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IDB Weathers Populist Storm: Luís Alberto Moreno
The Washington Diplomat / February 2007

By Larry Luxner

Every other day, it seems, a firebrand populist spewing anti-American rhetoric is elected president of a Spanish-speaking country. Last year, 10 national elections were held south of the Rio Grande — and five of them were won by leftists. In two more, the anti-U.S. candidate lost narrowly.

Luis Alberto Moreno says that's because tens of millions of the region's poorest inhabitants feel they're not enjoying the fruits of Latin America's newfound prosperity.

Moreno, 53, is president of the Inter-American Development Bank, a multilateral lending institution created in 1959, headquartered in Washington and owned by 47 countries — 26 of them in Latin America and the Caribbean.

"The economic situation in our region is the best it's been in many years," he told the Diplomat in a 30-minute exclusive interview. "Latin America has had four years of economic growth and the debt-to-GDP ratio is now below 50%.

"Today, there's no inflation, fiscal deficits are in check and countries have current-account surpluses," said Moreno. "All of that is good, but it has not translated as quickly to millions of people. That explains the region's dramatic increase in kidnappings, robberies and murders.

Indeed, record growth in 2006 didn't stop voters from electing or re-electing left-of-center presidents like Argentina's Nestor Kirchner, Brazil's Luiz Inacio Lula da Silva, Ecuador's Rafael Correa, Nicaragua's Daniel Ortega, Bolivia's Evo Morales, Uruguay's Tabare Vazquez and — in what many perceive to be the region's biggest threat of all — Venezuela's Hugo Chavez.

All of them, to one degree or another, have rejected Washington's model of a hemispheric Free Trade Area of the Americas, emphasizing instead programs that focus on social justice and indigenous rights.

Even so, Moreno argues, "Latin America is less to the left than the press would like you to think. This whole idea of leftist movements in Latin America makes for good headlines, but the reality is that many of these governments have very solid microeconomic management. That's largely due to the fact that Latin America went through some very difficult times, and developed a cadre of very good technocrats.

"Brazil is a good example," he said. "Lula comes from the Workers' Party, and he's made very difficult reforms on social security and foreign-debt reduction. I mention Brazil because it's such an important country, representing 40% of Latin America's population."

In Moreno's opinion, Chile, Costa Rica and Panama have made the most progress in fighting poverty.

"Bolivia is a different story," he said. "[President Evo] Morales has taken some decisions that are going to make it difficult to attract private investment. Remember that 60% of Bolivia's population is indigenous. It was only natural that, sooner or later, an indigenous leader would be elected."

Out of roughly 500 million people, close to 200 million Latin Americans live on less than $2 a day.

"This is the biggest issue for the bank: building social cohesion," Moreno said. "Despite becoming more empowered politically, all this good economic news hasn't really trickled down to these people, and that's really the issue. The gap between rich and poor in Latin America is the widest in the world."

Moreno, Colombia's' former ambassador to the United States, is only the fourth president in the IDB's 48-year history. Six years older than the bank itself, he took over in October 2005 from Uruguay's Enrique Iglesias, who had led the IDB for 17 years.

Last year, he said, the bank approved 112 projects for close to $6.4 billion and made almost $6.5 billion in disbursements, an 18% increase over 2005.

That included 76 loans for public-sector investment projects totaling close to $3.6 billion, 17 policy-based loans for nearly $1.8 billion and 19 operations without sovereign guarantees for $904 million. The latter category of loans and credit guarantees was made possible thanks to new policies that raised the cap for such operations and expanded them to more sectors.

In November, for example, the IDB approved a $50 million loan to Venezuela for construction of the Tocoma hydropower project, whose total cost is $3 billion. The plant will have an installed capacity of 2,160 megawatts and is expected to be put into operation between July 2012 and March 2014. The plant will be built, operated and maintained by CVG Electrificación del Caroní SA (Edelca), a state-owned company.

A month later, the IDB loaned Costa Rica $50 million for an urban poverty alleviation program that combines investments in basic infrastructure, social services and land tenure regularization in 31 marginal neighborhoods of San José.

The investments are expected to benefit some 9,000 poor families by expanding their access to better-quality social services and infrastructure improvements in their communities, which will in turn raise the value of their property.

Similarly, Bolivia will benefit from a $120 million IDB loan aimed at improving the Santa Bárbara-Rurrenabaque section of the Northern Corridor highway. The project will reduce travel times in the mountainous region, lower vehicle operating costs and provide continuous access throughout the year with better road safety conditions. It will also boost economic activity by linking zones with agricultural and ranching potential to Bolivia's main centers of commercial activity.

The loan features a 40-year grace period, with an interest rate of only 1% during the grace period and 2% thereafter.

"We are unique, in that a traditional loan from our bank will go up to 20 years, with a 10-year grace period. The cost of funds from our bank is perhaps the lowest any country can get on the market," Moreno explained. "We charge on average about 30 basis points over the cost of funds."

Nevertheless, said the IDB's chief, "we cannot continue with business as usual."

"I basically have focused on realigning the bank, modernizing it to make it more attuned to the needs of the hemisphere, and developing the right kind of management skills to be more flexible," he told the Diplomat.

"Our challenge is how to remain relevant at a time when most countries in Latin America can access capital markets for their financing needs. Collectively, countries are always thinking about how best to engage multilateral institutions. For this reason, we have to provide more knowledge behind our lending. We've got to be able to build opportunities for the majority. We've got to be strong in working for poor people in the middle-income countries of Latin America."

Moreno highlighted the need to increase IDB effectiveness by strengthening its operations program and deepening its presence in its markets. He said the bank must enhance its relevance by improving its expertise in areas such as education, health, water and sanitation, and biofuels.

"Infrastructure is one of the major needs of our hemisphere," said Moreno, estimating that Latin America requires $80 billion in infrastructure investments per year — ranging from power plants and roads to bridges and hydroelectric dams.

"Half of our lending — by a decision of our shareholders — is devoted to social investment," Moreno said. "We're very proud of having things like conditional cash transfers, a program developed in Mexico with IDB support. It is directed at families that ordinarily would not send their kids to school because they need those kids to go out and work to augment the family income. The cash transfer is given on the condition that the kid does go to school."

The IDB also has a program in place to help countries make more productive use of money flowing from the United States in the form of family remittances. According to a recent IDB study, immigrants living north of the Rio Grande send $60 billion a year to their families living in Latin America and the Caribbean.

"The real challenge we have is to turn those remittances into productive remittances," Moreno said. "Instead of sending money to pay rent, you can buy a home. Instead of paying for health insurance, you can pay for your kid's education. But those kinds of things require the development of products that can be sold to immigrants here or people in Latin America. In Mexico, where a third of all the remittances are going, 50% of them are sent through bank accounts. But that's not the case in other countries."

Moreno said the IDB — which employs 2,000 people and has an annual budget of $400 million — must bring certain ongoing projects to completion, such as debt relief and the use of concessional resources. He added that the bank should also consider extending IDB membership to other countries beyond the current 47 members.

"Transpacific trade is the fastest-growing trade anywhere in the world. Last year, 53% of China's foreign investment went to Latin America," he said, revealing that the IDB is in "preliminary talks" to admit China as the institution's 48th member state.

Another important development is the rise of free-trade agreements, such as the one the United States signed last year with Moreno's native Colombia.

"During the years of the Bush administration, trade blocs have advanced a lot. Before, you only had Mexico," he explained. "Now, the U.S. has free-trade agreements with Central America, Chile, Colombia and Peru —10 countries in all. I think that's a real accomplishment. Look at NAFTA. The unemployment rate in Mexico really came down as a result of NAFTA. Today, unemployment there is around 2.5%, one of the lowest in the hemisphere."

Moreno said that even though the administration's much-hyped Free Trade of the Americas never came into being, "there's a real possibility of a successful Doha round" leading to hemisphere-wide free trade.

At present, the United States accounts for 30% of the IDB's shares and voting power, while Latin American and Caribbean countries collectively own 50%, European countries and Israel 11%, Japan 5% and Canada 4%.

"It's a very interesting makeup, in that 50% of the shares are in the hands of the lending countries," Moreno explained. "That's not the case with the World Bank or the IMF. This works more like a credit union of sorts."

Moreno said the IDB enjoys "tremendous recognition" as the premier lending institution in Latin America.

"The history of the IDB is very much intertwined with the last half-century of economic development in Latin America. In that context, the bank has done many things, and I've had a chance to travel to many countries where we lend to, and where we have our donors," he said.

On an average day, Moreno arrives at 8:30 a.m. and doesn't leave until 8 p.m. The day after our interview, Moreno flew off to El Salvador for a two-day trip and had only two days to recover before leaving again, this time for Ecuador.

"Travel is a very tough part of this job," he said. "When you're ambassador in Washington, most of your life is dedicated to what happens inside the Beltway. But when you're the president of the IDB, you've got to get outside the Beltway to the 26 countries where you have activities. That means constant demands on your time. The terrain is so different."

He adds: "Of course, Colombia is still my country and I work a lot here on advancing U.S.-Colombian relations, and I keep in touch with President Uribe."

Last year, he noted, the Colombian economy grew by 7%, despite the country's reputation for lawlessness, violence and drug trafficking.

"I think the violence in Colombia has forced people to be more aware of social needs and react better to crises. But at the same time, we have had uninterrupted growth for 70 years," he said. "There's a very deep feeling in Colombia that you don't fool around with economics."

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