Improving Payment and Securities Arrangements in Latin America and the Caribbean

1. Improving Payment and Securities Arrangements in Latin America and the Caribbean José Antonio García, CEMLA

2. Contents • The Western Hemisphere Payments & Securities Clearance and Settlement Initiative (WHI) • - Genesis and Structure of the WHI. • - WHI’s contribution for the improvement of payment and securities arrangements in the LAC Region. • The Working Group on Payment System Issues of Latin America and the Caribbean (WGPS-LAC) • - The importance of the WGPS-LAC. • - Finished products and current work: improving payment systems in the LAC Region.

3. I. Origin of the WHI • At the request of the Western Hemisphere Finance Ministers, in January 1999 the World Bank launches the WHI. • The objective of the WHI is to describe and assess payment systems in the Western Hemisphere with a view to identifying improvement measures in their safety, efficiency and integrity. • The World Bank leads the Initiative in partnership with the Centre for Latin American Monetary Studies (CEMLA), the organization bringing together the central banks of the LAC Region since 1952.

4. Organization of the WHI up to June 2003 • International Advisory Council (IAC) • Chair: WB • Secretariat: CEMLA • BIS • Bank of Italy • Bank of Portugal • Bank of Spain • COSRA • De Nederlandsche Bank • European Central Bank • Federal Reserve Board • Fed New York • IADB • IMF • IOSCO • Spain Securities Commission • Swiss National Bank • US SEC CORE TEAM (WB and CEMLA) Payments Working Group Local Authorities COUNTRY TEAM • COUNTRY • ASSESSMENTS • Recommendations Report/Action Plan • Public Reports • Statistical Tables Securities Working Group

5. Core Team Functions and Responsibilities CORE TEAM (WB and CEMLA) Main Functions and Responsibilities • Implementation of the Initiative. • Developing a common methodological framework for the country studies (e.g., Working Papers 1 through 5). • Organization and participation in country studies. • Dissemination of information about the Initiative. Creation and administration of a website showing the outcomes of the Initiative: www.ipho-whpi.org • Coordination with IAC members. • Support Hemispheric Committees/Groups on Payments and Securities Clearance and Settlement.

6. Role of the IAC • International Advisory Council (IAC) • Chair: WB • Secretariat: CEMLA • BIS • Bank of Italy • Bank of Portugal • Bank of Spain • COSRA • De Nederlandsche Bank • European Central Bank • Federal Reserve Board • Fed New York • IADB • IMF • IOSCO • Spain Securities Commission • Swiss National Bank • US SEC • Bring to bear international and national expertise on the initiative strategy and content (policy and practice) from institutions with diverse experiences. • Convene central bankers and securities commissioners to develop constructive approaches to payments & securities clearance and settlement issues. • Help identify appropriate areas and resources for technical assistance and for initiative support. • Assure consistency with the most up-to-date thinking on payments & securities clearance and settlement. • Provide advice and ideas to the Hemispheric Committees/Groups on Payments and Securities Settlement Systems.

7. II. Outcomes • Effective diagnostics: • Cost effective access to international experts • Development of methodological tools for country studies based on international standards • Raising awareness in the Region, creating momentum for the implementation of reforms. • Several countries in the LAC Region have engaged in reforms following many of the recommendations made by the WHI. • Some examples: Argentina, Bahamas, Barbados, Brazil, Chile, Dominican Republic, Ecuador, Guatemala, Honduras, Peru, Trinidad&Tobago, Venezuela (refer to previous presentation by Massimo Cirasino for further details). • Creating conditions for sub-regional harmonization and eventual integration. • Economies of Scale with FSAPs.

8. II. Outcomes • Improved information on the region’s financial infrastructure (“Yellow Books” and statistical information). • In summary, the WHI has helped the LAC Region to achieve significant improvements in: • Efficiency and Security (reduction of credit, liquidity, systemic and operational risks). • Legal and Regulatory Frameworks. • Oversight Function. • Cooperation Arrangements.

9. Availability of “Yellow Books” (English and Spanish) Peru 2000 Argentina 2000 Trinidad & Tobago 2000 El Salvador (English only) 2000 Chile 2001 Colombia 2001 Costa Rica 2002 Mexico 2003 Ecuador 2003 Venezuela 2003 Dominican Republic 2003 Brazil 2003 OECS 2003

10. III. Success Factors • High Level Mandate • A coordinated approach for assessing both securities and payment settlement systems • Reform-oriented approach • Country ownership • Continuous consultation with regional authorities • Cooperation with a broad spectrum of relevant international organizations

11. IV. From the Initiative to the Forum • The WHI has promoted the creation of Working Groups within the Region to ensure the continuation of project activity. • Thus, the Initiative is gradually becoming a permanent regional Forum for payments and securities settlement issues. • The Forum was formally launched in June 2003 at the WHI’s Payments Week. • The Forum, with an enhanced role of the Working Groups and other local authorities, will undertake the following tasks: • Knowledge dissemination, including administration of web page • Preparation of reports on topics of regional interest • Country studies, update of Yellow Books and Statistical Information

12. NEW ORGANIZATION OF THE FORUM • IAC • Chair:WB • Secretariat:CEMLA • BIS • Bank of Italy • Bank of Portugal • Bank of Spain • COSRA • De Nederlansche Bank • European Central Bank • Federal Reserve Board • Fed New York • IADB • IMF • IOSCO • CNMV Spain • Swiss National Bank • US SEC Coordination Group WB CEMLA LOCAL AUTHORITIES Working Group COSRA Working Group CEMLA CONTINUATION OF PROJECT ACTIVITY

13. 2. The Working Group on Payment System Issues of Latin America and the Caribbean (WGPS-LAC)

14. I. GENERAL OBJECTIVES OF THE WGPS-LAC • Promote the knowledge of payment system issues in the region. • Develop training programs. • Research and publications. • Promote the preparation of ad hoc Reports which might serve as a reference point for the on-going reforms in the region. • Help with the implementation of the relevant international standards throughout the LAC Region. • Promote cooperation with other institutions active in payment and settlement systems within LAC and at the International level. The Group meets regularly twice a year. As a general rule, it tries to synchronize its meetings with other relevant events in the payment and settlement systems area.

15. II. CURRENT STRUCTURE OF THE WGPS-LAC • As of November 2003, a total of 18 LAC Central Banks are “full members” (membership was formally requested by the corresponding Central Bank Authorities) • Argentina, Barbados, Belize, Bolivia, Brazil, Colombia, Costa Rica, Chile, Ecuador, El Salvador, Guyana, Mexico, OECS, Paraguay, Peru, T&T, Uruguay and Venezuela. • Other Central Banks in the LAC Region are represented in an indirect manner for the time being. • Formal Observers: Bank of Canada, COSRA, CPSS, U.S. Federal Reserve, IDB, IMF and The World Bank. • Observers actively support the Group through expert advise and by facilitating its insertion in the international discussion of the major trends in the payments and settlement systems area. • Current Organization (June 2003-June 2004) • Chair: Colombia • Vice-Chairs: Argentina and OECS • Secretariat: CEMLA (permanent)

16. III. WGPS-LAC PRODUCTS(in chronological order) • Model for the update of Country “Yellow Books” • Model published at the WHI’s web page on November 2001. • Glossary of Terms Used in Payment and Settlement Systems • Based on the CPSS Glossary in English. • Published in Spanish in July 2002 (hard copy) and at the WHI’s web page. • Published in Portuguese at the WHI’s web page in June 2003. Hard copy will follow during the second semester of 2003. • Periodical updates, including the introduction of new sections, will be posted in the electronic version.

17. III. WGPS-LAC PRODUCTS (cont.) • Self Assessment of the Region’s SIPS vs. the CPSS Core Principles • Methodologies included the CPSS Core Principles Report and the IMF-World Bank Guidance Note for the Assessment of SIPS as part of FSAP missions. • A total of 15 LAC Central Banks participated in this exercise. • An article describing the main outcomes is being published at present. • Statistical Information on Payment and Securities Settlement Systems • Country Tables: • The 17-table model being used is that of the Statistical Appendix of the “Yellow Books”. • Comparative Tables • A model of 18 tables was developed by the WGPS-LAC and the WHI Core Team. • For both Country and Comparative Tables, the WGPS-LAC and the WHI Core Team developed a Standard Methodology (available at the WHI’s web page). • The first final version will be completed during 2003 and published at the WHI’s web page and in hard copy. Updates will follow every year.

18. III. WGPS-LAC PRODUCTS (cont.) • Current and Future Agenda • Increasing the Efficiency of the National Payments and Securities Settlement System (“NPSSS”), including, among others, liquidity management, pricing and competition. • Role of the Central Bank as provider and/or overseer of payment and settlement services. In particular, the organizational aspects of these functions at the Central Bank. • The Impact of Financial Crises over the NPSSS. • Risks in foreign exchange transactions and risks in cross-border payments. • Operating a NPSSS without a lender of last resort facility (e.g., in fully dollarized economies). • More and better Education, for both private sector participants and government authorities, in order to further support reforms to the NPSSS. • Enhanced Cooperation, with market participants and amongst authorities. • Improving Technical Assistance. • Increased Harmonization, particularly of the legal and regulatory environments, with a view to increasing the safety and efficiency of cross-border transactions to support integration. • The need for increased Interoperability of payment and securities settlement systems. • The need for increased Resilience of the NPSSS.