come from our natural capital, our initial endowment, are riches that become very useful in the current context of green transition.

Going back to a previous point, which was not to see growth decoupled from inclusion as a goal, I think we can add a third element, which is that we should not see the issue of sustainability and development in the context of this transition as something that competes with our final objectives, but rather as an opportunity that may promise the path of inclusive and sustainable growth that we must now seek.

I believe that a central axis is investment in early childhood, investment in human capital, be it health or education, is fundamental to prevent gaps from starting at this stage of the life cycle because later it becomes a little more complex and perhaps costly, from a fiscal point of view, to try to resolve or close them. So, for me, it is essential for reasons of efficiency and social justice to invest in early childhood and to aim to ensure that these gaps do not start to emerge at that stage.

I believe that another important focus of the inclusion agenda is the gender agenda, also for reasons of justice and efficiency, wasting the potential of half the population, many issues that are no longer purely a question of discrimination and that come to be seen as more complex issues, biases when hiring, social norms. And so it is an agenda that has obviously changed over time. If we look at the last hundred years or the last fifty years, we see great progress at the political, social and cultural levels, but we still have a long way to go. We are above the global average in terms of the rate of feminicide.

There is another issue that has more to do with how we understand our way of operating in the social arena and that is that I believe we have to focus our efforts on vulnerable populations, we have to focus on where the gaps are much wider and that also implies a territorial focus, it implies a focus on trying to find where the pockets are because sometimes it is not a question of interventions or programs or policies that cover the whole national territory, but rather that the pockets of poverty or the pockets of lack of connection to public services are very much focused in some parts of the territory and I think that this focus is fundamental, also in a context in which there are many fiscal pressures and this agenda cannot be left aside.

Finally, I think it is important to return to the issue of informality because it is good to understand it from a productive point of view, but also on a social scale and there is the aspect of social protection, which I think is fundamental in this agenda of inclusion. We have pension systems, health systems, social protection systems in general, which are designed for a family, let’s say, with formal workers and formal jobs. Today, we can see that the hope that informality will disappear with growth is not being fulfilled, informality levels are worsening in the context of crises, such as the pandemic. And so we have to rethink what social protection systems we want. There has been progress in the region in terms of non-contributory pension systems, for example, which are fundamental, but there are other aspects of the social protection system that need to be addressed to take into account that we are a region in which, on average, 50% of the workforce is in the informal sector.

The role of digital skills and, in general, the set of new skills such as financial skills, for example, is essential to be able to navigate this changing environment that we were talking about at the beginning. The problem is that the environment and technology are changing at an accelerated speed and our education systems are not changing with the same force, with the same intensity, with the same speed. I think it is essential to start taking this agenda seriously, it is not only a question of infrastructure or access today, but precisely a question of the ability to use the technology made available. And there too I think it’s important to start early, to start before the gaps begin to be generated, but obviously with remedial programs or policies for those who are going to be entering the labor market, for example, or those who are at a more adult age who are also very vulnerable to some kind of error, problem or scam due to lack of digital skills or financial skills. In the current context it is important to think about a national policy that starts to include these types of skills in curricula, these types of skills as part of the abilities that a student has to leave school with. There has been some progress on the issue of financial inclusion in many countries in the region. Financial inclusion strategies were designed that included financial education in schools, and also included introducing this content into curricula, but it has been quite uneven throughout the region and a bit intermittent depending on the government in power.

We need to be a bit stronger on the issue of digital skills, where there has been a little less progress. And often we have the equipment in the classroom but we don’t have an internet connection, or we have the connection but we don’t have a teacher who knows how to use the equipment. This whole chain of introducing technology into education has incredible potential and a multiplier effect. It’s not just about teaching them digital skills so that they can have an advantage in the modern world, but the very use of technology in the classroom is essential to closing gaps, where the teacher cannot cope with providing a personalized education for each student’s level, technology can put the teacher at the center as someone who manages the content and imparts the lesson relying heavily on technology so that they can meet the needs of everyone in the classroom and enhance learning.

On the supply side, there is the issue we were discussing earlier, equipping students from an early age with the skills they will need later, not only in the labor market, but in life, skills that are necessary now to survive in the current context.

There is one more issue regarding education systems that we have to rethink. It is true that there is a high return to education, there is a high return to higher education in Latin America and the Caribbean, but we tend to think of higher education only as university. Technical education, unfortunately, is not as prestigious in our countries, but it produces people who will come to meet the needs of the green transition. We don’t need 1,500 engineers, but we do need technicians who know about a specific subject related to renewable energy or wind energy in particular. Perhaps we are not managing to promote technical education for the current needs imposed by a new range of green jobs, nor have we managed to capture the attention of students, nor to generate quality courses in this sense. It seems to me that this, on the demand side, is something that is essential to address, obviously it has to come from a State-level effort, to find a way to promote technical education and higher education, in general, to focus it on the careers that are necessary in the coming years to take advantage of the opportunities that present themselves to the region. I believe that on the demand side there is a need to find a way in which we use technology to complement the skills  of the labor supply that we have today. One very specific example that we explore in detail in the book is the non-tradable services sector. And it is a quite useful example because, in addition, the non-tradable services sector is made up of all those workers who are in the services sector that we do not export: the hairdresser, the taxi driver, the person who provides care for children or the elderly. This whole sector tends to capture a large part of the labor force that is left out of the market when there is an economic shock or boom, it shrinks, it is always our bulkhead, and that sector is typically a low productivity sector that we have to find a way to change, in the sense that with what is coming, with what is coming to us, it is suggested that the green transition will mean that between 3% and 14% of our workforce will need to be retrained or reintegrated into the labor market, so we need that sector that is going to absorb them, at least in the transition, to be as productive as possible. That’s where technology becomes essential. In the care sector I think there is a great opportunity, for example, to use technology to complement the incomplete skills of someone who is taking care of an elderly person, for example measuring their blood pressure, taking their vital signs or knowing how to administer this or that medication I think can be well complemented with the use of technology. The same thing happens with the platforms that we are already seeing in operation for taxis or food delivery. I believe that technology, by bringing all this labor together in a single component, facilitates productivity gains that also contribute to the goal of inclusive growth that we were talking about at the beginning.