No time to lose

18/03/2007 | Taimur Ahmad

How the IDB plans to assert its role in the face of competition from other multilaterals and increasing private capital inflows


Since he took over as president of the IDB a little over 18 months ago, Luis Alberto Moreno has had to grapple with one overriding question: how to make the bank relevant. The role the bank should play in financing what has traditionally been one of the world’s most volatile regions is at the heart of the issue: on the one hand, private-sector capital flows, at just under $50 billion, dwarf official lending to the region. On the other, institutions such as the Andean development bank CAF, and Brazil’s BNDES are broadening their development finance horizons. Venezuela’s president Hugo Chavez is also throwing his weight around, with plans for a regional development bank taking shape with neighbouring Argentina and putting further pressure on the Washington-based lender.
 
“The bank is facing increased competition.” Moreno tells Emerging Markets. “This poses a big challenge for an institution like ours. We are a miniscule player on both the public- and private-sector sides,” he admits. Moreover, increasingly, many market players dismiss the institution as little more than a distraction, whose place should not be in allocating capital. But the former Colombian ambassador to Washington is no stranger to adversity. After a difficult struggle with an executive board that is understood not to have been universally supportive, Moreno finally won approval for his plans to overhaul the bank, which will see the institution realign itself with the economic and financial realities of the region.

“What I have done is to realign the bank. For more than three years, this bank has focused on what to do with the private sector. It’s time for new leadership in the bank,” he says. “Any new leadership in an institution as complex as this one will create problems. We’ve undergone some very tough issues and discussions.” One of his key moves has been the appointment of Daniel Zelikow, head of JP Morgan’s government institutions group, as COO of the bank. The move has been widely praised by the private sector, which sees Zelikow, an ex-Wall Street banker, as well positioned to tilt the bank more meaningfully towards private-sector operations.

“My first priority is going to be to execute the realignment,” Zelikow tells Emerging Markets in his first press interview since starting his new job. “I will also focus on developing financial instruments that are appropriate for what our clients – both sovereign and non-sovereign – want.” Beyond this, Zelikow, who is also a former US Treasury official, says he will devote his efforts to building opportunities for “people in the region who haven’t benefitted from growth”. The new bank staffer is already talking tough, especially when it comes to making the institution more efficient. “I think there’s always the opportunity to cut costs. Unless the bank can be responsive, its financial strength will be irrelevant.” Indeed, the cost of doing business with the bank has long been a sticking point among its clients.

For the bank to remain relevant, it must also increase its flexibility and provide instruments beyond the plain vanilla loan it has traditionally offered. Zelikow says he plans to focus on introducing a range of risk management products, such as currency hedges and swaps, to help clients – both sovereign and corporate – manage their risk. “This is a potentially more valuable way for us to use our credit appetite on behalf of our clients.”

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