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IDB’s Iglesias: Cautious optimism on economic recovery in Latin America and the Caribbean

MILAN, Italy Latin America is cautiously optimistic about its economic recovery after suffering one of the worst years in decades, Inter-American Development Bank President Enrique V. Iglesias said today.

In his closing speech at the IBD Board of Governors’ annual meeting, Iglesias also highlighted how several countries in the region are combining prudent macroeconomic management with efforts to mitigate the social impact of recent crises.

“The main message from this meeting is that things are starting to look up. There is a message of cautious optimism about the region’s future, as long as international conditions do not dash this favorable outlook,” he said.

According to IDB estimates, if the current international tensions do not grow worse, Latin America and the Caribbean could grow between 1.5 and 2 percent this year, up from a 0.5 percent decline in 2002.

While such growth levels would still be unsatisfactory for the region, Iglesias singled out as positive signs Argentina’s improvements after a drawn out recession and the solid macroeconomic management undertaken by the new governments in Brazil and Ecuador.

“One of the key messages out of Milan is that governments are acting very responsibly, and that, in the face of current complications, they are not ceding to populist temptations that could lead us to deviations that could cost our countries dearly,” he added.

Notwithstanding the positive trend, Iglesias acknowledged the growing concern in the region about the increase in poverty caused by insufficient economic growth. Governments and institutions, he said, will have to develop a long-term view to seek lasting and effective solutions to the region’s social problems, he added.

One of Latin America and the Caribbean weak points is its low productivity compared to other regions. “It is unacceptable to have productivity levels that are one-fourth of those of Asian countries and one-third of those of industrialized nations,” Iglesias said.

The region will have to strive to find a way to combine its efforts to stimulate growth with actions to solve its pressing social problems. Reducing poverty and boosting productivity must be top priorities, he added.

During the Milan meeting Latin American and Caribbean delegates had an opportunity to become acquainted with the Italian experience in promoting small- and medium-size businesses.

Seminars organized by the IDB with support from the Italian government and numerous Lombard and Milanese public and private institutions allowed participants to learn about Italy’s dynamic industrial districts, the application of information and communication technologies to increase government transparency and efficiency and the compensation of regional development disparities.

Other seminars examined how countries can carry out effective employment policies during times of fiscal restraint and how social inclusion measures can help marginalized groups climb out of poverty.

In summing up the main issues raised by the representatives from the IDB’s 46 member countries, Iglesias highlighted the interest voiced by several governors to see the IDB play a greater counter-cyclical role, providing borrowers access to financial resources at times when other sources run dry.

Iglesias pointed out that the IDB has been Latin America and the Caribbean’s leading source of multilateral lending for development for nearly one decade. While in 2002 the total lending approved ($4.55 billion) was lower than in recent years, in 2003 it could rise to as much as $10 billion, he added.

Regarding flexibility, the IDB is constantly adapting to better serve borrowing countries’ changing needs. Iglesias mentioned the reopening of line of emergency loans, the recent launching of a trade finance facility, the renovation of a financial guarantees program and the diversification of instruments to expand private sector access to credit, especially for microenterprises and small businesses.

Iglesias also assured the governors that the IDB would continue to defend strenuously its sound financial standing in order to maintain the best credit ratings, which make it possible for the Bank to obtain resources to lend on favorable terms.

 

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