First of two parts.
In 2019 the Inter-American Development Bank (IADB) celebrated the 60th anniversary of its creation, and in Oct. 2020 a new President will take office. The list of candidates will be better defined at the coming annual meeting in Barranquilla, Colombia, March 18-22, with the election taking place in the second half of this year. Therefore, it seems a good time to reflect on the bank and its role in the region.
A historical view
For the people of Latin America and the Caribbean, the IADB is much more than “the younger sibling of the World Bank”—and as its first president, the Chilean Felipe Herrera, never tired of repeating, “this institution is more than a bank.”1
The long history of the idea of a regional bank (discussed in Díaz-Bonilla and del Campo, 2010) begins long before the IADB’s 1959 founding. In 1844, Juan Bautista Alberdi, an Argentine lawyer who was a crucial influence in the writing of his country’s constitution, suggested the need to establish a continental bank. The idea reappeared at the First Pan American Congress in Washington, D.C., at the end of 1889 and early 1890— a significant event convened by the United States with basically all Latin American republics of the era participating.
The proposed regional International American Bank (IAB) would have had branches in several cities around the Americas. Also discussed were the possibility of a common currency and the implementation of a trade agreement between U.S. and LAC countries, among other things. For different reasons (analyzed in Díaz-Bonilla and del Campo, 2010) many of these ambitious ideas did not materialize, but the Congress resulted in the creation of an organization called the Commercial Office of the Americas, from which the Organization of American States eventually emerged.
In the 1940s, as World War II upended international relations, the countries of Latin America and the Caribbean again argued for the need for a regional bank. The creation of the Inter-American Bank (I-AB) was negotiated between LAC countries (with Mexico taking the lead) and the Roosevelt administration. Its charter which gave significant powers to the bank, as well as other legal matters were sent for approval to the legislatures of the countries involved. Global geopolitical concerns and the resistance of the U.S. private banking sector led the White House to shift from the concept of a regional bank to a focus on international institutions. In fact, the U.S. Treasury Department officials who participated in conversations over the creation of the (I-AB) used the agreement establishing that bank to negotiate with John Maynard Keynes the creation of the International Bank for Reconstruction and Development—lately more widely known as the World Bank—and the International Monetary Fund at the 1944 Bretton Woods Conference. Therefore, both institutions are basically the result of the regional dialogue that led to the I-AB.
LAC countries, however, continued pushing for a regional institution. Eventually, in 1959, the Eisenhower administration, concerned about the economic and social deterioration in the region and the danger of anti-capitalist revolutions, agreed to the creation of the Inter-American Development Bank. In contrast to the World Bank and the IMF, the IADB was created with LAC countries contributing a larger percentage of the capital (60%) with the U.S. owning the remainder of the equity shares. This reflected both the LAC countries’ interest in having a regional institution, and the view from the Eisenhower administration that those countries should contribute a larger share of the capital and take a larger responsibility for its management. This equity configuration led to derogatory comments about the IADB being a “debtors’ bank” and prophecies that it would never work.
But, to the contrary, being owners and not merely “clients” has worked very well: This shareholding structure has allowed the bank to lend a more attentive ear to the needs of the region and to be innovative from the beginning. Among other things, the IADB was created with a concessional loan window (which was significantly increased during the Kennedy administration and the Alliance for Progress, showing bipartisan support in the U.S. for the bank); had resources for technical cooperation (a novel feature that the LAC countries requested to help prepare the projects that were then presented to the bank); invested from the beginning in social projects; emphasized regional economic integration and supported higher education and technology projects since the 1960s; initiated balance of payments loans during the crisis of the 1980s (an innovation pioneered by Enrique García, a leader in LAC development and who later went to successfully lead CAF, another key regional development bank); very early addressed issues such as citizen security, migration and remittances; and took the initiative to strengthen democracy in the 1990s. On most of these issues, the IADB was the initiator of ideas and programs that were then taken up by the World Bank and other development institutions.
Also, that shareholding structure—now with borrowing and non-borrowing countries holding almost equal percentages (with LAC countries collectively holding slightly more than 50%)—makes that for the bank to function, it is imperative that all member countries engage in open and respectful dialogue to reach consensus on important issues. This is another strength of the “debtors’ bank.”
We are currently in a period of economic stagnation, with the cycle of raw materials in its downward phase and with the region facing significant challenges of democratic governance in a context of widespread social inequality and global geopolitical tensions. Although history never repeats itself, the situation has some echoes of the 1980s, which put the IADB under significant institutional tension and led to the resignation of its then-president, the respected economist Antonio Ortiz Mena. The work of his successor, that giant of LAC development Enrique Iglesias, along with improvements in global conditions, allowed the IADB to resume its crucial role in the economic, social, and political development of the region.
Now, with new challenges facing the region and the world, it is necessary to rethink the bank and the roles it plays once again, and to focus on the need for democratic renovation in its leadership. In my next post, I outline some ideas on this front.
Eugenio Díaz-Bonilla is Head of IFPRI’s Latin-American and Caribbean Program, and a former Executive Director of the IADB from 2003-2012 representing Argentina and Haiti. First of two parts, expanding on an article published in the Argentine newspaper Clarín. Opinions are the author’s.
1. Then Under Secretary of State Douglas Dillon, when he testified in 1959 in front of the U.S. Congress then considering the legislation to approve the institution, similarly argued that “the Bank … is more than a financing institution. It is truly a development institution.”
