World Bank, the (WB)
Floods in Colombia, people living during weeks with brown water to their knees; hurricanes or earthquakes in Mexico, thousands of destroyed homes – the two countries have suffered the high costs, material and human, that arise when natural disasters strike. That is why they are taking measures to be as prepared as possible before a catastrophe occurs and protect citizens as well as the economy of the country.
“Between 1970 and 2010, disasters related to natural phenomena have caused more than 3.3 million deaths and US$2.3 trillion in material losses worldwide —slightly more than Brazil’s GDP in 2010,” writes Gloria Grandolini, World Bank Director of Mexico and Colombia in a recent blog on the topic.
“When disaster hits, we all know that the poor are its biggest victims. Because of this, any effort to generate greater resilience to disasters must be part of the global development agenda,” she writes.
Mexico, for example, is particularly exposed to earthquakes – there are more than 90 earthquakes a year with a magnitude of more than 4.0 on the Richter scale, according to the publication “Improving the Assessment of Disaster Risks to Strengthen Financial Resilience”, presented last month in the context of the G20.
In Colombia, the floods in 2010 and 2011 alone affected 3.5 million people.
Innovative Financial Products
Considering their high exposure to these types of events, Mexico and Colombia are working with the World Bank, among others, on promoting and improving their disaster risk management.
For example, Colombia has made use of innovative financial products such as Catastrophe Deferred Drawdown Options (CAT DDO). This instrument offers immediate liquidity once a country reaches a certain level of distress following a disaster.
The World Bank Board of Directors very recently approved a US$250 million development policy loan through a CAT DDO product to support disaster-related risk management in Colombia. The loan will help to create 300 risk management plans in municipalities with a high incidence of vulnerable populations.
In Mexico, the government is also using innovative financial instruments, among other things: Mexico was the first country to issue a so-called Multi Catbond - a flexible financial tool that insures Mexico both against earthquakes and hurricanes in certain geographical areas - through a World Bank Program.
“The way it works is that the trigger for the insurance is parametrically determined. If the earthquake is of a magnitude greater than Mw 7.9, or the wind speed is above a pre-determined benchmark, then the amount of the bond is paid,” says Luis de la Plaza, World Bank Lead Financial Officer.
A wake up call
Also, the World Bank produced the report “Colombia Disaster Risk Management Analysis: A contribution for public policy development” that analyzes the cause of risk and measures its growth, but also focuses on institutional advances in risk management at different government levels. It is the first of its kind to be published in the region.
The recent G20 publication,“Improving the Assessment of Disaster Risks to Strengthen Financial Resilience”, a joint release by the Government of Mexico and the World Bank, shows what G20 member countries and guests, among them, France, Mexico, Turkey or Colombia, have done to manage disaster risk and stresses that international partners and global cooperation play a major role in these issues.
The publication is meant as a wake-up call to Ministers of Finance in the world as well as a guide for countries to improve decision making and strengthen their financial resilience.