Just six months into his new job as president of the IDB,
Luis Alberto Moreno is facing tough questions over what role
the bank should play in financing one of the most volatile
regions in the world.
Some market players think the role needs to be negligible,
at best. It should be converted into a museum for bad
macroeconomic policies, says an executive at a New
York-based investment bank, echoing a widespread sentiment
among emerging market investors and private-sector financiers
that the market, not Washington-based bureaucracies,
should allocate capital.
The dynamics of Latin America are changing too. In recent
years, the market for the IDBs services has
transformed. Rapid growth in private capital flows has made its
financial resources less important than before. Political
leaders are increasingly sketching their own vision of
inclusive growth in Latin America, often in direct opposition
to the Washington-based multilaterals. And the
regions economies on the surface at least
seem much healthier than they were three or four
years ago. High commodity prices and sounder fiscal management
mean that Latin America is no longer as dependent on official
financing as before.
Yet the IDB relies for its survival on continued borrowing
from middle-income countries like Brazil, Argentina, Colombia,
Peru and Venezuela. By size, the banks activities
pale in comparison to private-sector flows to the region
forecast this year to reach just under $50 billion,
according to the Institute of International Finance, nearly
twice the total for 2003. The IDB, in contrast, will lend less
than $10 billion to the region annually.
It is not a problem lost on the incoming president.
This is one of the most difficult issues facing the
bank, Moreno tells Emerging Markets. But I
think the challenge that the IDB faces is a challenge that
faces most development banks that constant search
for how to do your job better.
There is no magic bullet in development with
regards to where the growth is. Its constant trial
Error is something the bank can ill afford, especially when
it comes to stepping up its private-sector activities.
The bank will have to do more private-sector activity
and find more ways to do lending, and we have to focus on that
and developing new instruments and new lending we
need to be able to adapt to those changes, he
Moreno, who until October was Colombian ambassador to the
US, has already set in motion a comprehensive internal review
to look at how the IDB can realign itself with the new economic
and financial realities of Latin America. The review, according
to sources within the bank, will also comprise what promises to
be a more radical shake-up of the institution, which has
plodded along for much of the last two decades under the steady
leadership of Enrique Iglesias, the distinguished
Moreno expects it will take at least two more months before
anything concrete is announced: Its more
than a reorganization, he says.
Its like the modernization of any state.
Its a process of looking at the problems
specifically. It will take time to do this.
Once you have defined exactly where
youre moving, then itll take another 18 to
24 months to get there.
Moreno, like Paul Wolfowitz, his counterpart at the World
Bank, intends to make infrastructure a key focus of the
banks activities. It also happens to be one area
where the bank can make a difference. Moreno points out that
with an infrastructure gap of some $80 billion, the region will
need multiple sources of funds and expertise for some time to
This cannot be done simply by governments; it has
to be through public-private partnerships, says
Moreno. It requires a special focus. But more
importantly, it requires a lot of stars being aligned. On the
risk side, it requires the private-sector players to come on
board. This is an area where we will definitely be more focused
Raising the caps
Internal constraints still block the banks
progress towards this goal. For a start, investment in any
private-sector project is capped at 25%, in part because the
banks rationale is to support the private sector, not
compete with it.
But the bank has taken steps in this direction, for example
by raising the caps on financing private-sector projects from
$75 million to $200 million. The bank, says Moreno, is now
working on a unified strategy to approach the private
This is clearly a challenge, that we have to learn
to work better with the private sector. We cannot be all things
to the private sector. There will be things that private banks
can do much faster.
But, he says, We are always looking for ways we
can provide additionality. Is there room for improvement from
our perspective? Certainly. The challenge is how to do
A recent report from the Center for Global Development
(CGD), whose authors include former IDB chief economist Ricardo
Hausmann and former Mexican finance minister Angel Gurria,
stresses expanding and modernizing the IDBs
Liliana Rojas-Suarez, senior fellow at the CGD and a lead
author of the report, says that the IDB should undertake
detailed, independent analysis of the cost of doing business
with the IDB. Is it in the operations? Is it in
actual costs? Are the spreads too large? Where exactly are the
costs? she says. If the bank does this it
will send a very strong signal that it is committed to this
kind of reform.
Moreno acknowledges that a closer look at these questions is
important, but he says that is part of a much wider process of
listening to the banks constituents. More
than just looking at costs, what weve been doing is
beginning to become very much a listening process, he
says. I think were increasingly doing this
listening process inside and outside the bank
to understand areas where we should
The IDB is moving much more towards sector based, results
oriented lending. It is also moving to strengthen its field
offices in order to make country ownership of programmes a
greater focus. The bank is also looking to enhance the quality
of its staff, especially in the field, according to sources
close to the reorganization.
For the IDB to remain relevant it needs to increase its
flexibility to design, as Rojas-Suarez puts it,
different products for different countries in
different times. Different instruments include
grants, loans, local currency issues and so on, beyond the
plain vanilla loan the bank has traditionally offered.
The bank has already begun experimenting with new products,
including local currency borrowing. Previously, the bank could
only borrow in Latin American currencies if it immediately
swapped the proceeds into dollars. Now it can also borrow
locally if it lends the proceeds to a specific project.
Developing a market for Latin currency bonds would be an
enormous benefit to Latin capital markets, although the
banks local currency lending plans are in their
infancy. There is a big demand for local currency
products especially in Mexico, Brazil and Colombia.
This continues to be an agenda item for us, he
Since October, Moreno has spent much of his time doing what
he was previously most accustomed to: diplomacy. He has been
actively reaching out to member states, including those
like Brazil who opposed his candidacy.
My mandate is to work with all countries. I hope I
will be able to work well with some of the countries that have
not supported me, which are very, very relevant
counties, Moreno says. Reinforcing the conciliatory
tone, he adds, I will deal with countries to the
right, to the left and in the centre, just as the bank
throughout [its life] has done when dealing with countries on
The more I go around Latin America, the more I see
the power of the [IDBs] brand name, says
Moreno. The fact that the IDB has such a good name in
the region bodes well for us.
Moreno campaigned vigorously for his job for months,
securing the direct backing of US president George Bush early
on. A nod from Washington was crucial since the US, the
banks single largest shareholder with 30% of the
votes, can veto any candidate it deems unsuitable.
Moreno also needed the backing of a majority of Latin
American and Caribbean nations. In the final event, big
countries Brazil, Venezuela and Peru among them
voted against him; Moreno nevertheless picked up a
large majority of votes, shortly after candidates from
Venezuela and Nicaragua pulled out of the race at the last
Crisis and support
Fresh challenges await Moreno and the IDB. The commodity
boom that has led to an upswing in Latin growth is unlikely to
continue indefinitely. Private capital flows to the region may
slow if US interest rates rise further. If another downturn
hits, the IDB may well find increased demand for its lending
True, there is a boom and bust cycle, he
says. I think that the bank has always tried to
portray itself as a counter-
But the bank will need all the support it can get from the
US its biggest shareholder if it is to
stump up more cash for renewed lending. It helps that
Morenos main triumph as ambassador was in lobbying US
Congress to support Plan Colombia, the highly controversial
scheme to combat narcotics and guerrilla activity in his native
country. I think [a good relationship with the US] is
never a loss, he says.
Still, this isnt something hes overly
concerned about today. We dont have any
real concerns right now. A slowdown in the world economy would
hit Latin America but we dont see that
happening, he says. Were