“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.

The new financial institution, which targets a digital-native audience, offers various traditional and online services.

Marcos Ramírez Miguel, general director of Grupo Financiero Banorte, says, “The fintech sector and the banks are one; we are not separate. Banorte’s model is like a steamroller. We want to be everywhere so that the client decides the channel they want to enter, and we will adapt to what the client wants.”

Bineo clients can access correspondent banking through Banorte, their ATMs, traditional banking or completely digital options. Ramírez Miguel stated that the Monterrey-based institution’s five-year plan aims to have two to three million Bineo clients.

As of January 29, clients can open accounts, acquire debit cards, request loans, tap savings alternatives, and make transfers and service payments.

Banorte has over 8.7 million digital clients, 6.6 million of whom use mobile banking, and its app is approaching 200 service options. Bineo’s launch concludes Banorte’s “1, 2, 3” 20/20 Vision Plan, launched in 2020, which looks to accelerate digital transformation and partner with market leaders.

Mexico’s National Banking and Securities Commission (CNBV) has already authorized three new digital banks for 2024. Bineo will be the first to open its doors, but Santander’s Openbank and Banco Regional’s spinoff, Hey Banco, will join the market later in the year. Openbank is already operational in other parts of the world. In mid-July 2023, Santander reported receiving authorization for Openbank, which the Spanish group stated was one of the first banks to operate in the cloud.

Felipe García, general director of Santander México, says, “With this initiative, we will consolidate a total offer for clients looking for a digital bank with branches like Santander, or a completely digital alternative like Openbank, which places us as the most powerful and innovative player in the market.” Banorte remains bullish for 2024 despite Mexico’s coming election and international turmoil. In a statement, it expected “good dynamism” to continue in 2024 and GDP growth of 2.4%, described as “above potential.”

Some queue-jumping auctions go for $4 million,while  logistics companies such as Maersk have created a land bridge to connect Atlantic and Pacific ports in Panama.

For fiscal 2024, “toll revenues have been $100 million below each of the first three months of operation: October, November, and December,” says Ricaurte Vásquez, administrator of the ACP. If the trend continues, “and suppose we normalize by June, there would be a loss of approximately $800 million.”

The Panama Canal is not the only critical waterway facing troubles. As the US and UK continue air strikes on the Houthi guerrillas in Yemen, the Suez Canal is currently at 63% of passages compared to 2023.

Bulk carriers have seen prices stabilize at around $1,503 for a 40-foot container, according to the Baltic Dry Index. However, non-bulk carriers are seeing prices more than double from $1,521 in December to $3,777 in January.

This is likely to have a knock-on effect on the cost of goods and raw materials, reducing production and possibly impacting inflation.

The Panama Canal’s issues began in 2023 with the El Niño phenomenon, making October the driest month in recorded history for the canal basin. Despite spending $500 million to secure water supplies, doubts remain about the canal’s future capacity.

Auctions for passage spots have offset revenue losses and are expected to raise some $200 to $300 million. As Vásquez points out, auctions only work when  ships transit the canal. The waiting period for passage is currently two days, which is in line with historic norms. Thanks to the drought, daily passages are now restricted to 24, well below the norm at 36, and this will remain in place until at least April and the beginning of the rainy season, says Vásquez.

The initiative is expected to help form part of the so-called Bitcoin City project, which will include a special tax-free zone in the capital city, La Unión, and be powered by thermal energy from a volcano.

Of the $1 billion issuance, part of this would be converted into Bitcoin. Financing will also be provided for cryptocurrency mining and other vital services including health and education.

“We anticipate that the bond will be issued during the first quarter of 2024. This is just the beginning of new bitcoin capital markets in El Salvador,” says the National Bitcoin Office (ONTBC) on its X (formerly Twitter) social media account.

President Nayib Bukele announced the Bitcoin City concept in 2021. The original plans were for the volcano bonds to reach market in early 2022. However, former Minister of Finance Alejandro Zelaya delayed the launch.

In December, Bukele revealed that the country would make a profit of $3.62 million if it sold its Bitcoin holdings, but there are currently no plans to sell.

Volcano bonds will be placed on the Bitifinex Securities Platform, which will launch Bitcoin-based capital markets in El Salvador. In March 2022, Financial Times magazine revealed that the bond issuer would be LaGeo, the state geothermal company.

Reports from 2021 suggest a 10-year tenure with a yield of 6.5% for the scheme.

Bukele disagrees with the International Monetary Fund (IMF) over a potential financial assistance program as well as the use of Bitcoin as legal tender. The president has accused the IMF of interference in sovereign decisions.

To encourage cryptocurrency investment in El Salvador, a scheme offering 1,000 passports a year has been revealed. It will be open to Bitcoin patrons with a portfolio of over $1 million.

Under a program, “Adopting El Salvador,” applicants will be able to request a “Freedom Visa.” “The program’s application process is streamlined to encourage visionary contributions to El Salvador’s economic development, cultural enrichment, and societal upliftment,” says a government statement.