The IDB sees strong support from the region to increase its capacity by $112 billion

Ilan Goldfajn, president of the Inter-American Development Bank (IDB), is a great soccer fan. This Wednesday, the first day of the annual meetings held by the Latin American lending institution in Punta Cana (Dominican Republic) ended with a soccer game. Goldfajn, who played a lot when he was young, did not wear shorts this time. But he is nevertheless playing a final these days: the assembly that must certify the reforms he has been working on since he took office in November 2022. These reforms, as had already been announced, will increase the IDB’s lending capacity by $112 billion (€102 billion) within a period of 10 years, as Goldfajn reiterated this Thursday at a news conference in Punta Cana. The president of the IDB sees “total support” in the region for the recapitalization of IDB Invest, the investment arm in the private sector, and the injection of funds into IDB Lab, focused on innovation and entrepreneurial capital.

Goldfajn wants the Punta Cana summit to remain engraved in the bank’s memory for years or even decades to come. He wants it to be remembered as a turning point for the institution and also help provoke that same turning point in all of Latin America. “I think we are in a historic moment for the IDB group and we want this moment to also be historic for the region,” he insisted in a meeting with journalists this Thursday, reiterating the message from the day before.

The IDB simultaneously faces three transformational changes. The first is an institutional strategy that aspires to influence at least the next six years of a bank that went through a turbulent period under the previous president. After a year of internal work to pacify things, Goldfajn has made reform proposals that affect the bank’s governance, but above all aspire to change the scale and impact of what it does: finance the development of the region.

Secondly, the bank is envisaging a recapitalization of IDB Invest with which to double its resources. Goldfajn declined to confirm any figure pending its debate and approval by the assembly this weekend. A new model and a new vision are also proposed to mobilize more private resources to invest in the region in projects of all types, from green hydrogen to lithium, through digitalization and many other areas. “Our capital today is $3.1 billion. When the president talks about doubling, we can do the math, but more important than the capital we receive or not from our shareholders is what we do with that capital. The key is to attract foreign direct investment and local savings to address the region’s development challenges. That can double or triple the impact,” said the head of IDB Invest, James Scriven.

The third reform directly affects IDB Lab, with a more scalable, sustainable business model where more resources will also flow in. “The complementarity from IDB Lab is to work directly with ventures, with start-ups and with entrepreneurial capital funds, with the venture capital industry, to give a different response, test new technologies, new business models, to the three challenges that the president mentioned: social inequality, climate and productivity,” said Irene Arias, head of IDB Lab. “With the resolution that we are presenting, over the next seven years we could be investing at least $1.3 billion in these ventures that can make a big difference because they are small companies that can later become large unicorns. We have historically financed a third of the more than 54 unicorns in the region today.”

Inflection point

“When you put it together, that’s a very relevant turning point,” Goldfajn said. “I think we are going to remember Punta Cana for many years and maybe even for decades. The region needs a transformed IDB. The region is also facing a possible and potential change. Because of the global situation, because of where we are in the world, for the first time we see that not only Latin America and the Caribbean need the world, but that the world also needs Latin America for the great milestones and the great global challenges such as climate change, the energy transition, food security or biodiversity, with the Amazon and other biomasses,” he added.

Goldfajn’s belief is that if the idea that the region is facing a turning point sinks in, a kind of virtuous circle will be generated. “It means that investment will begin to arrive and something that has not been changed in decades can be changed, which is the growth of productivity and the growth of income and jobs, improving people’s lives.” Thus the “triple challenge” of a lot of social demand, few fiscal resources, and no growth to have more resources would be changed. “If you can grow and have more resources, you have more fiscal resources and you can better meet social demands,” he reasoned.

The IDB has defined its strategy in a very selective way, with three objectives: social, which is the core of what the IDB does, and which includes the fight against poverty, the development of public goods such as education and health; energy transition and climate change, including adaptation to increasingly frequent adverse climate phenomena, such as drought in Argentina and Uruguay, fires in Chile, or hurricanes in the Caribbean and Central America; and, thirdly, productivity growth and growth momentum: “We have to abandon the lost decades and find the inflection point to greater growth in the future,” Goldfajn said.

The president of the IDB poses a dual challenge: to have an impact and to have scale. To have an impact, you need to analyze success stories, but also those that go wrong, and draw lessons from them. And to have an impact, you need to aim in multiple directions to be able to lend more. Among the financial innovations are portfolio changes to diversify risks, insurance and guarantees. The president has also presented a proposal to the International Monetary Fund (IMF) so that countries can use the special drawing rights (SDR, the Fund’s currency) in the IDB, where they count as reserves, and be able to leverage them to give out more loans. He knows it won’t be easy: “Whether that’s going to work out or not I don’t know, but we are working on it,” he said. He has to convince the IMF, which is already analyzing the proposal, and then the countries, to make those deposits.

“All that means scale. And with this scale, the capitalization that I told you about, the transformation of IDB Invest, the transformation at IDB Lab, and with the help of the guarantees, we will be able to increase our capacity to lend by up to $112 billion in the next 10 years, about $11 billion more each year in addition to what we are doing today. And that is quite significant,” added Goldfajn, who also recalled the agreements with the World Bank on three fronts (the Amazon, the Caribbean and digitalization) as another way to increase impact and scale. Among other alliances, he also pointed out that the IDB has just signed another deal with the Andean Development Corporation (CAF) involving security, and added that it also works with the CAF in the financing of large infrastructure projects.

Asked how the IDB can help with the region’s migration challenge, Goldfajn said: “If we give the population good living conditions, if we give them roots in the sense that they have an education, they have healthcare, transportation so you don’t need three or four hours to get to work, if you generate employment, which means you have to provide the skills, which are things that the IDB does, that keeps people. And then there is the impact of the consequences of migration. We have an immigration fund where we receive resources. It is important to help migrants wherever they go.”

The head of IDB Invest, James Scriven, also insisted on this matter: “Both IDB Lab and IDB Invest are here to support companies in their development. The answer is in formal employment. The majority do not want to emigrate from their own country. They do it because they are pressured by economic issues, climate issues or security. What we try to do is generate formal jobs in the countries in which we operate, in the 26 countries, and avoid migration. The regrouping of global value chains, much closer to Latin America and the connection it has with the United States and Canada, provided an enormous opportunity for the private sector throughout Latin America,” he said.

More scale to have more impact is what the IDB is aiming for these days. “If we have more resources, we will be able to do more and if we are very focused and very selective, people will notice the difference, they will feel that something different is happening,” Goldfajn concluded.

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