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

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

The demands on the US budget to maintain this framework are minimal. The United States is scheduled to make its last payment to the Inter-American Development Bank in 1998, at which time it will be fully paid up on its subscription to the Bank's paid-in capital. Even if not another penny is authorized, the IDB will have adequate capital available to meet the requirements of the borrowing member countries. The Bank's soft window, the Fund for Special Operations (FSO), is in virtually the same condition. Almost all of the 16 original beneficiaries of the FSO have graduated; only 5 countries remain: Bolivia, Guyana, Haiti, Honduras, and Nicaragua. Given the reasonable prospects that Bolivia and Honduras may well graduate within the next 5 years, the FSO, at an annual lending level of $350 million, will also be able to manage without further contributions of capital.

The IDB is reaching this important watershed in international finance in the midst of other seminal changes affecting the policies of the US government:

Bilateral foreign aid will no longer play the strategic role it exercised in the postwar era. The United States must embrace other means to press its interests and to deliver the essential resources -- financial, technical, and human - for development.

With over 40% of US exports going to developing countries, and 40% of every dollar earned in Latin America from exports being spent in the United States, policy reforms favoring open markets are a high priority for US economic growth. On a substantive level, US bilateral aid simply could not address many of the needed structural policy reforms. Borrowing countries are able to accept, and act on, loan conditions of multinational development banks (MDBs) in ways that would not be possible in a bilateral relationship. Moreover, the MDBs are capable of adopting long-range policies independent of local political interests, something that bilateral aid programs, by definition, cannot do.

Major US policy objectives - with respect to democratic institution building, environment, labor, income distribution, population, women, micro enterprise, and fighting corruption - would simply be rhetoric without the MDBs. In addition, the IDB has played an indispensable role in the achievement of other US foreign policy interests. In Haiti, the Bank-led mission put together a $630 million package for economic recovery. There is no way the US Congress, even if it were so disposed, could have come to the aid of Haiti to that degree. In Nicaragua, the Bank is actively helping to address issues that are high on the US agenda, including support for economic reform and property rights. Across the board, the Bank's investment sector loans provide strong support for the objectives of the US Trade Representative (USTR) concerning intellectual property rights, environmental management, and workers rights.

The maturing of the Bank places another policy goal of the United States in sharp relief. Since the beginning of the century, the United States has worked with the nations of the Hemisphere to shape a credible network of inter-American institutions capable of achieving a more integrated Hemisphere to reinforce democracy and sustainable development on a continuing basis. A meaningful system of institutions, that will enable the nations of the Americas to further their considerable mutual interests, must include several complementary components: a forum for political discourse, a financial arm for development assistance, and a viable mechanism to coordinate technical issues. Two of the three basic pillars of such a system are already in place. The OAS attends to the political needs; the Inter-American Development Bank addresses the financial needs. Now, gradually, a framework for consultations on technical issues is emerging out of the 1994 Summit of the Americas. In less than 2 years, an unprecedented 7 ministerial meetings have been held to address issues in finance, commerce, energy, transportation, labor, and the environment. True to the mantra of our age, decentralization has come to the inter-American system. This functional disaggregation, or decentralization, of technical responsibilities is an historic development that fills a need long missing from inter-American relations. Technicians are talking to technicians without the intermediation of foreign ministries, an essential evolution if we are seriously to address the plethora of technical issues that must be resolved in everything from minimal standards and harmonization of regulations and procedures to macro political and economic issues.