IICA participates in FAO's Conference
"The Financial Crisis and Agricultural and Rural Financing in Latin America”
On October 21st-23rd, 2009, IICA’s Associate Deputy Director General Mr. David C. Hatch participated in a conference on “The Financial Crisis and Agricultural and Rural Financing in Latin America” in Santiago, Chile.This event was organized by the FAO Regional Office for Latin America and the Caribbean. For more information on this event including the program, participant interviews and presentations made at this event please click here.
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Interview with Mr. David C. Hatch on risk management and the financial crisis (Read interview in Spanish)
How has risk management changed due to the crisis?
After the onset of the crisis, many financial intermediaries are withdrawing from the industry. There is a great deficit in lending to the agricultural sector. They are lending only to their best customers that are already known, operating in an established market and with significant collateral. They are using public guarantee funds to try to absorb some risk in that regard. It is a difficult situation for everyone.
My perception is that they have become more demanding in terms of requirements: if they previously provided a loan to a farmer during a drought, now they lend only to those who have irrigation systems or a well. If they previously provided a loan to a person who was far from a provincial city or a paved road, now they don’t unless he can prove he has the necessary transportation or is near a village or a commercial market.
How long could these kinds of restrictions last due to the crisis?
If the economy improves in this regard then it could easily take a year and a half, depending on the recovery of the overall economy. We are noticing signs of recovery in the developed countries of North America and Europe and there will probably be a delay with respect to Latin America, but I hope that the delay isn’t long.
Is it possible to return to the pre-crisis state?
The fundamentals of the agricultural sector say yes. For example on the demand side, in the future there will be a huge demand for food and agricultural products, especially by China, India and Asia. With investment, Latin America could be well positioned to meet this demand. With the economic recovery there will be many chances for financial gain and greater access to credit.
I think that the challenge is the limited depth of rural financial markets so we must work very hard in the coming years to improve risk management systems, improve information, try to introduce new technologies to lower transaction costs, among other measures. It is a big challenge.
What are the challenges facing the governments?
During this crisis, governments need to review their policies and have both short and long term policies to protect the most vulnerable populations and to prevent increased poverty; but longer term policy must be well structured to support the agricultural sector in all respects, and to improve financial markets and have financial policies that permit farmers to enter the financial market with reasonable terms.