The Inter-American Development Bank’s new president joined the multilateral lender not without some controversy. Mauricio Claver-Carone tells LatinFinance in an interview about his agenda to boost capital for bigger lending plans and a bigger involvement of the United States in the region.
Channeling more resources towards Latin America and the Caribbean, reviving Pan-Americanism, and rekindling US interest in the economic development of the region will be central to the IDB’s work plan during his five-year term as president of the Inter-American Development Bank (IDB), Mauricio Claver-Carone told LatinFinance.
Cuban American Claver-Carone took office on October 1. His appointment drew opposition, as it broke an unwritten agreement since the bank’s creation in 1959 that the presidency would be held by a Latin American. Before taking this position, he was head of Western Hemisphere affairs at the US National Security Council.
Claver-Carone takes over as the COVID-19 pandemic inflicts considerable damage on the people and economies in the region.
Gross domestic product in the region is expected to fall 8.1% in 2020, according to the International Monetary Fund’s (IMF) latest forecast. A total of 47 million jobs will be lost and 2.7 million companies will close, according to the UN’s Economic Commission for Latin America (ECLAC-CEPAL), who projects 3% GDP growth in the coming years, and a return of the region to 2019 GDP levels as late as 2023. The debt-to-GDP ratio is expected to surge to 78% by the end of 2021 from 57% before COVID-19, according to the IDB.
From his new position, Claver-Carone is looking to bring relief to the region, and in addition, opportunities to quickly get it back on a path of economic growth.
“If I can say in 2025, when my term is over, ‘Hey, we didn’t lose another decade,’ then I will have been successful,” he said.
Claver-Carone underlines the need for more concessional financing that will decrease some of the mounting social and political pressure on the region’s governments. He also envisions opportunities for employment creation through digitalization, near shoring, the financial inclusion of small and medium-sized enterprises, and the vaccine.
“We’re looking to ensure some type of a COVID-19 vaccine facility so we can help in that regard,” he said.
But achieving all of this will require more resources than the IDB has currently at its disposal.
“We estimate that the needs of the region are somewhere around the $25 billion range in lending, so we plan to get to the $20-30 billion range,” he said, referring to a “concept note” sent out to the IDB board arguing for a capital increase.
Image: Mauricio Claver-Carone
On his first day in office as president of the IDB, Claver-Carone said he would be seeking support from the US Treasury Department and the US Congress for a capital increase to boost the bank’s lending to $20 billion per year from $12 billion.
“The difference between the IDB and CAF or CABEI is that the US is a member, its major shareholder. Its original purpose, which was for the US to be an active participant in the economic growth and development of our neighbors, is a noble goal,” he said. “That has since faded, at least in US interest, and we see that in the last discussions for capital increases in 2010 and 2015.”
CAF is known as the Development Bank of Latin America and CABEI is the Central American Bank for Economic Integration.
Former Colombian minister of finance José Antonio Ocampo doubts that the IDB will succeed in getting the needed capital increase.
“Frankly, I see a low probability for the capitalization of the IDB,” Ocampo said. “It’s a complex situation because the new president was imposed by the Trump administration against a history of Latin American presidents. We’ll have to see what the new government of the United States does. But the fact is that some Republicans in the US Congress have already said they would not vote for capitalization.”
Yet, Claver-Carone said he is determined to “regenerate or strengthen how the US sees the IDB.”
“Foreign direct investment (FDI) in Latin America came to a halt when the commodity boom ended in 2012,” said Alicia Bárcena, executive secretary of CEPAL in a press conference on December 2.
“FDI fell 7.8% in 2019. And in 2020, the fall will range from 45% to 55%; Latin America is the region where foreign direct investment will fall the most in the world,” she said.
For Claver-Carone this could be reversed in the very short term through near shoring, which means bringing US companies operating in China closer to the US.
“Studies show that 75% of US companies in China are either looking to move closer to the US or considering it,” he said. “We’ve been on overdrive trying to put together what the immediate impact low-hanging fruit is; it’s an $80 billion opportunity in sectors where countries in Latin America already have the infrastructure.”
Claver-Carone is having conversations with CEOs from the US and the region. Key sectors are textiles, electric components and “knowledge space” services, and the IDB is about to release a near-shoring toolkit that will help US companies in China to move closer to the US.
“I can’t tell you the number of phone calls I’ve gotten from US companies, financial institutions, institutional investors that are excited about this opportunity,” he said.
Over the last decades, US investment has diminished in the region, and the relationship between US companies and the IDB also diminished, Claver-Carone contends. For example, IDB Invest, the private sector arm of the IDB, has been getting more co-financing from Europe than from the US. “But US companies are interested in the region. They just haven’t had a good steward, and I think the IDB can be a great steward,” he said.
Claver-Carone’s near-shoring efforts have an institutional backing that he himself helped create. In December 2019, the US Department of State launched the Growth in the Americas program under Claver-Carone’s leadership. Growth in the Americas “is a whole-of-government initiative that will foster private sector infrastructure investment in Latin America and the Caribbean,” the Department of State said in a press release.
In July, while still in the National Security Council, Claver-Carone told Reuters that the Administration was creating a “back to the Americas’ initiative” that included returning some facilities outsourced in China back to the US and others to Latin America and the Caribbean.
“Throughout the years the IDB has financed and created a lot of the investment development agencies in the different countries, so we have a good sense of who has done their homework and where those comparative advantages lie and what we can take advantage of right away,” he said. “That’s one of the really great things about the IDB versus the US government where it was very difficult to get the data together.”
For Claver-Carone, near-shoring is not only about China, as some have pointed out. “It’s the long-held dream of Pan-Americanism and commercial integration brought to life,” he said.
AID AND DEVELOPMENT
Claver-Carone envisions for the IDB a coordinating role for multilateral cooperation efforts in the region to address the challenges ahead.
“I’m trying to create a historic cooperation between International Financial Institutions (IFIs),” he said.
He believes there is room for improvement in multilateral response capacity and in how efficiently resources are deployed through better coordination, and he has been seeking to put this into practice in the recent hurricane disaster in Central America.
“The IDB has created a task force with World Bank and CABEI. I’ve spoken with CEPAL and hosted all the governments last week and all the presidents, vice presidents and ministers to get on the same page, first and foremost, in regard to damage-assessment evaluation,” he said. “One of the things I don’t want, because we’ve seen it a lot in the past, is competing assessments.”
He has also been on the phone with the European Union, Japan and other donor countries to ensure one cohesive evaluation and channeling funds in a manner that is efficient and effective.
“We’ve seen in other natural disasters that everyone does a little bit, and then it doesn’t add up to a whole lot,” he said. “So, we want to just make it all one big cohesive effort.”
Claver-Carone envisions the IDB’s coordinating role as being proactive, not just reactive, as was the case in Central America. That includes coordination not only in the near-shoring initiative, but also in tending to the financial pressures that the region is facing.
“We are working closely with the IMF on Argentina,” he said. “They just concluded their staff visit there, and we’re working closely with them to see what gaps we can help fill.”
CARIBBEAN FINANCIAL PRESSURES
“The Caribbean small island debt is a big issue,” Claver-Carone said, adding that he is looking to address the problem along with Kristalina Georgieva, managing director of the IMF.
COVID-19 has all but destroyed Caribbean’s tourism-based economies, which have also taken a heavy toll from hurricanes and a deep drop in remittances. But being middle income countries, most Caribbean nations are not eligible for concessional funding from the International Monetary Fund (IMF) or for the Fund’s Catastrophe Containment and Relief Trust (CCRT), which allows the IMF to provide debt service relief.
“I think here Kristalina and I really see eye to eye. I’m going to crack that nut. We’re going to crack that nut,” he said in reference to the need for the IMF to modernize eligibility formulas so as to make support available to vulnerable middle-income countries.
The IMF is looking to create a Caribbean fund to help Caribbean countries through their financial pressures, and the IDB is open to work alongside that, he said.
“We’re open to creating some type of Caribbean fund of our own or in conjunction with the Fund,” Claver-Carone said. “Particularly as they [the IMF] have their hands tied by these somewhat antiquated definitions.”
“We should be announcing on the Caribbean by the end of the year an initial measure to help them ease some of their debt repayment pressures,” he said.