EconomyFinancialThe rise in rates challenges the capacity of development...

The rise in rates challenges the capacity of development banks to fund companies

Leipzig, Germany . The financing needs of investment projects in the Latin American region face an environment of rising interest rates, which will make it difficult to access resources from development banks, a process in which companies and even the Mexican government are now involved.

In this regard, Antonio Pinheiro, Vice President of Infrastructure at the CAF development bank, explains that since the pandemic, the lack of liquidity has been particularly present in sectors such as air travel and tourism, whose income has been devastated by the drop in demand. Since the beginning of 2020, when the coronavirus brought air travel to a halt around the world, at least 68 airlines have entered or exited bankruptcy, or been liquidated, according to data from industry consultancy Ascend by Cirium.

Now, development banking is emerging as an alternative, but the conditions in the cost of money are particularly adverse.

“It is not necessarily the levels of interest rates, but the changes that occur until there is a stabilization,” says Pinheiro in an interview. “For long-term investments it raises some issues, but in stable environments we have more predictability.”

Before the pandemic, CAF foresaw that the economy of Mexico, together with Brazil, would grow at a rate similar to that of the United States, which would trigger investments and the demand for resources. However, this has been slowed down by the pandemic itself, which has taken its toll on economic growth.

Previously, the development bank has granted lines of credit in favor of Nafin and Bancomext, among other entities. Even at the beginning of 2020, it closed a loan for 300 million dollars to simplify business processes in Mexico.

Now, Pinheiro assures that new “very close” conversations with the government are taking place, with an eye on other projects of which he omitted to give more details.

“Mexico is a full member of CAF, so we deepened our talks with the Mexican government, with Mexico City, among other regions,” he said.

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The rise in rates challenges the capacity of development banks to fund companies

Development banking emerges as an alternative to help companies recover liquidity after the pandemic, but conditions in the cost of money are particularly adverse.