Development & Aid, Economy & Trade, Eye on the IFIs, Financial Crisis, Global Governance, Headlines, Latin America & the Caribbean, Poverty & SDGs

LATIN AMERICA: Half Century of Failed Development Policies – NGOs

Humberto Márquez

CARACAS, Mar 26 2009 (IPS) - As it gets ready to commemorate its 50th anniversary at an assembly in Medellín, Colombia, the Inter-American Development Bank (IDB) has come under heightened criticism from civil society groups which argue that its financing often goes against sustainable development and effective measures to overcome poverty.

“The 50th anniversary could become a rough draft for a future death certificate,” Héctor Moncayo, with the Colombia-based Latin American Institute for Alternative Legal Services (ILSA), one of the 42 organisations involved in the “IDB 50 Years Financing Inequality” campaign, told IPS.

The campaign is holding a “Peoples’ Assembly for Development Alternatives” in Medellín parallel to the 50th annual meeting of the IDB and the 24th annual meeting of its affiliate, the Inter-American Investment Corporation, to be held Mar. 27-31.

The IDB is also under fire because its portfolio lost 1.9 billion dollars in value over the last year and a half due to its investments in “toxic assets” backed by subprime mortgages – a huge obstacle to the Bank’s hopes of shoring up its solvency in the midst of a global economic crisis.

The portfolio losses gave rise, ahead of the IDB assembly, to a back and forth of letters between influential U.S. Senator Richard Lugar, the top Republican on the Senate Foreign Relations Committee, and Luis Alberto Moreno, the Colombian economist who heads the IDB.

Of the IDB’s 48 member states – China is the newest member – 23 are net donors, the biggest of which is the United States. The Bank has been working hard to increase member donations in order to approve at the assembly 18 billion dollars in loans for 2009.

“We still need development banks with sufficient resources to meet normal requirements and to address needs at times of crisis,” Mexican economist José Rivera, secretary of the Latin American Economic System (SELA), remarked to IPS.

The IDB has disbursed six to nine billion dollars a year over the last five years, most of which has gone towards strengthening infrastructure and export competitiveness in Latin America and the Caribbean.

The private sector received 920 million dollars for 20 projects in 2006 and 2.3 billion dollars for 29 projects in 2007.

The Bank proudly points to initiatives that have helped reduce poverty and social inequality and have defended the environment, like contributions to children’s orchestras in Venezuela, the strengthening of the primary health system in Argentina, or expanding access to basic services for indigenous people along the Urubamba River in Peru.

But the “IDB 50 Years Financing Inequality” campaign declaration states that “Over its fifty-year history, a good part of the social and economic policies promoted through loan policy conditionalities by the IDB have proven to be a failure in achieving a ‘developed and egalitarian’ Latin America.”

Social Watch, a Uruguay-based international watchdog taking part in the campaign said the counter-assembly would be held “to visualise the human and environmental costs of the failed ‘development’ policies of the bank, which are largely focused on the promotion of ecologically damaging mega-projects that provide few benefits for disadvantaged local populations and fail to respect the rights of indigenous communities and other traditional ethnic groups.”

“Considering that the main objective since the creation of the IDB (in 1959) was to accelerate the sustainable development process, it makes sense to wonder: how can we still have alarming rates of poverty, extreme poverty and inequality after 50 years of work?” said Diego Rodríguez, an Argentine activist with Ciudadanía y Justicia Ambiental (Environmental Citizenship and Justice).

In the search for who is responsible for this situation, “perhaps crises and problems cannot be attributed to one single cause or institution,” Argentine economist Alfredo Calcagno, with the United Nations Conference on Trade and Development (UNCTAD), acknowledged.

“But one major factor is the industrialised countries, which have not dealt with the economic problems of the rest of the world in reasonable, responsible terms, and have recommended that other states follow prescriptions that they themselves have not applied,” Calcagno told IPS.

Moreno, like his predecessor, Uruguayan economist Enrique Iglesias, has insisted on poverty reduction as one of the IDB’s central goals.

In 2007, Moreno stated that the region was proving that economic growth is still indispensable for combating poverty, which he said shrank from 36.5 percent in 2006 to 35.1 percent in 2007, and extreme poverty, which went down from 13.4 to 12.7 percent in that period in Latin America and the Caribbean.

In absolute terms, the number of poor went down from 194 to 190 million from 2006 to 2007, and the number of extreme poor from 71 to 69 million. The IDB reported that these were the lowest rates seen since the 1980s, and that they reflected 87 percent progress towards achieving the first Millennium Development Goal (MDG): halving the proportion of people living in extreme poverty by 2015, from 1990 levels.

For his part, Gabriel Strautman with the Brazilian Network on Multilateral Financial Institutions said IDB member countries should not fork over more money to banks “that have caused irreversible socio-environmental damages throughout their lives.”

Another reason to halt the flow of funds, said political scientist María José Romero at the Third World Institute in Uruguay, is “the limited effectiveness of mechanisms for civil society participation in decision-making and the lack of respect for the rights of indigenous people.”

From another angle, Senator Lugar asked IDB president Moreno to “please chronicle the decisions that led to the IDB’s massive loss” of 1.9 billion dollars.

He also asked how the losses impacted “the present and future commitments of the bank,” and what reforms were necessary to ensure that the losses did not recur.

Moreno responded that he understood that Lugar “would want assurance that these portfolio losses do not put in jeopardy the IDB’s mission to further the economic and social development of Latin America and the Caribbean.”

But he said the assets involved in the losses were classified as AAA (extremely unrisky) at the time of purchase, and that “Nearly all the losses are on assets that are still performing (paying principal and interest on schedule)…”

He also noted that for 2008, estimated losses amounted to 1.6 billion dollars, and that when “offsetting interest income of more than 600 million dollars is figured in, the IDB’s estimated net income loss for the year was less than one billion dollars.”

In Calcagno’s view, “it may be that it was difficult for the IDB to stay on the margins of the general financial euphoria (the real estate bubble that triggered the current crisis). But what it should have done, if it had surplus funds, was to lend them to the region for development projects.”

Rivera drew attention to the emergence in the region of new development financing alternatives “which we look kindly on,” like the regional development bank set up by ALBA (the Bolivarian Alternative for Latin America, made up of Bolivia, Cuba, Dominica, Honduras, Nicaragua and Venezuela) and the BancoSur or Bank of the South.

The BancoSur was first proposed by Venezuela as an alternative to borrowing from the International Monetary Fund (IMF) and the World Bank and was created by that country along with Argentina and Brazil. The three countries have pledged two billion dollars each. Bolivia, Ecuador, Paraguay and Uruguay will also furnish smaller amounts of initial capital.

“The current context is a historic opportunity to propose radical alternatives, because the crisis has brought about a collapse of the international financial architecture made up of institutions like the IDB,” said Moncayo. “This is the time for new, unprecedented strategic alliances.”