CAF Regional Bank will finance up to $380 million in economic development projects in El Salvador

The regional bank plans to invest funds in four economic development projects in El Salvador. However, most of the resources to be allocated will go to education, informed the Andean Development Corporation (CAF).

The Development Bank of Latin America, an agency of the Andean Development Corporation (CAF) which El Salvador joined this year, plans to invest between $375 and $380 million in four economic development projects in El Salvador. This is according to Oscar Avalle, a representative of the multilateral agency.

Avalle, who worked at the World Bank for 26 years and served as a representative of El Salvador and Costa Rica, explained that the CAF plans to provide $150 million in education financing. In addition, the other funds employed in economic development projects in El Salvador will be used for initiatives such as sustainable infrastructure and climate projects, support against Covid-19, and customs integration.

Although Avalle clarified that they would not support these four initiatives, he stated that they are also working with the government to integrate more broadband into the country to improve connectivity and further its economic development.

These are the four economic development projects in El Salvador that the CAF bank is financing:

Education

“The first initiative that the CAF is working with El Salvador for the amount of $150 million is related to online learning.

We are not starting with something ethereal, but instead, we are beginning with something concrete, going to the root of the economic development problem and complementing the work of others (government entities),” Avalle explained during a recent interview.

He added that this project, which will include initiatives from the first lady’s office and others working in the government, is already in the preparation stage. “We hope it will be ready before the end of the year (2022) and start in January of next.”

The lines of action will include teacher training in technology and innovation and reducing the digital divide for learning among students in El Salvador.

Sustainable Infrastructure

The second area of financial support will focus on sustainable infrastructure in the face of climate change. “We must focus on good roads and sustainable energy, including geothermal. But first, we are going to address the issue of sustainable roads with $75 million to support infrastructure development,” he added.

For example, he mentioned that in the case of highways, we must take action to avoid the need to repave roads every winter.

Support Against Covid

“All the regional governments have had to make enormous financial efforts that they did not plan to fight the Covid pandemic. Actions taken include purchasing vaccines and masks by hospitals and other measures putting a heavy weight on the economy. The CAF has developed a very agile line of credit so that the organization can provide governments funds to alleviate that deficit,” Avalle said.

He also assured that this project is under development. It is estimated that it will be in place before November, and the money disbursements will occur during the same month.

Customs Integration

The fourth axis of financing that the CAF intends to give through the bank is to work on the integration of customs and trade facilitation. 

“It is a key element to having real and effective economic development projects in El Salvador. In addition, we must be able to integrate the Salvadoran system with other Latin American countries. The idea is to work to reform the customs service and digitalize procedures,” he said.

He mentioned that the Andean Development Corporation is already working with the Salvadoran Ministry of Economy and the Customs Directorate to develop this project.

Improve Bandwidth

Avalle stressed that to carry out economic projects in El Salvador, such as improving customs and furthering digital education, it is also vital to enhance bandwidth and internet access in the country.

“Bandwidth is a key element in the country’s economic development because economic activity is becoming increasingly decentralized towards households and people with lower relative income. That is why bandwidth is so important and strategic as regards the country’s development,” he said.

For this reason, he indicated that his organization is working with the Salvadoran government to see how a project can be developed in that area since the internet access that El Salvador has comes through Guatemala. This is because the country does not have its own cable, which is a costly investment.

“It’s very costly, and we must find the right time to do it because no one will spontaneously extend a cable to El Salvador. Therefore, the country must take advantage of the moment technical personnel pull cables. We are currently discussing this issue with the government to see how we can support that with technical cooperation and financing”, he explained.

Avalle, who mentioned that his organization is in the process of opening offices in El Salvador, highlighted that the CAF bank plans to execute the projects four years after they are approved to guarantee that they are carried out. “If we have a very long project, often the person who proposes it is not the same person who executes it. That means things don’t always work out,” he said.

The Development Bank of Latin America made the financing official in July of this year with its incorporation in El Salvador. Following this, the country paid the first installment of $65 million of a premium of $460 million in shares it must pay over seven years to qualify for further financing.

The Salvadoran government turned to the CAF after negotiating with the International Monetary Fund (IMF) regarding a stalled $1.3 billion loan.