INTER-AMERICAN DEVELOPMENT BANK HAITI AND IDB CONDITIONALITY. Chairs: Anna Cristina Ameglio Juan Manuel Aleman

Transcription

1 INTER-AMERICAN DEVELOPMENT BANK HAITI AND IDB CONDITIONALITY Chairs: Anna Cristina Ameglio Juan Manuel Aleman

2 Dear Delegates, Welcome to the Board of Executive Directors for the Inter-American Development Bank. My name is Anna, one of your co-chairs for the FAIP 2012 conference. Currently a junior in high school, I enjoy literature and Chemistry classes. Outside school I love cycling and swimming. In this conference you will learn how to make effective solutions in a short period of time, considering every position s point of view. This conference will also help you grow as a person and hopefully a right doing and smart future politician. I am looking forward to our discussion throughout this 2012 conference, and very excited to hearing all of your ideas. My name is Juan Manuel, your other co-chair for this FAIP 2012 conference. I am a senior in high school, and I love watching TV and sleeping all day long. I have been preparing for this conference since the beginning of this trimester, and I am longing to meeting all of you. Please do not hesitate to contact us with any questions you might have. Good luck in your preparations! Anna Cristina Ameglio & Juan Manuel Aleman Co-Chairs, Inter-American Development Bank annaameglio@yahoo.com Introduction of the Issue: After the debt crisis of the 1980s, numerous multilateral agencies, including the Inter-American Development Bank (IDB), started to realize the priority of poverty reduction. In approving the 8 th capital replenishment, the Board of Governors of the IDB attached a mandate to refocus the bank s efforts on the impoverished populations of Latin America. The 26 borrowing member countries could expect to see boosted financing as the new goals established that target 40% of the value, and 50% of the number of loans would target social equality. Topics to be discussed: This particular gathering of the IDB s Board of Executive Directors will consider the effectiveness of the bank s poverty-driven agenda from the 8 th capital replenishment in 1994 until the present day, specifically the IDB s practice of loan cancellation. In the past decade the IDB has come under criticism for maintaining certain policy alignments with other financial institutions that some might say have hindered the IDB in effectively achieving its goals to decrease poverty rates. One such criticism example would be Debt Cancellation for Haiti: No Reason for Further Delays by Mark Weisbrot and Luis Sandoval. This article looks specifically at the IDB s recent relationship with Haiti, arguing that the bank s promise to forgive Haiti s outstanding debt ought to go into effect

3 immediately. The article suggests that the IMF and World Bank conditions do not properly address the needs of the Haitian poor, and that waiting for Haiti to meet these conditions could be harmful considering the severity of the country s need for aid. The possibility of adopting safety-net policy structures to address economic dangers associated with a borrowing nations outstanding debt, will be discussed in this IDB session. The IDB was founded in 1959 as a distinct, innovative organization that, by pulling together multilateral resources through international cooperation, maintained a narrow focus on specific development projects within Latin America. Until 1980, the IDB maintained this focused role from its founding. The large-scale economic problems in Latin America created conflicts between the Bank s member countries. Lending the IDB to member states, consequently decreased from In 1988, however, the IDB replaced its president and principal managers, and acquired a large capital replenishment of $26.4 billion dollars, and since this date the Bank s role has taken on new characteristics and it has involved itself with more than providing loans for infrastructural projects. In 1989, following the World Bank, the IDB adopted a program of policy-based loans which stipulate conditions conditionalities to disbursed funds, theoretically ensuring the effectiveness of its loans. In many ways this shift marked a heightened involvement of the IDB on the international stage, as these new loan policies and their conditionalities often entangle with the facilities of other global financial institutions and political leaders. In the early 1990s, for instance, the IDB linked its sector adjustment policies with those of the World Bank, with the World Bank ultimately having the final say on established eligibility standards and conditionalities for loans. In certain instances this system of parallel policies might be seen as problematic, as the IDB can be hindered in independently achieving its goals to reduce poverty and inequality when its capacity to act is hinged upon the decisions of other institutions. The IDB serves as the greatest lender throughout Latin America and the Caribbean, and thus holds significant leverage within this region to set policy agendas. One might argue that an organization with as substantial an influence as the IDB should be free to act upon its mandates without excessive dependence on the policies of external institutions. The Issue in Context: The report on the 9th capital increase of 2010 clearly establishes the IDB s continued (from the 8th increase) stance with poverty prevention as its highest priority: Governors affirm the following institutional priorities: (a) reducing poverty and inequality; (b) ensuring sustainable development... With such a clearly established attitude, one might have expected Haiti to have received significant aid from the IDB. But despite being the poorest country in the Western Hemisphere, Haiti was still unable to qualify for the Heavily Indebted Poor Countries Initiative. The IDB s role in this situation has been varied, from creating a slow-moving, framework for debt relief to ease Haiti s outstanding debt, to designating target dollar-amounts of loan relief to be distributed amongst various indebted Latin

4 America Countries. While immediate debt relief might have immediately begun aiding the Haitian population, it was not granted in such a manner, meaning that creditors made loans to illegitimate or undemocratic regimes, which never reached the impoverished population. Even still the Haitian economy has received minimal foreign aid, even as it has fallen further into debt. Yet in the wake of the January earthquake of 2010, the IDB has since cancelled all of Haiti s outstanding debt, and pledged more than $2.2 billion in grants for the next decade. The IDB began promising Haiti cancellations of its loan balances as early as 2004, with no substantial cancellations made until 2009 and full cancellation delayed until the earthquake s aftermath; promises have not been kept. It would seem that Haiti s economic fragility would make it an obvious choice for IDB financing aimed at poverty-reduction and social equity, but in upholding the conditions set by the World Bank and IMF the IDB was unable to immediately carry through with its promises to ease debt. The delay for Haiti cost more than time: failing to reach the completely point set by World Bank conditionalities. Furthermore, these set conditions have not gone without heavy criticism. It should be added that there is nothing to require IDB adherence to the conditions set by other institutions. The crux of the debate The extensive delays of IDB action can be seen as problematic for several reasons and from numerous perspectives. For one, it calls into question the autonomy of IDB actions in Latin American Countries (LAC). It certainly seems questionable that the multilateral organization with the most specific focus on LAC countries, and the greatest proximity, would carry the least precedence in setting the conditions necessary to offer debt relief to these impoverished governments. In some ways it seems that the IDB s primary goal, reducing poverty and inequality, is jeopardized by an overreliance on external mandates. If these mandates for example, the conditions set by the World Bank necessary for the cancellation of Haiti s debt were unanimously adopted and proven completely reliable, the discussion would be different, but in fact these conditionalities have been heavily criticized. Foreign Policy in Focus released an article in 2006 calling the economic reform conditions harmful and intrusive ; the demanded privatization of services, spread over two years of structural changes, is deemed destructive to an already fragile economy. Without any established threshold to determine something like an emergency indebtedness of borrower countries, the decision of how to deal with an impoverished nation s debt becomes subject to votes driven by factors other than a commitment to reduce poverty and inequality. To return to the case of Haiti, for example, the cutoff of aid and subsequent impossibility of debt cancellation between might be due to the specific agenda of the US government during the time. Economist and former advisor to the World Bank and IMF, Jeffrey Sachs, argues that this treatment of Haiti s economic crisis was directly due to a US hope for the collapse of the Haitian Aristide government at

5 the time: U.S. officials surely knew that the aid embargo would mean a balance-of-payments crisis, a rise in inflation and a collapse of living standards. The IDB s relationship with Haiti also raises the question: how can borrowing member countries maintain expectations for aid from their own multilateral bank if precedence would suggest that there seems to be almost no national state of economic emergency perilous enough to receive appropriately immediate assistance. In our Haiti example, it would seem an earthquake costing 120% of a nation s GDP would be the only kind of economic disaster extreme enough to merit emergency aid financing.18 The IDB aims to maintain a powerful presence within its borrowing member countries as a resource for their impoverished populations; ultimately it is the people, not the government, that pays these debt burdens, says Policy in Focus, arguing that in many ways a country s debilitating debt is just as destructive to the wellbeing of its poor as natural disasters.19 Who considers it an issue? We have discussed numerous legitimate and aggressive criticisms of the IDB s capacity to extend emergency debt cancellations. Understandably, then, any sort of proactive move from the Board of Executive Directors to set a framework for emergency indebtedness would at least publicly acknowledge the IDB s realization of its own operational shortcomings and renewed dedication to its impoverished constituencies. The critical question: Should the IDB take a clear step toward autonomy in determining the conditions necessary to provide urgent debt relief? Was the bank s response to the Haitian debt crisis insufficient or even unacceptable? What might be the thresholds signaling a level of emergency severe enough for a nation to deserve loan cancellations outside the purview of other international financial organizations? The power of the committee to address this topic The Board of Executive Directors is charged with carrying out the mandates set by the Board of Governors. In this case the Board of Governors has passed the 9th capital replenishment, emphasizing poverty reduction and debt cancellation for Haiti as critical features. As part of this mandate s implementation, the Board of Directors will decide whether or not certain structural policy features should be established to ensure its effective enforcement. Namely, should certain thresholds be installed to make debt- cancellation for severely impoverished nations an almost automatic function, or should such IDB action continue to hinge upon the conditionalities of other large financial institutions and remain subject to the external political pressures of non-borrowing member countries? Voting power within the Board of Directors is determined by a nation s subscribed capital to the bank s operations. The primary division between voting countries is drawn between borrowing and non-borrowing members, both with important input for a dialogue on policy concerning emergency debt relief. Questions the resolution must answer The resolution must answer the question of IDB autonomy in its crisis relief operations for impoverished nations. Was the IDB s delayed aid to Haiti neglectful of the Bank s first goal, to safeguard impoverished populations in the LAC? Should a policy resolution be passed to determine or plan to determine an established threshold for emergency indebtedness, wherein the IDB would be signaled to immediately and heavily consider loan cancellation? Should the IDB, in certain instances, act outside the purview of IMF and World Bank conditionalities?

6 Conclusion Resolution on this topic will require conscious consideration of the many disparate opinions and agendas of member countries. Cooperation will be necessary for any sort of solution, open dialogue and a constant attention to the IDB s established mission. References 1 Sorensen, Kerstin. The Inter-American Development Bank and Poverty Reduction. 6 July Sorensen, Kerstin. The Inter-American Development Bank and Poverty Reduction. 6 July Culpeper, Roy. Regional Development Banks, exploiting their Specificity. Third World Quarterly, Vol. 15, No. 3 (Sep., 1994), pp , The Inter-American Development Bank, About the Inter- American Development Bank. < about-us/about-the-inter-american-development-bank,5995. html> 5 Sorensen, Kerstin. The Inter-American Development Bank and Poverty Reduction. 6 July The Inter-American Development Bank, Report on the Ninth General Increase in the Resources of the Inter-Ameri- can Development Bank, The Inter-American Development Bank, Honoring the Past, Building the Future: 50 Years of Development in Latin America and the Carribbian. 2009, Kar, Debayani and Tom Ricker, IDB Debt Cancellation for Haiti. Foreign Policy in Focus, 18 December 2006, 2. 9 The Inter-American Development Bank, Honoring the Past, Building the Future: 50 Years of Development in Latin America and the Carribbian. 2009, Weisbrot, Mark and Luis Sandoval, Debt Cancellation for Haiti: No Reason for Further Delays. December 2007, Haiti Earthquake PDNA: Assessment of damage, losses, general and sectoral needs, IDBDebtCancellationforHaiti By: Debayani Kar & Tom Ricker - Foreign Policy In Focus - Monday, 18 December 2006, 1 13 Debt Cancellation for Haiti: No Reason for Further Delays Mark Weisbrot and Luis Sandoval 14 Exploiting their specificity 15 Exploiting their specificity, By: Debayani Kar & Tom Ricker - Foreign Policy In Focus - Monday, 18 December 2006, 4 17 Beeton, Dan. What the World Bank and IDB Owe Haiti 18 Haiti Earthquake PDNA: Assessment of damage, losses, general and sectoral needs 19 Policy in Focus, 4