Second of two parts. Read the first here.

As the Inter-American Development Bank (IADB) enters its seventh decade, with a new president to be chosen later this year, Latin America and the Caribbean (LAC) and the world are facing a new set of challenges that make it necessary to rethink the bank’s mission, operations, and structure.

Though LAC falls on average into the upper middle-income category of developing regions, it lags more developed countries, with significant gaps in human capital (particularly education), social inclusion and equity, science and technology, infrastructure, and institutional quality of democratic governance. Thus it seems obvious that the IADB must continue to support the borrowing member countries in their efforts to close these gaps. This task can be accomplished via individual projects within the framework of the country-focused programming that is the bank’s main source of income. It is a demand-driven exercise and must remain so.

But a second level of activities must also be developed, guided by a more strategic vision: The bank as a collective action mechanism that allows LAC countries to address regional and global challenges that cannot be solved individually. This broader vision of the IADB’s role will be based on regional initiatives, which can be  sustained by the bank’s financial muscle and the institutional respect it enjoys in LAC.

These regional initiatives obviously must emerge from ongoing dialogue among the bank’s member countries, and should aim to include all international entities operating in the region (including the World Bank, the CAF Development Bank of Latin America, the Central American Bank for Economic Integration (BCIE), the Plata Basin Development Fund (FONPLATA) and the Caribbean Development Bank (CDB); the political and technical agencies of the Organization of American States (OAS) and the United Nations; and other international bodies such as the Inter-American Institute for Cooperation on Agriculture (IICA), the UN Food and Agriculture Organization (FAO) and the CGIAR centers in the region related to agriculture; the UN Economic Commission for Latin America and the Caribbean (ECLAC) in development; the Pan American Health Organization (PAHO) and World Health Organization (WHO) in health, and so on).

Currently, the IADB and these institutions (plus the bilateral aid agencies) tend to operate separately with a large number of individual projects, which may or may not add up to the scale needed to address the challenges the region faces. IADB members, along with the bank’s new president, should make a disciplined effort to develop programmatic areas in which all those institutions can systematically collaborate, respecting their own mandates.

Here are some crucial issues for collective action:

• Strengthening democratic governance by eliminating the mechanisms of financial and institutional corruption and the enormous social inequality of LAC. Collective and individual failures in these areas contribute to the humanitarian problems of migration and international crime.
• Control of international organized crime, including drug trafficking, illegal trade in people and weapons, and money laundering. Each of these scourges—related as well to the previous collective challenge—has its own peculiarities that must be addressed separately.
• Advances in science and technology to better coordinate the region’s important global functions as the world’s leading net food exporter, a major supplier of a variety of non-food raw materials, and a crucial source of a variety of global environmental goods (such as carbon sinks and biodiversity, which support the cycle of oxygen and water at the regional and international level).¹
• The global energy transition to renewable sources, now moving forward at a speed unimaginable a decade ago.
• The mobilization of investments in LAC of the enormous private international financial liquidity that currently lacks adequate investment vehicles. The fact that private banking institutions such as JP Morgan are setting up windows for developmental lending,² suggests the significant catalytic role that the IADB can play in helping scale up these efforts.³
• The macroeconomic, commercial, infrastructural, and institutional integration of the region. The IADB has been a pioneer in these efforts since the 1960s and must continue this work.

To be able to operate at both levels (individual projects and regional initiatives), there are other areas regarding the bank’s internal management that also need improvement. IADB governors, executive directors, and the new president and management must articulate the proper relationship between Development Effectiveness (DE) and Risk Management (RM), two sides of the same strategic problem that cannot be dealt with separately. The problem can be defined as achieving the largest development impact compatible with an acceptable level of risk; this requires a further refining of the metrics and procedures for DE, as well as a reassessment of the RM framework now in place, making sure that the bank keep a solid income revenue to build capital and finance its operations. There are other areas (including budget, programming, operations, monitoring and evaluation, human resources, and IT systems) that need to be improved.⁴

As the IADB moves forward in selecting its next president, its members should consider these emerging challenges and begin a dialogue to arrive at a renewed common vision and agree on ways to improve the institution’s operations, large and small—so that as the world changes, it continues to be “more than a bank.”

 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. Second of two parts, expanding on an article published in the Argentine newspaper Clarín. Opinions are the author’s.

_{1. See for instance Díaz-Bonilla et al 2018; Díaz-Bonilla and Callaway, 2018; Díaz-Bonilla, 2019.}

_{2. See https://www.devex.com/news/j-p-morgan-launches-its-own-development-finance-institution-96424}

_{3. As it was the case when the bank was created, there is again the need for resources dedicated to project preparation so they can be structured to attract private investments, particularly, but not only, from ESG and impact investors (see some ideas in the papers mentioned in footnote 1). That facility can be created, as a rotating fund, with local currency from the borrowing member countries, complemented by the non-borrowing members which may want to contribute. There are other options that were analyzed during the last capital increase in 2009, when I was at the Board of Executive Directors of the IADB and Chairman of the Budget and Financial Policies Committee, and that need to be explored further in this new context.}  

_{4. I discussed several of those topics in an unpublished 2015 document that can be requested from me.}