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  HOME | Latin America (Click here for more)

IDB Begins Effort to Increase Capital amid Growing Challenges

BARRANQUILLA, Colombia – The Inter-American Development Bank agreed to begin a technical analysis procedure with an eye toward expanding the bank’s capital, an initiative that received the “overwhelming support” of the member countries, IDB president Mauricio Clave-Carone said at the bank meeting concluding on Sunday amid the acute crisis in Latin America brought about by the coronavirus pandemic.

The IDB was ending the assembly with a resolution and with the door having been opened to a process of analysis, “a roadmap” toward an increase in capital, said Claver-Carone at a press conference at the close of the entity’s 61st annual conference held mostly virtually this year from Barranquilla, Colombia.

Claver-Carone, the first American citizen to head the IDB, assuming the presidency last year, emphasized the “overwhelming support” of the 48 member nations for the move.

The entire discussion at the meeting was on timing, procedures and prerequisites for increasing the availability of capital, Claver-Carone said, not on whether to accept or reject the plan.

However, he did not provide specific details about the procedures that will be followed, saying only that the IDB board of governors will be presented with short-, medium- and long-term recommendations regarding the analysis and so that future steps may be discussed.

The initiative was spearheaded by eight countries: Brazil, Chile, Ecuador, Peru, Paraguay, Guyana, Suriname and Venezuela, the latter nation being represented at the gathering by opposition leader Juan Guaido rather than leftist incumbent Nicolas Maduro.

During the Barranquilla conclave, Claver-Carone defended the need for a general increase in IDB capital, saying that the calculated target will be for $20 billion to increase available resources for loans throughout the region, up from the $12 billion available each year at present.

The development bank’s most recent capital increase came in 2008.

The IDB chief said he had no doubts that in the four-and-a-half years remaining in his term – and he has promised to serve only one six-year term as president – the bank would be able to achieve increased capitalization, adding that it is important that a bipartisan group of US senators have already given their support to a capital increase.

One of the countries that has given its explicit support to the move is Colombia, whose president, Ivan Duque, insisted that Bogota “has backed and is backing the efforts to strengthen the bank, but that doesn’t happen overnight. There’s always a preliminary stage.”

“Latin American needs a bank that can grow in parallel to the needs of the region,” Duque said during the Barranquilla meeting, during which the IDB presented its macroeconomic report in which it emphasized the region’s urgent need for fiscal reforms to facilitate a sustainable economic recovery after the COVID-19 crisis.

IDB chief economist Eric Parrado warned that “we’ll get out of this crisis poorer, more indebted and with economies that will have a very different format in terms of their productive structures.”

According to IDB forecasts, Latin America and the Caribbean will grow 4.1 percent in 2021, after falling 7.4 percent last year, the worst annual decline since 1821.

With an eye toward 2022, the report projects that the region’s expansion will decelerate to 2.5 percent.

During the March 17-21 meeting, the bank approved a seed capital fund of $20 million for bioeconomy development projects in the Amazon region and relaunched a program designed to strengthen Latin America’s female entrepreneurial contingent.

A call was also issued for the region to take advantage of the economic effects of the pandemic such as the adjustment in global supply chains and to push for company relocalization and economic integration.

Latin America and the Caribbean must make an effort to achieve greater regional integration that, in turn, allows the region to insert itself more efficiently into the world, said Claver-Carone in one of his seminars.

One of the key elements in doing that is the proximity to the world’s biggest market: the United States.

To illustrate his point, Claver-Carone gave the example of Colombia, saying that it is the headquarters for relocating technological service activities, along with activities in the food and beverage, plastics and resins sectors, adding that it has the potential to expand into sectors like pharmaceuticals and automobiles.

 

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