Sustainable finance and digital innovation

Dr Christopher Sabatini

Good evening, good afternoon, good morning, depending on where you are around the globe. It’s my pleasure to welcome here the Minister of Finance of Chile, Rodrigo Cerda. We had hoped to have him here in person today, in fact, at the Chatham House building itself, but unfortunately, an emergency in Chile and business there have kept him in Chile. So he didn’t get to enjoy one of the few sunny days we’ve had in the last couple of weeks, actually, in London.

But we’re lucky to have him here virtually to talk about a number of things when it comes to Chile: economics and finance, in particular what Chile has done, in terms of green finance, in terms of digital innovation, and in terms of basically restructuring and maintaining the market orientation of the economy, both in trade relations and in terms of fiscal prudence, during his time in office and during Sebastián Piñera’s time in office and also, his perspective on the future and future recommendations for Chile.

So, just by way of background, Minister Cerda has a PhD from the University of Chicago. Before that he was a student at Católica. Before that he served in the first administration of Sebastián Piñera as a Co-ordinator for Macroeconomy in the Ministry of Finance. He was appointed to Head of Pindeco, and then in – last year he was appointed to the Minister of Finance of Chile. So, let me begin, Minister. I’m going to ask you just questions. Let’s try and keep this as informal as we can, despite the fact that it’s virtual. I’d like to try to pretend, as least, we’re here in person.

Let me start first with a question of green finance. Chile has managed to turn what was at one time a handicap, its lack of access to carbon-based fuels and resources, into actually a success story, and building on green finance to be able to build hydrogen power, build water, hydroelectric, as well as being able to convert solar and its very strong solar resources into electricity and energy. Give us a little sense of what was done on the state level to be able to seed this type of investment, and what’s been done to create incentives for private sector investment in green finance.

Rodrigo Cerda Norambuena

Well, first of all, hi, Christopher. It’s great to be here and to talk with you and with the audience today. Well, in fact, yeah, I think that climate change is a big topic in the whole of the world today, but, you know, Chile has not many emissions, in term of world participation. Of course, we are a very small country, and in that sense, well, of course, we don’t make a lot of emissions. But, anyway, we think we need to worry about climate change, and we think this is a very huge topic that will be relevant for the world, but also for Latin America, in fact.

And, well, probably, well, Latin America, it’s a country that – it’s is a set of country in which we’re going to be, of course, very impacted by climate change. We have a – of course, we have a lot of oceans, and in that sense, we got to be – we can have an impact, in term of, well, different changes in our climate, and in that sense, we need to worry. So, we think this is an opportunity, and from the point of view of the Ministry of Finance, it’s an opportunity in which we need to think, we need to make public policies, and we need to take actions.

And I think probably one of the first action that we made – that we make is that, going back to 2019, we made the first emission of a green bond in the Americas. And this is very relevant because while we started in 2019, but we have continued making emission of those bonds during the 2020 and 2021, which are years in which of course we have, as in the world, we have larger fiscal deficit. And since we need to finance this fiscal deficit, we made those emission of green bonds, which allow us to make a lot of investment in climate change, from the point of view of the state.

So, I think that was one of the first things we did. Today we have almost, I think, 16 billions of emission just this year of green bonds and in that sense, we’ll have a lot of space of – in term of fiscal expenditure to be financed using those green bond. This was the first thing we made, did but also, we tried to use the capability of the multilateral agreements and in that case, in the funds that were made available internationally, and in that sense, we have also tried to make use of those funds to finance some projects.

In that sense, one of the projects we have been financing in those years has been a very large solar plant in our Atacama Desert. Well, probably you know – you may know that the Atacama Desert is one of the places in which we have one of the larger intensity of solar capacity, and in that sense, where we need to use those capacity, and this is an advantage of our country. Well, this is in the solar capacity, but also, we are started to worry not just about solar capacity, we’re exploring today green hydrogen. And green hydrogen is also one of the possibilities of having some new energies in Chile, and we think that the green hydrogen, when we make some studies on going forward, we think that the cost of production of green hydrogen in Chile might be one of the lowest one in the planet, and in that sense, we are also trying to make some new investment, in that sense.

To do that, we’re using one of the – our agencies, which is CORFO. CORFO is one of the agencies in which we can make some loans to private firms at very interesting rates to make those investment, and also today we’re trying to make some study with the World Bank to see what might be the barriers for private firms to make investment in green hydrogen in the coming years. And we’re trying to make those decision today to make us competitive as possible in this industry in the future.

So, we’re trying to make a lot of efforts in that sense, and I think we’re making some very interesting progress, in that sense.

Dr Christopher Sabatini

Give me a sense, Minister, staying on this for a second, how the green bond, what those funds went through, in terms of investments. You mentioned hydrogen, green hydrogen, solar. What other opportunities have you taken advantage of, and how that works a little bit, and then CORFO is obviously, I think, a very innovative and important institution in Chile’s development because it sort of seeds, if you will, new technological advances. So, give me a sense too, in terms of, through CORFO and through the green bonds, what you think this will mean, in terms of Chile’s role as a leader in green technology and sustainable energy beyond Chile’s own borders.

Rodrigo Cerda Norambuena

Yeah, so – well, in that sense, well, when we made those emission of green bonds, well, we were thinking about climate change in general, and we realised that one of the thing we need to improve in Chile was public transportation. And public transportation was made, probably as in the rest of the world, in many part of the world, based on fuels, and in that sense, was one industry that could improve a lot, in term of their impact on climate change.

So what we made is that we used the emissions of the green bonds and to finance some new public transportation that was based on electricity, and in that sense, that make much less problem with the – in term of climate change. So we made those type of investment, and we made that investment in Santiago, which is the metropolitan area in Chile, which is almost one third of the population, just here in Santiago.

But also, we have made a lot of improvement in the rest of our country. So if you go to Concepción, which is one of the biggest city in Chile, but in the South of Chile, you will see something similar, and also, we’re trying to do something similar in the North of Chile. So, we’re trying to make a lot of effort in that sense, and going forward with the idea of the green hydrogen industry, well, CORFO is also maybe very important, in the sense that CORFO will be one of the agency in which we’re going to try to make the loans to the public – to the private sector. But again, I mean, we’re making loans, but who is making then investment at the end? Well, it is the private sector, which is taking the risk and in that sense, where we’re trying to make some effort in the sense that we’re making – we’re providing lower interest rates, in the sense that it is interest rate that are based on the risk of the state of Chile, which is a low-risk. But anyway, I mean, the projects are project that are funded finally by the private sector.

So, that’s also one of the reason we’re working today with the World Bank, because we’re trying also to see, well, in that industry, in the hy – which is the green hydrogen industry, which is a very new industry, we’re trying to see what are the problems, what are the barriers, and we’re trying to see, well, how are we able to lower the cost for that industry in Chile. In some ways, some kind of nascent industry that we’re trying to help, but anyway, in the long run, it will be the private sector that will be bearing the risk, in that sense.

Dr Christopher Sabatini

Talking about the environment a little bit more, in 2019, 2020, 2019 Chile was about to host COP25. Fortunately, it had to hold that meeting virtually because of protests, but of course it took an active role also in COP26. What are your reflections on, sort of, what Chile learned, both from the experience of 25 and COP26, and what is it doing internally, both its Government and the private sector, to address issues that came out of these two conference – climate summits?

Rodrigo Cerda Norambuena

And just a point that you just talk about was that we have protests, such a protest in 2019 in Chile, and were very relevant, very huge in fact. In some way we had the people in the street about, in some cases, almost one million people in the street, it was very huge. The main topic of the protests were in fact social topics such as pensions, free education and so on. But also, one of the topics was the climate and in that sense, when we’re talking now today about climate change and so on, and why the Government is so worry about that is that because we also are seeing that people here in Chile is also very worried about the environment and the climate change, and in that sense, well, it’s a topic that, for us, is quite relevant.

And in that sense, well, we –well – so, let me go back now to the COP25 and COP26, in which we have been very involved. Of course, COP25 it was supposed to be here in Chile. It was not possible, and finally, it was held in Madrid, España, and we were very thanks – we make a very thanks to the Government of Spain for working with us in that case. And probably one of the thing we have discussed there, and that we’re still working on, is what do we understand for climate finance today. And I think this is a topic that’s not quite defined, and in which we need to worry a lot in the future. And on that sense, we have been trying to work on that since in COP25, also in COP26, and I think that we need to work a lot on that, because at least for us, for Chile, climate finance should be one way in which we make all the effort to help at least less developed countries to finance all the requirements they need to make the effort on the environment.

This is not easy at all, and in that sense, we need to see how more advanced economy can help us, the less developed economies, which of course may be very relevant as the part of the world in which we are is a very large part of the world. So, we have been working, in that sense, in COP25 we created what we called the Climate Fund on the UN, which is the Climate Fund, which it started with a capitalisation of $10 billion.

It has also been very relevant for less developed economies, and in fact for Chile, to finance one of those projects, of those climate projects. As a matter of fact, we were just talking about the solar plant in the Atacama Desert. That there, that project was financed from the Climate Fund from the UN, and in that sense, we’re trying to make all the effort for our economies to starting to capitalise that fund, and helping also less developed economy.

So I think one of the thing we need to be worried in the future is how climate finance can be helpful for less developed economy, and how we mobilise capital for addressing what is happening here in less developed economy here, in term of climate change.

Dr Christopher Sabatini

Thank you very much. We have two questions from Andrea Downey. We’ll go to you, Andrea, later. They’re actually questions I was going to ask, so I’m glad I didn’t, and I didn’t steal your thunder. But when I call you, be ready. You will be unmuted and, if you can, ask your question in person.

But, let me shift a little bit towards trade now. Chile’s been a real free-trade leader. Obviously some would argue that it has to be. A small, long, thin country, it has tied its future and its economy to global trade, and has done so very successfully with trade agreements with over…

Rodrigo Cerda Norambuena

Sorry to interrupt you, Christopher, but just to say to people that are looking to us, well, but of course, we are very open to trade today, but that wasn’t the case in the past. I mean, in middle of the 70s, we used to have very large taxes and duties and so on, and well, we have made a lot of progress, but it took time and I think it has been a very long road.

Dr Christopher Sabatini

It’s interesting too, of course. You, in some cases, unilaterally lowered those taxes and tariff barriers, so it wasn’t just negotiated free trade agreements with individual countries. You basically threw open your country and hitched your economic growth, substantial and impressive economic growth, and reduction of poverty, specifically after 1989, to free trade. So, what’s your sense? There’re obviously two large trade agreements that Chile’s involved in now, in addition to its individual FTAs. One is the Pacific Alliance, the effort to create both a unitary stock market with Columbia – I’m sorry, with Brazil, Colombia, Chile and Mexico. And then of course, there’s also the CPTPA – C…

Rodrigo Cerda Norambuena

CPP.

Dr Christopher Sabatini

CPTPP, there.

Rodrigo Cerda Norambuena

Yes.

Dr Christopher Sabatini

If the US would get back in it, it would just be the TPP, but we can only hope for that. So, give me your sense of Chile’s leadership in both of these, and what you think the future of both are, including, if I can add just a question on the last one, the CPTPP, where you think it will lead, and if the United States, I know you’re not going to speak for the United States, will eventually join back in. Is that your hope?

Rodrigo Cerda Norambuena

Yes, well, thank you, Chris. Yes, so, just to give an idea, on the 70s we used to have very large tax and duties on trade and, as you told – well, we made – we decreased those taxes very unilaterally on mid-70s and beginning of the 80s. When we did that, well, of course, we opened our economy to trade and we have a very large increase in our growth rate, at least during ten to 15 years.

I think that was the way we used to manage, on term of trade, during the 70s and the 80s and starting in the 90s, when – after we came back to democracy in Chile, well, we start to have a lot of free trade agreements, as you just told us, okay? And, well, Chile, the taxes on duty in Chile are around 6%, so that’s normal, but anyway, when you look to the effective tax on duties in Chile, it’s around 0.2%, which is much lower than the 6% we have for – in term of trade for every country in the world.

But the reason, well, the reason is that we have free trade agreements almost with 90% of the countries currently. So, of course, the free trade agreement, as the name says, we have tax on duty of 0% for those countries, so that’s the reason, well, we have this effective tax on duty almost 0% in Chile, okay? And we have made those free trade agreement starting in the 90s, so at least for 30 years now, okay? And in that sense, well, today we continue in that role. As you said, well, we have the CPTPP, which is in our Congress, and we expect that it will be approved in the coming month, probably, hopefully before the new administration will be in place in Chile, which is in March. So, that’s one of the possibility, we’re trying to do that.

In addition, we are working now with the European Union also to have a free trade agreement with the European Union, which is also very important, and we continue working with the Pacific Alliance. In term of the Pacific Alliance, today almost 80% of goods have the – are under the free trade agreement, which is very important because, well, we have tax on duty for the 80% of goods between, as you said, Colombia, Peru, Mexico and Chile. This is very relevant. And today we think that we are starting to work on a second generation of free trade agreements. Second generation, we are thinking on services mainly, and mainly, I would say, on financial services, and this is one of the things we have been working on, in fact, with the UK. We are trying also to have a – to improve our trade with the UK. We think we have a lot of opportunity on financial services, because the UK was one of the leaders, in term of financial services, of the world, and we would like Chile, well, to be a platform for Latin America, in term of financial services. And in that sense, we think that we might be a very good partner for the UK, and the rest of the world, to be, here in Chile, a platform for financial services.

So, we’re trying to work on all those ideas, with the European Union, with the Pacific Alliance, and also with the UK.

Dr Christopher Sabatini

Yeah. Deepening a little bit more on the UK issue, and I want to say, I misspoke earlier. Brazil is not in the Pacific Alliance, you’re right, it’s Peru…

Rodrigo Cerda Norambuena

It’s Peru, yes.

Dr Christopher Sabatini

…Colombia, Chile and Mexico. The – so, what is your sense of how the UK and Chile can better deepen their trade relation?

Rodrigo Cerda Norambuena

Well, we have some very important collaboration with the UK. One of the collaboration, an important collaboration is on financial services, and also, I would say, within financial services, it’s on climate change, and how financial services are going to help the transition we need to go on, in term of climate change. We just have a very interesting collaboration with the UK, in term that we’re going to have an MoU on financial services that’s going to be sign on. In fact, my travel to the UK was thought of, in term of signing that agreement, that MoU, and I couldn’t be able to do it. But we hope that that will be signed in the incoming days, and in that sense, we think that we have a lot of space.

We are working a lot on financial services with the UK. We are learning from the UK. Our teams here in the Ministry of Finance are learning a lot from the UK Government in that sense, and I think that might also be interesting, not just for Chile but also for Latin America. In that sense, why? Because we are involved here as Chilean Government, of course, with some other government in Latin America, I would say, mainly through the multilateral institutions, such as the IDB, the World Bank and so on, in which we have also some platform on climate change and financial services, in which Chile, we’re trying to be some kind of a leader in that sense, and everything we are learning from the UK on that topics, we are trying to also to make available to our Latin American countries through that institutions.

The reason we are using those institution is, well, as you know, we, Minister, are for – are here for some time or space, but those institution are more permanent, and in that sense, what we learn here, and if we provide it to those institution, will be much more permanent for the rest of the countries.

Dr Christopher Sabatini

Thank you. You mentioned the issue of the permanence of Ministers, or their lack of, and institutional consistency over time, so let me get to the question and, sort of, the 800lb gorilla in the room right now. As of March 11th you’ll have a new President, Gabriel Boric, 35-year-old President, he’ll be 36. His birthday’s February 11th so it’s a few days away, ten days away, so, if you want to get him a card. The very young President, bringing in a very young cohort of Economists and Policymakers, fresh faces. An interesting change, and I don’t mean that in any loaded term, interesting generational change in Chile.

His nominated Finance Minister is going to be Mario Marcel. I’m sure you’ve spoken to him, but if you had a chance – you know, he’s going to be sitting in your seat right now, if you had a chance, what would you tell him he should do or look out for, in your seat, where he’s going to be as of probably the afternoon of March 11th?

Rodrigo Cerda Norambuena

Yes, and, well, of course, you didn’t say, but I will say it, of course, this is a change of coalition in power, where we are a coalition from the centre-right, and then there will be more a coalition from the left. But this is not – well, this is starting to happen in Chile, at least, in the last four to five administration and we have a President Bachelet, then President Piñera, and so on. These are changes in coalition, and today we are going to have another.

And in that sense, well, what I think here in Chile, and which is very relevant is institutions. Institution in Chile are important, and I think one of the institution more important in Chile are the fiscal institutions, in that term. Well, in that sense, we have the Ministry of Finance, which is a very relevant institution, and we do have a great institution, but also we have now a Fiscal Council, which is an autonomous fiscal council that is looking to our projection, to our fiscal expenditure and so on. I think this is very important for transparency and for having a very good idea for debate in Chile.

And of course, we have the Congress, which also is always looking to what is happening, in term of public finance. So, in that sense, just I would say that I’m quite confident that Chile is going to prevail, in term of fiscal responsibility. In that sense, we have made a huge effort during the pandemic, in term of fiscal expenditure, but even though we have made that, I would say that Chile still have a quite low debt, in term of GDP compared to other countries. Chile will have a debt, in just el cuando, when the new administration will start, of around 36 point of GDP, which in term of international comparator, I think, that’s a quite reasonable debt.

In term of during the pandemic we also used our fiscal assets very intensively, but I would say – I can say to people now that looking to us that we start to build again our fiscal assets. Just two days ago, I think, yes – oh no, on Monday, we make a new deposit under our fiscal assets of around almost 1.5 point of GDP, so we’re start to building again our fiscal asset. We expect to have it in March our fiscal asset of around $18 billion that will be – that could be used for the new administration. So, in that sense, I think we – the new administration is going to start very well, in term of public finance. And I think – well, I don’t really think I need to make any suggestion to Marcel. I think, he has a – well, as you may know, he’s coming from the Central Bank, but he was part of this Ministry of Finance years ago. He was the Head of the Budget Office during the term of Ricardo Lagos, so I’m quite sure that he will make a very good Minister of Finance.

Dr Christopher Sabatini

Good. So, you think – because what we’ve been saying too is, of course, there’ve been built pillars to Chile’s success. Now, obviously, we saw from the protest some concerns about social mobility and the like, but the pillars, property rights, and fiscal restraint, you think those will remain, is what you’re saying, in terms of a safe investment environment for investors in Chile?

Rodrigo Cerda Norambuena

Yes, I think they will remain, and I think that we could be confident, in that sense, that fiscal responsibility is one of the key in Chile.

Dr Christopher Sabatini

Good.

Rodrigo Cerda Norambuena

And in that sense, we need – so let me be clear in that sense. Since the social protests we have, well, we know that we will probably need more fiscal space to finance some social pressures, and I’m quite sure that we’re going to have that fiscal space. Even one way could be through more economic growth. Another could be some probably some increases on some taxes, but anyway, in any case, fiscal responsibility will be one of the keys.

And just to provide a flavour on that, we as the administration that will be ending on March 11th, we just approve quite an important change on pensions. We approved what we called the Pension Guarantee [mother tongue – 35:11], which is a large change on our finance to social pensions in Chile, which is a very large increase, in term of that it’s required almost one point of GDP of more fiscal expenditure. And we make this change just a few days ago, and we’ll finance that through increases on some taxes, and also we used some fiscal space available. And in that sense, well, I think that will be the way to go in the future, that probably we’re going to see some – also some – probably some user on some new fiscal expenditure on social topics, but this will be always financed either through more taxes or by the using of fiscal space, when we have it.

Dr Christopher Sabatini

The changes you made on the pensions, is the hope that that will take off some of the pressures to dip into the pensions that have been building, do you think that will be sufficient?

Rodrigo Cerda Norambuena

Yes, and the reason is that what we made is – well, just to have an idea, in Chile, people age 65 and older, it’s around 2.5 million people, 2.5, okay? We used to have a pillar, a pension pillar that was financed from the state, that was providing help to almost 1.5 million of those 2.5 million. So, what we did in this pension reform that we just passed is that we increased the coverage. Now we’re going to go – we will provide coverage to almost 2.2 million of those 2.5 million people, so it’s a large increase in coverage. But also, we provide an increase on the amounts of pension financed from the state for each of those people. Now what it is going to finance, it’s almost – yeah, so it will be almost $200 per month per people. And those $200 per month per people, it’s around what we call in Chile the poverty line. So, in that sense, we’re providing some amount that will be – that’s larger than they will have today, and for much more people. So, in that sense, we think that we have not solved, but we have helped at least to starting to solve one of the problem in pensions.

Of course, the next Government has said that they will discuss the pension system in the future. Okay, we know that’s one of the possibility, but we think that now the starting point is much more different than in the past, because we’re covering much more people and with larger amounts, in term of help from the state.

Dr Christopher Sabatini

Good. So, we have some questions. Let me go first to Andrea, who had two questions on green finance, and, Andrea, if you can unmute yourself, I’ll let you ask the question yourself.

Andrea Downey

Thank you, and good evening. Mine are just very high-level questions about the green bonds. I’m quite fascinated by all of this notion, and I’m wondering if you could just elaborate a bit if Chile’s green bonds are targeting institutional investors, and if those investors are domestically located or international, perhaps, and if you have in your development of this programme ever contemplated opening bonds up to the retail market to generate some revenue or income that way. Thank you.

Dr Christopher Sabatini

Thank you, Andrea. Minister Cerda.

Rodrigo Cerda Norambuena

Thank you, Andrea, a very interesting question. So, just to provide an idea of what we are doing, kind of, with the green bonds emission, when we started in 2019, which was almost two years ago, so it’s quite new, but we have made a lot of emission and we have learned a lot on that. We have made those emission. Well, what we do is that we issue the bond. When we issue the bond we said to people, I mean, to institutional investors that we are going to use those bond to finance some kind of environmental expenditure in Chile.

So, usually what we did is that we said, okay, we are going to use that money to finance those type of projects. So, I would have said, okay, we are going to finance, as I said, public transportation. In Chile at least one of the very important transportation is what we call the Metro here, the Metro, which is the train here in Chile, so we have financed that and what we have to do is that we have some reports, some annual reports in which we are saying, “Okay, how those investment are going on?” So that people, the investors know exactly how the money is used.

So, that’s one of the way we have been working on, on the past two years, and one of the thing it has happened, which is very important for us and, I think, for the market also, is that when we have issued those bonds, usually the rates we’ll get for those bond are much lower than the usual bonds, public bonds. And, well, of course, this is a very interesting result because what the market’s saying is that, well, the market, the institutional market is very interested in that topic, and they are able to provide money at very low interest rates.

So, that’s one of the thing has been happening, and that’s also one of the reason we have continued issuing those bonds. And just to – well, this is a thing that is going to happen and during February in Chile. We are going to issue a new green bond, but we are going to change the way we’re going to issue that bond, and that’s in the following sense. At least for the moment, in the bond we have issued, the bond – the money we collected was used for a specific project.

Now the new bond we are going to issue during February is not going to be directly used on a project, but what we are going to say to the market is that, “Okay, give me the money, and what we are going to make in Chile is that I’m going to make some promises, in term of lowering our emissions in the coming years.” So, rather than using it for projects, what we are going to make is that we’ll make some progresses, in term of lowering emissions in the future. Emissions, in term of carbon emissions in the future.

So, we’re going to see how this new bond is going to be compared, and how the market is going to be demand these kind of bonds in the future. Probably this is a bond that is providing more flexibility for us, in term of that we’re going to be able to use them in the way we want, but we need to make some clear improvement in carbon emissions in the future. So, I think it will be very interesting, what is going to happen, in term of the interest of the market on those bonds in the future.

Dr Christopher Sabatini

Great. There’s a question that I want to ask as a follow-up, but it’s actually farther down in the queue, so I’ll wait until that person can ask. It’s actually Baroness Hooper, but first, let me ask Leonardo Paredes, if you can unmute yourself and ask your question.

Well, I’ll go ahead and ask it. Leonardo would like to know “how Chile has managed the issue of co-operation with other countries to create the bases for technological and knowledge exchanges that could contribute to encouraging greater improvement on environmental issues?” So, in other words, how is Chile engaging other countries to learn and also promote its own advances in the area that you discussed earlier?

Rodrigo Cerda Norambuena

Well, thank you, Leonardo. Yes, one of the thing we are working with the IDB, which is one of the multilateral banks which we usually work, with those bank usually we can ask for loans, or we can ask for technical assistance. And in that case, we have been working with them in technical assistance, and the idea is to create a platform of Latin American countries in which we can discuss our climate agenda. Within the climate agenda, we’re going to discuss climate instrument, and of course we are going to discuss all our experiences.

In fact, this platform, it was supposed to be launched and now, during February and in the US, in Washington, but we were unable to do it due to the COVID pandemic, but we expect to be doing it in the coming month. The platform has been working and in that sense, you can see that some other countries in Latin America are also starting to issue some green bonds. Well, probably, that’s one of the reason is that they have learned from our experience, and we’re trying also to make all the – to just pass all our knowledge to those countries.

So, we’re trying to work in that sense, and to collaborate, and this is very important, the collaboration within Latin American countries, and the reason is that, well, maybe more developed countries such as the US, such as China also, such as the UK and the European Union, there are countries in which they may have some targets, in term of lowering carbon emission. If you just take those targets and you impose on Latin America, well, probably Latin America will burden – have a large burden in term of economic activity.

So, in that sense, we also need to be talking within Latin American country, which are the targets we can have in the coming years, which – in term of lowering carbon emission, but without harming our economies, because we are economies in which we have still a long way to go to the developed economies such as the US, such as the European Union, such as the UK. And in that sense, we need to also have some, I would say, some common way to look to those problems. So, the platform is very relevant for us to discuss and to have some common way to look and to talk with other, more developed economies.

Dr Christopher Sabatini

It’s a good point. Obviously, this is a regional issue and it’s a global issue, but regionally, there’re a lot of shared objectives, a lot of shared challenges as well, given in many cases the proximity of large amounts of the population in Latin America, for example, the low-lying areas and water. Obviously, the drying-up of the glaciers as well is going to be an issue, and so it’s – yeah, this is something that really where there can be greater collaboration across the region. Go ahead. Go ahead.

Rodrigo Cerda Norambuena

I’m just thinking on the – on some countries in Latin America such as Paraguay. Paraguay is also a very beautiful country, but in term of economic progress, it has still a long way to go and in that way, if we impose some targets to Paraguay, that could harm a lot of their economic activity. And Paraguay also has a lot of space, so this is one way to see the case of Paraguay.

But also Paraguay, in term of energy, has a lot of very low-cost energy, if you look to the frontier of Paraguay and Brazil, in which they can make energy very – at a very low cost. So, in that sense, well, we need to also realise that probably Paraguay could export a lot of that energy to some other countries in the region, which is – and in that sense, we also need to have collaboration. But collaboration, if we think to the case of Paraguay, that would export some part of that energy, but maybe the idea could be also to have more infrastructure from Paraguay to other countries to make that export of that energy.

Probably Paraguay doesn’t have the funds to make that investment, but probably the collaboration through the IDB or the World Bank or the IMF could work in that sense. So, that’s why it’s so important make those platform, make those collaboration and to look from – to look to that problem from a regional perspective.

Dr Christopher Sabatini

Great. So, we have actually three more questions. I’m going to have Baroness Hooper unmute herself, but first let me ask a question from Joao Sabino Costa, and he’s asking, you know, what your sense is of the inter-American development banks, loans, issues of climate change, environment, green bonds. If I can, sort of – the problem with anyone who asks me to ask the question for them, I reserve the right to amend it a bit. I’m going to ask, could the IDB be doing more, is there a possibility for a greater role in that?

Before I turn to Baroness Hooper, I then also want to – Rowena Lee also had a question here, and she wants me to ask it. “Do you find it more difficult to get good returns from newly issued green bonds as opposed to past issuance?” In other words, are we getting the same returns? And last, again before the last question, Andrea thanked us for the question, and I’m happy that there’s so much interest in green bonds, which is also what Baroness Hooper’s going to ask, but also if you could provide any links to Chatham House, so we can share with her, and others, if you’re interested, on Chile’s green bond for further reading.

I think there’s a fair amount of fascination with the interest rates, how to invest, who are the asset holders in those cases, and your plans for the future. But on that point in particular, let me turn now to Baroness Hooper, a friend of Chatham House’s Latin American Initiative, and a friend also of Canning House. Gloria, please.

Baroness Hooper

Thank you, and when I tabled my question, I didn’t realise that a question had already been asked about green bonds, but the – my question was to ask what green initiatives have come out of your collaboration with the UK financial institutions, because I know that the City of London is proud of some of its developments?

Dr Christopher Sabatini

Thank you, and I like the question too, I just want to emphasise it is, you know, can this provide another opportunity for collaboration with the UK, whether, you know, even non-states or capital market collaboration, and asset and Bond Managers in this area? So, Mr Cerda, sorry to give you a bunch of questions to finish on, but please, wrap up. I’m interested in hearing your thoughts.

Rodrigo Cerda Norambuena

Yes, thank you. Well, thank you for the interest on Chile, this is great. We’re very proud of trying to make those efforts on climate change, and my reflection also is that, well, we have made a lot of those efforts during the years 2019, 2020 and 2021, which are years of pandemic, and in that sense, even when we have a big crisis, we think the economic growth now has to be with a lot of cautions, in term of climate change. It is very relevant.

If not, Chile may be also harmed in the future, because, well, maybe some restriction could be imposed, and so on, so that’s one of the reason we also need to be worried about that. So, in term of rate of returns of the green bonds, well, it’s correct, one of the question we have. We still – we used to have much better interest rate in the – at the beginning. So – and probably one of the reasons is that at the beginning we had very great green projects, but as you continue going on, well, it’s more difficult to get such good project and probably, in that sense, well, maybe investor is requiring a larger interest rate. But even though that’s the case, usually what is happening is that when we – we always are making a mission on regular bonds and green bonds, and usually green bonds have a much better interest rate. So, in that sense, it seems that the market always is trying to make an effort in trying to finance green projects.

Also just to give a flavour, we have learned from the green bonds that the green bond was an interest for the market, and we also started just last year issues another type of bond that we called the ‘social bonds’. And the social bonds is a bond that is trying to finance all the expenditure on social pressures, such as pensions, such as education, and so on. We are starting to work with those bonds. We also have a good response from the market, but not as good as the green bond emission. As a matter of fact, the green bond has much more demand and lower interest rates.

And going back to the IDB question, well, I think in fact we need – I don’t know if the IDB is the answer, or maybe the World Bank, or another multilateral institution, but I think we do need some permanent institution that is going to be the way in which we could have a platform where we can talk about those topics, and to get this original view.

It could also be some other kind of institution, I don’t know, the UN or so on, right? But since we were talking about financing and climate requirements, so since this is a finance requirement, or a finance need, well, it seems that the multilateral institutions such as the IDB or the World Bank should work in that sense. And in fact, also those institution have usually the technical assistance that is also very useful for our countries to advance in those ideas. So, that’s one of the reason we think we need to work with them. I think there’s much more room for them to improve and to provide much more technical assistance, and also to provide much more guidance, and I think the platform working in the IDB might be one of the answer.

And coming back to the collaboration with the UK, yes, we have a very large collaboration, and the large collaboration is today mainly a technical collaboration in which we are learning from you, and I think that for us, it’s very important, I hope, for the UK also. But the – and this collaboration is a collaboration that is going for long ways, for very long years, and we expect that it will be continuing in the future.

Dr Christopher Sabatini

Thank you very much, Minister Cerda. I’ve seen my job here at Chatham House since I came here in 2019 to try to represent, to provide a platform for the innovation and the new ideas that are coming out of Latin America, and the opportunities for collaboration between the UK and Latin America. And you did a perfect job of explaining, I think, many of those innovations, many of the creative solutions that Chile is coming up with, given its own energy constraints, its own opportunities, its own creative solutions to seeding innovation and competitiveness.

So, I really appreciate you coming here to talk about this, coming here virtually. I wish you’d been in London, but next time you’re here, I promise we will host you in Chatham House, and thank you very much for your time. I think all of us are very, if not more than just interested, even somewhat enthusiastic and curious now about these green bonds, and I think you’ve piqued the curiosity of a number of our audience members, who will follow up on this much more, so I really appreciate that.

Good luck in your post-Government life, but again, please, if you’re in London, please let us know. It would be great to get together and to meet face-to-face. So, everyone, join me in thanking Minister Cerda, and thank you very much for your work in the Government, and your leadership on environment and climate change, as well as in finance and social programmes. So, thank you, Minister Cerda.

Rodrigo Cerda Norambuena

Well, thank you, Christopher, thank you to all the attendees for being here. Just one thing I didn’t said. Well, in our platform, on our webpage at the Ministry of Finance, we have the annual report on the emission of the green bonds, which could be one way to learn more about that, and also, we have some white paper in which we have our strategy on green bond emission and climate change. So, probably it would be useful, if someone want to learn a little more about our experience. Thank you very much.

Dr Christopher Sabatini

I think you’re about to get a boost on website visits to that site, exactly, and also, keep an eye on our own activities on this, ‘cause we’re starting to work on ESGs and green bonds as well, so we may be back in touch with you, Minister Cerda, to continue talking on this topic. So, thank you, everyone, have a good day, have a good night, wherever you may be. Bye, bye.

Rodrigo Cerda Norambuena

Bye, bye. Thank you.