Bonds with earlier maturity dates are more popular for resale by bondholders. The platform, provided by JPMorgan Chase, is a debt-for-nature swap of significant proportions.

“This debt conversion represents the most ambitious and impactful environmental action in El Salvador’s history,” President Nayib Bukele said. “With support from international parties, we are executing the largest debt conversion transaction of its kind to date.”

This is the fourth debt buyback offer El Salvador has made since 2022, which began with a liquidity crisis. S&P rated the nation’s outlook at B- with a stable outlook and called the debt swap “opportunisticaction.”

In September, corporations looked to secure finance ahead of possible market turbulence, and over 1,225 issuances saw $600 billion of bonds traded during the month. The move took many market analysts by surprise, with many blaming the November US election and recession fears that surfaced in August.

According to the El Salvadoran government, the refinancing will provide savings of $352 million in debt service costs. The US International Development Finance Corporation provided $1billion in political risk insurance and the Development Bank of Latin America and Caribbean added $200 million as a standby letter of credit.

Robert Cozzari, co-head of Latin American markets at JPMorgan, told Bloomberg that El Salvador brought “all parties together” for a capital market initiative that will achieve execution certainty and cost savings.

The costs saved by the buyback will go toward the conservation and restoration of the Lempa River basin, which is the largest in the country and provides water security for El Salvador, Guatemala, and Honduras. Under the agreement, the El Salvadoran government will establish an entity to oversee the conservation, create a water resources data monitoring service and declare 75,000 hectares of protected aquifer recharge zones by 2044.  

Mexico continues to post record numbers for many of its economic indicators. And with what is projected to be a $30 billion-$40 billion nearshoring bonanza in its sights, financial institutions of all sorts are rushing to stake their claim.

The $644 billion-in-assets banking sector remains dominated by a few brick-and-mortar, multinational giants. BBVA México, Santander, and Banorte account for nearly 50% of the market, while Banamex, HSBC, Scotiabank and Inbursa contribute another 27%. But 66 million Mexicans, or 51% of the population, remain unbanked, creating cross-border payment and remittance opportunities for nearly 1,000 fintech startups.

Now is the time for anyone who wants to be in Mexico for the long term, specifically in the finance sector, according to Gilberto García, partner at Miranda Financial Advisory. “If you wait because you don’t know what’s going to happen when there’s more certainty, you’re going to tell yourself you should have done this before.”

Online-only neobanks have begun to have a significant impact. Although they haven’t broken into the upper echelons of Mexico’s financial market yet, they are promoting greater competition and improved access to financial products.

Described by CNBC as “one of the most disruptive companies in the world,” Kapital Bank is one such neobank.

A year ago, it acquired a nearly 50-year-old Mexican automobile loan provider, Grupo Autofin. Having injected $50 million to date into the lender, Kapital has watched deposits double from 3 billion Mexican pesos (approximately $150.3 million) to more than 7 billion pesos, says co-founder and CFO Fernando Sandoval.

“Since we took over banking operations, usage has almost tripled,” he adds. “Instead of competing with commodities, we decided to compete with technology.”

Concentrating on small and midsize enterprises (SMEs), Kapital saw a need for a one-stop solution for businesses. It now offers over 15 services via its Automated Intelligence Dashboard (AID) all day, everyday.

“SMEs represent almost 70% to 80% of all employees in each Latin American country and they produce 50 to 60% of GDP, but they only receive 15% of the finance [from financial institutions],” Sandoval notes. “The only ways to grow are through friends and family or the usual providers [legacy banks and traditional financial institutions].”

Meanwhile, Kapital has expanded into Colombia and looks to exploit market similarities in Peru, Chile, Argentina, and Brazil as well.

Traditional banks like BBVA and Santander are highly dependent on Latin America—more than half of BBVA’s roughly €5 billion net profit came from Mexico last year—and they have clearly heeded the warning from the fintech camp. Banorte launched an online expansion this year via Bineo, its first fully digital banking platform. Santander’s Openbank and Banco Regional’s digital platform and app Hey are also now in the market, while at least five foreign banks, including Plata, Banco Masari, Banco ION, Konfio and Nu are awaiting licenses.

In May, Citi took a minority stake in trading platform operator Cicada Technologies, which trades 28 Mexican government bonds and plans to expand to other types of securities. At the same time, industry observers continue to eye Citi’s separation from Banamex ahead of a 2025 IPO.

“We need to stop thinking the bank is an impediment and start thinking the bank is going to be an enabler,” says Kapital’s Sandoval. “Mexico is a big bet right now, but each country has its own rules. Why was Walmart successful here and Carrefour wasn’t, but in Argentina it was the opposite?”

Making the most of financial services opportunities afforded by Mexico’s prospective economic expansion will take a collective effort, however. For all sides of the banking industry to continue to develop, better consumer education is needed, he argues. To fill that need and reduce costs, tech startups, legacy banks and everyone else must work together.

Mexico’s President-elect Claudia Sheinbaum announced three new passenger train lines in July as one of her victory promises, highlighting a potential traffic jam for the country’s nearshoring boom and a larger regional need for infrastructure investment.

The following month, however, Morgan Stanley issued an “Underweight” warning on Mexican shares based on judicial reform plans announced by outgoing President Andrés Manuel López Obrador. Morgan Stanley warned, “These changes may also increase uncertainty about the capital expenditure outlook amid bottlenecks in nearshoring capacity.”

This cocktail of opportunity and hazard typifies Latin America’s decades-old struggle to get the development equation right, given lack of adequate roads, industrial and vehicular parking, and specialized infrastructure—and dubious governing practices.

The standard of infrastructure is not the only issue. Others include duplication of functions; virtually every country in Central America has an interoceanic rail plan to compete with the Panama Canal. But a lack of financing, a deficit of universal building codes, and issues with projects that are built over multiple municipalities, each having their own set of standards, conspire to keep them on the drafting table. At a granular level, a series of sinkholes in 2007, 2010 and 2023 in Guatemala City have been blamed on a lack of up-to-date mapping of the capital’s drainage system. Eminent domain laws may not exist or have been rarely used, leading to a lack of legal certainty.

“It’s clear there’s a big gap between what’s been identified as needed in the Latin American and Caribbean region—more than $2.2 trillion in water, sanitation, transport and telecom sectors, etc., each year”—and what’s available, says Miriam Figueroa, Latin America practice group regional co-leader for public-private partnerships (P3) & infrastructure at law firm DLA Piper. “That’s about 3.1% of GDP each year and that is not happening.”

There are signs of progress, however. In May, Chile announced $17 billion in public works concessions for the 2024-2028 period, representing 5.25% of its 2023 GDP. Peru plans 80 projects across transportation, ports, logistics, health-care and other social infrastructure. Ecuador has a secretariat for public-private partnerships and in July launched a P3 registry.

Accordingly, experts remain bullish on Latin America, but warn of micro and macro issues that remain outstanding.

Countries in the region are struggling to get up to speed. Literally.

“Logistical and transportation deficiencies cost Mexico about 169.3 billion pesos [about $8.8 billion] in 2023,” says Luis Mendez, president of Mexico’s Chamber of Construction Industry.

Railways are not the future in Central America, however, argues former Central American Bank for Economic Integration (CABEI) head Dante Mossi, due to the short-term nature of governments, delays in feasibility studies, and finance concerns.

“In the case of Costa Rica, the most advanced [in terms of rail feasibility studies],” Mossi says, “the new administration, even with charges of 0.28% per year for a 40-year term, does not want to carry out the investments, nor will they do so. There is no time left.”

Some multilaterals are now veering away from mixing funds with development banks and governments, Mossi notes, and are less likely to facilitate build-operate-transfers. Infrastructure projects make up around $15 billion in loans from the CABEI alone. Instead, Mossi expects that the next phase will be electric mobility via low-cost Chinese-made cars, buses, and heavy-transport trucks.

This fits a strong move toward sustainability and resilience. At the World Bank’s October 2023 annual meeting, bank chief Ajay Banga called for a review of the  annual $1.25 trillion spent by governments and multilaterals on agriculture, fuel, and fisheries subsidies. In January, at the World Economic Forum, he warned that governments and multilaterals do not have trillion of dollars to spend and that removing barriers to private-sector investment will be necessary to solve the world’s bigger development problems.

Caribbean leaders have recognized the need and joined in pleas for more access to finance, pledging to use artificial intelligence (AI) to curb corruption and acknowledging the need for resilient infrastructure. As if to underscore the point, July’s Hurricane Beryl caused an estimated $6.8 billion in damage; the Caribbean is expected to face up to a dozen more storms before this year’s season ends.

“The Caribbean experience should serve as a lesson to the rest of Latin America in terms of the consequences of not having infrastructure or planning in anticipation of disasters,” DLA Piper’s Figueroa says. From the incorporation of disaster risk management when projects are designed to establishing up-to-date local building codes, the maintenance factor is critical to keeping these countries prepared, she argues.

In the long run, it is also more cost-effective. “The cost of disaster and the collapse of infrastructure because of disasters is much more expensive,” she notes.

Following 2017’s Hurricane Maria, Puerto Rico Governor Ricardo Roselló estimated $90 billion in damage. Alongside Costa Rica and the Dominican Republic, Puerto Rico hopes to benefit from the nearshoring boom that has centralized around Mexico. As a US territory, it benefits from a sound legal framework and access to the emergency federal funds that restored the island’s power grid and critical infrastructure.

Over the past year, however, Figueroa says that increasing insurance costs prompted last-minute withdrawals by project bidders across the region. This has been most keenly felt in Florida and California but is spreading across the US and the Caribbean.

Besides disaster management, improved transport infrastructure is needed to make Latin America more competitive, enhance commerce and tourism, and eliminate long-standing intraregional delays. Speaking to Bloomberg online, then-CEO Guillermo “Willy” Castillo of Cerveceria CentroAmericana noted, “Guatemala has an advantage in terms of geographic operation, but the port system is weak. We must think of an integrated region. In Central America, there are specialized ports in El Salvador, Honduras, and the Panama Canal. But the problem we have as a region is interconnection, and moving around the region is complex.”

Corruption remains the headline-grabbing barrier to development.

“Corruption does more than anything else to destroy the very essential relationships in society that are needed to have peaceful, harmonious development,” John Githongo, CEO of Inuka Kenya Trust, said in a recent World Bank blog post. “It undermines the glue that holds a society together.” Central America loses up to $13 billion yearly via corruption, according to a 2019 Anti-Corruption Digest report.

This may be scaling upward, if a recent case in Guatemala is indicative. The tax authorities recently unveiled Caso B410, which alleges that at least 800 million Guatemalan quetzals ($102.6 million) of taxable income was lost to one individual who was the legal representative of 410 companies that appear to have not executed any public work and were essentially false fronts. The true cost to the Guatemalan state could be in the vicinity of 6.4 billion quetzals.

Despite the many barriers to development Latin America faces, the past 10 to 20 years in the Dominican Republic suggest a way forward, says Francisco Cerezo, chair of the US-Latin America practice at DLA Piper. Creating a sound legal framework has been critical to attracting foreign investment to the island nation, along with addressing multiple-jurisdiction, eminent-domain, and recordkeeping issues.

Digital infrastructure such as data centers, broadband access, and the energy to power them, offer opportunities going forward, he says, although creating it will require a significant investment on the part of governments, the private sector, and private equity.

To benefit, foreign investors must understand the region better and avoid same longtime blind spots. Necessary steps, Cerezo says, include “due diligence—well beyond the type you’d do in the US or Canada—really mapping out the outreach to local communities and stakeholders, and considering bringing a local partner into the management or equity structure.”

But with trillions of dollars needed to stem migration, improve commerce and connectivity, stimulate tourism, bridge the digital and interconnectivity divide, and provide the energy to power a potential nearshoring boom, Latin America and the Caribbean find themselves at a crossroads. Despite the hurdles, these challenges represent opportunity for worldwide investors looking to step in with the support of multinationals and national governments.

“We’re more a network that enables various fintech to introduce new products into the market within the context of local regulations,” Mastercard’s country manager for Barbados, Jamaica, Trinidad & Tobago and the Eastern Caribbean, Dalton Fowles, told the Trinidad and Tobago’s Daily Express.

Fowles cited the example of digital payments for small and midsize businesses, especially local mom-and-pop shops. He said tap-to-pay options will appear in the region soon.

Helping those small businesses can be a boon for the broader economy. The Caribbean Development Bank reports that micro, small and midsize enterprises (MSMEs) account for around 50% of regional jobs and 60% to 70% of GDP.

The region’s unbanked are another prime target of fintech solutions. According to the National Financial Literacy Programme, an estimated 19% of the population in Trinidad and Tobago were unbanked in 2022. In Jamaica, this rises to about 22%, stated the Bank of Jamaica in its 2024 National Financial Inclusion Report. Some estimates put the number of unbanked in the Caribbean at two-thirds of its 45 million inhabitants.

Last year saw the launch of the Caribbean Fintech Sprint for Financial Inclusion, an open call for solutions to regional financial issues backed by the European Union and the United Nations Capital Development Fund. The winners were Unqueue and MLajan Mobile Wallet. Unqueue helps smallholder farmers access markets, while MLajan Mobile Wallet provides digital financial services in Dominica.

A Mastercard white paper released in March 2024 relating to remittances, or cross-border payments, highlighted digital offerings to cash environments, transaction transparency and safety, regulatory compliance, convenience, and value as critical to potential products and services. Mastercard studies have found that some Caribbean markets have 30% to 45% of their GDP in cash, which Fowles believes is ripe to be digitized.        

Shortly after taking office on July 1, new President José Raúl Mulino confirmed one of his biggest campaign promises: the start of the 391-kilometer Panama-David rail project that will link the country’s disparate regions.

At an estimated cost of $5 billion, Mulino described the rail line as “the most important work of my government.” Construction is expected to take six years and generate 6,000 jobs.

An even pattern of development is much needed in the isthmian republic. Panama enjoyed double-digit growth from 2007-2011 from Canal expansion and other infrastructure projects. By 2013, GDP growth fell to 6.9%, once those projects ended. Corruption and governance failings were also a factor in this decline. Foreign direct investment (FDI) fell from $5.01 billion in 2017, to a nadir of $588.7 million in 2020, $3.7 billion less than 2019. This can be attributed mainly to the pandemic but poor governance played its part.

In May, Huawei selected Panama for its first Cybersecurity and Transparency Center. On the flip side, however, telecom operator Digicel announced in March that it was closing its Panama operations. The following month, Sinclair Oil closed its concession in Darién, which had been operating since 1923.

Given this mix of developments, voters are hoping that Mulino’s new administration will be a link to Panama’s recent “golden age” of economic growth, when FDI regularly reached $3.4 billion to $4.4 billion a year. In 2023, this had fallen to $2.2 billion and a KPMG report last year placed Panama as ninth most attractive for FDI in Latin America, below Argentina.

“We have to reverse that image that was damaged, but we will do it,” says Quevedo.

Mexico’s banking regulations mean that institutions must wait considerably for oversight checks to be completed. There is currently a backlog of at least five foreign banks—Banco Plata, Banco Masari, Banco ION, Konfío and Nu Mexico—awaiting their banking license. UK unicorn Revolut only recently passed its final test.

Starting with DevOps and human resources, Capital One aims for a 1,500-employee workforce of Mexicans or permanent residents over the next three years. Specifically, the bank is looking for creative professionals in technology, financial regulations and software development. Given the high demand for such workers, the bank is determined to create a startup environment.

According to El Financiero’s Jonathan Ruiz Torre, Capital One left no stone unturned in its search for the right employees. “Their representatives went to a … speakeasy in the Juárez neighborhood, one of those legal, but provocatively dark bars that allude to the clandestine atmosphere of the era of whiskey ban in the United States,” he wrote.

Those at these informal talks revealed a desire for technological products and services and managing complete end-to-end ownership for global customers. This technology center will likely be headed by Judith González, vice president of technology at Capital One in Mexico.

Some observers have suggested that this is a move to cut costs or increase available talent. Others point out the need for the bank to differentiate itself in a saturated market, such as in credit cards, where there are over 4,000 issuers.

Should Mexico’s nearshoring boom come to pass with estimates of $30 billion to $40 billion worth of foreign direct investment from this alone, Capital One would be well placed to take advantage of the “superpeso” phenomena. Capital One will be the sixth-largest bank in the US, following the closing of the $35 billion purchase of Discover Financial Services announced in February.        

“It has been a very difficult campaign full of all kinds of obstacles,” Mulino said. “I will definitely do what I have to do to move this country forward.”

Restoring confidence in Panama’s economy tops the incoming chief executive’s agenda, but several headline issues could sidetrack him. These include a campaign promise to close the Darién Gap with Colombia, a lawless jungle territory through which 150,000 migrants headed for the US have so far passed in 2024.

Panama also faces three arbitration claims totalling more than $20 billion thanks to a November 2023 Supreme Court decision that the government’s contract with Minera Panamá was unconstitutional, shutting down the Cobre Panamá mine that accounted for some 75% of the country’s exports and 5% of its GDP. Mulino has promised talks with Canadian owners First Quantum.

On March 28, Fitch Ratings lowered Panama’s sovereign debt rating to BB+ from BBB-. With another review coming up in the second half of this year, Mulino faces a fight over the nation’s investment status.

That won’t be helped by an impending verdict in the Panama Papers trial, which promises to dredge up reputational issues in the country’s banking system. The case is based on 11.5 million leaked documents from legal firm Mossack Fonseca, leaked in April 2016, that detailed offshore entities, financial and lawyer-client privileged information.

Nor is the country’s most famous asset free from troubles. While traffic increased through the Panama Canal—up to 31 ships per day—authorities expect it will take until next year to return to normal following a severe drought. The Panama Canal Authority registered $4.97 billion in revenue in 2023, up 14.9% on 2022.

Despite these problems, Mulino promised 7% economic growth, better access to public services in rural areas and job creation. The International Monetary Fund, though, has projected GDP growth at just 2.5% this year. Mulino, a maritime lawyer, has previously held cabinet-level positions in multiple governments. He is to begin his presidency on July 1.         

Being stuck behind a Guatemala City bus belching out lead can test the patience of the most sanguine driver. Transport subsidies dating back to the 1970s have surpassed $2.2 billion in the Central American country’s capital. They remain in place without evidence they are effective, thanks in part to the associations that receive those subsidies having pressured the government through strikes, road blockages, and violence.

Today, subsidies of various kinds are coming into question across the world just as multinational lenders are pushing to shift grants, loans and subsidies away from fossil fuels and toward sustainable energy investments. But getting the two trends to dovetail is proving difficult. Attempts by Guatemala to modernize its mass transportation system, for example, are hampered by lack of investment in new vehicles and by grants that cover only the capital city.

 “The power of the urban transport businesses was very strong and had the logic of the rich kid, owner of the neighborhood ball: If I don’t like the game, I take the ball and go home,” says Eduardo Velásquez Carrera, professor at the University of San Carlos in Guatemala City. “So, every time there was an initiative to adjust transport fares, and the municipality did not agree, they took the buses out of circulation.”

Fifteen-minute cities (an urban-planning concept in which no one must travel more than 15 minutes by bicycle or on foot to reach essential services) and extensive mass transport grids are the ideal. But they are a far cry from the urban sprawl of Guatemala, where the capital city has metastasized to consume numerous nearby satellite cities. At least four million people now make a minimum of two journeys a day within the capital, averaging under 10 mph for a two- to three-hour journey in each direction, according to Velásquez’s research.

New President Bernardo Arévalo has promised an inaugural metro system by 2026; but for the project to succeed, subsidies must be better targeted, and long-running engineering and urban-planning problems must be overcome.

Both the International Monetary Fund (IMF) and the World Bank began 2024 with major changes to their loan programs. World Bank President Ajay Banga, who assumed office in June, wants to diversify into more-sustainable alternatives.

“To focus on changing and fighting climate change, estimates are all in trillions,” he said in a November interview with The Banker. “There are pools of money out there—in [multilateral development banks], government coffers, the private sector and philanthropies—and we should exploit those. But there are other pools as well, such as the $1.25 trillion a year that goes into subsidies for fossil fuel, agriculture and fisheries. While not all of it is wasted, the World Bank estimates that $6 trillion every year is the cost of the environmental damage from that $1.25 trillion.”

At the recent World Economic Forum meeting in Davos, Switzerland, IMF Managing Director Kristalina Georgieva stated that $7 trillion in fossil fuel subsidies needs to be shifted to help fight climate change, equivalent to 6.4% of global GDP. East Asia and the Pacific amount to almost half of this global subsidy, with Iran the largest fuel subsidizer.

Achieving that realignment will not be simple, however. “There are some necessary subsidies,” Velásquez argues. “If you give the subsidy to the person who is using the public transport system, then it is an incentive for the system to improve. In Guatemala, the other big problem is that the municipalities don’t know about how the infrastructure could be built. They don’t have underground maps or maps of the sewage network.”

Some Caribbean countries face dual issues of access to subsidies and debt overhang, further complicating the adoption of climate-friendly measures. According to the Inter-American Development Bank, the Caribbean region’s average debt-to-GDP ratio rose from 75% in 2019 to 99% in 2020, although it is estimated to have fallen back to 77% by the end of last year. Debt rose during the pandemic and the recovery. As of the start of 2023, total debt had risen in Latin America and the Caribbean to $5.8 trillion, or 117% of GDP, from under $3 trillion in 2008.

Jamaica has been working to trim its debt load in the aftermath of Covid-19.

“Having spent about 2% of GDP on a fiscal incentive package, the question now becomes, what is the nature of local inflation? I have not seen any empirical data that links incentives during the pandemic to inflation,” says Richardo Williams, assistant vice president of Investment Strategy and Portfolio Advisory at Barita Investments in Kingston.

Jamaica’s debt-to-GDP ratio plummeted from 109.7% in 2020 to 72.3% in 2023, backed by homegrown solutions and adherence to an IMF program from 2013. That program includes removal of individual ministries’ discretionary subsidies, which are now centralized under the finance ministry. This was solidified in the 2017 Financial Administration and Audit Act, which added budgetary oversight to prevent revenue leakage.

But if the Caribbean continues to see high debt or inflationary pressures, where will it find the resources to fight climate shocks in a region prone to unpredictable weather events? Hurricanes Jeanne (2004), Katrina (2005), and Maria (2017) left over 7,800 dead and more than $229 billion in damage in their wake, according to estimates.

“You will see the nonbank institutions accounting for a larger share of credit in the economy as opposed to bank loans proper,” says Williams. “Based on the latest data coming out of the financial services commission, there’s a real incentive to fund the real economy. The credit-to-asset ratio is now about 30%. The regulatory minimum is 10%, so you have a lot of capital there, really.”

Public-private partnerships and nonbank financial institutions will play a major part in the Caribbean’s clean-energy future if public and private sectors cannot, especially regarding new technologies such as electric vehicle charging points. Sensing a shift, Jamaican financial institutions are expanding beyond their national borders, as alternative investment manager Sygnus expanded into Puerto Rico last year. NCB Financial Group had acquired majority control of Trinidad and Tobago’s Guardian Holdings earlier, in 2019. More cross-border financial collaboration can be expected in the form of deals that can then be syndicated for local or regional climate-resilient and mega-infrastructure projects, some of them implementing the multilateral institutions’ push to diversify away from fossil fuel subsidies.

Innovative deal structures could have a role to play as well.

“Do we do something like a debt-for-nature swap: for example, shaving off 10% of our [debt-to-GDP ratio] if we are able to maintain forestry cover?” Williams asks. “I see the region being in the vanguard when it comes to the matters of adaptation, resilience, climate change, etc. I’m sure subsidies will be part of that.”

That said, he expects the region will “always be in a catching-up position relative to the world, just because we don’t have the fiscal space to invest in the same quantum and pace as other global economies.”

Multilaterals could play a more critical role in deals involving blended finance and first-loss capital. In the latter, the first tranche of capital in the overall structure absorbs any loss, adding a risk management element that makes it easier to attract investors to innovative products. Elements of first-loss capital can be seen in the Green Climate Fund, the EU’s Global Gateway system, and Barbados’ Bridgetown Initiative.

Selling carbon credits is already earning 15 countries an income from preserving forests. Indonesia is repurposing mangrove plantations and committed to restoring 600,000 hectares to create a 60 million tonne (about 66 million US ton) carbon sink over the next couple of decades. The Democratic Republic of Congo, Ghana and Mozambique are also expanding their carbon-credit projects.

According to the World Bank’s International Debt Report 2023, developing countries spent $443.5 billion servicing external public debt in 2022, 5% more than the previous year. Chad, Ethiopia, Ghana and Zambia received $12 billion in funding over the past three years through the G20’s Common Framework for debt treatment, half in grants and the rest in concessional loans. Should these prove successful, similar deals could be rolled out to other countries to help stimulate economic growth and fight climate change.

Subsidies, it seems, are not going away. They are being adapted to combat current, targeted issues like climate change. But the balancing act of public finance is one Latin America and the Caribbean will need to correct first, most likely through a combination of homegrown solutions, multilateral support, creative financing—and subsidies.

“We have issuers that have some type of green, social, or sustainable transition,” says Olga Cantillo, executive president of Latinex. “We are close to having the first blue bond on the list, a first for the Central American and Caribbean region.”

Latinex aims to partner with a currently unnamed European company with expertise in structuring ocean financing projects.

Sovereign blue bonds can be used to support investments in biodiversity conservation, adaptation to climate change risks and blue economies aligned with Sustainable Development Goal 14. A 2021 Deloitte report states an annual investment of $175bn is required per year, $90bn of this to deal with marine pollution. They have also been spoken of as a mechanism to harness ocean energy.

World Bank President Ajay Banga told the annual meeting of the International Monetary Fund and World Bank in October that he wanted to make $1.25 trillion in subsidies for agriculture and fossil fuels more resilient and sustainable.

With a combined coastline of over 70,000 kilometers, Latin America and the Caribbean offer a considerable regional market for initiatives focused on coastal and oceanic sustainability. More regional transactions of sustainable bonds can be expected in the future, Cantillo predicts. Last November, the Inter-American Development Bank (IDB) pledged $150 billion to Latin America and the Caribbean to mobilize climate financing.

Latinex expects to follow its premiere blue bond with its first social bond. They are also in talks with Panama’s Ministry of Environment on establishing a Voluntary Carbon Market. Costa Rica launched Central America’s first in 2013 and was one of eight countries to receive a $350,000 grant from the World Bank to design and implement a carbon market. “It fills us with a lot of pride, because it is the result of the efforts we are working on,” says Cantillo. “Foreign investors have an appetite for these types of sustainable issues. We currently have more than $700 million [invested] in labelled securities.”

The prohibition includes currencies, assets, virtual currencies and other digital assets—in short, anything that operates outside the Honduran Central Bank’s (BCH) supervision. The regulator also demanded that financial institutions work on an educational plan to warn users about the risks of using crypto.

CNBS pointed to the potential for crypto to be used in fraud, money laundering and terrorist financing, saying that “they are instruments that are born from the network without any type of support, restriction or border, nor are they currency, legal tender in this country, nor are there protection on deposits constituted with resources of this nature.”

The blanket ban applies to all institutions supervised by the CNBS. It prohibits the maintenance, investing, intermediating or operating of cryptocurrencies, crypto assets, virtual currencies, tokens or similar virtual assets unless it was issued or authorized by the central bank.

In 2022, the central bank revealed it was conducting studies on the viability of its own digital currency. A final decision is still pending.

Honduran law does not regulate virtual assets; some platforms operate there and allow trading.

Since 2018, the BCH has issued five separate statements regarding crypto or virtual currencies, pointing out there is no support nor regulations for their use in Honduras.

Meanwhile, in neighboring El Salvador, Nayib Bukele—an advocate for cryptocurrencies—won an overwhelming reelection, with over 84% of the vote. The potential for “volcano” bonds and Bitcoin visas will continue in Bukele’s second term.

The fate of Honduras Prospera, a model resort town on the Caribbean coast that operates with autonomy from Tegucigalpa and that adopted Bitcoin as legal tender in 2022, remains to be seen. There is also Bitcoin Valley, in the tourist town of Santa Lucia, 20 minutes from the capital, which allows payments in Bitcoin, dollars or lempira. Honduras’ former president, Juan Orlando Hernández, is currently on trial in the US for conspiracy to import cocaine and weapons charges. The extent of Hernández’s considerable wealth and how it has divested may be a contributing factor in the CNBS statement.