President of IDB on Mission To Fight Latin American Poverty by Larry Luxner His expansive, tastefully decorated 12th-floor corner office overlooking Washington, D.C., would make any chief executive officer proud: intricate wood carvings from Bolivia, colorful tapestries from Peru, a silver menorah from Israel and sixty framed photographs of himself posing with heads of state, ranging from Argentinaís Carlos Menem to Guyanaís Cheddi Jagan. In a way, Enrique V. Iglesias is a CEO. The vast empire he presides over, the Inter-American Development Bank, has authorized capital of $101 billion and branch offices in 26 countries. The marble lobby of its New York Avenue headquarters resembles that of a luxury hotel, and the many economists on its payroll are among the best in the business. But instead of making money for stockholders, the IDBís self-stated mission is far more altruistic: to fight Latin American poverty and close the ever-growing income gap between rich and poor by promoting sustained economic growth throughout the hemisphere. ìThe bank has, in recent ye ars, been the main source of international financing in Latin America,î Iglesias said in a rare interview last month. ìNow itís quite clear that we must adapt the institution to modern times, and to the internationalization of the economy, in which Latin America is becoming an increasingly important partner. This is the mandate under which we operate now.î The 69-year-old former diplomat from Uruguay will have a chance to expound on his ideas later this month at the IDBís 42nd annual meeting, set for March 19 to 21 in Santiago, Chile. Issues on the agenda include state reform, social investment, poverty reduction and private-sector development. In addition, 15 official seminars preceding the annual meeting will address a host of topics, from ìExpansion and Modernization of Civil Aviationî to ìSports as a Means for Economic and Social Development.î The IDB was established in 1959 to provide development funds for projects that would not ordinarily be financed by commercial lending. The bank today has 46 membersóincluding 16 European countries, Israel and Japanóalthough the United States is the largest and most influential member, with 30.5 percent of the bankís shares. Iglesias has been at its helm since 1988, when he was elected to his first five-year term by the bankís board of governors. ìThe big difference between being a CEO of a large corporation and running the IDB is, you donít have shareholders sitting on your board all day,î he said. ìThis bank is basically a cooperative, ruled by consensus, and Iím a team player. I like to listen and work with the board. Itís very important in this institution to listen and find a common denominator.î Born in Asturias, Spain, Iglesias was brought by his family to Montevideo at age 3 and graduated from the University of the Republic of Uruguay in 1953 with a degree in economics and business administration. The following year, he began his professional career as managing director of the UniÛn de Bancos del Uruguay. In 1966, Iglesias was appointed president of Uruguayís Central Bank, and in 1972, he became executive secretary of the UNís Economic Commission for Latin America and the Caribbeanóa post he held for 13 years. In 1986, as Uruguayís minister of external relations, he chaired the Punta del Este conference that launched the Uruguay Round of Trade Negotiationsówhich ultimately led to the creation of the World Trade Organization. Iglesias said that to reduce poverty and inequality, the economies of Latin America must expand twice as fast as the current rate of gross domestic product growth, which averaged 3.5 percent a year during the 1990s. ìGrowth is an important ingredient, but not the only one,î said the IDB chief, noting that some countries, such as the Dominican Republic, have consistently shown GDP increases of 7 percent or more annually but remain locked in poverty. ìA high rate of growth would help tremendously, we must also make expenditures to improve efficiency. In other words, we spend a little money on education, but maybe we can spend it more wisely.î He added: ìWe try to make the countries more competitive through better infrastructure and sound economic policies, so we can influence the rate of growth. We also help member countries export more. Thereís also a wide consensus today that education is the basis of improving growth and fighting poverty.î To achieve the IDBís goals, Iglesias said four things must be done: ìFirst, increase the competitiveness of the region in world markets. Second, make social policy our main area of work. In that sense, the bank has a very respectable record. Almost 50 percent of our $44 billion portfolio is devoted to social projects. We are an active player and intend to be more active in years to come. ìThird, we must improve governance of the region, through projects ranging from more efficient services to fighting corruption. And fourth, promote regional and hemispheric integration as well as Latin Americaís integration with Europe and the rest of the world.î As of Jan. 1, the IDB has approved $106.6 billion in loans, supporting projects with a total cost of $156.8 billion. These range from tiny projects such as a $250,000 loan to support research into medicinal plants in Central America to a massive $3.4 billion loan aimed at shoring up the faltering Argentine economy. In 1999, the IDB approved more than $2 billion in loans for social programsóachieving its mandate of dedicating more than 40 percent of its lending and 50 percent of its operations to projects designed to improve the condition of the neediest sectors of society. Of course, Iglesias has his favorite projects. One is a $180 million loan approved last year to provide infrastructure and social services in Rio de Janeiroís impoverished favelas, or shantytowns. Known as Favela-Bairro II, the project finances the building of roads, storm drains, streetlights, garbage collection systems, schools and clinics. Together with a similar $180 million loan approved in 1995, it will ultimately benefit 480,000 of Rioís estimated 1.2 million favela inhabitants. Other projects singled out by Iglesias as particularly memorable include a $73 million loan to expand basic education in El Salvador through the use of new technologiesóincluding interactive radio and school video libraries óand an $85 million project to support national reconciliation in Guatemala, following that countryís 36-year civil war. ìOne of the major assets of our bank is the feeling of ownership among the borrowing members and our full understanding that the private sector must play a key role,î said Iglesias. ìWeíre active not only in providing money but also stimulating the creation of financial intermediaries and working with governments to create microbusinesses.î To that end, the IDB has two special facilities. The first is the Inter-American Investment Corp. (IIC), which was formed in 1984 and provides project financing in the form of direct loans and equity investments to private companies, lines of credit to local financial intermediaries, and investments in local and regional investment funds. Since making its first loan in 1989, the IIC has approved 244 transactions totaling $1.3 billion. Some 2,400 small and medium-sized companies have benefited from these transactions. ìExcept for the private-sector infrastructure group, the IDB only deals with the public sector, so weíre kind of unique in our focus,î said the IICís regional coordinator, Steve Reed. ìLike the bank, we have a development mission, but the way we assist is different. Unlike a private financial institution dealing with Latin America, our selection criteria includes developmental factors as a very explicit component in who and what kind of transactions we select for doing business. For example, does the project generate employment? Can the company comply with our environmental, health and worker-safety standards? Does it generate exports? Is it located in a developing region within a country as opposed to more traditional, established areas?î In addition to the IIC, in 1994 the bank opened a ìwindowî to finance private-sector infrastructure projects with loans not representing more than 25 percent of the value of the project and 40 percent for small and less-developed countries. Examples of innovative loans approved by the IDBís Private Sector Department in 1999 alone include: ï $25 million to Chileís ComunicaciÛn y TelefonÌa Rural to provide service to rural areas in the south. ï a $150 million partial risk guarantee for La CompaÒÌa de Electricidad de San Pedro de MacorÌs Ltda. for financing the construction of a 300-megawatt thermal power plant in the Dominican Republic. ï a loan of $33.1 million from ordinary capital and a syndicated loan of $40.7 million to Argentinaís Puentes del Litoral S.A. for construction of the Rosario-Victoria toll bridge and connecting highway over the Paran· River. ï a $100 million guarantee for currency convertibility and funds expropriation risk associated with financing the expansion of two Brazilian power distributors: Companhia Paulista ForÁa e Luz and Rio Grande Energia. The IDB certainly has its share of detractors, among them the World Commission on Damsóan organization of dam builders, governments and affected communities in developing countries. According to a recent report, large hydroelectric projects financed by the IDB have overrun their original budgets by an average of 45 percent. Yet Iglesiasí focus on the private sector has generally earned him high marks among Washington insiders. ìSince the bankís reforms in the late 1980s, theyíve been much more successful at promoting the private sector and not planning the next dam,î said Al Angulo, regional director for the U.S. Trade and Development Agency. ìI give Iglesias tremendous credit for seeing that the world was changing and that privatization was a necessary ingredient to development. He put the bank in a position to deal with that.î ìOn the financial side, Don Enrique has been the Alan Greenspanî of the IDB, said David E. Lewis, senior associate at Manchester Trade Ltd., a Washington consulting firm. And heís the first IDB president or leader of any of the three hemispheric organizations who not only spoke about integrating smaller Caribbean countries but actually did something. ìHe really has a lot of political capital in the region because of that,î said Lewis. Lewis, formerly deputy executive director of the Washington lobby Caribbean/Latin American Action, said Iglesias got involved early on with President George Bushís Enterprise for the Americas and the Clinton administrationís push toward a Free Trade Area of the Americas. ìThereís been much more initiative in a variety of areas that the bank wasnít traditionally involved withólabor, civil society, environment, education, gender issues,î said Lewis. ìAll that is new stuff. Itís not just about infrastructure anymore. Likewise, I think under his tenure, itís the first time that the bank has been aggressively courting the private sector, looking to create instruments of lending to involve the private sector from throughout the hemisphere in bank development projects. ìHowever, I think the area where we havenít seen as much success is precisely in the private sector,î he added. ìThe bank is still a multilateral organization with a big bureaucracy, where things move at one-tenth of the speed of the private sector. Many executives from throughout the hemisphere feel that while the bank provides good resources and has good programs, the means to deliver them are still not at the speed of real-time economy. Things take nine to 18 months to do, and for anybody in the marketplace, thatís crazy. Better to go to Citibank and get your money right then and there.î Victor Pinzon, president of the Washington-based Americas Foundation, said his non-profit organization would love to work more closely with the IDB in promoting the private sector throughout Latin America, but it hasnít been able to open the door. ìWe must work in strategic alliances with the private sector in planning and implementing programs that are going to make a difference,î said Pinzon. ìHow effective they are, I donít know. It has been said that the gap of haves and have-nots is increasing substantially, and itís obvious the bank could be doing a much better job.î Similarly, one U.S. official complains that both the IDB and the World Bankódespite their armies of economistsóare ìfailuresî in that ìthey have not developed a graduation programî for countries that lift themselves out of poverty. ìChile graduated itself,î said the official, who asked not to be identified. ìThey decided they didnít want to deal with these banks anymore, so they paid off all their indebtedness. But if you ask any of these multilateral organizations what their graduation plans are, they donít have one. That to me is like a perpetual assistance agency. If youíre going to fight poverty, you have to have a scheme for eliminating it. If you donít have a plan, youíll never do it. That is one of the shortcomings of the IDB.î Iglesias conceded that one of his biggest challenges was for the bank ìto stay relevantî and ìto be helpful to the countries we serve.î At the moment, heís particularly worried about the effects of corruptionóespecially when it comes to procurement dollars for IDB projects in lesser-developed nations. ìWe try to take care of how we invest our money, so weíre sure the money is going to the right destination,î said Iglesias. ìWe have offices in every country watching exactly how the money is spent, and we examine the results of the projects.î Another timely issue is dollarization. Last year, Ecuador joined Panama in adopting the U.S. dollar as its official currency. Several other currencies including the Argentine peso and El Salvadorís colon are now pegged at fixed exchange rates with the dollar, and the greenback circulates freely in many other countries including communist Cubaówhich, incidentally, is the only Latin American nation that doesnít belong to the IDB. ìSince countries have different foreign-exchange systems, there is no one uniform formula, and each requires a different solution,î he said. ìCountries which have dollarized had good arguments to do it, and I hope theyíll succeed. But you canít transplant these conditions to other countries. In order to have dollarization in place, you must have social legitimacy and resignation of monetary sovereignty, as well as economic viability. So far, most of the countries do not consider dollarization to be a viable proposition, and I agree with that view.î Asked about the chances of success for a Free Trade Area of the Americas, Iglesias said: ìItís a difficult but important initiative. I think we have to succeed. Itíll take a big effort, but the political will is there.î He adds: ìIf you follow what President Bush has said, Latin America will have a high priority in his administration. His visit to Mexico is a very good indication of this.î Even those people who say Iglesias has done a wonderful job think itís now time to turn the reins of the IDB over to someone else. One name being bandied about as a possible successor to Iglesias is Enrique GarcÌa, the president of Caracas-based CorporaciÛn Andino de Fomento. Under GarcÌaís tenure, the lending institutionís capital has grown from $900 million to about $4 billion. If Iglesias has any intention of pursuing a fourth term as bank president when his current five-year term ends on March 30, 2003, he hasnít said so publicly. ìI enjoy very much working for the bank. Itís been an opportunity and a privilege,î said Iglesias. Yet when probed for details about when he might step down and return to his native Uruguay, the IDB chief just smiles and shrugs. ìAsk God,î he said. Larry Luxner is a contributing writer for The Washington Diplomat.