21 July 2009
The Inter-American Development Bank (IDB) sidesteps civil society concerns raised regarding a proposal advanced by the IDB in Santiago, Chile on July 2 to increase its capital base by $100-$200 billion, which would triple Bank annual lending from an average of $US 6 billion since the last replenishment to a projected $16-19 billion per year.
By: Vince McElhinny, BIC
For the past six months, the the Inter-American Development Bank’s management and 48 Member Countries have been assessing the prospects of a 9th replenishment (General Capital Increase, or GCI-9). A proposal advanced by IDB in Santiago, Chile on July 2 to discuss an increase in ordinary capital by $100-$200 billion, which would triple Bank annual lending from an average of $US 6 billion since the last replenishment to a projected $16-19 billion per year.
Nine civil society organizations from four countries issued a set of recommendations urging donor countries, in particular the U.S. Government, to insist on stronger commitments to sustainability and evidence-based results before considering the Bank’s unprecedented request. Based on a series of conversations with Bank management and Directors, in addition to relevant research, a civil society proposal issued in late June outlined leadership steps IDB should take in several critical areas.
The civil society observations and recommendations were developed by nine organizations in four countries that monitor the Bank. Key observations include the Bank’s lack of transparency and adequate poverty reduction strategy, and lack of a comprehensive strategy that effectively integrates environment into its operations. The Bank is criticized for lagging behind other multi-lateral development banks in many areas including delivering results and giving proper attention to climate change issues.
Press Releases and other documents:
Bank Information Center and Amazon Watch Press Release about General Captial Increase Recommendations - Bank Information Center and Amazon Watch, July 1, 2009 (PDF, 52 KB)
Bank Information Center and Amazon Watch Press Release - Bank Information Center and Amazon Watch, July 1, 2009 (PDF 48.9 KB)
Bank Information Center and Amazon Watch Press Release about General Capital Increase - (in Spanish) Bank Information Center and Amazon Watch, July 1, 2009, (PDF, 47KB)
IDB President Luis Alberto Moreno delegated the response to the Bank’s external relations unit. The Bank letter stated its disagreement with civil society characterization of the past and present performance, but avoided any substantial, detailed explanation of these differences. Instead, the Bank letter stated that a “process of consultation and information sharing” for the GCI-9 process is under consideration by the Board of Directors and will be initiated soon.
To see IDB response to civil society proposal:
IDB Response to Civil Society GCI Reform Proposal - IDB External Relations, July 13, 2009, (PDF, 342KB)
Context
IDB consideration of a 9th replenishment began in November of 2008 in the midst of the financial crisis and the G-20 statement from the Washington summit that endorsed a global stimulus. IDB President Moreno commissioned a study to determine the demand for increased IDB lending in the future, albeit with little oversight by the Board.
In April at the multilateral's 50th annual meeting in Medellín, Colombia, an advisory group led by former Peruvian prime minister Pedro Pablo Kuczynski presented a capitalization plan that included lifting IDB's capital by as much as US$175bn. The Kuczynski paper ignited immediate media attention to the magnitude of the proposed capital increase, including a press conference by Kuczynski himself to outline the figures. The proposed increase found nearly universal approval from the Bank’s borrowing countries, and skepticism among donor countries.
Yet nearly four months after the media splash orchestrated by the Kuczynski paper on the size of the proposed GCI-9, the Bank has not explained why the paper has not been released to the public. Questions remain about the quality of the Kuczynski paper and the contrived way in which Bank management insinuated the findings into the deliberations of the Governor’s deliberations to authorize a formal GCI review without greater public scrutiny.
In early July, the Inter-American Development Bank’s Board of Governors met in Santiago, Chile to discuss a first working paper on the justification for a 9th capital increase. IDB board of governors president and Colombian finance minister Oscar Iván Zuluaga told press the development bank expects by year-end to finish discussions of a capitalization plan that could more than double the multilateral's current US$101bn capital base.
A recent response by Colombian Treasury Minister Zuluaga to Senator Jorge Enrique Robledo Castillo's request for information regarding the IDB Capital Increase process (June 3, 2009) reflects the IDB's reluctance to inform the public about sweeping decision making processes that are moving quickly at the Bank with inadequate oversight.
In Santiago, the Bank’s Governors agreed to move forward with the GCI analysis and to meet in October (Madrid, Oct.8) and December (place and date to be determined) to wrap up the analytical stage of the review. A ratification vote of the final GCI proposal by the Bank’s governors would then be taken at the Ordinary Annual Meeting in March, 2009 (Cancun, Mexico).
Several additional relevant decisions were taken in Santiago, including the approval of Canadian proposal to allow the IDB a temporary increase in borrowing from the country's callable capital and other measures that would result in a $6 billion cushion in additional lending in 2009 and 2010. Second, the IDB reallocated $3 billion which had been set aside for emergency lending but was finding fewer than expected takers, to ordinary lending. Third, the 30% ceiling on policy lending was lifted, permitting the IDB to lend for budget support and other non-investment based instruments. The IDB also agreed to reduce the administrative rate charged for Bank services by 80%. Finally, the Bank announced a temporary increase in available funding for the five poorest member countries, including a decision to cancel debt to Haiti.
Despite efforts to shore up lending capacity for the coming years, the IDB’s main message continues to focus on an urgent need for fresh capital. Not unlike the media message of Medellin, IDB management is claiming that balance sheet liquidity (equity to loan ratio) is constraining ability to disburse on current commitments. The IDB reports over $19 billion in approved, undisbursed loans. The Bank’s balance sheet could limit 2009 disbursements to approximately $12 billion.
The working paper presented in Santiago reportedly summarized a new demand analysis conducted since April, based on a survey of Bank clients and an independent assessment of the probable IDB share of investment over the coming decades based on historic trends over the past twenty years. As of yet unexplained assumptions upon which these future lending scenarios are built would clarify just what type of Bank the IDB intends to be in the coming years.
A full half year into the replenishment review, the public has yet to see a demand analysis for the IDB that explains how the Bank will distinguish itself from a private, commercial bank by being able to demonstrate effective, sustainable development results.
Questions Pending about Scope and Coherence of IDB GCI Consultation
In the Bank response to civil society, the External Relations department outlined a consultation process that would involve the release of several Bank working papers on the GCI and at least two staged periods of formal consultation. While a step toward meeting one of the process requests noted in the civil society proposal, questions about regarding the scope and coherence of the proposed consultation process.
The first concern lies with the scope of the GCI consultation. The IDB management has acknowledged some shareholder demands that it lacks an appropriate institutional strategy. Since Medellin, President Moreno has agreed to produce such a strategy and in Santiago suggested that a draft institutional strategy by the end of August. More specifically, the announced timeline of completing capitalization plans by the end of 2009.
Given this proposed timeline that has already frontloaded the deliberation process with virtually no public oversight, it is obviously late to be rolling out a consultation and information sharing mechanism. The IDB’s general lack of accountability and tendency toward secrecy already undermine the credibility of any such mechanism and will complicate Bank plans to recover this credibility if deliberations over the scope of the GCI will conclude in December.
A second concern has to do with the coherence of any GCI consultative process. There is no indication that the IDB has considered how to integrate several simultaneous policy review processes into one coherent consultation about broad institutional strategy. Some have already observed problems associated with generating civil society engagement on a review of the Bank’s inspection panel mechanism. Few are informed about the hasty creation of a climate policy without proper public consultation or apparent intent to open it up during the GCI process. Footdragging in the initiation of a scheduled review of the Bank’s Environmental Safeguard policy, including the establishment of another external review panel, will almost certainly prevent the analysis of the Bank’s environmental performance to properly inform the proposed institutional strategy before the conclusion of the draft. Combined with a lack of accountability regarding the effectiveness of an expensive structural reorganization, many questions remain regarding how the IDB will provide adequate information to ensure that any GCI consultation is in fact more than a sideshow in the rush to capture public funding.
Finally, the IDB has signaled that a core governance instrument, the civil society advisory councils (or CASCs), which were mandated to function in 2007 by President Moreno, are not adequately consolidated to channel the public consultation process. By June 30, 2007, President Moreno promised that all Country Offices would have functioning civil society advisory committees (CASCs). Not only has this deadline been missed in as many as half of the Bank’s borrowing countries, but there is no indication that the CASCs in some of these countries will be functional in time to play a role in the GCI consultation. If after years of failing to achieve commitments by Bank staff around structuring a mechanism to consult civil society in many country offices, the lacking credibility in any new global consultation process launched late and under complex circumstances should be understandable.
Civil society organizations (CSOs) concerned with IDB accountability, participation and transparency should contact their executive directors and relevant legislative representatives to request more information about the capital replenishment process. Because each member country will have to pay for the capital increase, public participation is required in this unprecedented endowment of the IDB without the apparent systemic reform of the Bank's role in contributing to persistent poverty, inequality and environmental vulnerability in Latin America.
IDB Executive Directors Contact info 2009 - Bank Information Center, 2009, (PDF, 32KB)
The observations and recommendations outlined in the civil society proposal were developed by the following organizations: Amazon Watch, Bank Information Center, Both Ends, Center for International Environmental Law, Centro de Derechos Abmientales, Environmental Defense, M'Bigua Ciudadanía y Justicia Ambiental, Instituto Latinoamericano de Servicios Legales Alternativos, and Oxfam America.