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IDB expects Latin America to resume growth in year 2000

PARIS – Latin America and the Caribbean will face tough challenges in 1999 due to the turmoil in international financial markets but should return to economic growth in the year 2000 thanks to fiscal and monetary policies that ensure macroeconomic stability, Inter-American Development Bank President Enrique V. Iglesias said today.

"We will have a difficult year ... but if these policies are pursued, the year 2000 will be the point of departure for the resumption of growth. Countries have opted to pay the price quickly in order to get over (the crisis) as soon as possible," he said in his closing remarks at the 40th annual meeting of the IDB's Board of Governors.

Iglesias highlighted Latin American governments' swift reaction in tightening their fiscal and monetary policies in order to defend macroeconomic stability, a stance that sent international markets a clear message that the region does not want to fall back into the inflationary process that once was its hallmark.

"This new Latin America is standing by its policies of reform, of open markets and institutional modernization in order to be a full partner in the international community," he added.

One of the main conclusions of this meeting, Iglesias noted, was that the region must renew its efforts to achieve greater integration. "If we want to get ahead in this globalized world, an integrated Latin America will be much better equipped to deal with future challenges," he said.


The persistent turbulence in global financial markets was a focus of attention during this annual meeting, which attracted some 5,200 participants. Government and business leaders from the Bank's 46 member countries, economists, analysts and journalists took part in its sessions and seminars.

A number of IDB Governors and the managing director of the International Monetary Fund, Michel Camdessus, who participated in some of the meeting's events, praised the IDB's efforts in helping borrowing member countries cope with the impact of financial turmoil.

To that end, the Bank established late last year a $9 billion emergency credit line. Argentina, Brazil and Colombia have already tapped that facility to support their economic reforms and strengthen their social safety nets.

In his speech to the Governors Iglesias stressed that those loans were open to all borrowing member countries and not just to the largest ones in the region. He also made it clear that the facility has a very specific purpose.

"The entry point for those resources are the social programs," he said. "Our mission is economic and social development. But if we can provide help in an emergency to cushion the social impact of a crisis, I believe that is also our task."

In his capacity of new chairman of the IDB's Board of Governors, French Finance Minister Dominique Strauss-Kahn said that the proposals debated in Paris would enrich future discussions over the international financial architecture.

He also endorsed the idea of holding a special meeting of IDB Governors on the sidelines of the fall meeting of the Bretton Woods institutions to analyze economic issues concerning Latin America and the Caribbean.


During 1998 and so far in 1999 the Bank has also worked with borrowing countries to help them recover from tragedies such as the hurricanes Georges and Mitch, the earthquake in Colombia's coffee region and from the consequences of El Niño, providing over $1 billion in financing.

Iglesias invited member countries to support the Consultative Group for the Reconstruction and Transformation of Central America, which will convene on May 25-28 in Stockholm to define the international community's aid for Honduras, Nicaragua, El Salvador and Guatemala, the nations hardest hit by Hurricane Mitch.

In his remarks Iglesias made a special mention of the solidarity displayed by the largest Latin American countries, which ceded the equivalent of $2.4 billion of their resources to support the Fund for Special Operations, the IDB's concessional loan window for the least developed countries in the region.

This gesture could eventually pave the way for providing debt relief to some of the poorest countries facing severe balance of payments problems, such as Nicaragua and Honduras.

During the meeting the Governors also listed some of the pending reforms in the region, such as making labor markets more flexible, strengthening banking systems, improving education, health and social security, and policies to modernize the public sector and ensure transparency.

These "second generation" reforms are usually more difficult to carry out than those designed to achieve macroeconomic stability, Iglesias noted.


Once again, the seminars organized for this event showed the IDB's annual meeting to be the foremost forum for Latin American and Caribbean economic and social issues.

Iglesias singled out the seminars on inequality and on investing in early childhood as a strategy to break the poverty cycle, where specific measures were discussed to overcome two of the region's worst social features.

A seminar on new initiatives against financial turmoil sparked a heated debate on the advantages and drawbacks of dollarization compared with flexible and fixed exchange rate regimes. Iglesias said that while the Bank does not pretend to impose any views it does want to encourage a thorough academic discussion on such issues.

Other seminars on small- and medium-sized businesses, decentralization, the links between development and culture, and the international impact of the Euro underlined the strong bonds between Latin America, the Caribbean and Europe.

Other events on energy and insurance markets, pension funds and briefings offered by top officials from individual member countries attracted large numbers of bankers, economists and reporters.


Alongside the IDB's event, the Inter-American Investment Corporation's Board of Governors held its 14th annual meeting. The IIC's Governors approved a $500 million capital increase, which will raise its capital base to $700 million.

The IIC, an autonomous investment corporation affiliated with the IDB, supports the development of small- and medium-sized enterprises in Latin America and the Caribbean.

The next annual meeting of the Boards of Governors of the IDB and the IIC will be held in the city of New Orleans in March, 2000.

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