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Since he took office as President of the Inter-American Development Bank on October 1, 2005, Luis Alberto Moreno’s tenure has been marked by two factors—a political shift toward greater self-determination by many Latin American governments, and a painful restructuring of his institution to remain relevant in a climate of greater competition. Both factors have severely tested his mettle as the helm of an institution struggling to preserve its status as the "privileged lender to Latin America".

Prior to joining the IDB, Moreno worked as a TV news producer, oversaw privatization and trade liberalization as a Colombian government minister, and served as Colombia’s Ambassador to the U.S. for seven years. His most notable achievements were the passage in the U.S. Congress of "Plan Colombia", and his support of negotiations towards a Colombia–U.S. "free trade" agreement. Moreno’s limited experience in banking includes a short stint for a small private equity firm.As a diplomat, Moreno came to the IDB less known for his development achievements than for his ability to get things done.

Views of Moreno’s IDB leadership are mixed. Supporters point to the large increase in lending in 2007. But critics within the Bank describe him as a manager unable to dialogue, lacking development knowledge and unwilling to confront the third rail issues in IDB culture such as non-merit based appointments and regional inequality.

At his first Annual Meeting in Belo Horizonte, Brazil, in April 2006, Moreno told the Bank’s Board of Governors that a major reorganization would be launched to restore an image of the IDB as Latin America’s lender "par excellence". The principal drivers of this restructuring include decentralization of Bank functions to get closer to borrowing countries, faster loan disbursement, and increased lending—particularly for energy and transport infrastructure and private sector ventures. Development effectiveness, renewable energy, water and sanitation, and science and technology for productivity have been added to the list. Confusion about what distinguishes this "new business model" from the prior one, as well as a lack of transparency and inclusiveness in the process, have plagued the realignment from its outset.

What Crisis of Relevance?

So far immune from the U.S. financial crisis, Latin American prosperity has been both a blessing and curse for the IDB. Estimated growth for the region’s economies in 2007 was 5.3 percent—the fifth consecutive year it has topped 4 percent.Central government deficits are averaging just 0.3% of GDP, average inflation in the region is stable at about 5 percent, and international reserves are way up. Not only has surplus liquidity allowed Latin American governments to distance themselves from IDB policies, but several governments have paid off outstanding debt and are borrowing less. IDB lending has been flat since 2002 while loan volume was increasing by 20% annually at the Corporación Andino de Fomento (CAF) and Brazilian National Bank for Economic and Social Development (BNDES). In short, the IDB was losing market share. The solution,massive pressure to lend in 2007, produced a near record lending volume for the Bank.

The "botched" realignment

For most of 2007, details of the realignment proposal leaked out and anxiety increased among Bank staff and civil society observers. Civil society organizations began pursuing concerns about weakened social and environmental safeguards and Bank commitments to provide leadership on issues of sustainability in the region. A Blue Ribbon Panel of Advisors on the Environment tabled a list of structural concerns. A letter issued by civil society organizations raised more doubts about the Bank’s commitments to intellectual and institutional leadership on sustainability issues. Some 500 employees held an unprecedented emergency assembly on May 31. They demanded a pause in the realignment process and the immediate disclosure of the revised realignment plan.

Social and environmental safeguards

The resources committed towards social and environmental safeguards in the new organizational structure have proven to be one of the most hotly debated issues. In a letter to President Moreno, donor country Directors requested that the IDB commit to implementing the Blue Ribbon Panel on Sustainability recommendations to the Bank. The BRP challenged the Bank to acquire the talent and allocate the financial resources to move beyond mitigation of environmental risk toward realizing sustainable development opportunities. At the heart of the criticism was managerial leadership on sustainability. President Moreno’s response ignored the BRP recommendations for the most part and on July 2, 2007 the IDB quietly announced that the “beginning of the implementation of the new organizational model” had begun.

The ascendance of Brazilians to senior positions in the new Bank structure

The former Brazilian Executive Director to the World Bank, Octaviano Canuto, was appointed in mid-May as the new Vice-President of Countries for a three-year term.(#1) Prior to joining the World Bank in January 2004 representing Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Philippines, Suriname and Trinidad & Tobago, Canuto served as Director of International Affairs with the Ministry of Finance in his country. Canuto, a distinguished academic, assumed the office on June 1st.

As the most powerful of the four new IDB Vice-Presidents, Canuto will have responsibility over the four Country Departments covering the regions in which the IDB divides its operations in Latin America and the Caribbean, 26 Country Offices and the Operations Procurement Office. In other words, Brazil will have control over the IDB operational budget. The Vice-Presidency for Countries will also have ultimate authority for ensuring alignment in the matrix teams that cut across the other Vice-Presidencies—for example, between private sector projects that have no analytical grounding in a country or sector strategy. In many ways, the Brazilian VP for Countries as well as least a half dozen other Brazilians promoted to managerial positions within the realigned Bank, will be a powerful force in the restructured Bank. Moreno put a finer point on it by stating in a March visit to Brasilia that the IDB had $4.5 billion for Brazil (close to 50% of its portfolio) in 2008 alone.

Development Effectiveness—Is there a development strategy?

A widely stated objective of the realignment is to increase the development effectiveness of Bank activities. However, the IDB is faced with several contradictory motivations. An acknowledged problem is the slow disbursement rate of IDB loans. Realignment is supposed to speed more money out the door. The CAF, free of procedural red tape, boasts that it can turn a loan around in three months. The average for the IDB is over two years. In response, the IDB has instituted time limits that thin out strategic planning, reduce transparency commitments and weaken other safeguards.

A minority within the Bank acknowledge that pushing loans will not disappear as the Bank’s modus operandi, but future relevance will rest on the capacity to provide much needed technical advice on the most challenging development issues. These include biodiversity protection, climate change and cultural diversity on one hand with incentives for public-private partnerships, infrastructure investment and renewable energy on the other. Tackling inequality and social exclusion—the themes of the Bank’s flagship 2007 Report on Economic and Social Progress—has historically been a delicate issue. The Bank’s external evaluation unit (OVE) has reported on the weak informational system,which often makes IDB operations immune to serious performance accountability. Sources within the Bank argue that the realignment may do little to alter the preference for large standardized operations that are cheap and fast to deliver. This type of embedded incentive structure works against smaller, more focused, institution-building loas that are more labor-intensive and costly.

The Moreno era at the IDB has unsettled many.The ultimate test will be whether in Miami or in future Bank Board of Governors meetings such as the 50th Anniversary in Medellin, he can report less on future plans and proposals and more on achieved poverty reduction and sustainable development results.

(#1) IDB Appoints New Vice President for Countries, May 17, 2007.

This article was first published in IDBWatch, a special publication by the Bank Information Center and Amazon Watch attending the 2008 IDB Annual Meeting in Miami

See full issue #1 (pdf format)

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