IDB President calls for new approaches for private sector to benefit low-income producers

GUATEMALA- The Inter-American Development Bank is looking for new ideas and new collaborators—including the private sector, civil society and community groups—to join together in a new IDB initiative to increase opportunities for the region’s low-income majority, IDB President Luis Alberto Moreno said today.

“We are looking for innovative ways to increase the participation of the private sector in order to economically empower the majority” of the region’s population, he said. This majority, he said, comprises 70 percent of the region’s population—or 360 million people—who live on annual incomes of $3,260 per capita or less.

Moreno pledged the Bank’s support in helping to promote the “convergence of private and social interests.” As an example, he cited the impact of providing cell phones to farmers and fishermen in giving these rural entrepreneurs the ability to quickly compare prices offered by potential buyers, thus increasing their chances of getting higher returns for their products.

But these small-scale producers, he said “can only put these services to use if providers find innovative ways to make their products available to people in remote areas, with low purchasing power and variable incomes that could make monthly payments difficult.”

The seminar was one of a series of events being held in conjunction with the 48th Annual Meeting of the IDB’s Board of Governors in this Central American capital. The formal sessions begin on Monday, March 19.

While maintaining that all sectors of society, including the private sector, have responsibilities for the success of the Bank’s “Opportunities for the Majority” initiative, government must remain the prime mover, said IDB President Moreno. Only the public sector, he said, can create a policy and institutional environment in which the private sector can fulfill its responsibilities. “The [IDB] initiative cannot prosper if companies are stifled by unnecessary red tape or complicated business procedures,” he said. 

He noted that while the region has boosted its macroeconomic performance and made major structural reforms during the past decade, the proportion of working poor has remained the same, or is even growing in some countries.

In his remarks, Hernando De Soto, president of Peru’s internationally known Institute for Liberty and Democracy (ILD), urged policy makers to analyze problems from the ground up, at the micro level, to better ensure that policies meet the needs and spur the potential contributions of the people at the lowest rungs of society. Policies that enable the poor to make use of their capital include securing the property rights of their houses and productive assets, a measure he has long advocated for, which consists not just of issuing titles, but also of using these titles to protect their properties and as collateral for loans. Too many titling programs have been ineffective for lack of attention to the legal subtleties that determine the quality of the titles, said De Soto. “It’s not just titles,” he added. “The poor need good quality titles to mobilize their capital.”

Other policies that De Soto proposed to level the field of property rights between the poor and the rich were access to limited liability for small businesses, access to capital markets and indefinite succession rights. Since poor individuals and informal firms do not enjoy these rights they cannot get credit at costs comparable to those of large firms and are therefore unable to take full advantage of market opportunities.

Prior to the seminar De Soto and Moreno signed a statement of principle to put some of these ideas into action in a new program that will promote and implement property rights, business and market system reforms, and to disseminate lessons learned.

Under the statement of principles, activities will initially be carried out in five countries:  Haiti, Guatemala, the Dominican Republic, Mexico and Panama. Over the next two years, the Bank’s Multilateral Investment Fund (MIF) will provide grants to these countries that will enable them to draw upon ILD expertise in formulating action plans, strengthening institutional capacity and carrying out training programs. Once these preliminary actions are carried out, the participating countries could apply for IDB loans to finance full-scale programs.

Also speaking at the seminar was Richard Aitkenhead, Guatemalan presidential commissioner. He noted a number of initiatives his country is taking to provide more opportunities to the poor, among them, creating a stable economic environment with low inflation and interest rates, promoting the country as a world-class tourism destination, and carrying out land titling programs. Other programs aim to give communities a voice in deciding the kind of government support they need, speeding the formalization of new businesses, and providing credit for small businesses and microenterprises.

In his remarks, Donald Terry, manager of the IDB’s Multilateral Investment Fund declared that democracy and free markets, which are normally considered essential preconditions for economic prosperity and a vibrant civil society, are not yet having that effect in the region. He also noted that the problem of exclusion normally focuses on minorities, while in the region, the majority is excluded from the economic mainstream.

The private sector must look at poor people as producers of the goods society needs, and also as the consumers that will buy the goods that the private sector produces. The poor, he said, “are an untapped market for the private sector.”