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The IDB returns to its roots

In many cultures, a 40th birthday marks an important milestone, a transition between youth and maturity, a time to take stock and to set goals for the future.

And so too with institutions. The Inter-American Development Bank celebrated its 40th anniversary in December by holding a ceremony in Petrópolis, Brazil, where the formal decision was made to launch what would be the world’s first regional lending institution.

As it happened, Petrópolis could already claim a place in history. This picturesque mountain city 65 km north of Rio de Janeiro was chosen by 19th century Brazilian emperor Dom Pedro II as the seat of his summer palace. An enlightened monarch who ruled for nearly 50 years, the emperor commissioned a detailed plan for the city and attracted immigrants to the area.

Petrópolis’s major landmark, the stately Hotel Quitandinha, also boasts a colorful past. The massive Norman-style building, with 440 rooms and 13 great halls, started out as the largest casino in Latin America. But its splendor faded after Brazilian authorities outlawed gambling. Following decades of decline, the hotel’s fortunes began to improve in the 1990s after its facilities were spruced up and leased for conventions.

Old idea takes root. The idea for a regional bank, as well as a common market and a single Latin American currency, dates back to the late 19th century. But it wasn’t until 1954, in the Hotel Quitandinha’s circular theater hall, that a meeting of finance ministers called by the Organization of American States made the first concrete proposal to create a financial institution to serve the nations of Latin America and the Caribbean. The proposal took root, and in 1958 received the decisive backing of Brazilian President Juscelino Kubitscheck and U.S. President Dwight D. Eisenhower. The IDB was formally established the following year.

Last December, the heads of state of Brazil, Costa Rica, Peru, Uruguay, and Trinidad and Tobago together with ministers and senior officials from the Bank’s 46 member countries returned to the Hotel Quitandinha to look back at the Bank’s accomplishments and review the challenges that lie ahead.

“The IDB must continue to play an important role in strengthening cooperation among our peoples,” Brazilian President Fernando Henrique Cardoso declared in his speech at the anniversary meeting. “The Bank has all the right tools to help Latin America and the Caribbean ease into the process of globalization in a more solid, less skewed, and socially inclusive way that will gradually eliminate inequality.”

History lessons. Several other speakers also stressed the urgency of addressing Latin America’s persistent poverty and inequality. According to U.S. Treasury Secretary Lawrence H. Summers, the region simply has not been making the necessary investments in human capital. “At the brink of a new century, one-quarter of the people in Latin America lack access to safe water, one-third live in poverty, and one-fifth do not have access to sanitation,” Summers said. “If the same remarkable human ingenuity that makes it possible to stand virtually anywhere in this continent with a cell phone in your hand and talk to anyone in the world were applied to these problems, they could be mastered as well.”

Bank President Enrique V. Iglesias, who has led the IDB for the past 11 years, said the region’s 3 percent growth rate during the 1990s was too slow to reduce poverty. GDP must grow by more than 6 percent a year over the coming decade, he said. “This is an achievable task,” he added.

Iglesias urged the region’s countries to resist the temptation of seeking short-term relief from the pressures of globalization by raising trade barriers or returning to populist profligacy. “We must avoid lapsing into the pendular swings that once were the hallmark of our region’s policies,” Iglesias said. “We must build upon our achievements, fine-tune our policies when necessary, but stay the course. That is history’s lesson.”

Strategic steps. The IDB’s major challenge for the coming decade will be to help the region reduce its vulnerability to external shocks, Iglesias told the Committee of the IDB’s Board of Governors during a December 2–3 meeting held in Rio de Janeiro, just before the Quitandinha ceremony. One of the keys to diminishing that weakness is to boost domestic savings, an area in which Latin America has lagged with respect to other regions. In fact, as Council on Foreign Relations economist Albert Fishlow told the assembled governors and guests, Latin America’s savings rate stands practically at the same level as it was when the IDB was founded in 1959.

At the two-day meeting in Rio de Janeiro, the Bank’s management and representatives of member countries discussed a proposed strategy designed to help the IDB better serve its borrowers’ needs. In addition to the issue of vulnerability, the strategy proposes increased attention to improving the quality of democratic governance, promoting efficient markets, supporting regional integration, and investing in human and social capital. In the area of governance, several member countries have asked the Bank to beef up support for the trend toward decentralization that is taking place across the region.

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