IDB president looks back on 15 years in charge

Luis Alberto Moreno

Luis Alberto Moreno has led the Inter-American Development Bank (IDB) since 2005, during which time Latin America has faced challenges from economic recessions to trade tensions to migration shocks. The bank has evolved, focusing on innovation through IDB Lab and directing nearly one-third of its financing towards climate-related initiatives with the help of its private sector arm, IDB Invest. Mr Moreno spoke to The Banker ahead of the IDB’s annual meeting in Barranquilla, Colombia, his last at the helm of the institution.

Q: How has Latin America changed over the past 15 years?

A: It almost reminds me of The Wizard of Oz, when Dorothy looks around and doesn’t recognise Kansas. Technology has changed societies so radically and increasingly has a tremendous impact on governments, on how they internalise technology and deal with cyber challenges. Furthermore, climate issues have taken hold in a way that was certainly not there when I began at the bank. Climate change today is a central part of what we do: more than 30% of our lending is based around climate change. We’ve had to get all the right teams of people in place, work on areas of energy efficiency, on stranded assets and what implications these will have.

This has also been a time when we have seen tremendous social change. We have had millions and millions of people in Latin America getting out of poverty, about 20% of the overall population. At the same time, and not just in Latin America but worldwide, people have become unhappier for a variety of reasons. Polling data shows this and you see it in the streets. Happiness indices have many elements to them: the quality of public services, how you see your future, your children’s future. This is really calling into question how we communicate the benefits of the projects that we actually do. We need to do more cross-sectoral work on this. 

Q: How is the role of development finance evolving?

A: The development industry, if we can call it that, has changed a lot because there are many new actors. It is not just bilateral donors and multilateral institutions, but also more and more private wealth moving into this space. Society’s questioning of capitalism and the concentration of wealth used to be largely a development issue, for emerging countries. Latin America has always had these huge inequalities. But the discussion around inequality is now very much a global one.

The development challenges and the players in this space are much broader now. For an institution such as the IDB, this means learning to work with all these different stakeholders. In the past, our conversations would have been with a government, and a ministry of that government, in a very binary way. It is much broader now. One of the things that we developed, 10 years ago, is an office for partnerships precisely to deal with this. I think that this broader participation is only going to grow. And that means that we have to have a very strong private sector arm, which we do try to have in IDB Invest, and then work on innovation, using IDB Lab, to be far more nimble and create ways to look at the development challenges differently.

Q: How has the conversation around climate change and sustainability changed in Latin America?

A: We have a region with 40% of the world’s biodiversity. There is growing awareness, everywhere in Latin America, around issues of climate change and protecting the environment. Not everyone perhaps is sufficiently informed on how to go about it, but look, for example, at Chile. Chile approved a law about doing away with single-use plastic in a week. This tells you a lot about how far public opinion has moved.

Q: Where does Latin America fit in the current global trade environment?

A: First, globally, people believe that globalisation benefits the few and not the many. I think that’s a fact in every society. In some it is more acutely felt than in others. Second, Latin America is and probably will remain largely driven by commodities exports, not unlike Australia or Canada. So I think the challenge is how we use all of this natural resource wealth and turn it into high-precision manufacturing and high-quality services. 

Clearly, trade tensions around the world have led to a drop in the overall volume of trade. But it is equally true that Latin American economies, especially the smaller economies, cannot grow in size if the overall trade as a percentage of gross domestic product [GDP] is not high, otherwise you’d be limited by the small size of their economy. That’s certainly not true for a country the size of, say, Brazil, where the overall volume of trade is no more than 18%. But if you look at Mexico, it is much higher and certainly it is much higher for the other Pacific Alliance countries [Chile, Peru and Colombia]. Trade is critical. But the part that we seldom focus on is what can be done in the way of trading services, how service providers can become more global in nature, how we can connect small businesses to value chains: those are the biggest challenges that we face. 

Q: Regional integration has long been an objective for Latin America. Will there ever be any real progress?

A: One of the more interesting things about trade integration is that in any poll that you look at, Latin Americans would love to see far more trade integration between our countries. And that’s a hidden source of growth that we have not sufficiently tapped into for a variety of reasons. One reason is poor physical connectivity; and the other is lack of convergence of regulations and other softer types of connectivity. When will this happen? Unfortunately, Latin America’s track record on this is not good. We have many institutions doing trade-related work. The most exciting initiative is the Pacific Alliance. Now we need to be more ambitious. 

Q: The IDB’s annual meeting takes place in Colombia, your home country. What does Colombia’s future look like?

A: I think Colombia has made a significant amount of progress. If you look back 20 or more years, when I came to Washington as Colombia’s ambassador, the headline was: this is a failing state. That is no longer the case. We have a peace accord [with the armed revolutionary group Farc], we have been able to push back significantly against violence, we have consolidated democracy in our country. At the same time, we have new challenges. There is this huge migration challenge, and that’s a phenomenon of the past three or four years. It is largely driven by Venezuela but also across the region by problems in Nicaragua spilling over into Costa Rica and Panama. There is the historical migration from Central America and Mexico to the US. This is another area of concern. If stretched over a long period of time, migration is beneficial to a country; if what you have is a shock, such as the case of Colombia and Ecuador, where the cost of absorbing these levels of migration is close to half of GDP, it is a concern. It speaks volumes that nonetheless Colombia has been able to embrace Venezuelan migration.