The Inter-American Development Bank has announced an initiative to improve business climate and promote investments in Latin America and the Caribbean and will provide loans and technical assistance for programs that promote these goals.
The initiative was presented during a meeting of more than 200 high-level representatives of the public and private sectors in Washington, D.C., on Dec. 4. The initiative is designed to enable the IDB to collaborate with borrowing countries to remove obstacles and take measures to attract and maintain greater investment.
The current level of private investment is clearly insufficient to satisfy the growth needs of the region, and greater efforts are necessary to attract and maintain capital flows, according to participants in the meeting, which included cabinet ministers and other senior public officials, business executives and international experts.
“Private investment is critical to creating jobs and achieving economic growth. The region needs $70 billion in infrastructure investment annually but is only receiving $45 billion,” said IDB President Enrique V. Iglesias. He added that a renewed effort is necessary to establish the appropriate laws and regulations to attract business and to strengthen institutions. Despite recent advances in macroeconomic stability, Iglesias added, the cost of operating a business in countries of the region “continues to be noncompetitive, because of weak institutions, rules that discourage investment, inadequate infrastructure and limited access to financial resources.”
U.S. Under Secretary of the Treasury John B. Taylor emphasized the importance of small and medium-sized businesses in creating 80 percent of the jobs and noted the paradox that many of the poorest countries are the ones that have the most obstacles to the creation of new businesses. The pillars of growth are economic freedom, investment in people, and just government, including the fight against corruption, he said.
Chilean President Ricardo Lagos, in a message from Santiago, urged Latin American countries to make targeted social investments to complement policies that promote economic growth. “Without social cohesion, there is no possibility of competing in the world,” he said, adding that reforms are accepted by the population to the degree their benefits are passed on to society.
Investment Climate Initiative
The Investment Climate Initiative presented by the IDB at the meeting is designed to support countries in undertaking a diagnostic and identification of their priorities to create a more favorable climate for private investment. Financing would be available for the development of action plans with an operational focus.
“Specific actions will be identified in the diagnostic to overcome obstacles that prevent the fluid development of business,” said IDB Executive Vice President Dennis Flannery. “The Bank will provide loans and technical assistance to support countries taking action in the next three years and will evaluate the results.”
Debate on ideas
The Chilean Minister of Economy and Energy Jorge Rodríguez Grossa, in a panel discussion on acceptance and sustainability of reforms, described the wide range of steps taken by his country to promote competitiveness and growth with benefits reaching the population.
Brazil’s Planning Minister Guido Mantega stressed the importance of political, as well as economic stability in attracting investment. “It is necessary to achieve the right balance of reforms and political stability to achieve growth,” he said. Mantega also stressed the importance of wide participation to make democracy more profound and the benefits of following a realistic strategy that informs citizens that sacrifices are necessary in order to achieve a better quality of life.
IDB Chief Economist Guillermo Calvo, Director of the World Bank’s Investment Climate Department Neil Roger, and the Director of the McKinsey Global Institute Diana Farrell described successful and unsuccessful experiences that affected the investment flows in recent years.
Private sector executives analyzed specific issues that affect the investment climate, such as transparency, bankruptcy laws and the rights of creditors, legal systems, property rights and bureaucratic procedures.
Speakers also stressed the importance of communication during the reform process to improve political acceptance and acceptance by society and to inform on the results in a transparent manner.
In the last decade the IDB invested more than $13 billion to promote an improved climate for private sector development in Latin America and the Caribbean, financing programs to strengthen and develop financial markets and public institutions, establish appropriate legal structures and promote economic stability and trade openness.