Copyright SELA, June All rights reserved. Printed in the Permanent Secretariat of SELA, Caracas, Venezuela.

Sistema Económico Latinoamericano y del Caribe Latin American and Caribbean Economic System Sistema Econômico Latino-Americano e do Caribe Système Economique Latinoaméricain et Caribéen Trends and opportunities of international cooperation to support the development of small and medium-sized enterprises Permanent Secretariat of SELA Caracas, Veneuela June 2010 SP/Di N 7-10

Copyright SELA, June 2010. All rights reserved. Printed in the Permanent Secretariat of SELA, Caracas, Venezuela. The Press and Publications Department of the Permanent Secretariat of SELA must authorize reproduction of this document, whether totally or partially, through difusion@sela.org. The Member States and their government institutions may reproduce this document without prior authorization, provided that the source is mentioned and the Secretariat is aware of said reproduction.

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises C O N T E N T S FOREWORD EXECUTIVE SUMMARY 5 INTRODUCTION 3 I. SELA AS A SPACE FOR RAPPROCHEMENT FOR REGIONAL COOPERATION: MEETINGS OF INTERNATIONAL COOPERATION DIRECTORS FOR LATIN AMERICA AND THE CARIBBEAN 7 II. CURRENT SITUATION OF INTERNATIONAL COOPERATION FOR DEVELOPMENT AND ITS IMPACT ON LATIN AMERICA AND THE CARIBBEAN 10 SMEs 12 III. INTERNATIONAL COOPERATION FOR DEVELOPMENT OF SMEs IN LATIN AMERICA AND THE CARIBBEAN 14 1. Development programmes: macroeconomic policies 18 a) Institutional environment, public policies and business environment 18 b) Integration and globalization 22 c) Access to financing 23 2. Development programmes: microeconomic policies 26 a) Productivity and competitiveness through training and technical support 26 b) Marketing and promotion 26 c) Use of information technologies, innovation and development 31 IV. AREAS OF OPPORTUNITY FOR COOPERATION FOR SMEs 32 V. PROPOSALS AND RECOMMENDATIONS FOR SUPPORTING THE DEVELOPMENT OF SMEs IN LATIN AMERICA AND THE CARIBBEAN THROUGH ICD 33 VI. CONCLUSIONS 36 BIBLIOGRAPHY 37

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises F O R E W O R D This document of the Permanent Secretariat of SELA is aimed at providing an overview of the major trends in international cooperation to support the development of micro, small and medium-sized enterprises (MSMEs) in Latin America and the Caribbean (LAC). It will also support the debates expected to take place in the XXI Meeting of International Cooperation Directors for LAC. The first chapter refers to the actions of SELA in the area of international cooperation and stresses the background, objectives and general results arising from the annual meetings of international cooperation directors for LAC, which have been held since 1988. The second chapter analyzes the current status of cooperation and its impact on the region, as well as the importance of MSMEs in this context from the economic and social perspectives. The third chapter discusses cooperation for MSMEs in the region and studies the two major areas dealt with by cooperation programmes and projects: i) macroeconomic policies (institutional environment, public policies, business environment, integration and access to financing), and ii) microeconomic policies (productivity, competitiveness, marketing, promotion and use of information technologies and innovation). The fourth chapter provides an assessment of opportunities for cooperation for MSMEs and presents some difficulties and possible courses of action to improve the assistance of bilateral and multilateral donors with a view to supporting the development of MSMEs. The fifth chapter summarizes a set of proposals and specific recommendations for promoting cooperation and supporting the development of MSMEs in Latin America and the Caribbean. At the end, the document presents some conclusions about the challenges of cooperation for MSMEs in Latin America and the Caribbean. The Permanent Secretariat of SELA wishes to thank Luz María de la Mora Sánchez for her work as a consultant for this study.

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises 3 EXECUTIVE SUMMARY This document starts from the basic question of how and to what extent International Cooperation for Development (ICD) can support the transformation of small and mediumsized enterprises (SMEs) in order to enable them to underpin the process to achieve the Millennium Development Goals, particularly the fight against extreme poverty. In dealing with ICD for SMEs, this document offers a brief analysis of the trends of cooperation in the region. The study recognizes that cooperation for development towards middle-income countries a category which includes most of Latin American and Caribbean nations is becoming increasingly scarce; and cooperation aimed at the MSME sector turns out to be quite limited when compared to the flows targeted to other sectors and regions. However, international financial institutions are working hard to channel reimbursable and non-refundable cooperation towards this sector in Latin America, both for bilateral projects and for regional and subregional projects. This document stresses that, in view of such limited cooperation, it is crucial for the region, and particularly for this sector, to find ways so that both donors and recipients can take the greatest possible advantage of ICD for the benefit of this important sector of society. With this report, SELA seeks to contribute to give those officials responsible for international cooperation for development in the region a clear vision of cooperation offers, through programmes and projects for SMEs, and to make proposals and recommendations on how to maximize it. Furthermore, this document may also help to determine the best options that Latin American and Caribbean countries have for development and implementation of ICD as a whole. Based on a representative selection of cooperation projects and programmes for SMEs in different countries and in the region and as a whole, this document establishes two broad categories to understand where ICD is aimed at in each sector. The first category examines those programmes oriented at macroeconomic policies, which seek to strengthen the institutional environment. The second category includes those projects aimed at addressing microeconomic policies so as to have an impact on individual enterprises. Macroeconomic programmes have deliberately sought to strengthen those institutions responsible for SMEs as well as the business environment in which they operate, the policies to increase their participation in global markets and their access to financing. Microeconomic programmes are intended to address the needs of individual businesses, strengthening them directly through training aimed at improving their operational skills in terms of management, production, marketing, use of appropriate technologies and developments and innovations, among other things. The study finds that the implications of applying macroeconomic or microeconomic programmes for SMEs in the region are rather different. Thus, this issue calls for a reflection on the type of cooperation programmes that may turn out to be more efficient and have a greater impact on the economy of each country and community. However, there is a huge gap in this connection, which should be urgently handled not only from the perspective of the policies for SMEs but also from the standpoint of cooperation. International organizations, cooperation agencies, banks for integration and development, as well as integration secretariats have offered cooperation programmes to support this sector of the economy in different countries of Latin America and the Caribbean. Although they have created partnerships for cooperation among various donors, there is still a long way to go in order to institutionalize this practice and promote greater coordination.

Permanent Secretariat Technical and Economic Cooperation 4 The analysis presented here shows that, as a tool to expand capabilities and increase the chances of success and sustainability of MSMEs in all the economies in the region, ICD could be strengthened by promoting greater coordination, coherence and consistency among ICD projects and programmes, so that those that seek to strengthen institutions may also reinforce those aimed at consolidating entrepreneurship at the individual level. This report finds that cooperation agencies in recipient countries can contribute to potentiate this instrument for the benefit of SMEs, by placing it within a broader context of cooperation as part of the strategic roadmap of cooperation to strengthen SMEs. The proposals made by the Permanent Secretariat of SELA in this document to support ICD oriented at SMEs in the region seek to promote programmes with a strong impact and sustainability over time. It considers the following areas of action which could have a major impact on SMEs: 1. Inventory of experiences of cooperation in the MSME sector in the region. 2. Development of a map of ICD for SMEs at the national level. 3. Definition of thematic areas and projects which includes the comparative advantages of both donors and recipients, as well as the real demand in the different countries of the region. 4. Follow-up mechanisms for monitoring projects and programmes and establishment of a set of indicators to determine the effectiveness of such programmes for SMEs. 5. Coordination and harmonization of the various actors in each country and among institutions offering such cooperation programmes. 6. Referential frameworks to identify the various characteristic of ICD to support SMEs and to differentiate it from the rest of ICD. 7. Sectoral programmes for SMEs among agencies or officials responsible for ICD in each country, with the participation of ministries and public agencies in charge of the MSME sector, and to engage associations and chambers of the productive sector. 8. Innovative financing sources for developing new projects. 9. South-South and Triangular Cooperation, starting from an analysis of supply and demand on the basis of existing experiences. 10. Decentralized Cooperation to explore the best ways to promote the participation of regional and local governments receiving cooperation for SMEs. 11. Dissemination of information about ICD programmes and projects for SMEs so that it can be better used. Based on its own experience in developing programmes for SMEs in LAC, SELA can be an ideal partner for national officials responsible for international cooperation in order to promote these recommendations. To this end, SELA could conduct the following activities: 1. Seminars to analyze the experiences in the area of cooperation for SMEs and to outline criteria for best practices of international cooperation for development. 2. Convene experts in statistics on cooperation in order to hold a debate and develop a proposal to systematize information through indicators, so as to better assess the impact of ICD on SMEs in each country of Latin America and the Caribbean. 3. Endorse activities to spread information about the programmes existing in the region to support SMEs via SELA s Web site.

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises 5 INTRODUCTION The sector of small and medium-sized enterprises (SMEs) 1 in Latin America and the Caribbean represents the vast majority of businesses in each one of the countries of the region. However, this sector has traditionally faced numerous obstacles to their operation and growth, development and potential contribution to the generation of wealth and jobs that the region requires. International Cooperation for Development (ICD) has become a tool to underpin public policies aimed at developing this sector through the design and implementation of programmes, projects and cooperation activities for their development, and to boost capacities of individual enterprises. The role of cooperation is justified by the potential that SMEs have to contribute to reduce extreme poverty and to pursue the Millennium Development Goals (MDGs). 2 We are facing a scenario where cooperation for development to middle-income countries 3 which are a majority (LAC) is becoming increasingly scarce, in the forms of financial flows, technical assistance and non-refundable training. In turn, cooperation agencies and recipients have focused their efforts on achieving the MDGs (health, education, environment, equity), which has further limited the cooperation resources aimed at strengthening the business sector (Easterly, 2007). OECD data reveal that, in 2008, Official Development Assistance (ODA) 4 totalled slightly over US$ 116 billion, of which US$ 6.975 billion were earmarked for Latin America and the Caribbean i.e., almost 6% of the ODA provided during that year. Specifically, US$ 500 million were allocated for the education sector, US$ 253 million for health, and ODA oriented to private sector development amounted to US$ 120 million, that is, 1.72% of the total ODA channelled to the region in that year. 5 The reality is that there are few resources and extensive needs. 1 In Latin America and the Caribbean, there is not a standard definition of the MSME sector. There are various criteria that are used to define categories of enterprises based on the number of employees, sales volumes or assets. Using the number of employees, micro-enterprises could be considered to be those that are self-employed businesses or have from 1 to 5 employees; small enterprises would be those that employ between 5 and 15 people, depending on the country; and medium-sized enterprises could have up to 200 employees. This categorization is only offered as a reference for defining the set of companies considered in this analysis (Zevallos, 2003). If they are classified by sales volume, micro-enterprises should have annual sales of up to US$ 35,000, while small and medium-sized enterprises should have annual sales of around US$ 300,000 (VISA and Nielsen Group, August 2007, p. 2). 2 In 2000, the countries that participated in the United Nations General Assembly unanimously adopted the Millennium Development Goals as a commitment to reduce the most important factors of imbalance in the world and achieve further development. 3 During the period 2000-2008, the per capita income for middle and lower-income countries ranged from a minimum of US$ 1,943 to a maximum of US$ 9,077 (ECLAC, 2010, p 3). 4 Official development assistance is defined as those flows to countries and territories on the DAC List of ODA Recipients (available at www.oecd.org/dac/stats/daclist) and to multilateral development institutions which are provided by official agencies, including state and local governments, or by their executive agencies; and each transaction of which is administered with the promotion of the economic development and welfare of developing countries as its main objective; and is concessional in character and conveys a grant element of at least 25 percent (calculated at a rate of discount of 10 percent. (OECD, 2009, p. 1). 5 The OECD considers donations, credits and investments as ODA. OECD. Stat Extracts. Creditor Reporting System. http://stats.oecd.org/index.aspx (consulted on 15 May 2010).

Permanent Secretariat Technical and Economic Cooperation 6 Ironically, the development of the private sector could contribute to achieve the MDGs more quickly, by addressing issues such as the development of public policies for that sector, access to financing, levels of efficiency and capacity of innovation, to name a few aspects that are indispensable for sustained growth and development. In a context of strong competition for ICD resources, the question is how to maximize and streamline the financial and technical cooperation that the region receives for the development of SMEs. It is equally important to consider how South-South Cooperation (SSC) and Triangular Cooperation (TC) 6 can complement cooperation offers from the North in order to underpin the development of SMEs through exchanges of successful experiences. This document seeks to define cooperation for development of SMEs on the basis of the analysis of the trends of cooperation in the region. For the purposes of this analysis, the cooperation projects and programmes for this sector are classified into two categories: on the one hand, there are those that form part of macroeconomic policies as they are intended to strengthen the various public and private institutions dealing with SMEs in the region, and the other hand there are those that respond to microeconomic policies, which are aimed at individual companies and consist of training and support to consultants, among other activities. The implications of applying macroeconomic or microeconomic programmes for SMEs in this region are certainly quite different and call for reflection on which type of cooperation programmes may be more efficient and have a greater impact on the economies of every country and community. This document acknowledges that, in a scenario of limited cooperation for this region and for this sector in particular, it is essential for both donors and recipients to find ways to achieve maximum effectiveness of ICD; and the first step in that direction is to know the current situation. This study was conducted on the basis of information from secondary sources. It is not intended to make a thorough account of all cooperation programmes for SMEs in each and every one of the countries of the region, but to highlight the most representative programmes from various sources and in the various areas where such cooperation has been practiced. Starting from a qualitative analysis based on relevant experiences with cooperation for SMEs, this document is aimed at providing elements that may be useful in shaping up the regional agenda for cooperation, based on the Paris Agenda and the Accra Agenda for Action on the effectiveness of assistance. 6 South-South cooperation involves at least two developing countries that participate in cooperative activities, whereas triangular cooperation typically combines resources and capabilities of a developing country and a developed nation to provide assistance to a third country.

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises 7 I. SELA AS A SPACE FOR RAPPROCHEMENT FOR REGIONAL COOPERATION: MEETINGS OF INTERNATIONAL COOPERATION DIRECTORS FOR LATIN AMERICA AND THE CARIBBEAN Created on 17 October 1975 through the Panama Convention, the Latin American and Caribbean Economic System (SELA) 7 is an inter-governmental regional organization whose fundamental purposes are as follows: i) To promote intra-regional cooperation in order to accelerate the economic and social development of its members; ii) To provide a permanent system of consultation and coordination for the adoption of common positions and strategies on economic and social matters; and iii) To support regional integration through actions that may contribute to coordination among existing subregional schemes. Throughout its 35 years of existence, SELA has conducted an important work in its quest to promote cooperation, consultation and regional coordination, which has led the institution to organize a broad range of activities and programmes with a regional scope in the most diverse areas of development, cooperation and integration in Latin America and the Caribbean. SELA s efforts have not been limited to the Latin American and Caribbean region, since the organization has included other regions of the developing world in its activities, with the purpose of fostering and enhancing technical cooperation among developing countries and South-South Cooperation (horizontal cooperation). SELA has a vast experience in the promotion of cooperation in Latin America and the Caribbean. Since its inception in 1975, the Latin American Council the organization's highest decision-making body has adopted a variety of Decisions aimed at strengthening regional cooperation and South-South Cooperation. In this connection, SELA was the first institution that promoted the creation of a specialized forum to address the issue of cooperation from the Latin American and Caribbean perspective. Thus, in 1987, SELA launched the meetings of International Cooperation Directors for Latin America and the Caribbean, as a space for rapprochement of national authorities in charge of cooperation, with the purpose of analyzing the main issues on the agenda for regional and international cooperation in order to promote it and strengthen it in terms of progress and economic and social development. From that date until now, SELA has managed to maintain this forum for discussion, analysis and regional consultation, which already has 23 years of existence. One of the most significant landmarks in the area of international cooperation and development at the United Nations was the meeting convened by the General Assembly in 1978 and held in Argentina, to address the promotion and implementation of Technical Cooperation among Developing Countries (TCDC). As a result of this important meeting, 138 countries as well as regional and international institutions participating in the event adopted the Buenos Aires Plan of Action of (BAPA), which marked a milestone in the history of international relations and in the field of 7 At present, it is made up by 27 States of Latin America and the Caribbean, namely: Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Colombia, Cuba, Chile, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, Suriname, Trinidad and Tobago, Uruguay and Venezuela.

Permanent Secretariat Technical and Economic Cooperation 8 international cooperation. During that meeting, a comprehensive framework for the development and strengthening of South-South Cooperation was created, which became a guiding instrument for the actions undertaken by countries and international organizations on TCDC. Thus, horizontal cooperation was established as a powerful tool for external assistance offered by developing countries, which attracted interest from the governments of Latin America and the Caribbean that began to implement regional initiatives in this direction. Within this context, the Latin American Council of SELA established in 1987 nine years after the adoption of the Buenos Aires Plan of Action the Meetings of International Cooperation Directors for Latin America and the Caribbean, which became a space for rapprochement of international cooperation partners to exchange ideas and experiences in this area, from a Latin American and Caribbean perspective. The Permanent Secretariat of SELA in its capacity as a regional focal point was assigned the responsibility of supporting national focal points in charge of TCDC and international cooperation so that they could carry out a variety of activities and initiatives. It should be borne in mind that during its IX Regular Meeting, held in September 1983, the Latin American Council adopted Decision No. 156, Regional Focal Point for the Exchange of Information on Technical Cooperation among Developing Countries. As of that year, one of the most significant contributions of the Permanent Secretariat to international cooperation and TCDC at the regional level was the pioneering INFOSELA initiative (along with the UNDP s INRES-SUR), aimed at promoting the creation of databases at centres fostering excellence at the regional level, and at increasing supply and demand for TCDC. As a matter of fact, those specialized events started as Meetings of International Technical Cooperation Directors, and later on they included the modality of Working Sessions of the Ad-Hoc TCDC Group and the meetings of the Mechanism for Coordination of international organizations and regional bodies carrying out TCDC-related activities. This institutional structure within the framework of SELA was maintained until 1998. But during the Meeting of Directors held in Dominican Republic that year, an agreement was reached to combine two mechanisms into a single one: the Meetings of International Cooperation Directors for Latin America and the Caribbean, with three specific purposes: a) Such a forum should include the various players and themes of international cooperation; b) It should expand the scope and level of the forum in order to discuss issues beyond technical cooperation and South-South cooperation; and, c) It should convene, in a systematic way, government authorities in charge of international cooperation, as well as other inter-governmental actors working in the area of cooperation. Through time, these meetings have allowed the units specialized in international cooperation in the Member States of SELA to discuss issues and undertake actions for training and/or following up a broad variety of areas, including: i) Predominant trends of official development assistance and international cooperation; ii) TCDC (horizontal cooperation or South-South cooperation) and economic cooperation among developing countries;

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises 9 iii) Conditionalities for official development assistance and other forms of international cooperation; iv) The new actors of international cooperation; v) The informal economy, employment policies and international cooperation; vi) Cooperation to support micro, small and medium-sized enterprises; vii) International.cooperation in the health sector; viii) Compliance with the Millennium Development Goals and international cooperation; ix) Vulnerability of countries to natural disasters and contribution of international cooperation; x) International cooperation for trade facilitation and assistance. One of the specific objectives of these events that have gathered international cooperation directors for Latin America and the Caribbean (LAC) over the last 23 years is precisely the dissemination of information about successful experiences and best practices concerning international cooperation and South-South cooperation from a multidimensional perspective, as a way to support national efforts aimed at economic and social progress through more appropriate and efficient international cooperation. In addition, participants in these annual meetings have underscored that such events have fostered a closer relationship among national authorities in charge of cooperation and bilateral and multilateral development agencies, NGOs, the private sector, regional and international organizations, universities, and other cooperation partners. These meetings have also served to spread information about cooperation opportunities offered by bilateral and multilateral donors at the regional and international levels, to coordinate activities, cooperation for development programmes and projects (and South-South cooperation) in different areas. Moreover, they have contributed to the adoption of agreements and common positions in the region as regards the issue of international cooperation with extra-regional actors and various multilateral forums. Finally, it must be recognized that, in compliance with the mandates issued by the Member States of SELA at the meetings of International Cooperation Directors and the Latin American Council itself, the Permanent Secretariat has implemented a variety of programmes and initiatives related to regional and international cooperation, including meetings, forums, seminars, studies, training courses and the creation of Action Committees with the purpose of addressing specific issues identified as priorities within the Latin American and Caribbean agenda, focusing on international cooperation and Technical Cooperation among Developing Countries (TCDC), or South-South cooperation. This space for rapprochement of the various actors involved in international cooperation is very valuable for the region. There are many points of consensus, but those issues on which there are disagreements must be addressed. The relevant issues on which Latin America and the Caribbean must strengthen its leadership on the basis of regional consensus in order to better defend its development interests within the current global context include the following: the difficulties in complying with the commitment taken on under the United Nations so that industrialized countries allocate 0.7% of their GDP to development assistance; the follow-up on the commitment to increase development assistance under the G-8; the initiatives undertaken in the area of development assistance by the Organization for Economic Cooperation and Development (OECD), the World Bank and the United Nations, among others; the new modalities and conditionalities for international cooperation; and the processes and commitments to

Permanent Secretariat Technical and Economic Cooperation 10 transform the institutional framework and promote governance of regional and international cooperation. In view of the above, the Permanent Secretariat considers that these annual meetings of International Cooperation Directors for Latin America and the Caribbean remain valid and offer the governments in the region great opportunities to promote coordination, consultation and cooperation as regards top-priority areas for the development of Latin American and Caribbean countries. Undoubtedly, as evidenced in this document, the issue of development of micro, small and medium-sized enterprises and international cooperation to support this sector is a priority for the region, in view of the economic and social potential of SMEs, particularly because of their capacity to generate jobs and contribute to economic growth with social inclusion. Precisely for this reason, after consultations with the Member States, the Permanent Secretariat decided that this would be the central topic on the agenda for the XXI Meeting of International Cooperation Directors for Latin America and the Caribbean. The next sections offer an analysis of some general trends of international cooperation at present, and a review of international cooperation aimed at contributing to the development of micro, small and medium-sized enterprises. II. CURRENT SITUATION OF INTERNATIONAL COOPERATION FOR DEVELOPMENT AND ITS IMPACT ON LATIN AMERICA AND THE CARIBBEAN This document starts from the basic question of how ICD can benefit the transformation of SMEs to enhance their contribution to the growth of their communities and the fight against poverty. While these businesses do not represent the driving force behind economic growth in the region, this does not mean they do not play a strategic role for the social, economic and political sustainability of society as a whole (Torres, 2006, p 15). We are facing an adverse context for cooperation due to the limited supply of resources, with the donor community favouring bilateral cooperation with low-income countries and especially with those from sub-saharan Africa (Alonso, 2007 p. 62, OECD 2009, p. 11). In fact, Asia and Africa historically have had the bulk of ODA flows and currently hold the largest share with 34% each (ECLAC, March 2010, p. 12). The recognition of the reduction of financial resources to support middle-income countries and the need to reactivate the financial assistance flows to promote its development led to the "Monterrey Consensus" (Alonso 2007). Financial flows to the region have come more in the way of foreign direct investments, capital investment in stock market or lines of credit from financial institutions and development banks, than as grants or non-reimbursable aid for development. In view of the economic and financial crisis that broke out in September 2008, the availability of resources for ICD is further restricted due to the need for traditional donors to reduce public spending and the implementation of restrictive fiscal and monetary packages (ECLAC, March 2010, p. 3). For example, in 2010 Spain cut its official development assistance (ODA) by 300 million euros, and in 2011 the reduction is expected to be 500 million euros. 8 Furthermore, Denmark ordered a decrease of one tenth of a point of GDP from 0.86% to 0.76%. 9 8 Adjustment measures of decree-law of the Government in ELPAIS.com. 20 May 2010. http://www.elpais.com/articulo/espana/medidas/ajuste/decreto/ley/gobierno/elpepuesp/2010052 0elpepunac_20/Tes (Consulted on 1 June 2010).

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises 11 Both traditional donors and recipients have been involved in a discussion still unresolved on the effectiveness of ICD in fostering development. Since the 1990s, the international debate has focused on how resources are more efficiently allocated to meet the purpose for which the ICD was created: raising living standards of the population in the developing world. The harmonization, coordination and alignment of ICD have been topics for debates in the High-Level Forum on Harmonization in Rome (2003), the Roundtable on Managing for Development Results in Marrakech (2004), the Paris Declaration on Aid Effectiveness (2005) 10 and the Accra Agenda for Action (2008). In all these forums, the discussion has focused primarily on how to create a better regime for the operation of ODA financial flows. They have been aimed at promoting the coordination of policies, strategies, goals, and even administrative procedures for aid management. 11 Rules, principles and indicators have been established to promote ODA coherence, avoid duplicity and ensure its sustainability, making it possible for recipients to own projects and thus achieving a significant impact at the local level. These discussions focused on ODA have also moved into the field of non-reimbursable cooperation and technical support to enhance their effectiveness and efficiency. The effectiveness has also been discussed in relation to the ability of international cooperation bodies to support the MDGs and implement the cooperation. Critics have noted that international cooperation bodies are neither transparent nor accountable to the countries or groups they are supposed to benefit (Easterly, 2008). Moreover, much has been discussed about the fate of resources in view of high operating costs to provide, implement and manage cooperation (Moyo, 2009). Another issue under discussion is the fact that organizations have not specialized themselves in specific sectors at the country and regional levels, since this sometimes has resulted in inconsistencies among the various providers of cooperation within a country and even a sector. The atomization of cooperation among the various international organizations has hindered their specialization as donor fragmentation has hampered the coordination and harmonization by both suppliers and recipients of cooperation. One of the main challenges of international cooperation bodies is how to succeed, in a rational and coherent way, in getting interventions to be effective, coordinated and aligned with national objectives (Sagasti and Prado, 2009, p. 12). To meet these challenges, the Development Assistance Committee (DAC) of the OECD has tried to establish good practices for cooperation with a view to aligning them with the development policies of 9 Compilation of austerity measures taken in Europe and published in El Semanario on 1 June 2010. http://www.elsemanario.com.mx/news/news_display.php?story_id=39196 (retrieved on 1 June 2010). 10 The Paris Declaration established five principles ownership, alignment, harmonization, managing for results and mutual accountability and 12 indicators of progress that donors and recipients agree to comply with, so that the ODA has greater efficiency and coordination is achieved among the various donors projects. This action plan, jointly prepared by developing and donor countries, has promoted sustainable results, raising the efficiency of cooperation. However, not all countries of the South accept the mechanisms established in the Paris Declaration as valid for all types of cooperation as they emerge from discussions within the Development Assistance Committee of OECD, with donor countries leading the debate. 11 For a discussion on the implementation of the five principles of the Paris Declaration in Latin America and the Caribbean (Bolivia, Colombia, Honduras, Nicaragua, Peru and Dominican Republic), see Schulz, 2009.

Permanent Secretariat Technical and Economic Cooperation 12 host countries to channel aid in an effective and efficient way. This discussion about effectiveness is a horizontal issue affecting cooperation, particularly in the SME sector. A key element of cooperation is precisely the types of horizontal cooperation among developing countries, i.e., SSC and TC, which are increasingly used as a complement to achieve the MDGs. In particular, SSC in the LAC region offers broad potential for promoting sustainable development processes, especially the strengthening of national capacities. In fact, this type of cooperation has gained prominence in the global development policies following its inclusion in the Accra Agenda for Action, where important advances were made to strengthen it since it is considered a mechanism for horizontal learning and promotion of development of national capacities. The LAC region is ideally positioned for the development of SSC due to structural factors such as geography, language, common history and administrative and institutional contexts with some similarities that make such cooperation operable. Moreover, the availability of regional institutions, such as SELA or SEGIB, and subregional schemes, such as CAF, SICA, CARICOM and MERCOSUR, among others, makes this modality an ideal channel to promote the exchange of experiences and strengthening of capacities (Schulz, 2009, p. 4). 12 The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) has been a strong advocate of SSC through its Committee on South-South Cooperation. During the thirty-third period of sessions of ECLAC held in Brasilia, a report was submitted on cooperation over the biennium 2008-2009, which highlighted the body's participation in more than one economic cooperation activities as well as its drive towards SSC (ECLAC, April 2010, p. 16). SSC and TC also face their own challenges in terms of the need to systematize best practices and experiences, identify profitable programmes, and people and ways to offer them, gain knowledge about the supply and demand for such cooperation and rely on a system of financial and statistical information about flows that are assigned to cooperation based on these modalities. Limited financial resources from traditional donors have been available for the TC, but the exact amount is unknown (Sanin, 2009, pp. 2 and 3). SSC and TC may become valuable tools for the ICD to reach the MSME sector and thus take advantage of the capacity building that different countries of the region have already developed. In brief, the debate on ICD and the mechanisms to promote its effectiveness and efficiency is not finished. The analysis on cooperation for SMEs can offer new elements to help define the best options to turn ICD into an instrument to support development and achievement of the MDGs. SELA has undertaken to make a contribution through this study. SMEs Supporting SME development in the Latin American and Caribbean region via ICD is a good cooperation policy, since it offers the potential for the fulfilment of Goal #1 of the Millennium Development Goals: reducing extreme poverty. It may also be a tool to help bridge the gap in economic and social inequality in the region. 12 The Development Cooperation Forum of the United Nations Economic and Social Council (ECOSOC) discusses and fosters SSC at the multilateral level. Other forums, such as SEGIB, SELA, UNDP, IDB and ECLAC, promote it at the regional level. (Sanin Betancourt and Schulz, 2009).

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises 13 SMEs account for about 95% of companies in LAC, generate more than 60% of jobs, cover around 40% of GDP, contribute to coordination of production and the creation of value added (IDB, 2005, p. 2). However, despite its importance in the economy and potential to contribute to growth and development in general, Latin American and Caribbean SMEs face severe obstacles and shortcomings that prevent them from being fully productive and competitive. Among the most common problems they face are the following: A significant portion of companies work in the informal sector; few are trained to improve their operations; their access to credit is limited due to their informality, poor management capacity and a lack of collateral; when they have access to financing, the funding is punished with higher interest rates and shorter terms of repayment due to its risk rating. They also have little or no access to investment in capital funds or seed money; they do not implement processes for selecting human resources so as to choose the right staff according to their business needs. In addition, they underinvest in technology, often acquiring equipment, machinery and software which are not the best choice for their type of operation. While they know how to produce, they have difficulties in selling and developing marketing strategies. Globalization, information technologies and knowledge economy, intra and extra-regional economic integration processes and free trade agreements represent challenges they hardly know how to overcome. Faced with such a complex situation in a sector of the utmost importance for the generation of employment and production, governments, international cooperation organizations and multilateral bodies have undertaken public policies, programmes and projects for cooperation aimed at promoting and strengthening this sector. Most countries have developed, to some extent, their own capacities for the design and implementation of strategies aimed at strengthening SMEs. Virtually every country in the region has a public institution and/or private company that support them.

Permanent Secretariat Technical and Economic Cooperation 14 Table 1 Public institutions supporting SMEs Country Institution Argentina Plurinational State of Bolivia Brazil Chile Colombia Costa Rica Ecuador Honduras Jamaica Mexico Panama Dominican Republic Bolivarian Republic of Venezuela Trinidad and Tobago Office of the Deputy Secretary for SMEs and Regional Development Vice Ministry for Micro and Small-sized Enterprises, Ministry of Production Development and Plural Economy Brazilian Service of Support for Micro and Small-sized Enterprises (SEBRAE) Production Development Corporation (CORFO) Directorate for Micro, Small and Medium-sized Enterprises, Ministry of Commerce, Industry and Tourism Directorate-General for SMEs, Ministry of Economy, Trade and Industry Office of the Deputy Secretary for Small and Medium-sized Enterprises and Handicrafts, Ministry of Industry and Competitiveness SME National Council (CONAPYME) Business Development Corporation, Ministry of Industry, Investment and Commerce Office of the Deputy Secretary for SMEs, Secretariat of Economy Authority for the Micro, Small and Midum-sized Entreprise (AMPYME). Programme for Promotion and Support of Micro, Small and Mediumsized Enterprises National Mutual Guarantee Fund for Small and Medium-sized Enterprises (FONPYME), People s Ministry for Planning and Finance Ministry for Labour and Development of SMEs Source: Prepared with information available on Web sites of the governments of each country. In LAC, we cannot talk about a public policy for SMEs. Programmes being developed by each of these public bodies are very different as they cover different needs, have different priorities, use a variety of support tools and do not provide a unique pattern in the design of projects, programmes, activities and actions. Many efforts have been made by universities and the private sector (such as the FUNDES Foundation) to support the development of these businesses. But most countries have had difficulties in making their support systems for SMEs operate effectively (IDB, 2005, p. 5). Thus, a way to support them has been precisely ICD. One of the main challenges faced by organizations and government bodies responsible for cooperation at the national level is precisely to coordinate projects, programmes and activities related to ICD for SMEs and align them with the goals set in national development plans in each country.

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises 15 III. INTERNATIONAL COOPERATION FOR DEVELOPMENT OF SMEs IN LATIN AMERICA AND THE CARIBBEAN In Latin America and the Caribbean, a wide range of parties to International Cooperation for Development (ICD) work at the bilateral and regional level; they have different approaches, focus on different topics and use different tools. Therefore, a minimum level of alignment, harmonization and coordination among them is of the essence. As a matter of fact, ICD was developed by parties as different as financial institutions (e.g.: IMF and CAF); over 30 regional and subregional development banks (e.g.: IDB and CABEI); subregional bodies (e.g.: CAN, CARICOM, MERCOSUR); around 60 bilateral international cooperation agencies; the agencies of the United Nations system (e.g.: UNDP or ECLAC); integration secretariats (e.g.: ALADI, the Central American Project, SEGIB or SICA); national and international NGOs and a wide array of private foundations. In LAC, most of the non-refundable cooperation comes from bilateral cooperation agencies. Their projects have focused mainly on the implementation of the MDGs in the fields of education, health, environment and reduction of poverty. The latter has involved the development of the business sector and SMEs in the region. For their part, development banks and international organizations have prepared an agenda to bolster the sector s development via refundable loans, but also through non-refundable cooperation. For instance, the IDB Multilateral Investment Fund (MIF) has implemented programmes to support the sector regarding financing, technology, trade, training, innovation and streamlining. Similarly, the World Bank, through the International Financial Corporation, the United Nations Industrial Development Organization (UNIDO), the Andean Development Corporation (CAF), and the Organization for Economic Cooperation and Development (OECD), has carried out programmes for the development of SMEs in the region. Such efforts at international cooperation are an attempt at supplementing the national efforts to strengthen SMEs and make them feasible. But these multiple parties which fund different cooperation programmes generally work independently and there is lack of coordination among them, making an impact on their effectiveness and clout (Sagasti and Prado, 2009, pp. 7, 13 and 16). Horizontal cooperation in LAC countries through SSC and TC has been mostly aimed at education and health, agriculture, electric power generation and supply, institutional reinforcement and environment preservation. SSC and TC set to develop cooperation programmes linked to SMEs have been marginal, probably because countries are still in the process of consolidating their own policies in this sector (ECLAC, March 2010, p. 7).

Permanent Secretariat Technical and Economic Cooperation 16 Table 2 Main actors of international cooperation with projects and programmes AGENCY COOPERATION SECTOR COUNTRY OR REGION German Cooperation Agency (GTZ) Austrian Development Agency (ADA) Canadian International Development Agency (CIDA) United States Agency for International Development (USAID) Spanish Agency of International Cooperation for Development (AECID) Economic development of the private sector Development of the private sector and industry Entrepreneurs and business development Economic Development Economic growth for poverty reduction Latin America and the Caribbean Central America: Nicaragua Plurinational State of Bolivia, Colombia, Haiti, Honduras, Peru and Caribbean Community (CARICOM) Latin America and the Caribbean Latin America and the Caribbean Japan International Cooperation Agency (JICA) European Commission: AL Invest DEVELOPMENT BANKS Inter-American Development Bank (IDB) World Bank International Financial Corporation - Poverty reduction and job creation - Reduction of income inequalities - Business capacity building To support internationalization of small and medium-sized enterprises SMEs in Latin America Development of the private sector Sustainable development of the private sector - Mexico, Central America and the Caribbean - South America Central America, Mexico and Cuba Andean region MERCOSUR, Chile and Venezuela Latin America and the Caribbean Developing countries Andean Development Corporation (CAF) FONPLATA Mobilization of resources for the development of the private sector Multilateral financial organization promoting physical integration of its members Spain and 16 shareholder countries in Latin America and the Caribbean Argentina, Bolivia, Brazil, Paraguay and Uruguay

Trends and opportunities of international cooperation SP/Di N 7-10 to support the development of small and medium-sized enterprises 17 INTEGRATION SYSTEMS Central American Integration System (SICA) Ibero-American General Secretariat Within the context of Central American integration, to serve as the guiding organization for improving competitiveness and coordination of public policies for SMEs Ibero-American Programme of Institutional Cooperation for the Development of SMEs (IBERPYME). Inter-enterprise cooperation through seminars and workshops for the exchange of experiences gained in Ibero-America Belize, Costa Rica, Guatemala, Honduras, Nicaragua, Panama and El Salvador Ibero America Secretariat of the Commonwealth Development of the private sector and SMEs English-speaking Caribbean International organizations Organization of American States (OAS) United Nations Development Programme (UNDP) UN Economic Commission for Latin America and the Caribbean (ECLAC) United Nations Industrial Development Organization (UNIDO) Support the development of micro, small and medium-sized enterprises Collaborates with the private sector by providing technical information, advisory and recommendations for public policy making and in development-oriented projects Latin America and the Caribbean Latin America and the Caribbean Institutional strengthening for SMEs Latin America and the Caribbean Support the development of the private sector to underpin poverty reduction, by strengthening industrial policies Source: Prepared with information taken from the Web sites of each agency. Latin America and the Caribbean For the purpose of this analysis, cooperation programmes developed by multiple suppliers to SMEs in LAC have been divided into two major categories: 1) programmes in furtherance of development and/or strengthening of macroeconomic policies aimed at consolidating an institutional environment which promotes a business environment leading to the SMEs development, and 2) programmes in furtherance of micro-economic policies aimed at directly reinforcing businesses through training to improve their operational capabilities concerning management, production, marketing, use of appropriate

Permanent Secretariat Technical and Economic Cooperation 18 technologies and development and innovation, among others. This classification is shown in Chart 1. ICD Map for SMEs. The programmes referred to herein generally deal with different thematic areas; however, for the purposes of analysis, they have been included in the areas where the program seems to have a higher profile. The following examples are representative of the wide range of cooperation programmes related to SMEs in the country and the region as a whole. The selection criteria have been set according to the information at hand instead of a rigorous assessment of the achievements, as most of them are not available in the consulted sources. 1. Development programmes: macroeconomic policies This section briefly shows the substance of the cooperation programmes that have been developed both at the national and regional level, by agencies, development banks, integration secretariats and international organizations for SMEs in three major fields: a) institutional environment, public policies and business environment; b) integration to the world market and involvement in global economy; and c) access to financial sources. The purpose is to understand where the programmes are and what the coordination level is among different parties. a) Institutional environment, public policies and business environment SMEs in LAC undergo a business environment characterized by many regulations, excessive bureaucracy and multiple arrangements with high associated costs to register a company, making operations and incorporation difficult (IDB, 2005, p. iii). Several cooperation programmes and projects have tried to help improve the conditions in the regulatory and institutional environment where these businesses operate by developing friendlier public policies. The following is a sample of how these programmes have tried to get in line with national development strategies; some of them have already entered into