The significance of South Korea becoming only the second Asian shareholder of the IDB may do more than just provide a boost to trade relations between the two regions. Three big developments are at work bringing Asia – and particularly South Korea – into Latin America's field of vision.
The first and most significant is the increasing chorus of economists, policy-makers and political figures questioning the so-called Washington Consensus, which in the view of many has been the predominant policy model in Latin America over the last two decades.
Second, widespread scepticism, from both left and right, about the effectiveness of multilateral institutions continues to be voiced, not just in Washington but also among academics, non-governmental organizations and policy thinkers.
Finally, with specific regard to Latin America, the region's economic performance – unquestionably buttressed by handsome export growth – is fostering efforts to make that achievement sustainable.
Asian Model lessons
One result has been a resurgence in interest in what, during the 1990s, was touted as 'the Asian Model': what it did and didn't accomplish and what lessons, if any, it can teach other regions. While the IDB has a long, close and productive relationship with Japan (a member since 1976), awareness of these stirring currents led President Enrique Iglesias to step up efforts to create closer ties with a range of Asian nations. South Korea responded with a seduction campaign of its own.
According to Carlos Ferdinand, secretary of the Bank, negotiations with the Koreans began in earnest in May 2004, although the history of the entire process dates back much further. Korea, in fact, first expressed interest in becoming a member 20 years ago but no shares were then available.
But two years ago 500 shares freed up as, following the break-up of Yugoslavia, two states – Bosnia and Serbia – advised the Bank that they would not join. This left an opening for a new member, although with a very small stake in the IDB's 8.5 million total shares.
Although China and Taiwan also expressed a desire to become members, the Koreans' past relationship gave them an advantage. Moreover, they offered substantial financial support, including $50 million in immediate funding for a technical cooperation fund, with matching funds for a second stage.
They also promised additional resources for the Multilateral Investment Fund, which is dedicated to promoting private-sector growth in the region, particularly among small- and medium-sized enterprises. In total, South Korea has pledged $200 million with discussions of another $200 million if the Bank is able to allocate them 1% voting power.
Technical help
For Ferdinand, the Korean focus on technical assistance through the new fund, with its implications for the challenges of competition facing Latin America, is the outstanding contribution to be gained by the Asian country's inclusion.
Barbara Stallings, the William R. Rhodes professor of political economy at Brown University, agrees Korea's efforts to gain membership were impressive. "It's clear that the South Koreans saw a compelling reason to draw closer to Latin America through a relationship with the IDB."
Policy-makers both inside and outside the Bank are hoping that the Koreans – perhaps together with the Japanese – will explain their own experiences in achieving developed nation status. Old hands recall how the 'Asian Model Watch' was in effect over a decade ago as Japan – then the country that could say "No" – was expected to introduce heterodox economic policy ideas into the World Bank – and never did. "There is some anticipation – even hope, I would say – that the South Koreans will expand the policy vocabulary," says a Bank official.
Such aspirations are only encouraged by the possibility that China may become a member in 2006, though Japan may seek to delay this as its concerns grow about China's influence in Latin America. Stallings speculates that, with three Asian members, enough critical mass may be reached to encourage more open debate.
Asian contributions
"The Asian countries have many things – some controversial, some less so – to offer to the policy discussion in Latin America," she says. Among the issues on which emerging market policy-makers agree Asian expertise can be illuminating, Stallings includes domestic savings and investment rates, export growth and diversification, and education and social programmes.
The more contentious issues are long-term planning, industrial policy, the state's role in economic development and trade liberalization. However, Stalling cautions that cheerleaders for the 1990s' Asian Model may be out of date and disappointed: "Asia has changed a lot, and the development discourse has been modified by its experiences."
Nancy Birdsall, president of the Center for Global Development and a former IDB executive director, also cautions those pining for policy diversity: "When carefully examined, it will be clear that there was less difference in implementation than the endless academic discussions on Asia recognize," she says.
Enthusiastic about South Korea's entrance into the IDB, she points out that the advantages range from broad – expanding the voice of large emerging market economies in global policy-making – to specific. As an example of the latter, she underscores the importance of opening government procurement to greater competition. "That will be yet one more channel for knitting together economic relations among developing countries."
Paul Blustein, a Washington Post correspondent, who has written two important books on emerging markets crises and the IMF, offers a more ironic comment: "On the margin, the presence of South Korea on the board might help remind IDB members of the fickleness of global financial markets and the penchant of the IMF for goofing things up."
Is anyone willing to hear that message?