6 October 2009
The IDB must implement crucial reforms before a capital inrease is approved.
Washington, D.C. (October 6, 2009)- As the Inter-American Development Bank (IDB) Board of Governors prepares to meet in Madrid on October 8 to debate the need for a 9th Capital Increase, a new and exhaustive report by Vince McElhinny of Bank Information Center (BIC) finds that the Bank fails a stress test based on principles outlined by U.S. Treasury Secretary Timothy Geithner in March 2009, at the IDB’s 50th Anniversary meeting.
The reported $180 billion General Capital Increase (GCI) request is the ninth and largest by far in the IDB’s fifty year history – more than four times any prior GCI. Based on recent lending trends, the IDB GCI proposes a near tripling of the Bank’s annual lending. This massive capital increase proposal comes on the heels of embarrassing losses of nearly $1.9 billion in 2008, due in large part to the high risk bets that crippled the financial industry and triggered the global crisis.
The BIC report, “A Serious Crisis Should Never Go To Waste: IDB Rush to Increase Capital Fails G-20 Stress Test,” shows that the IDB has consistently failed to comply with four of six performance evaluation principles outlined by the Bank’s member countries. This finding comes before the meeting of the IDB Board of Governors in Madrid on October 8, where they will discuss the first capital increase since 1994. Making the case for a ninth IDB GCI hinges on moving beyond business as usual in two areas of the new institutional strategy: sustainability and results management.
Speaking at the IDB’s 50th anniversary meeting in Medellín, Colombia, U.S. Secretary of Treasury Timothy Geithner outlined five central principles necessary for U.S. support. These included good governance and risk management, achievement of results and innovation, and sufficient focus on the poorest countries.
“If the Geithner Principles were applied as the stress test for multilateral banks, the IDB would fail,” stated Vince McElhinny, IDB expert for the Bank Information Center. McElhinny points to a series of evaluation reports that underscore the Bank’s conflation of effort and achievement. “For taxpayers that will have to put up the funds requested by the IDB, ‘stress tests’ that provide accountability for past and future development goals should be non-negotiable. Our analysis shows that the IDB fails this stress test, calling attention to the risks associated with an IDB replenishment that is not preceded by demonstrable, meaningful reforms.”
Despite some advances in mainstreaming environmental and social sustainability, the IDB’s comparative advantage as a “green” bank in Latin America remains to be seen. Between 2000 and 2007, 83% of IDB’s energy portfolio completely ignored climate change. Recent initiatives on climate and sustainable energy have been at the margins of its core business, while poorly planned infrastructure and extractive sector investments have exacerbated land use contributions to GHG emissions. So far, the IDB does not measure or report the carbon footprint and biodiversity impact of its operations. In fact, the IDB’s Office of Evaluation and Oversight found that nearly all recent Bank operations score poorly on environmental cost-benefit analysis.
The performance measures of the Bank are also out of touch with its stated mission. The IDB continues to measure its performance based on the volume and speed of annual lending rather than quality and outcomes. Despite half a century of lending and a stated commitment to combating inequality, the IDB has been largely ineffective in reducing inequality. Income inequality for Latin America as a region has not improved since the 1990s and in some countries has actually worsened. In spite of promises of reform made during the previous capital increase in 1994, the IDB has been reluctant to approve a cogent strategy and indicators to track the impact of future lending.
Civil society groups contend that U.S. needs to apply more leverage in favor of crucial reforms. “The IDB has failed to be accountable to past replenishment conditions. It ranks the lowest among multilateral banks on issues of sustainability, poverty alleviation, and transparency. The US Government and other donor countries need to insist on meaningful reforms, before giving the bank $180 billion in new public monies,” said Atossa Soltani, Executive Director of Amazon Watch.
The Madrid meeting is the second major discussion about the proposed replenishment following the IDB’s 50th anniversary meeting in Medellín. The Bank’s Board of Governors’ will review a new draft institutional strategy and likely meet once more in Washington D.C. by late 2009 in preparation for the upcoming annual meeting scheduled for Cancún, Mexico in March of 2010. Replenishment proposals coming out of Cancún will then need to be approved by legislatures in each of the Bank’s donor countries.
The observations and recommendations in the BIC report were developed in collaboration the following organizations: Amazon Watch; Bank Information Center; Both Ends; Center for International Environmental Law; Centro de Derechos Ambientales; Environmental Defense; M'Bigua, Ciudadanía y Justicia Ambiental; Derecho, Ambiente y Recursos Naturales; Instituto Latinoamericano de Servicios Legales Alternativos; and Oxfam America.
The report can be found at /en/Article.11509.aspx. For the texts of the recent civil society observations and recommendations on the IDB, please see www.bicusa.org/en/Article.11274.aspx. For additional background information on the IDB and the 9th GCI, see /en/Institution.4.aspx.
CONTACT
Ashley Warriner, Bank Information Center (202) 624-0621, cell: 240 486 4224,
John Gibler, Amazon Watch 415-487-9600 or cell (415) 490-7802,