Luis Alberto Moreno takes over as head of the Inter-American Development bank on October 1. In an exclusive interview with Emerging Markets, he explains why his strong relationship with the United States might be just what the multilateral needs.
In April, a top US State Department official told Emerging Markets that this year, the Bush administration would redouble its efforts to bring its "freedom agenda" to Latin America, after years of perceived neglect. That agenda, said the diplomat, would focus on building up, in part through enhanced economic competitiveness, a hemisphere "where governments are not only democratic but where people are genuinely free."
"There will be ample opportunities [this year] for the [US] president to show his abiding commitment to the region," the official added, somewhat ominously. The first such "opportunity," however, didn't quite go according to plan: the US-backed candidate for the top job at the Organization of American States (OAS), Mexico's foreign minister Luis Ernesto Derbez, lost out to Jose Miguel Insulza, Chile's interior minister. The US's traditionally hegemonic role in Latin America seemed, for a moment, under threat.
Yet three months later, the Bush team finally got its way with the election of Luis Alberto Moreno – Colombia's longstanding ambassador to Washington - to the post of president of the Inter-American Development Bank (IDB), Latin America's biggest development lender.
Of course it wasn't that simple: voting rules at the IDB require candidates to put together a coalition in order to win. Moreno, a former development minister, had campaigned quietly but vigorously for the job for months, securing the direct backing of US president George Bush early on. A nod from Washington was crucial since the US, the bank's single-largest shareholder with 30% of the votes, can veto any candidate it deems unsuitable.
But Moreno also needed the backing of a majority of the Latin American and Caribbean nations. In the final event, big countries – Brazil, Venezuela and Peru among them – voted against him; Moreno nevertheless picked up a large majority of votes, shortly after candidates from Venezuela and Nicaragua at the last minute pulled out of the race.
Now the worry, according to some analysts, is that a perceived politicization of the bank, through its US-backed president, might serve to further polarize the relationship between north and south America, while also undercutting the IDB's credibility across the region.
Open mandate
But Moreno dismisses the notion outright. "Is it a bad thing that the elections were politicized? No," he says, in an exclusive interview with Emerging Markets. "The election is over. I am going to be president of the bank for all Latin America. I will serve all shareholders, not just some."
"My mandate is to work with all the countries. I hope I will be able to work well with some of the countries that have not supported me, which are very, very relevant countries." Reinforcing a conciliatory tone, the diplomat adds, "I will deal with countries to the right, to the left and in the centre, just as the bank, throughout [its life] has done when dealing with countries that are on any path."
Moreno, who formally starts his new job on October 1, succeeds Enrique Iglesias, the distinguished Uruguayan who has run the bank for the past seventeen years. With annual lending to the region topping $8 billion annually, the IDB wields significant influence over the region's economies.
Poverty challenge
But Moreno's task is daunting. Latin America suffers from a hugely unequal distribution of income and wealth. A disproportionately large number of Latin Americans are poor— almost 50% of the total population, of whom 20% live in extreme poverty. Add to that the fact that many people across the region place the blame for their woes, rightly or wrongly, squarely at the feet of the international financial institutions, including the IDB. How does Moreno now intend to go about winning back the trust of the people?
"Well," he says, "one of the first things I'm going to do as president is to go to Bolivia – to go and listen to those people who are considering that the whole dynamic has been a loss rather than a gain."
"Our region requires a true transformation in terms of an equitable distribution of opportunities and a frontal attack on extreme poverty," he says. "The incorporation of our neediest and most excluded citizens into the process of globalization and modernization is not just a moral imperative; it is the best development strategy."
For now, however, the region's economy is looking up. Rich in natural resources, Latin America has seen its growth surge in the past two years largely due to soaring Asian demand, particularly from China, for raw materials.
Looming crisis?
But the commodity boom that has led to the recent surge of modest growth is unlikely to continue indefinitely. Private capital flows to the region may also slow when US interest rates rise. Critical challenges await Moreno and the IDB.
"True, there is a boom and bust cycle. I think that always the bank has always tried to portray itself as a counter cyclical entity." Moreno, however, is keen to point out that this is precisely the proper role of the institution. "One of the lessons of the last crisis that we faced is how important it is to keep in mind those that lose the most in a crisis. Many of these social programmes need to be at the forefront," he says. "I think this is one key area for reforms."
Of particular concern is the fate of Brazil, Latin America's biggest economy, with its still-heavy debt load and high interest rates, now reeling from a protracted and a perhaps politically lethal corruption scandal.
"I'd rather not speculate but simply confront issues if they happen. I must say however that when things have taken place the bank has been more aggressive really than perhaps any other institution in trying to solve and help in the crises and I think that expectation will remain unchanged," says Moreno.
The IDB also relies for its survival on continued borrowing by middle income countries like Brazil, Argentina, Colombia, Peru, Mexico and Venezuela. According to Nancy Birdsall, president of the Center for Global Development and a former executive vice president at the IDB, in a recent editorial, lending to such countries is in decline "because the bank is a costly bureaucracy to deal with and because it has failed to diversify its products. It still relies almost entirely on the plain vanilla loan - with little attention to the kinds of instruments that would catalyze private-sector flows, for example."
Moreno agrees that "this is one of the most difficult issues facing the bank." However, he believes that "a bank that is focused on Latin America has to focus on lending to all countries, from the smallest to the largest. And to do that there has to be a balance. I think the bank has to zero in on the kind of things where we can create value. We also need to work hand in hand with other lenders, with the World Bank and other development banks."
US backing
The IDB will need all the support it can get from the US, especially if it is to stump up more cash from US Treasury for renewed lending. So it helps that Moreno's main triumphs as ambassador was his success at lobbying US Congress to support Plan Colombia, the highly controversial scheme to combat narcotics and guerilla activity in his native country; the US government has pumped $4 billion into that programme to date.
He also played a key role in the renewal and broadening of the Andean Trade Preference Act (ATPA) granted by the US to some Andean countries in compensation for their efforts in the war against drugs.
"I think [a good relationship with the US] is never a loss. On the contrary, I believe that havinig a good relationship with the US – just as having a good relationship with every country – is a plus," he says.