Synthesis documents

IADB Proposed New Approach to Assisting SMEs in Latin America 2004

    This paper was prepared by the Enterprise Research Institute of Latin America on behalf of the IDB, Infrastructure and Financial Markets Division. It is part of the IDB effort to strengthen its role as a major development partner of SMEs in Latin America and the Caribbean, and is the first step in a more comprehensive review of how IDB loans, programs, and policies affect small business over a broad range of issue. The paper stems from the recognition by IDB that small business issues can be incorporated into many projects that do not explicitly target the SME sector. To explore this idea, the authors focus on non-financial issues under the themes of regulation, procurement, and dispute resolution. Section I analyzes the effect of regulations on SMEs within a transaction-cost framework considering such issues as taxes, labor, trade, and corruption. The second section considers the possibility of using procurement as an aid to SME development. The final section looks at the effect on SMEs of inadequate dispute resolution procedures.

    Methods for info gathering
    desk study

    Summary of results
    First, the authors argue that regulatory reforms can empower SMEs, and advocate the development of private and independent SME associations. Their participation in regulatory reform efforts is crucial to the development of a framework that takes SME issues into account. Second, the authors conclude that IDB should not use procurement as an instrument of SME promotion, although it should remove barriers to SME participation. Although rigid rules for procurement are undesirable, standardized guidelines regarding issues that could encourage SME participation might be beneficial. These issues include prequalification, performance guarantees and information dissemination. Finally, the authors recommend specific issues related to dispute resolution that can be incorporated into IDB-supported judicial reform projects. The authors acknowledge that more detailed work is needed on a country-by-country basis to operationalize the proposed concepts. But the paper, and the checklist of issues that follows each section, represents a good starting point for incorporating small business issues into IDB projects more generally.