MONTEVIDEO, Uruguay — Representatives of Latin American and Caribbean countries have raised the need to arm the Inter-American Development Bank with flexible financial instruments to help them hedge against natural disasters and possible economic downturns.
The calls were issued on Monday during the annual meeting of the IDB Board of Governors. Composed of representatives from 48 member countries, the Board is the Bank’s top policymaking body. Governors are finance ministers, central bankers and other government authorities.
Uruguayan Finance Minister Fernando Lorenzo, who was elected chairman of the board of governors, said that the recent capital increase has put the IDB in a better position to support its 26 borrowing member countries in Latin America and the Caribbean.
However, Lorenzo added, the region’s governments also need hedging instruments such as contingent credit lines in anticipation of emergencies such as those triggered by natural disasters or contagion from international financial crises.
“The region’s countries today need a stronger IDB, more active and creative in developing new tools,” said Lorenzo, who emphasized that Latin America and the Caribbean still faces great challenges in reducing inequality, a vulnerability of their countries.
“In the past insufficient funding was the main cause of dysfunction in national policies and (…) in instances when it was necessary to carry out painful, excruciating adjustments, with extremely negative social consequences for region,” he said. “Therefore, the IDB and other regional institutions do well in offering us more and better tools to address such contingencies.”
IDB president Luis Alberto Moreno thanked the board of governors for its vote of confidence in completing the recent capital increase — the largest in its history — which raised the authorized capital to $171 billion.
“I take this opportunity to thank you for your acknowledgement of the work done by the Bank to meet all mandates of the 9th general capital Increase,” said Moreno, who highlighted the significant progress made in areas such as development effectiveness, transparency and accountability, risk management and financial management.
“However, building a more solid and effective institution is an ongoing process of strengthening and learning. The Bank will continue working to ensure that the goals of this agenda are achieved, “said Moreno.
Regarding the prospects for Latin America and the Caribbean, Moreno noted its economies’ good performance, with they have sustained despite the uncertain global context. The region today is recognized for its dynamism and its opportunities, he said. Over the past decade, more than 50 million people were lifted out of poverty and the middle class expanded substantially.
However, those achievements could be threatened by crises sparked in other parts of the world. On the eve of the annual meeting, the IDB issued a report on the potential impact on Latin America and the Caribbean of risks such as a deepening of the European debt crisis or a sharp slowdown in China’s economy. A recovery is underway in the United States, but unemployment, the fiscal deficit and public debt remain at high levels.
The report, “A World of Forking Paths”, stated that while a majority of Latin American and Caribbean countries remain relatively resistant to a global economic slowdown, they now have less room for fiscal stimulus measures to cushion the impact of a crisis.
To meet its borrowing countries’ requirements, Moreno said the IDB will explore the creation of new flexible and temporary financial instruments that could help governments at times when they have to deploy countercyclical policies. Such mechanisms could be particularly helpful for small and vulnerable economies in the region.
The Montevideo meeting also provided a framework for analyzing the participation of Latin American and Caribbean countries in other major international forums scheduled to be held in the region in June, such as the Rio+20 UN Conference on Sustainable Development, which will take place in Rio de Janeiro, and the G20 Leaders Summit in Los Cabos, which will be chaired by Mexico.
Haiti, initiatives and agreements
Ratifying the IDB’s commitment to Haiti’s reconstruction, the board of governors approved a $200 million transfer to a fund that provides grants to the Caribbean nation. Since the 2010 earthquake, the IDB has approved more than $442 million for infrastructure, energy, agriculture, water and sanitation, education and private sector development projects in Haiti.
The IDB also presented an initiative on citizen security, one of the biggest concerns of in the region, which has the highest murder rate in the world. In order to assist its borrowing member countries, the Bank will establish a technical assistance focused on sharing the lessons learned from successful experiences in crime and violence prevention.
In terms of accountability and focus on results, IDB executive vice president Julie Katzman presented MapAmericas. This innovative digital mapping platform will provide information on projects funded by the Bank in Latin America and the Caribbean. The platform will also serve as a tool to facilitate collaboration between the IDB and executing agencies in borrowing countries.
As part of its work with civil society, the IDB held a meeting with 250 representatives from more than 100 non-governmental organizations to discuss how they can collaborate more effectively with the Bank and governments to promote sustainable development in the region. This work will be carried out by the civil society councils the IDB has established in each of its 26 borrowing countries.
Private sector development is a priority in the IDB’s agenda. During the annual meeting it organized seminars on promoting small and medium-size enterprises, public-private partnerships in infrastructure projects and basic services, as well as on the development of logistics infrastructure and services to boost competitiveness.
Cooperation with Asia, a region with growing ties to Latin America and the Caribbean, is another area of work for the IDB. During the annual meeting, the Bank presented details of a $1 billion investment platform in partnership with China Eximbank to finance private sector projects in this region.
The IDB also signed an agreement with the Japanese International Cooperation Agency to fund up to $600 million in renewable energy projects in Central America and the Caribbean and another agreement with Korea for the creation of a $40 million trust fund for public sector modernization. The IDB also announced it is preparing a study with the Asian Development Bank on how to deepen economic ties, trade and technical cooperation between Latin America and the Caribbean and Asia, the most dynamic regions of the world.
The IDB also organized youth-focused activities in Montevideo, featuring discussions on promoting youth development through sport, culture and technology; more effective job training programs; and problems facing secondary education in the region to prepare young people to join the labor market. This last topic was analyzed in depth in a recent Bank report, “Disconnected: Skills, Education and Employment in Latin America.”
The IDB and the Uruguayan Central Bank (BCU) paid tribute to Enrique Iglesias, the BCU’s first president and third president of the IDB, between 1988 and 2005.
The IDB’s next annual meeting will be held in March 2013 in Panama City, by invitation of the Panamanian government.Read Also