It’s one of the most interesting institutions in Washington, D.C., but for the wrong reasons.
It’s been in business since 1959, enjoys little name-recognition, and is vastly overshadowed by a sister institution less than a mile away. It’s the Inter-American Development Bank (IDB), and its mission is to better the economic and social development of Latin American and the Caribbean.
There’s just one problem: there is no systematic evidence the IDB has ever been any good at doing this.
The development aid “space” is crowded. National governments, regional multilaterals like the IDB, and international financial institutions like the World Bank overlap in providing technical assistance and loans, for example. To tap synergies and avoid redundancies, the Paris Declaration on Aid Effectiveness calls on donors and global lenders to coordinate, and focus on “measurable” results. This commonsensical approach, however, is easier said than done.
The IDB, like other regional multilaterals, claims jurisdiction over specific geography. This is important for political reasons. Latin American and Caribbean countries have more voting shares in the IDB than under, say, the World Bank. This creates a sense of ownership which can help and hurt. On the plus side, it gives the IDB more political leverage to demand greater accountability of borrowers, for example. On the downside, however, it can result in a silo effect, whereby the IDB’s efforts are isolated from those other lenders.
The IDB’s own reviews have long indicated that it is as siloed as the geography it serves.
In 2015, for example, Canada’s Department of Foreign Affairs reviewed the IDB’s “development effectiveness.” It found, among other things, that the IDB was hard-pressed to show it was delivering on its mandate, and couldn’t show that any of its successes were “sustainable.” A glance at the IDB’s Vision 2025 report suggests that little has changed.
In terms of its relative performance, the data do not paint the IDB in an especially flattering light. The Center for Global Development’s Quality of Official Development Assistance ranks the IDB 37th of the 49 largest bilateral and multilateral development agencies. The IDB places 21st on transparency and evaluating itself, but 38th on collaborating with others, and in the bottom 10 with respect to recipients’ feedback. Simply put, the IDB is siloed, and has the bureaucratic capacity to know it. The question, though, is whether the IDB has the political will to do something about it?
If the past is any indication, stakeholders opposed to reforming the IDB will bring out their antiquated narratives about “neocolonialism” and “Yankee imperialism.” They’ll claim that if the IDB were to expand its focus, it would leave Latin America more dependent on the U.S. and others. The reality is different. The region is at risk of being ignored by the global economy, not exploited.
The IDB’s Vision 2025 says as much. It notes that small and mid-sized enterprises (SMEs), which make up 90% of firms in the region, are poorly integrated into global supply chains anchored by multinational corporations. (MNCs) abroad. Just 18% of Latin American and Caribbean exports are sold through global supply chains, in contrast to 36% and 40% for Asian and European SMEs, respectively.
With North American companies trying to “nearshore” their supply chains, Latin American and Caribbean SMEs have new export opportunities. Yet, nearshoring isn’t just about geography. It’s also about the politics of “friend-shoring” and national security. Latin American and Caribbean SMEs have to a big challenge in this regard: the IDB explains the “region performs poorly in terms of implementing the rule of law and controlling corruption….” The IDB should lead on developing a firm-level de-risking methodology, one that complements conventional analyses of country risk.
Perhaps the most important thing the IDB can do is change the way the region thinks about itself. Today’s SMEs can be tomorrow’s MNCs. But this will only happen if they engage with the world, rather than retreat within their region. Similarly, the IDB should collaborate more with other development institutions, focusing on global supply-chain sustainability.
Moving forward, the IDB needs to fundamentally change the way it lends. This won’t happen unless those who benefit from the status quo and attack or impugn the reformers, rather than offering better ideas, see the light. If the institution remains a peculiar outlier among development banks, clinging to failed approaches and opaque rules, it will only prolong an era of benign neglect, and speed up the region’s slide into economic irrelevance.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University. Follow him on Twitter @marclbusch