Banking on growth: The role of the inter-American development bank

Journal of Interamerican Studies and World Affairs, Spring 1997 by Scheman, L Ronald

1. Economic Growth. The dominant theme of the Bank's activity has been to convert the Latin American state from an importsubstitution model to one that is export-driven, from an economy controlled by the government to one that is market-driven. While the Bank is a relatively small player, given the complex forces at work, its investment and financial sector loans help set the conditions for changing the paradigm of government from one of control to one of oversight. The Bank has also had to work intensively to enable governments that were formerly dependent on tariffs and duties for their revenues to (1) revise their tax concepts, (2) achieve greater efficiency in tax collections, (3) improve the capacity and integrity of their financial institutions, and (4) promote efficiency by encouraging competition among the providers of public services. In the last analysis, however, economic growth is also key to overcoming the pervasive poverty in the region. The best social program has always been, and remains, the creation of jobs. For Latin America, half of whose population is under the age of 17, already born and on line for jobs, creating those jobs becomes the top priority. Chile's record is living proof: 80% of those who rose out of poverty did so as a result of growth in the economy and the creation of jobs.

2. The Consolidation of Economic and Social Reforms. The mandate of the Bank's 8th replenishment requires that 50% of the projects be in the social sectors, including those of civil society and the environment. As the Bank continues to consolidate the economic reforms, this represents a prodigious challenge. Entirely new concepts must be adapted to augment and improve services in education and health. The pervasive weakness of those government ministries responsible for these services requires that the Bank's staff must address issues that are both deeply sensitive and, often, totally off limits to international civil servants. Reforms require not only changes in policy but also the retraining of government officials for whom the old systems have become ingrained in their very being.

The impressive achievements of the first generation of economic reforms hold important lessons for the monumental tasks in the second generation reforms. In retrospect, anyone who, 10 years ago, might have predicted the emergence of a consensus on economic reforms would have had their intellectual acumen, if not their sanity, questioned. A plethora of powerful, and hitherto sacrosanct, economic interests were at stake. Yet, here we are in 1997 with one country after another shedding protectionism and centralized statist policies to adopt open markets, competition, monetary restraint, and elimination of subsidies. It was extremely difficult to achieve a consensus for action for these economic goals, perhaps even more than for the social reforms.

In that sense, the first generation economic reforms hold an important lesson. They were administered with a very clear model and point of view. No such model applies to the social sectors. The orientation of the Bank's programs - breaking up large, monolithic ministries to promote the decentralization of services and to encourage a greater role for non-governmental organizations (NGOs) in the delivery of social services - challenges interests as deep as those in the economic sector, and even more tenacious, since the weakness of their economic situation makes change extremely threatening. Added to this equation is a dangerously unbalanced distribution of income, which acts as a major brake on the region's growth and as an incubator of social instability. Modern communications and civic activism no longer afford us the luxury of ignoring these complex issues, as the recent political unrest in Mexico so amply demonstrates. The Bank stands as one of the prime resources of the nations, especially the smaller nations, for the acquisition of both the technical know-how and the financial resources required to address these needs.