Climate change, monetary policy, and green finance in Latin America: the open economy dimension

Abstract

Thechapter reviews the alternatives available to Emerging Market Economies (EMEs)to finance investment required to mitigate and adapt to climate change. It alsotakes into account the financial needs to achieve the Sustainable DevelopmentGoals (SDGs). Since the requirements dwarfs the financial capabilities of thepublic sector in EMEs, we explore possible funding channels focusing oninternational financial markets. We identify potential obstacles to a smoothand sustainable finance provision, including the influence of the globalfinancial cycle on credit supply, risks related to currency mismatch andcreditworthiness assessment, and mispricing of risks. The review alsoidentifies the challenges to the exporting profile and therefore thesustainability of the balance of payments of EMEs. Finally, we provide somereflections on the limits of domestic private capital markets to bridge the“environmental financial gap”, and calls for the deeper involvement ofspecialized and official financial institutions.