March 11, 2002

ANNUAL MEETING OF IDB BOARD OF GOVERNORS BEGINS IN BRAZIL Argentine crisis and future course of reforms are major themes

FORTALEZA, Brazil -The Board of Governors of the Inter-American Development Bank inaugurated its 43rd Annual Meeting today in a climate of concern over the crisis affecting Argentina and over the need to reduce public pessimism over the results of the past decade’s economic reforms.

Attending the inaugural session were the presidents of Brazil, Ecuador, and Peru; IDB governors and senior governmental officials; and many other key policy makers. The session was held in at the headquarters of SEBRAE, a Brazilian agency that assists small and medium-sized businesses.

The IDB’s Annual Meeting is the major event that examines economic and social development issues in Latin America and the Caribbean. In addition to the formal sessions, participants attend seminars on a wide range of development topics, among them, the process of economic reform, tourism, water resources, AIDS, integration, and macroeconomics. A total 4,860 participants registered for the meeting, including nearly 400 journalists.

In his last speech as chairman of the IDB’s Board of Governors, Chilean Finance Minister Nicolás Eyzaguirre noted that when he was elected to his post a year ago, people were voicing “cautious optimism” about the region’s prospects and economists were predicting 3.5 per cent growth. Now, he said, after a decade of “profound reform,” the region has plunged into a period of uncertainty and loss of faith.

Part of the road to recovery depends on actions taken in the industrialized countries, said Eyzaguirre. Current barriers to Latin American exports hurts the region’s economies while creating an environment of uncertainty that stifles foreign investment.

In the region itself, he noted the need for economic policies that are “flexible and credible.”

In particular, he urged to countries to institute counter-cyclical policies to encourage savings and consolidation during periods of economic strength.

“Carrying out reforms in times of abundance is the greatest challenge facing Latin America,” he said.

The IDB governors unanimously elected Brazilian Minister of Planning Martus Antônio Rodrigues Tavares chairman of the Board of Governors until the next IDB Annual Meeting, which will be held a year from now in Milan, Italy.

In his address, Tavares called the IDB’s role “strategic and essential” in the unfolding debate over changes in the international financial architecture, and particularly in opening world financial markets to the region’s countries. “We must make a joint effort to reestablish and increase these [capital] flows,” he said.

“Recent events have shown that it is imperative that we achieve a change in the international financial architecture to reduce the variability in financial flows and give them more predictability,” he said.

Tavares also urged measures to make the development process more efficient, by giving priority to projects that have a major impact on reducing poverty and conserving the environment.

He praised the IDB for its “admirable efforts” in moving forward the process of integration in Central and Central America. Nevertheless, he said that the unique characteristics of each country must be taken into account. “The formula to reach a common objective is not necessarily the same for everyone,” he said.

In his address, IDB President Enrique V. Iglesias said that the region would probably post a zero growth rate would this year, but that a modest recovery could take place in 2003. He called on the countries of Latin American and the Caribbean countries to take measures to spur economic growth, help people hurt by the present stagnation, and reduce the region’s vulnerability to external financial turmoil.

Iglesias acknowledged that vast sectors of society have grown disillusioned with the economic reforms launched over the past two decades. Two out of three Latin Americans, he noted, are pessimistic over of their region’s prospects.

The IDB president urged that the reforms be continued, but as part of a process of political and social consensus as well as humility on the part of policy makers.

“By modesty I mean to say that we should not pretend to know as much as we sometimes have believed we knew,” he said. “There are no easy formulas for growth or to escape poverty. But there are lessons derived from successes and failures that must be adopted on a case-by-case basis, with leadership and perseverance.”

Peruvian President Alejando Toledo, in his address, stressed the need to both improve living standards for the region’s poor and to resist the temptation on the part of the leaders to revert to populism and retreat from sound macroeconomic policies.

“Economics is a social science at the service of people; people must not serve economics,” he said.

He also called on leaders to protect their peoples from the negative effects of globalization and competitiveness. “Globalism is not an option,” he said. “Competitiveness is not an option. But neither is sustainable unless we give them a human face.”

Ecuadorian President Gustavo Noboa called for greater equity in international trade and support for development. “As long as there is poverty in the south,” he said, “there will be no peace in the north.”

In the area of education, he called for use of the “most advanced technology” in classrooms of the region. Without such technology, he said, the poor will become “digital illiterates,” and the gap between the educationally advantaged and disadvantaged will very difficult to overcome.

Brazilian President Fernando Henrique Cardoso called on world leaders to refocus their attention on efforts to reduce poverty. At the present time, he said, the “international agenda is almost solely dominated by issues of security.”

He spoke of the need to bring ethics into economic policy discussions. The success or failure of economic policies, he said, will ultimately be determined by answering the question: “Has the quality of life improved?”

Cardoso also had strong words for the need to level the international playing field in the area of trade, saying that countries that demand that their neighbors open markets cannot then pursue policies to close their own.

Finally, he reiterated Brazil’s solidarity with Argentina in that country’s efforts to win the support of the international community to help resolve its current crisis. He thanked IDB President Iglesias and the Bank for its work in this regard.

The meeting is being held in the capital of the Brazil’s state of Ceará, located in the country’s Northeast region. Although poor, the Northeast has considerable tourism potential and is benefiting from a major IDB-financed tourism program. The Bank recently approved financing for the second stage of the program.