Latin America Top Bank Asks Nations to Think Big About Recovery
Latin America Top Bank Asks Nations to Think Big About Recovery
(Bloomberg) -- Latin America needs to boost spending and start considering an ambitious recovery plan akin to what the U.S. did during the Great Depression to implement once the pandemic eases, the head of the top regional development bank said.
Currently the world’s hotspot for coronavirus, the region faces the huge challenge of recovering millions of jobs destroyed by the lockdown, on top of existing labor informality, Luis Alberto Moreno, president of the Inter-American Development Bank, said in an interview. Massive infrastructure projects would be one option to pull the economy out of the deep depression expected this year, he said.
“Right now everybody has been in the emergency room of sorts, dealing with the immediate issues,” Moreno said in an interview from Washington, D.C. “As we start looking at our lending and our program for 2021, we need to start definitely thinking of how to get growth back into our economies.”
The Latin American economy is seen contracting almost 10% this year, the biggest decline since nations started producing national accounts statistics in the 1950s, as the pandemic forced most countries in the region to shut down activities. Unlike developed nations, the region as a whole has limited fiscal resources and a big proportion of its population lacks social safety nets to prevent an increase in poverty and unemployment.
The IDB has redirected about $450 million from its $26 billion existing loan portfolio to help nations finance the purchase of hospital equipment like beds and respirators to deal with coronavirus, Moreno said. He cited Uruguay, Costa Rica and Medellin, Colombia, as examples of governments that have had success tracing and testing to prevent the spread of the virus.
With a health system less developed than in advanced economies, Latin America has been decimated by the pandemic, particularly in Brazil and Mexico, its biggest economies. The region accounts for about half of new daily virus infections. The International Monetary Fund expects the countries to shrink 9.1% and 10.5% this year, respectively.
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Nations will need to examine supply chains for opportunities for smart import substitution in areas like food and some types of manufacturing, Moreno said. One consequence of the difficulty of buying medical equipment during the pandemic is that countries started to produce it themselves, from uniforms and face masks to disinfectant, he said.
The bank plans to disburse $15 billion this year to governments, and another $7 billion to businesses through its IDB Invest private sector arm, Moreno said. The Washington-based lender will eventually need to increase its capital or see its lending leverage constrained in coming years, he said, although he expects the push for that approval to fall to his successor. Moreno, who took over the IDB in 2005, is scheduled to finish his third and final term at the end of September.
“The IDB is going to have to do a capital review sooner rather than later,” he said. “What I will be doing is looking at all the different options and try to leave that to my successor as a way of having like a first draft of this discussion.”
He declined to comment on the election of his successor. The U.S. last week announced plans to nominate Mauricio Claver-Carone, a senior adviser to President Donald Trump, as a candidate, seeking to break the organization’s six-decade tradition of choosing a chief from the region. He’s set to face off against Argentine Gustavo Beliz, who is also backed by Mexico. Former Costa Rican President Laura Chinchilla also plans to pursue the job.
The official nominating process won’t begin until late July or early August, with an election expected on Sept. 12 or 13. While the U.S. is the biggest shareholder with a 30% stake and has a de facto veto based on quorum requirements, the winner needs support from more than half of the region’s 28 member countries, many of which have yet to publicly express their preferences.
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