John Paul

IDB Refines Its Private Sector Strategy

The Inter-American Development Bank’s (IDB) annual meeting opened this week in Brazil amidst violent protests against the agency’s lending practices. Critics contend that the bank’s loans typically help big business, and do little for the masses of Latin American and Caribbean citizens living in dire poverty. Mega-projects like large dams and pipelines also frequently cause displacement and environmental destruction. As a result, decent economic growth has failed to reduce the large gap between its rich elite and huge numbers of poor.

The laundry list of meeting agenda items sounds instantly familiar. Delegates plan to discuss how the bank can improve the region’s crumbling infrastructure, increase trade, boost economies, promote regional integration and improve living standards for those living in misery. While some–including Bolivia’s first Indian leader–lobbied for debt relief to achieve the latter, a more interesting approach was proposed by Clay Lowery, the U.S. Treasury Department’s assistant secretary for international affairs.

Lowery argues that the IDB must loan more money to small and medium-sized companies because they account for 90 percent of job creation in the region. Though the bank is authorized to loan 10 percent of its money to the private sector, only 3 percent goes to those kinds of loans. Luis Alberto Moreno (the new president of IDB) agrees, saying ?the bank can’t help alleviate grinding regional poverty unless it approves loans more rapidly and boosts lending to the private sector.? He advocates for a more decentralized and agile agency.

Whether or not this increased focus on the private sector is a smoke-screen for more concessions to multinationals remains to be seen. But if it really does mean more money towards SME development, the benefits could be enormous. Our own research backs up Lowery’s arguments on job creation. If the business development efforts are coupled with attempts to have the SMEs create products and services that reduce the poverty penalty and provide other benefits to the poor, I’d bet there would be less protesting at future annual meetings.