Why Latin America needs a reformed IDB

It’s one of the most interesting institutions in Washington, DC, but for all the wrong reasons.

In business since 1959, it enjoys little notoriety and is heavily overshadowed by a sister institution less than a mile away. It is the Inter-American Development Bank (IDB) and has the task of improving the economic and social development of Latin America and the Caribbean.

There’s just one problem: there’s no systematic evidence that the IDB has ever done this well.

The aid “room” is overcrowded. For example, national governments, regional multilateral organizations such as the IDB, and international financial institutions such as the World Bank overlap in the provision of technical assistance and loans. To unlock synergies and avoid redundancies, the Paris Declaration on Aid Effectiveness calls on donors and global lenders to coordinate and focus on “measurable” results. However, this sensible approach is easier said than done.

The IDB, like other regional multilaterals, claims jurisdiction over a specific region. This is important for political reasons. Latin American and Caribbean countries have more voting rights in the IDB than, say, under the World Bank. This creates a sense of ownership that can help and hurt. On the plus side, it gives the IDB more political clout to demand greater accountability from borrowers, for example. On the flip side, however, this can create a silo effect, isolating the IDB’s efforts from these other lenders.

The IDB’s own reviews have long shown that it is as isolated as the geography it serves.

For example, in 2015, Canada’s Department of Foreign Affairs reviewed the “development effectiveness” of the IDB. Among other things, it found that the IDB found it difficult to show that it was fulfilling its mandate and could not show that any of its achievements were ‘sustainable’. A look at the IDB report “Vision 2025” shows that little has changed.

In terms of relative performance, the data doesn’t paint the IDB in a particularly flattering light. The Center for Global Development’s Quality of Official Development Assistance ranks the IDB 37th among the 49 largest bilateral and multilateral development agencies. The IDB ranks 21st for transparency and self-assessment, but 38th for collaborating with others and in the bottom 10 for recipient feedback. Put simply, the IDB is isolated and has the bureaucratic capacity to know them. The question, however, is whether the IDB has the political will to do something about it?

If the past is any indication, interest groups opposed to IDB reform will come out with their antiquated narratives about “neo-colonialism” and “Yankee imperialism.” They will claim that if the IDB expanded its focus, it would make Latin America even more dependent on the US and others. The reality is different. The region is in danger of being ignored by the world economy, not being exploited.

This is also what the IDB Vision 2025 says. It finds that small and medium-sized enterprises (SMEs), which account for 90% of businesses in the region, are poorly integrated into global supply chains run by multinational corporations. (MNE) abroad. Only 18% of Latin American and Caribbean exports are sold through global supply chains, compared to 36% and 40% for Asian and European SMEs respectively.

As North American companies look to move their supply chains nearshore, Latin American and Caribbean SMEs have new export opportunities. But nearshoring is not just about geography. It’s also about the politics of friend-shoring and national security. Latin American and Caribbean SMEs face a major challenge in this regard: the IDB states that “the region performs poorly in terms of implementing the rule of law and fighting corruption…”. The IDB should lead the development of an enterprise-level risk mitigation methodology that complements traditional country risk analysis.

Perhaps the most important thing the IDB can do is change the way the region thinks about itself. Today’s SMEs can be tomorrow’s multinationals. However, this will only happen if they engage with the world and do not withdraw to their region. Likewise, the IDB should work more closely with other development institutions and focus on the sustainability of the global supply chain.

Going forward, the IDB needs to fundamentally change the way it grants loans. This will not happen unless those who are benefiting from the status quo and attacking or attacking the reformers instead of offering better ideas see the light. If the institution remains a queer freak among development banks, clinging to failed approaches and opaque rules, it will only prolong an era of benevolent neglect and hasten the region’s slide into economic insignificance.

Marc L. Busch is the Karl F. Landegger Professor of International Economic Diplomacy at Georgetown University’s Walsh School of Foreign Service. Follow him on Twitter @marclbusch

https://www.ibtimes.com.au/why-latin-america-needs-reformed-idb-1838711?utm_source=Public&utm_medium=Feed&utm_campaign=Distribution Why Latin America needs a reformed IDB

Fry Electronics Team

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