IDB: Ready for a facelift?

IDB: Ready for a facelift?

Except for economic journals and newsletter the IDB ins not a frequent headliner. Contrary to the IMF that seems to attract the most controversial sentiments around the world and the World Bank that is identified with large watershed projects like the Aswan Dam, the IDB seems to be as boring an institution as the Bal des Petits Lits Blanc created by Baroness Seilliere in 1919. This is quite remarkable for an institution that according to its own press releases disburses on average $9.7 billion per year since 2008 in the form of loans and an average of $534 million per year in approved grants.

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Except for economic journals and newsletter the IDB ins not a frequent headliner. Contrary to the IMF that seems to attract the most controversial sentiments around the world and the World Bank that is identified with large watershed projects like the Aswan Dam, the IDB seems to be as boring an institution as the Bal des Petits Lits Blanc created by Baroness Seilliere in 1919. This is quite remarkable for an institution that according to its own press releases disburses on average $9.7 billion per year since 2008 in the form of loans and an average of $534 million per year in approved grants.

Recently however the IDB made headlines on account of the Trump Administration ‘s decision to break with the uncomfortable tradition of placing a Latin American leader at the helm of the institution to favor the appointment of a US citizen. And while most Latin leaders indicated their displeasure, their finance ministers attended the board meeting where Mr Mauricio Claver-Carone a US citizen and a staff member of the National Security Council was elected. This turn of events seems to create an opportunity to relaunch the venerable institutions mission so as to make it more relevant to the economic redeployment needs of the hemisphere.

As we painfully know because many relatives live there, Covid 19 has discharged a severe blow to Latin American economies that is unlikely to be reversed with traditional macroeconomic tools . Indeed, just in the area of education 32 million students will not be able to continue their education, as they lack connectivity. These are students from low income families that lack hardware, software of internet connection. This represents about 5% of total Latin American population which is about 652 million. These people will add a 20% cost in antipoverty transfers for at least 40 years given the fact that they will lack the digital skills to match job creation. Henceforth they will be underemployed or unemployed. The region would thus need to bank a fiscal burden of about $ 15.3 trillion over that period of time assuming $12,000 yearly transfer per person. Considering that lack of progress on the productivity front has reduced to the minimum FDI inflows to the region, one can visualize a net loss of at least 5 points of regional GDP over the next decade. This together with GDP loss directly attributable to covid 19 could very well mean that about 33 million families could cease to be middle class to enter poverty. Urgency to act thus seems essential. But , alas it takes the IDB under current procedures between 14 and 20 months to approve a project and make the first disbursement. Maybe an American with first responder culture could work the magic of making the bank abandon its glacier speed.

Then there is the digital divide between North and South of the Rio Grande. In a recent CAF-IAD conference the Director General of ECLAC Ms Alicia Barcena indicated that a top priority would be to inject liquidity to Latin American consumers much in the same fashion that the US hade done by transferring cash to taxpayers and to also transfer what she described as a “digital basket” which would include hardware, software and internet connections for the lower income families and in particular for micro enterprises in the informal sector.

Yet another aspect of the region’s predicament that demands a more agile and first responding institution is the ongoing redeployment of the worldwide supply chain with companies nearshoring or reshoring the manufacturing leg of their supply chain while others stay in China but diversify risk by means of setting foot in another Asian country. The region should thus rethink its infrastructure investments in terms of the US corporations’ nearshoring strategies. Needless to say that public policies should also march in the same direction.

These aspects of the region’s post covid19 reality seem to council a serious revamp of an institution founded in 1959 when the current wave of technology induced economic change was still in a vial. Thus the time seems to have come to break with tradition and plant the seeds of an effective development bank that is relevant to the needs of this 21st century.

Published in laht.com Monday September 14, 2020
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