Treasury ministers from Latin American and Caribbean countries have proposed that the IDB create a group of flexible financial instruments that can rapidly come to the aid of countries affected by the economic and social impact of turbulence in world markets.
The requests were made during the annual meeting of the Bank’s Board of Governors that ended in Santiago, Chile, on March 22.
In his closing address, IDB President Enrique V. Iglesias said that the current global economic troubles will inevitably affect Latin America and the Caribbean. But these events, he said, should be interpreted with concern rather than alarm.
Iglesias welcomed a decision of the governors to open debate on revising the Bank’s financial instruments to help borrowing member countries weather both the immediate economic downturn and the broader effects of globalization. Changes that have been proposed include raising the cap on direct IDB financing to the private sector as well as for structural adjustment loans, and reducing conditions that borrowing countries must meet in carrying out Bank-financed projects.
“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.”
Iglesias also emphasized that the IDB would remain true to its core mission of working to reduce poverty, increase the competitiveness of the region’s economies and consolidate integration.
IDB must adjust. In his summary statement, Chilean Finance Minister Nicolás Eyzaguirre Guzmán, 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.
Multilateral organizations such as the IDB must make a determined effort to adapt their instruments to the new global reality, said Eyzaguirre, who is also the new chairman of the IDB’s board. “We need to be flexible to support the 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 member countries of the IDB and representatives of the private sector, academia and civil society organizations.
As during past Bank annual meetings, a series of seminars examined topics relevant to the development of Latin America and the Caribbean. This year’s seminars looked at obstacles to growth, the keys to competitiveness, the social impact of globalization, and the relationship between ethics and economics. Other seminars examined governance and development, women in the labor market, the participation of people with disabilities in development opportunities, reform of secondary education, sports as 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. Mexican Treasury Secretary Francisco Gil Díaz was among the Bank governors who emphasized the need for new facilities to reduce the vulnerability of Latin American and Caribbean economies to 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 urged additional efforts to provide 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.
Brazilian Planning Minister Martus Tavares said his government enthusiastically backed a recommendation to abolish the 5 percent cap on private-sector operations as a proportion of total IDB lending, “provided that the risk management of that loan portfolio is strengthened.”
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.
Delegates also emphasized the need for the IDB to do more to reduce poverty and social inequality and promote sustainable growth that is compatible with environmental protection.
They also urged the IDB to 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.