SANTIAGO, Chile - Representatives of Latin American and the Caribbean countries this week proposed that the Inter-American Development Bank create new, rapid, and flexible financial instruments to help counteract the economic and social impact of turbulence in world markets.
The requests were made by treasury ministers from the region during the 42nd Annual Meeting of the IDB´s Board of Governors, whose final plenary session today in the Chilean capital was closed by Chilean Finance Minister Nicolás Eyzaguirre Guzmán, the new chairman of the Board, and IDB President Enrique V. Iglesias.
Iglesias said that the Annual Meeting was held with clouds on the international horizon that will have inevitable effects in Latin America and the Caribbean. Nevertheless, he added, these signals must be interpreted with concern rather than alarm.
He said the IDB would continue working to reduce poverty, increase competitiveness of the region’s economies and consolidate integration.
Iglesias welcomed a decision of the governors to open debate on revising the Bank’s financial instruments to help borrowing countries overcome some of the most detrimental effects of globalization.
"We are witnessing the formal launching of a debate on our objectives and instruments," the IDB president said. "It is necessary to revise the traditional instruments of the Bank," he said. "We have done a lot, but much more remains to be done."
Eyzaguirre pointed out that Latin America and the Caribbean are immersed in an irreversible process of globalization that brings both possibilities for progress and dangers from political, economic, and social crises.
In this regard, multilateral organizations like the IDB have to make a determined effort to adopt their instruments to the new global reality, Eyzaguirre said. "We need to be flexible to support economic systems of our region. But we also need to be flexible to understand that reform cannot be achieved by mere acts of will, but by sustained effort over a period of time."
Both Eyzaguirre and Iglesias emphasized the participatory nature of the Annual Meeting in Santiago, which brought together not only the economic leadership of the region but also delegates from the 46 country members of the IDB and representatives of the private sector, academia and civil society organizations.
As during past Bank Annual Meetings, a series of seminars were held on fundamental subjects relevant to the development of Latin America and the Caribbean.
This year these conferences examined obstacles to growth, the keys to competitiveness, the social impact of globalization, the relationship between ethics and economics, governance and development, women in the labor market, the participation of people with disabilities in development opportunities, reform of secondary education, sports a means for economic and social development, the benefits of new technologies and information, reform of retirement systems and modernization of civil aviation.
Flexibility and adaptation
Mexico’s Treasury Secretary Francisco Gil Díaz was among the Bank governors who emphasized the need for of new facilities to reduce the vulnerability of Latin American and Caribbean economies from external turmoil. "If the Bank is to adequately serve these development priorities, we must make its lending policies more flexible and create new financial products that respond more effectively to the credit requirements of our countries," he said in an address to the Bank governors.
"I am referring to new products such as backstop credit facilities, exchange coverage instruments, and the program operations it is currently studying."
Gil Díaz added that it would be appropriate to make additional efforts to introduce insurance against natural disasters, such as those that have battered the countries of Central America and the Caribbean in recent years.
Several Latin American governors backed a proposal to increase the maximum limit on financing directly to the private sector in order to consolidate the processes of privatization in the region and give it continuity.
Brazil’s Planning Minister Martus Tavares said his government enthusiastically backed a recommendation of the External Review Group that proposed that "the 5 percent cap on private-sector operations as a proportion of total IDB lending be abolished, provided that the risk management of that loan portfolio is strengthened."
These initiatives were echoed, to one degree or another, by delegates from nonborrowing countries, whose governments emphasized the need for the IDB to direct its strategies to these main objectives: reduction of poverty and social inequality and promotion of sustainable growth that is compatible with environmental protection."
Spain’s Economy Minister Rodrigo de Rato y Figaredo noted that multilateral financial institutions like the IDB are immersed in "a process of adaptation to a more globalized and interdependent economy. In this process we need to review the key role of private finance as a tool for promoting growth in many developing countries to make it more selective and effective."
Rato and other Bank governors proposed the creation of a working group inside the Committee of the Board of Governors to analyze the revision of policies that guide the Bank’s financial instruments.
Bank governors from nonborrowing countries also asked the IDB to deepen its cooperation with the World Bank and the International Monetary Fund. They praised the IDB’s participation in the international initiative to ease the debt burden on heavily indebted poor countries (HIPC), which not only reduces the financial load on the beneficiary nations, but also offers new stimulus to combat poverty and corruption.
They also urged that the IDB ensure that assistance provided to middle income countries benefit the most vulnerable social sectors, such as women heads of household, youth, the elderly, those with disabilities and ethnic, and racial and linguistic minorities.
New shareholders for the IIC
Concurrently with the Annual Meeting of the Board of Governors of the IDB, the Inter-American Investment Corporation held the 16th Annual Meeting of its governing body. The IIC is a member of the IDB Group that supports small and medium-size companies in Latin America and the Caribbean by providing investments and loans.
The IIC welcomed five new member countries that are also new shareholders - Belgium, Finland, Norway, Portugal and Sweden - raising total membership to 42 countries. The shareholder expansion completes a process that began in 1999 in which the capital of the IIC was raised by $500 million.
Resolutions of the Boards of Governors
The governors of the IDB and IIC adopted the following resolutions:
- Approved the financial statements for the ordinary capital of the Bank and the Fund for Special Operations for the year ending Dec. 31, 2000.
- Assigned an aggregated amount of $55,500,000 in convertible funds from the General Reserve of the Fund for Special Operations to the Intermediate Financing Facility account and approved the financial statements of this account for the year ending Dec. 31, 2000.
- Approved the financial statements of the IIC for the year ending Dec. 31, 2000.
- Thanked several countries for extending invitations to host future Annual Meetings: Brazil, Italy, Peru, Belgium, Bahamas, Japan, Panama, Mexico and Costa Rica.
The next Annual Meeting of the Boards of Governors of the IDB and the IIC will be held in March 2002 in Fortaleza, the capital of the state of Ceará, Brazil.