The Role of Public Development Banks During the Pandemic: Impact Evaluation of BICE's Innovative Credit Response

The global COVID-19 pandemic triggered a renewed impetus for the countercyclical role of development banks, marked by widespread adoption of diverse instruments to mitigate its impact. Argentina's development bank (BICE, Banco de Inversi & oacute;n y Comercio Exterior, specialized in loan for long term investment, responded to the 2020 health and economic crises implementing a working capital loan program. Amidst a lack of substantial evidence on the efficacy of similar counter-cyclical interventions, we employed a quasi-experimental methodology, incorporating Propensity Score Matching (PSM) and Fixed Effects (FE) estimations, to evaluate the program's impact. Our results demonstrate that firms benefiting from the loan maintained employment levels, in stark contrast to a nearly 6 per cent decrease for those without it. The program effectively mitigated the employment impact of the transient shock. Robustness checks, along with falsification tests, bolster our identification strategy. Complementary findings emphasize that the program's success lies in providing credit during adverse conditions, when private sector credit contracts. This insight, rather than the exceptional terms of the credit, offers a crucial lesson for the future.