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DEVELOPMENT: More Urgent Measures Needed from IDB

Mario Osava

MEDELLÍN, Colombia, Mar 31 2009 (IPS) - The financial, environmental and social crises shaking the world today face the Inter-American Development Bank (IDB) with demands and expectations it cannot meet, because of the limitations seen at its 50th annual meeting, which ended Tuesday in this Colombian city.

The agreed increase in the IDB’s capital, which will allow it to expand its loans to Latin America and the Caribbean, is unlikely to ease the impact of the global financial crisis, which has already slowed down the regional economy.

The meeting of IDB governors, which brought together representatives of the Bank’s 48 members in Medellín, Colombia over the weekend, reached a consensus to seek the institution’s ninth increase in capital since it was founded, with the United States – the largest shareholder – backing the financing hike, which will benefit the countries of Latin America and the Caribbean.

The assembly approved a resolution for the Bank’s management to “immediately initiate a review of the need for a general capital increase”.

But the boost in capital, from the current 100 billion dollars to between 250 and 280 billion dollars, will take years to materialise, and depends on agreements reached among the “owners” of the Bank – in other words, the governments of the 48 member countries, IDB president Luis Alberto Moreno admitted.

However, the crisis won’t wait that long, and immediate measures are needed “by April at the latest,” to expand credits in order to respond to the urgent needs of member countries, said Mexican delegate Ricardo Ochoa, director of foreign affairs at the Finance Ministry.

Even though the amount involved in the financing boost is “laughable” and “could be too late when it does arrive,” the resultant expansion of credit is interesting because with small actual payments – just four percent of the 180 billion dollar increase – financing will grow significantly, which is an advantage of the cooperative model, said Dominican Republic Finance Minister Vicente Bengoa.

Just how limited the IDB’s funds are is seen not only in relation to the drop in foreign investment in Latin America, which plunged from 184 billion dollars in 2007 to less than half that in 2008 and may fall to one-quarter of that total this year, but also with respect to the remittances sent home to the Caribbean and Latin America by migrants.

According to IDB statistics, the region received 69 billion dollars in remittances in 2008 – more than six times the total amount of credit granted by the Bank in the same period.

Remittances are expected to shrink for the first time this year, by an estimated 11 to 13 percent, continuing a trend that began in the last quarter of 2008.

The social effects of the drop in remittances will be serious, because in many cases, the money sent home by migrants goes towards feeding and clothing their families, rather than to the purchase of durable goods or education, said Bengoa.

The debate at the IDB meeting focused on the increase in capital and expansion of loans, which are irrelevant to overcoming the crisis, said Colombian economist Héctor Moncayo, with the Colombia-based Latin American Institute for Alternative Legal Services (ILSA).

The IDB should carry out a critical evaluation of its 50 years of history, in order to modify its approach and its mechanisms and promote greater transparency and participation by society in its activities, Moncayo told IPS.

The activist took part in the Peoples’ Assembly in Medellín held by the “IDB 50 Years Financing Inequality” campaign that was carried out by a coalition of 42 civil society organisations.

The counter-assembly, held Mar. 25-27 to overlap with the IDB meeting, lambasted the Bank for failing to live up to its name as a “development” institution.

In the 1990s, for example, the Bank financed many institutional reform projects, forging into purely political territory, said Moncayo, a former university professor, who argued that the institution’s “political intervention” that promoted the implementation of neoliberal policies should be evaluated.

The activists also underlined that the IDB had failed in its mandate to reduce poverty and inequality in Latin America. “IDB projects across the region are a disaster. In many cases their ‘cure’ has been far worse than the disease,” said Juan Carballo with the Argentina-based Centre for Human Rights and the Environment (CEDHA), one of the members of the civil society coalition. A press release issued by the IDB 50 Coalition mentions several “IDB financed ‘development’ projects,” like the Cana Brava hydroelectric project in Brazil, which “forcibly removed 800 families from their homes. Six years later, they still have not been compensated for their loss of land.” It also states that “the IDB financed the Yacyretá hydroelectric project, against the advice of an array of NGOs concerned that no environmental impact studies were carried out. The resulting social and environmental damage to the area was devastating for local residents.” And César Gamboa, with the Peruvian NGO Rights, Environment and Natural Resources (DAR), said that “In Peru, the massive IDB funded Camisea natural gas project has harmed indigenous peoples living in voluntary isolation in the Amazonian rainforest. By driving pipelines deep into their ancestral territories, the project brought contact with workers carrying diseases that are deadly to these populations.” Latin America is still the world region with the widest gap between rich and poor. Its Gini Index, which measures income inequality, only went down from 0.58 to 0.52 between 1970 and 2008, a far cry from the 0.31 average of the Organisation of Economic Cooperation and Development (OECD), which groups the world’s industrialised countries.

Venezuela, which has not received IDB financing in the last few years, managed to reduce its Gini Index to 0.41, the IDB 50 Coalition pointed out in a statement distributed at the Medellín meeting.

Despite the Sustainable Energy and Climate Change Initiative (SECCI) adopted by the IDB in 2006, its loans continue to favour fossil fuel-based energy projects, the coalition said. Only 12 percent of them went into renewable energy, ignoring the climate change crisis and maintaining the gap between the IDB’s rhetoric and practice, it added.

Some accusations overestimate the real power of the IDB in deciding on the projects it finances, which respond mainly to national policies and initiatives. But greater civil society participation in decision-making was called for by several participants in the IDB assembly, including former U.S. president Bill Clinton (1993-2001).

But Washington seems to be more concerned about Moreno’s administration of the Bank. U.S. Treasury Secretary Timothy Geithner said “we expect a commitment to good governance” including efforts “to strengthen the institution’s risk management capacity and procedures to ensure sound investment of resources provided by the shareholders.”

His statement was interpreted as conditions set by the U.S. on the approval of the funds needed to replenish the IDB’s capital.

The 1.9 billion dollars in losses suffered by the IDB in the second half of 2007 and in 2008, as a result of risky investments in “toxic assets”, drew criticism from U.S. lawmakers because they are estimated to be many times higher than the losses of other development banks.

Moreno, however, downplayed the losses, which he said were actually much smaller in practice, since realised losses were only 71 million dollars.