Inter-American Development Bank President Luis Alberto Moreno addressed representatives from non-regional member countries gathered in Jerusalem, Israel.
I’d like to start by conveying our deepest gratitude to the Israeli authorities and to those in Jerusalem for the warm and generous welcome. Although we have come from many different countries, some of us can feel at home here in this historical city, since it holds quite a significant portion of our religious history, helping to influence the traditions and moral values which have contributed to shaping our cultures.
For a great number of us, our roots, our very identities,have been strongly impacted by the rich history of this city and the cultures of its people.
We should, therefore, take full advantage of this opportunity, amidst the rich significance of Jerusalem, to strengthen our commitment to our mission of working for the economic and social development in Latin America and the Caribbean.
I dare say that this city is a place where we can also draw practical inspiration for re-dedicating ourselves to the important task of working to improve the quality of life for the people in our borrowing member countries.
I need only remind you that our hosts, the government and people of Israel, have established over the span of a few decades a society of opportunity in which economic growth has accompanied widely shared social gains.
Last year, Euromoney magazine appropriately named Bank of Israel’s Governor, Stanley Fischer, as the world’s best bank governor for 2010; without a doubt, a leading voice in the global economy. Minister Yuval Steinitz’s leadership and his efforts towards fiscal discipline, also well recognized, have been key for successfully managing Israel’s economy through the global financial crisis.
Israel’s resilience during the financial crisis and its aftermath confirms the strength of its economy; most notable are the decrease in its unemployment rate to 6.2 percent and its overall financial stability, particularly in the banking sector.
Israelis are suitably proud that Israel was one of the last countries to enter recession, and among the earliest to exit. Israel’s economy grew by more than 3.4 percent in 2010 and is expected to grow even more in the coming years.
This promising economic outlook for Israel is an excellent context in which to talk about the recent economic performance and the prospects for the Latin American and Caribbean economies:
The region not only successfully navigated the global financial crisis, but also demonstrated significant strengths – allowing us to portray a very different picture from the one to which we have become accustomed.
Today, growth projections for Latin American and the Caribbean are better than those projected for the developed economies; financial, monetary, and fiscal institutions are much more sound than two decades ago; the natural resources in demand around the world are abundant in our region; and we have made great strides in social policy through the application of increasingly effective tools.
Likewise, new institutions and social policies have better enabled governments to support human capital formation and cast a social safety net for low-income families. The progress made in education and health, in reducing structural poverty, and in increasing the span of service coverage are now recognized achievements.
Over the last year, we saw how the context of international recovery had a favorable impact on Latin American and Caribbean economies. The region as a whole grew around 5.7%. This growth, however, was not uniform. The countries of South America—the majority of which are major exporters of commodities with important trading ties to the growing emerging economies—saw their gross domestic product increase significantly. On the other hand, Mexico and the Central American and Caribbean countries grew more moderately.
The overall economic recovery process in the region was supported by heavy capital inflows, which were attracted by the region’s higher interest rates and business opportunities. Capital inflows to the seven largest economies of Latin America and the Caribbean increased substantially in 2010, outpacing their pre-crisis trend.
The fiscal incentives introduced during the crisis were rolled back gradually as the private-sector regained momentum in 2010. Latin America and the Caribbean as a whole shrank its public-sector deficit from 4% to 2.7% of the GDP in 2010.
Another widespread feature of our fiscal posture has been the lower levels of public-sector gross debt as a proportion of GDP. Latin America and the Caribbean continued reducing public debt in 2010, also indicating that the expansionary fiscal policies pursued in 2009, although moderate, did not substantially impact total debt levels.
In addition, the return to growth in 2010 contributed to decreasing poverty rates, although these are still high. Labor markets are also showing signs of recovering: labor force participation is up and unemployment rates are going down.
And this performance is not just beneficial to the region: the economic growth has also resulted in increased demand for foreign goods. For example, between 2005 and 2009 the region’s GDP grew by 49 percent. The corresponding increases in Latin American and the Caribbean imports from the United States and the European Union were 28 percent and 62 percent, respectively.
Meaning that, if current trends hold and the GDP continues growing as expected, there would be a significant increase in the Region’s imports from United States and Europe Union by 2015.
The medium term outlook also looks bright for the Latin American and the Caribbean region. Despite the diversity of economic and political conditions in our countries, Latin American and Caribbean is undoubtedly the region best poised to benefit from the coming decade.
Therefore, we should look at the development potential of Latin America and the Caribbean in a new way. Many positive circumstances have been underestimated, and ignoring them may be as harmful as overlooking the problems and major challenges we face. Let me mention here some of these positive signs:
- The region’s economic policy landscape comprises governments of different political ideologies that have adopted effective macroeconomic policies in a very pragmatic way. Today, the Region is more democratic than ever before in our history; and civil and political rights are observed more than in any other region of the developing world.
- Macroeconomic challenges have not been overcome, but today’s financial, monetary, and fiscal institutions are better prepared to manage them.
- Social progress has been substantial over the medium term, and development has been more significant and more sustained than economic growth. Today, people are more educated, healthier and have more access to public goods and services. The education and participation of women has increased, and in many areas, the future is welcomed with optimism. Social policy has been transformed by conditional cash transfers with positive outcomes.
- Budgets are now more transparent, and significant progress has been made towards evaluating their results. Consequently, the continuity of solid public policy is less vulnerable to shifting political winds.
- Strong economic performance in recent years has led to significant growth of the middle class with expectations of social mobility. A larger middle class is associated with faster economic growth, greater stability, and higher quality government. The growth of the middle class, the widespread use of information technologies, and structural reforms have brought about the emergence of a new entrepreneurial class that is more educated, less dependent on the State, and more connected to the world.
- That fresh entrepreneurial class is perhaps best embodied in the so-called “multi-latina” companies. In the future, these multi-latinas will not only contribute to intra-regional integration, but also to the region’s international integration.
- And when we talk now about integration, we are not just talking about trade integration. Integration has also taken the form of transfers of good practices from country to country within the region. This South-South cooperation extends to many areas, including social policy, energy policy, nonrenewable resource management, and citizen security.
The above-mentioned positive features are relatively homogenous throughout the region. Nevertheless, in the context of global macroeconomic imbalances, many factors are exacerbating a growing heterogeneity among our countries, thus making heterogeneous the opportunities.
Three key factors differentiate the nations of the region, such that their opportunities are different under international market conditions:
1. Being net exporters of commodities;
2. Being tightly linked to the markets of developed countries and their economic cycles; and
3. Having the ability to attract foreign direct investment under prudent economic policies.
Countries so positioned can benefit from the boom in commodities prices in a setting of countercyclical policies conducive to expanding savings, so as to withstand future imbalances, and create the conditions for sustainable economic growth.
The boom ultimately represents an opportunity to achieve fiscal equilibrium and make progress on the economic, social, and cultural rights embraced by the constitutions of every Latin American and Caribbean country.
Those countries of the region that are net importers of commodities or depend on the markets of the developed economies face challenges of another kind, but they have also benefitted from recent advances. For this reason, the Bank should redouble its efforts to support the most vulnerable countries in our Region. And with the General Increase in Resources, the Bank has the mandate, tools and resources to do so.
Opportunities do not guarantee success. Reaping the benefits of this decade will depend on the actions taken, and we know the road will not always be smooth.
We must move forward towards promoting and achieving the highest levels of productivity, and developing a social security system for health and pensions with sustainable financing, so as to minimize the distortions in the labor market caused by the informal sector.
Equally important is the reduction of crime and violence; the strengthening of regulatory institutions and law and order; the expansion of the social and productive infrastructure; the enhancement of the quality and relevance of education; the implementation of the agenda for sustainable development; and the deepening of actions to promote social mobility and equity.
In addition, the region needs to be better prepared to manage natural disasters and adapt to climate change. During the past 15 months, we were repeatedly reminded of how vulnerable our countries are to the forces of nature. Earthquakes, hurricanes, torrential rain and flooding, land slides, and other natural disasters habitually threaten the countries in our region.
So, yes: there are considerable challenges, but, the outlook is encouraging. The needs for greater investment and technical support are also substantial across the region, not to mention diverse. Although the countries of the LAC Region are better equipped to handle these challenges; they will nevertheless need a partner to assist them to confront these challenges head on.And the Bank has the privilege, and the honor, to be one of the Region’s most important partners for development.
The Bank stands ready with improved and innovative tools to help our partners accomplish the desired results.
With the approval of the terms and conditions for the Ninth General Increase in resources, the Bank’s Governors have strengthened the Bank’s lending capacity, renewed its strategic vision, and defined a comprehensive program of reforms essential to position the institution, with the highest standards of efficiency and effectiveness, to address the many and diverse needs of our Region.
This capital increase, coupled with a reformed governance structure that ensures the efficient use of our shareholder’s resources, will increase the Bank’s ability to meet the needs of the poorest sectors, and provide the Bank the right tools to address the region’s needs.
This has been an important challenge for both Management and the Bank’s Board of Executive Directors. Together, we have been working to ensure the effective implementation of the mandates of the Ninth General Capital Increase. I’d like to highlight some elements that demonstrate our commitment, as an institution, to become not just a bigger Bank, but above all, a better Bank.
- we approved the Capital Adequacy Policy,
- introduced the new comprehensive Income Management Model,
- began the results-based budgeting process,
- developed and approved a risk management framework,
- allocated resources to the Fund for Special Operations (FSO) for the next two years,
- adopted a mechanism to provide concessional lending to International Development Agency (IDA) countries in the Eastern Caribbean through the Caribbean Development Bank;
- extended the liquidity facility to the IIC to bolster its ability to lend to small and medium-sized enterprises (SMEs);
- reviewed the Development Effectiveness Matrix and the methodologies for evaluating sovereign guaranteed and non-sovereign guaranteed operations;
- strengthened the Independent Consultation and Investigation Mechanism (MICI);
- developed the new Access to Information Policy; and continued the implementation of the Action Plan of the Anticorruption Framework.
We are also making significant progress in laying the foundation to meet lending targets,
- establishing strategies for priority sectors;
- developing the strategy for private sector and non-sovereign guaranteed operations;
- drafting and approving the operational policy on gender equality;
- establishing a methodology for macroeconomic sustainability analysis as part of the annual programming exercises; and
- strengthening the mechanisms that safeguard ethics and institutional integrity.
In addition to addressing this agenda, the Bank has been operating at full speed, to ensure a strong program of support to the countries.
- In 2010 the Bank again approved a record number of operations. We broke our historic 2009 record, approving 170 new projects, more than doubling the number of projects approved five years ago.
- In terms of dollar volume, we approved 12.7 billion dollars in resources. Although this was below our 2009 level, we maintained the uptrend with respect to pre-crisis levels, moving from an average annual level of approvals of 6.2 billion dollars for 2001-2005, to nearly 11 billion dollars for 2006-2010.
- For the 19 smallest economies, we approved 4.2 billion dollars in resources, representing nearly 33% of total approvals.
- Results were also satisfactory in terms of disbursements. By year-end, we had disbursed a total of 10.8 billion dollars. This figure also continues the growth trend with respect to pre-crisis levels.
- Net flows of loans for the region reached a volume of 5.06 billion dollars. For the poorest countries, these flows totaled 1.98 billion dollars.
- Approvals of non-reimbursable technical-cooperation operations also continued their growth trend, totaling 570 million dollars, representing 42% growth over 2009.
Our work with Haiti warrants a special mention due to the magnitude of its needs, and the Bank’s commitment to the country.
Thanks to the efforts of several of our donors, we quickly obtained enough advance contributions totaling 225 million dollars, which were sufficient to convert the undisbursed balance of Haiti's loans into grants, as well as cancel all of Haiti's 484 million dollar FSO debt.
This financial effort was coupled with solid technical and support work on reconstruction activities led by the Government of Haiti. Although the Bank lost almost all of its physical response capacity in the country as a consequence of the earthquake, our work never stopped. We quickly adapted to respond amid still adverse conditions. Today the Bank is devoting more technical and human resources to Haiti than ever before.
In 2010, this commitment translated into the approval of 251 million dollars, a 160% increase over the level of approvals to Haiti in the past five years. Disbursements totaled 177 million dollars at year-end, significantly outpacing the average level of the preceding five years. The technical cooperation portfolio also grew by more than 50%.
But beyond the numbers, the actions of our technical teams have been key in sectors such as education, transportation, energy, water and sanitation, and finance, indicative of the significance of the Bank’s commitment to Haiti.
Looking ahead, we have an intense work agenda and a great responsibility to the region:
- We are committed to stepping up support to the smallest and least developed countries and to providing exceptional support to Haiti.
- We have set ambitious lending targets to support the reduction of poverty and inequity, to improve the management of climate change, to promote environmental sustainability and the adoption of sustainable energy sources, to drive regional integration, and to empower the private sector’s contribution to the region’s development.
- We have a substantial institutional strengthening agenda, on which we will continue to work.
- And, in addition, just as we did with the “green cities,” we will undertake additional activities on two major fronts: the promotion of innovation and technological development to enhance productivity, and the comprehensive program to promote food security in the face of price volatility, climate change, and growing international demand.
I look forward to the opportunity to discuss with you in greater detail some of the elements I have mentioned here this afternoon during today and tomorrow’s programs.
I’d like to close my remarks by saying the success of our efforts during this coming decade requires us to confirm our commitments, and be held accountable for the fulfillment of the Bank’s mission.
It is true that we can look back with great satisfaction about the progress the Bank and the region have made. However, we cannot pause, even for a moment. The people of Latin America and the Caribbean require a solid Bank, the Region’s Bank, to meet their diverse needs and enhance their opportunities.
The consummation of the Ninth General capital increase will help the Bank become bigger and better. Our actions this October will represent a milestone in that direction. I have no doubts that, together with your renewed commitment to this institution, we will continue to fulfill the Bank’s duty to the countries of the Latin American and Caribbean region.
- Pablo Bachelet