March 15, 2001

IDB SEMINAR PARTICIPANTS CONCLUDE THAT DEMOCRATIC GOVERNMENT IS A PRECONDITION TO DEVELOPMENT Reduction in poverty and equitable growth require a secure legal and political environment, according to speakers at annual meeting site

SANTIAGO, Chile - IDB President Enrique V. Iglesias today called on the countries of Latin America to strengthen their democracies as a key precondition to making improvements in government that will enable the region to reduce poverty and raise living standards.

"Politics is more than important for development," declared Iglesias at the inauguration one of the first seminars of the IDB’s Annual Meeting. "It is crucial."

The seminar Good Governance and Development, which was held at this city’s Estación Mapocho Cultural Center, was made possible through the support of the Swedish Fund for the Reform of the State, Governance, and Civil Society.

"After having worked very hard to reduce macroeconomic deficits and social deficits, we must now pay as much or more attention to the democratic deficit," said Iglesias.

According to the IDB president, the majority of the region’s countries are making the transition from what he called "electoral democracies," which often have only the appearance of democracy, to more deeply rooted democratic systems with institutions capable of guaranteeing legal and political security. Only mature democratic institutions, he said, can successfully promote savings and investment and to ensure that public policies reflect the interests of the citizenry.

On the subject of elections, Iglesias said that even though voting in all of the countries of region is generally carried out fairly, there are still some obstacles that must be removed to ensure fully competitive electoral contests.

Although the IDB had formerly steered clear of politics in its lending operations, this has changed dramatically in recent years. Since 1994, said Iglesias, the Bank has approved more than 100 loans and grants aimed at strengthening the region’s democratic institutions.

The seminar is one of 16 being held in conjunction with the 42d Annual Meeting of the Boards of Governors of the IDB and the Inter-American Investment Corporation, a member of the IDB Group. Also speaking were senior government officials, members of private groups, including nongovernmental organizations, and IDB officials.

In his opening remarks, Chilean Interior Minister José Miguel Insulza recalled that in previous years, the assumption was that reducing the role of government would by itself spur development. But these policies proved to be a failure, he said.

The indispensable role efficient government must play is now being recognized, he said, and the most efficient form of government is democracy because it is visible and more responsive to the will of the people.

But he warned that although "democracy has made great strides in the past years, it is still very fragile."

Panelists described the steps government must take to create an environment for equitable development through strengthening the role of law, reforming politics, creating systems of checks and balances, and increasing the participation of civil society.

In his presentation, Edmundo Jarquín, chief of the Bank’s State, Governance, and Civil Society Division, urged a new way of looking at the link between democracy and development. "Poverty, inequality and underdevelopment have often been held to be a threat to democracy," he said.

"The above is correct," he said, "but not enough attention has been paid to the opposite relationship–that democracy is the fundamental condition to spur development and fight poverty and inequality." As a result, he continued, most analyses of Latin American development issues have focused on the absence of democracy as the cause of political instability and its effect on growth. But not enough attention has been paid to the need to achieve true democracy as a precondition to development.

For one thing, he said, democracy creates an efficient relation between the state and the market. Without democracy, private interests will subvert public policy to their own aims, resulting in corruption and ultimately a "perversion of incentives" that reduces competition, innovation and investment.

According to Jarquín, critics have pointed to the "failure" of the market in Latin America, whereas the real problem is a weakness of democratic institutions. Another erroneous view, according to Jarquín, is that the state must not intervene in the market.

Jarquín also stressed the role of democracy in promoting social cohesion, which is essential for ensuring that public policies reflect the will and needs of the people.

Latin America’s fiscal problems are also explained in large measure by the region’s "deficit in democracy," according to Jarquín. Without real legitimacy and efficient governmental institutions, public policy is held hostage to private interests and the tax revenues are spent badly.

Also speaking at the seminar were Fernando Zumbado, director of the International Center for Human Development; Rogoberto Queme, mayor of Quetzaltenango, Guatemala; Danilo Arbilla, president of the Inter-American Press Association; Carlos Jarque, manager of the IDB’s Sustainable Development Department; Fernando Carrillo, senior specialist in the IDB’s State and Civil Society Division; and Rafael Rocangliolo, of Transparencia Peru.