December 2005

After Mar del Plata: The Inter-American Development Bank's Role in Promoting Economic Opportunity for the Americas

Ambassador Luis Alberto Moreno of Colombia, was elected president of the Inter-American Development Bank (IDB) in October 2005. He leads this key multilateral development bank at, in his words, "a potentially transforming moment" in the history of Latin America. Ambassador Moreno has cited three years of growth in the region, low inflation, and democratically elected governments committed to putting their public finances in order. "Our governments increasingly recognize that the current levels of poverty and inequity in our region are morally intolerable and comprise an enormous burden on development and democratic governance," Moreno said upon assuming office. On the heels of the Summit of the Americas in Mar del Plata, Argentina, Moreno explained how the IDB can support responsible policies that help governments in the region create economic opportunity for their people at a December 13 AEI conference. 

The Honorable Luis Alberto Moreno
Inter-American Development Bank

This is an interesting time and one of opportunity for Latin America and the Caribbean. The economic trends are the best in twenty-five years, with economies demonstrating around 5 percent annual growth over the past two years and an estimated 4.3 to 4.5 percent for 2005; inflation is the lowest it has been since the 1960s. This success can be attributed to both external factors (strong prices of commodities and increased capital inflows) and internal ones (strong domestic macroeconomic policies, especially fiscal management, inflation targeting, and debt financing). The most evident medium-term risk to this economic stability on the domestic front is the election cycle, which is especially important as we face a wave of twelve presidential elections over the next year.  Latin America is home to seven left-of-center governments, and this number could increase with the upcoming elections; however, a shift to the left will not signal the abandonment of orthodox macroeconomics.

In the area of trade, the IDB sees a role not only in furthering negotiations but also in “day-after” issues such as trade capacity building. Infrastructure is integral to fully benefit from expanded trade; the bank estimates that the region will need to invest over $80 billion a year. The bank is also committed to increasing funding in the private sector and engaging regional governments in improving business environments. Finally, the IDB hopes to confront poverty and inequality from both top-down and a bottom-up approaches: for the former, continued support for efficient and focused public programs; and for the latter, better access to financing through leveraging remittances to generate credit and through promoting micro-finance.

Susan Seagal
Council of the Americas/Americas Society

Twenty-nine of the thirty-four leaders present at the Summit of the Americas spoke in support of free trade, and the Brazilian president Luiz Inácio Lula da Silva has demonstrated in other speeches his support for free trade, the Doha rounds, and the need for agricultural subsidies to come down. This is proof that the climate is hospitable for hemispheric cooperation, integration, and mutual engagement in the region. This is an opportunity to build a positive agenda for the hemisphere.

Job creation is the key issue, of which free trade and investment are pieces. Populism is what people turn to when their expectations are not met; therefore, it is our role to help build a positive agenda to create an environment for employment. Although institutional reforms are an important part of this development, entrepreneurship and the private sector are the bases of transformation within Latin America. The upcoming elections are a challenge in that they are an opportunity to engage a new set of leaders in the region; hard work, focus, and engagement are the next steps to building this positive agenda.

His Excellency Jaime Aparicio
Ambassador of Bolivia to the United States

Institutions such as the IDB must reconsider their procedures and how they act in the region to adjust for new regional realities. The latest summit evidenced a change in hemispheric relations: we began to see major differences between countries and the feeling that something is very wrong in the hemisphere. Although there is democracy in the region, there are still major problems, including presidents forced to resign before the end of their terms, people who do not believe in their political system, and groups feeling they are excluded. The political system has a disproportionate role in governance while society and the state are weakened. Social, regional, and ethnic integration is weak, and this has led to the revolt of indigenous communities.

Unemployment is the most important cause of social unrest in the region. Cooperation between international organizations, sub-regional groups, and financial institutions is necessary. The IDB can aid this strategy through supporting trade and integration both among Latin American countries and with the United States. International organizations have two potential courses of action. On the one hand, they can continue with their previous approach--one that is not totally in line with the realities of the region--through pursuing previous activities that contribute little to the concrete success of countries, such as abstract research and conferences. On the other hand, the IDB and other institutions have the opportunity to begin engaging governments, especially in light of the upcoming elections, to convince leaders of what they must do regarding globalization, democracy, free trade, and free markets.

Jane Thery
Organization of American States

The OAS and the IDB have a unique opportunity for partnership based on the complementary nature of their two new, dynamic leaders, one (President Moreno) technically trained in economics and the other (Secretary General José Miguel Insulza of the OAS) fully aware of the political environment of Latin America. The upcoming year is an excellent opportunity for these two leaders and organizations to work together to implement common goals. Timing is key: both organizations have major meetings in 2006 that must serve to hold leaders accountable in both fields for commitments made at the summit meeting. Furthermore, these institutions have a prime opportunity during the “honeymoon period” directly after the upcoming presidential elections to influence and support newly elected leaders in making tough decisions about needed reforms.

The Summit of the Americas should be viewed as a push forward in the FTAA process as it brought to light some of the tensions of the hemisphere so that countries might proceed. Timing is an issue here, as well. The OAS hopes to build on existing sub-regional agreements to adopt and strengthen a hemispheric agenda. Finally, it is important to reconcile commitments made by foreign ministers at the summit with the commitments of the financial ministers in these countries, as there is often a disconnect between the two.

AEI research assistant Megan Davy prepared this summary.