Luis Alberto Moreno has taken over as president of the Inter-American Development Bank just as the nations of Latin America are weaning themselves off the dollar funding that the IDB exists to provide. The bank will not stay relevant for long if it continues to concentrate on making dollar-denominated loans at the sovereign level.
Latin American countries are either moving towards populism, in which case they don’t request an IMF seal of approval and can’t get IDB loans, or else they’re serious about fiscal prudence, in which case they don’t want to increase their indebtedness by borrowing money from any bank.
Instead, the IDB will have to concentrate on four sectors. The private sector is first and foremost: the bank’s private-sector arm, the Inter-American Investment Corporation, is small and weak and in desperate need of beefing up. The groundwork for that was already laid at the IDB’s 2005 annual meeting in Okinawa. Moreno now has to deliver.
This year, Moreno will have to cajole his shareholders into supporting three further, equally important, areas of expansion. The first is sub-national lending, to states and municipalities. The bank’s annual meeting, next month, is being held in Belo Horizonte, a city of 4 million people that is the capital of the Brazilian state of Minas Gerais. Both city and state are easily important enough to get IDB funds of their own, rather than having to hope that their political connections in Brasilia are strong enough to ensure that federal technocrats will plead their case for them.
The second area Moreno needs to focus on is supranational funding. The bank has a vital role to play in making sure that large regional infrastructure projects, encompassing two, three or more countries, get started – and completed – in an efficient manner. Latin America is in dire need of more energy, road and rail links between its countries, and only the IDB has the political clout, not to mention the money, to make that happen.
Finally, the IDB needs to borrow and lend in local currencies. The liability side of its balance sheet can be an enormous force in the development of local capital markets, and there’s no reason why Latin American countries should be forced to take on currency risk every time they borrow funds from the bank.
None of these tasks will be easy. But if Moreno doesn’t succeed at them, he will find himself in charge of a forgotten institution.
