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Dec 29, 2011

Latin American and Caribbean economies on right path, but not immune to turbulence – IDB’s Moreno

In year-end report, Bank president contrasts region’s strong performance with pending challenges

Latin America and the Caribbean are closing a year marked by economic gains, but the region remains exposed to external shocks, Inter-American Development Bank President Luis Alberto Moreno said in a year-end report. In recent remarks to the IDB’s Board of Executive Directors, Moreno summarized the region’s challenges, the institution’s performance over the past year and its priorities going forward.

Although uncertainty in international markets reduced the rate of the global recovery during 2011, Latin America and the Caribbean averaged a 4.3 percent economic growth rate. Capital inflows to the region’s largest countries reached a record $354 billion. The percentage of the region’s population in poverty continued to fall, dropping to about 30.4 percent. Urban unemployment also dipped, to 6.9 percent.

“The region is on the right path,” Moreno said. “We have stronger economies with solid foreign exchange positions, low levels of indebtedness and a sound and well-regulated financial sector. We also have democratic governments that are increasingly effective in reducing structural poverty, expanding the coverage of public services and in building infrastructure.”

However, Moreno added, Latin American and Caribbean nations should not be satisfied with their strong performance over the past few years. The region’s outlook is still vulnerable to external factors such as the European financial crisis, the U.S. fiscal deficit or a deceleration of the Chinese economy.

“Although we have reasons to feel good about what we have done, I want to emphasize that the task is not complete. The risks are there and we still have a long to-do list for the region to strengthen its achievements and keep moving forward,” Moreno noted. “Our worst enemy is complacency. To think we can lower our guard and diminish our drive for reform would be an unforgivable mistake.”

As an institution devoted to development, the IDB must focus on priority issues, taking a long-term view. In his message to the Board of Executive Directors, which represents the Bank’s 48 member countries, Moreno listed some of the biggest challenges the region faces, issues that will determine the institution’s working agenda over the coming years.

Increasing productivity is one of the region’s strongest imperatives. Among the problems hindering its progress are the poor quality of education, insufficient spending on scientific research and technological development, and a big backlog in terms of infrastructure. “Although investments have increased in recent years, they are still not enough to put us on a par with other emerging economies,” he emphasized.

In terms of social policy, Moreno said Latin America and the Caribbean should not lose their capacity to innovate in social programs or to take on issues such as informal employment. The region should also learn the lessons from the European crisis, such as the need to build financially sustainable social security systems, including pensions and health care programs.

Another challenge the region must address is the fight against violence, crime and corruption, Moreno added. Countries should also strive to set a sustainable development agenda in light of climate change. “Regardless of the difficulties in reaching a global consensus, we can show the rest of the world that the people of Latin America and the Caribbean are capable of progressing responsibly towards the adoption of sustainable approaches,” he said.

The IDB in 2011

The IDB approved 162 operations with financing totaling more than $10.8 billion and disbursed nearly $8.3 billion. These totals confirm its role as one of the leading multilateral sources of financing for Latin America and the Caribbean, particularly for the smaller and more vulnerable nations, which will receive 36 percent of the financing approved this year.

In terms of sectors, infrastructure and environment-related projects represented 61 percent of the approved financing; institutional capacity building and finance projects accounted for 29 percent; 9 percent came under the heading of social programs; and trade and integration projects made up 1 percent of the total. Non-sovereign guaranteed operations, which finance projects by private sector companies and banks, totaled $1.44 billion.

In his report Moreno highlighted the progress achieved in the implementation of reforms agreed under the IDB’s Ninth General Capital Increase, which are aimed at improving the institution’s efficiency and transparency. As examples, he noted the Bank’s strengthened capacity to evaluate its operations, the revision of its ethics, conduct and grievances systems and the implementation of a new access to information policy.

In financial terms, 2011 was a transitional year for the IDB, which registered significant progress in the subscription for the capital increase. The additional funds will expand its authorized capital from $101 billion to $171 billion, giving the Bank a sustainable capacity to approve around $12 billion in new operations per year.

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