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What the IDB must do to stay relevant

Latin America’s development bank has to change tack as countries in the region rely less on dollar funding.

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.

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