International Finances

Working Paper - Link (English) - 2025

This study examines the role of green, social, sustainable, and sustainability-linked (GSSS) bonds in financing the energy transition in Latin America and the Caribbean (LAC). It combines a descriptive assessment of sectoral bond issuance patterns from 2014 to 2024 with an econometric exercise focusing on the region’s top five issuers. The results indicate that GSSS bonds have contributed to the expansion of renewable energy capacity but have not yet produced a structural shift in the overall energy mix. These findings underscore both the opportunities and limitations of sustainable finance, highlighting the importance of complementary policies, market reforms, and effective governance to maximize its transformative potential.

Working Paper - Link (English) - 2025

Financing the transition to a green economy in Latin America and the  Caribbean demands innovative approaches to address the region’s significant investment gap, estimated at 7%–11% of GDP annually by 2050. This publication focuses on the financial strategies underpinning green productive development policies, which make up a transformative and comprehensive framework that integrates economic goals with environmental sustainability.

Key insights include strategies to reallocate subsidies, lower capital costs and foster private sector investment through blended finance and institutional capital. Innovative tools like green, social and sustainability-linked bonds have emerged as pivotal instruments to channel investments into priority areas and must be enhanced. However, in order to scale up sustainable financing, systemic barriers such as underdeveloped financial markets, regulatory inefficiencies and macroeconomic instability must be addressed. This report also emphasizes the role of robust governance and regional collaboration in optimizing resource allocation, and offers actionable recommendations that provide policymakers and stakeholders with a financial road map to harness green productive development policies as a catalyst for sustainable, inclusive and resilient growth in the region. 

Working Paper- Link (English) - 2023

This document examines the evolution of Latin America and the Caribbean’s (LAC) international issuance of sustainable bonds - green, social, sustainability, and sustainability-linked bonds (GSSS) - since the first green bond was issued in December 2014. Cumulative international GSSS bond issuance reached $100 billion from 2014 to 2022. Four key trends are identified: GSSS bonds’ share of the region’s total international bond issuance rose from under 1% in 2018 to 32% in 2022. Initially dominated by green bonds, the region has diversified into sustainability and sustainability-linked bonds, which became predominant by 2021. Since Chile’s first sovereign international green bond in June 2019, sovereign issuances have driven the region’s sustainable bond market. A propensity score matching (PSM) analysis found a statistically significant “greenium,” indicating investors’ willingness to accept lower yields on GSSS bonds compared to conventional bonds, reflecting a commitment to social responsibility.

Journal Article - Link (English) - 2019

In this study, we examine the history of sovereign credit ratings in Latin America and the Caribbean, the evolution of credit quality, and the relationship between rating changes and the cost of accessing external financing as reflected in the behavior of sovereign bond spreads. We apply an event study to estimate the impact of credit rating changes on sovereign bond spreads in the past fifteen years. We find that the impact is asymmetric (with a larger impact for downgrades) and is sensitive to both spatial and temporal clustering. The results suggest that the quality of sovereign credit is important in determining the cost of access to private external financing.

Working Paper- Link (English) - 2018

The economic challenges in the Caribbean are significantly linked to the region’s external vulnerability. This paper examines financial flow trends in the context of strengthening the region's resilience, focusing on vulnerability, fragility, and resilience-building. Vulnerability is seen as a structural variable influenced by geography and economic forces, while fragility is a process variable characterized by institutional shortcomings and resource shortages. Building resilience is the most challenging aspect, involving the generation of net fund inflows, maintaining competitiveness, and enhancing citizens' well-being. The paper assesses trends in international capital flows, including portfolio flows and foreign direct investment, and explores strategies to improve access to external financing. It highlights the role of private flows and access to international debt markets, noting that private portfolio flows, though volatile and limited, could be enhanced through innovative instruments like debt swaps and green bonds alongside increased cooperation. The paper concludes with strategies for building resilience in the face of external vulnerability and restricted financing, emphasizing the connection between resilience and competitiveness and the importance of integration and convergence to foster regional cooperation.

Working Paper- Link (English) - 2018

This report examines the history of sovereign credit ratings in Latin America and the Caribbean, the evolution of credit quality, and the relationship between credit rating changes and the cost of accessing external financing as reflected in sovereign debt spreads. From 2003 to 2011, there was an upward trend in credit quality, leading to a sharp compression of bond spreads. However, after peaking in 2011, credit quality improvements stalled, and since 2013, sovereign credit quality in the region has slowly deteriorated. Using an event study methodology to estimate the impact of credit rating changes on sovereign bond spreads over the past fifteen years, the report finds an asymmetric impact: downgrades have a larger effect (103 basis points) than upgrades (-27 basis points). This impact varies by subregion, with South America and Mexico experiencing the most significant effects, and by time period, with the greatest impact from downgrades occurring between 2008 and 2012 and the most downgrades between 2013 and 2017. The findings confirm that sovereign credit quality significantly influences the cost of accessing private external financing.