IDB: A bank of ideas, not ideology

When the Inter-American Development Bank (IDB) was created in 1959, 40% of the Latin American population did not have access to water infrastructure. The IDB’s first loan was to the city of Arequipa and its water sanitation project, which proved the institution’s ability to detect the region’s real problems.

The idea of a Latin American development bank headed by Latin Americans did not please many people – not even Che Guevara, who branded it the latrine bank, and not those who defended the status quo and who forecast that the IDB’s first president, Felipe Herrera, would last six months because the only Latin Americans that Wall Street was familiar with was those who showed up looking for a handout.

Of all the development banks, the IDB is by far the leading source of financing in Latin America and the Caribbean

Yet his presidency lasted 10 years, and he was followed by Ortiz Mena, Enrique Iglesias and Luis Alberto Moreno. Each one of them made changes and left a personal mark on the bank, but they all had one thing in common: their absolute willingness to speak with the entire region, regardless of the political regimes, and to extend loans on just one condition: that the project should be viable and contribute to the economic and social development of Latin America.

Today, the IDB funds around a hundred projects annually in infrastructure, education and trade integration; it facilitates the design and execution of reforms in education, health and the modernization of the state; it also has a private branch that participates in business projects and offers technical assistance. Of all the development banks, including the World Bank, the IDB is by far the leading source of financing in Latin America and the Caribbean.

The IDB is more than a bank because all its presidents have always known that development is about more than just building dams. They knew that in order to make Latin America a prosperous, inclusive place, it would be necessary to invest in social policies and knowledge. It was that comprehensive vision that allowed the IDB to become the bank of ideas for the region’s public policies. Today, the IDB is one of the few existing institutions that is able to combine loans and economic and social development policies with a deep knowledge of its 26 borrowers based on history, mutual respect, trust and dialogue. That is why it is known as Latin America’s friendly bank.

But there is another reason. Ever since its creation, this bank has been headed by a Latin American president and supported by an executive vice-president from the United States, the bank’s biggest individual shareholder. And borrowers have had most of the voting power on the board of governors. This governance system has not only worked impeccably well – with a portfolio of $100 billion (€89.44 billion) in loans in the region with the most economic crises of the last few decades, the bank holds a triple-A credit rating – it also explains why the region identifies so closely with the institution.

This balance is now under threat due to the Trump administration’s decision to nominate a US citizen to lead the IDB. As several former Latin American presidents have noted, this decision goes beyond the mere fact of breaking with a diplomatic protocol: it is the latest link in the chain of the Republican administration’s attacks against the global multilateral system, from the Paris Climate Agreement to the World Health Organization (WHO).

Part of the blame for this situation must be assigned to Latin American countries themselves, for having been unable to come up with a candidate who could be unanimously accepted by everyone. If political differences made that impossible, then countries should have focused on professionalism, personal merit and experience. There are candidates out there. But countries did not do this, and now they are dealing with a superlative failure of diplomacy that reveals how deeply the region is divided, damaged and fearful of the upcoming economic depression.

For reasons of history, of democratic culture and economic interests, particularly in Spain’s case, Europe should be a relevant player at debates about Latin America

But taking advantage of the vulnerabilities and lack of Latin American leadership in order to strike a blow that will create institutional instability is an unjustifiable decision by the US, especially considering that its own election is just four months away. There was no need to create this kind of institutional disruption. The last thing Latin America needs right now is instability at one of the institutions that provides the greatest cohesiveness and which most successfully brings together differing views on development.

The IDB’s greatest virtue is that it is a bank with ideas, not a bank with an ideology. It is a public asset that should be preserved, if only because history has taught Latin America that there is no one single solution to its many serious problems, beyond respect for democratic values. The IDB’s success rests on its pragmatic attitude and its respect for all of its members. That is what has made it useful to the region.

The non-regional partners at IDB – essentially the Europeans, who hold 13% of the shares, led by Spain with 2% – should not dismiss this as a domestic issue or just another rip in the multilateral system that they can afford to ignore. It is not. For reasons of history, of democratic culture and economic interests, particularly in Spain’s case, Europe should be a relevant player at debates about the region, if only because if the European Union still wants to be a global player in the 21st century, it simply cannot be left out of events in a region representing eight percent of the global population and economy; a region that is wealthy beyond belief in raw materials; a region that is a key player in the fight against climate change, corruption and drug trafficking; and a region with three representatives at the G20. Europe should also not forget that China and the US are already playing out a not-so-minor part of their battle for world hegemony in Latin America.

Europe can and must help achieve balanced, pragmatic institutions with checks and balances. Its agreement at the International Monetary Fund (IMF) is just like the one the IDB had, and it proves that we Europeans believe in the value of rules and the balance of leadership. It would not be easy to explain why what is good, where Europeans are concerned, is not worth defending when we’re talking about Latin Americans. It would also not be easy to explain to voters that nothing has been done to prevent the erosion (even it is a remote risk) of the social and environmental conditions that come with the IDB’s loans, including those extended by its private branch. After all, our own capital is also invested in those projects, and we all depend on the rational preservation of the Amazon rainforest.

It is not possible to look the other way. The time has come to say stop. Give yourselves time to think it over. Postpone the vote for a few months. What’s at stake here is an important institution that has improved the lives of people in the region, and thousands of professionals are proud to have devoted their careers to it. Putting the IDB at risk is not worth it.

José Juan Ruiz is an economist.

English version by Susana Urra.