On behalf of Treasury Secretary Yellen, I would like to thank the Government and people of Panama for their warm hospitality and welcome as well as Finance Minister Clarke and his team for their leadership in preparing for this meeting. We are meeting at an important time for the IDB Group and the region. I would like to recognize that this is President Goldfajn’s first Annual Meetings since his election as IDB Group President. In just a few months, we have seen his energetic passion for the institution and all countries and people of this diverse region. President Goldfajn is off to a strong start, and we particularly welcome his commitment to increasing the effectiveness of the work of the IDB Group, to focusing on staff morale, and to open and transparent communication. We look forward to hearing from management on their detailed prioritization and objectives under his leadership. We congratulate Finance Minister Alexander for his election as Chair for these Annual Meetings and thank him in advance for the work with Governors over the year to come. I would also like to warmly thank the staff of the Inter-American Development Bank (IDB) Group for their tireless efforts to support the aspirations of the people of Latin America and the Caribbean, especially for the grace they have shown as the IDB itself has been through a period of significant upheaval. We also thank Reina Irene Mejía Chacón, who ably stepped into the role of Acting-Interim President, for her help with the transition.
As we gather for the first in-person Annual Meetings since 2019, I am proud to relay the Biden-Harris Administration’s firm commitment to working with the IDB Group and all shareholders to support strong, sustainable, and inclusive economic growth undergirded by commitments to democracy, equality, transparency, anti-corruption, and the rule of law. At last year’s Summit of the Americas, President Biden announced the support of the United States for consideration of new capital for IDB Invest. Also at the Summit of the Americas, the Americas Partnership for Economic Prosperity (APEP) was launched to advance the economic, social, and environmental well-being of Latin America and the Caribbean. Our Partnership to Address the Climate Crisis 2030 (PACC 2030) will work to strengthen development finance and enhance green infrastructure so that our Caribbean partners will be better positioned to address the challenges of climate change. The IDB Group is a vital partner in delivering on these initiatives.
Regional Economic and Political Developments
Most countries in the region were making important strides in recovering from the COVID-19 pandemic by early 2022 only to confront new challenges associated with Russia’s brutal and unjustified war on Ukraine, rising inflation, and tighter global financial conditions. Robust growth in 2021 and 2022 came on the back of the reversal of pandemic economic closures and large fiscal expansions. While low growth in the region will return, governments will struggle to support their economies as the pandemic depleted fiscal cushions and increased debt levels.
A focused and robust monetary response from the region’s central banks has slowed price growth, but the pace of deceleration remains uncertain. U.S. inflation data are currently signaling a longer tightening cycle, creating further headwinds for the region’s economies. Aggregate sovereign bond spreads in the region have narrowed from November highs, but there is considerable uncertainty on both the trade and financial fronts.
The challenges for the region are significant. Per capita income and poverty rates have yet to return to pre-pandemic levels, and long-term potential growth of just two percent belies structural barriers to improving these critically important development indicators. This will be politically challenging for governments, especially given the pent-up demand for better economic outcomes, stronger governance, and more effective delivery of public goods, all of which predated the pandemic.
The resulting economic strain is one factor that leads people to search for opportunity elsewhere. Latin-America and the Caribbean needs to generate more economic growth that is inclusive to create more jobs and opportunities in the region. No country wants to lose their entrepreneurs and workers to emigration. We strongly encourage the IDB Group to work with countries and firms to develop skills, and to take advantage of the realignment of global supply chains to attract higher value-added industries and create new, quality jobs.
We look forward to working with the IDB Group and our partners in the region to further address the root causes of migration and create the conditions for robust, sustainable, and inclusive private sector growth. IDB Group expertise and capital can be leveraged to push structural reforms that increase potential growth, boost employment, and reduce poverty.
Inter-American Development Bank Group Reforms and IDB Invest 2.0
When we convened last year, Governors mandated IDB Group Management to undertake further reforms to improve development effectiveness; assess options for balance sheet optimization; address the needs of fragile and conflict-affected states and regions; reduce poverty and inequality; develop a strategy to address the unique needs of the Caribbean; review lending instruments and allocations; and better address the region’s needs in areas like climate, labor markets, social protection, and health and education. Governors also directed Management to identify and strengthen synergies among IDB, IDB Invest, and IDB Lab. In addition, Governors tasked IDB Invest to craft a new vision and business model to increase impact, mobilize more private capital to the region, and support growth-enhancing investments.
We recognize that the extraordinary circumstances of the leadership transition meant that IDB was unable to complete the work that Governors mandated. We welcome President Goldfajn’s commitment to complete the IDB Group’s operational and institutional reforms, while also preparing the new Institutional Strategy to guide the IDB Group’s work in the next five years. This approach binds the timeline of IDB Group reforms and the next Institutional Strategy with implementation of IDB Invest’s new vision and business model. Together with IDB Lab’s reimagined operational model, the three arms of the IDB Group are poised to work in concert to maximize the Group’s contribution to the region’s uptake of green technologies, its digital transformation, and strengthening food security and quality infrastructure.
The IDB Group and Evolution of Multilateral Development Banks (MDBs)
Secretary Yellen is spearheading an effort for MDBs to evolve and more effectively address transboundary challenges – such as climate change, pandemics, fragility and conflict – which is critical to protecting and enhancing delivery on poverty reduction and the Sustainable Development Goals. The IDB Group reforms and conditions in the Latin America and Caribbean region are well aligned with the goals of the MDB evolution agenda, and we look forward to working with other shareholders to pursuing the necessary changes.
Climate change is one of the transboundary challenges that IDB reforms are well-positioned to address. We look forward to the IDB Group fulfilling its commitment to align its operations with the goals of the Paris Agreement as of January 1, 2023. Making financial flows consistent with a pathway towards low greenhouse gas emissions, elevating climate-resilient development and adaptation investments is critical for the region’s sustainable, long-term growth. And, implementing “hurricane” or debt-deferment clauses, which allow borrowers to temporarily halt loan repayments after a severe natural disaster, will also enable the region’s vulnerable states to more quickly recover and rebuild following an extreme event. The region has an important opportunity to become a world leader in supporting the global transition by investing in green technology and green energy.
To do more to address global and regional challenges that threaten and undermine progress on poverty and inclusive growth, MDBs will need additional financial capacity. This must first focus on fully utilizing existing resources, especially at institutions that have strong capital adequacy – like the IDB. There are many recommendations from the G20 independent review of MDB capital adequacy frameworks that we believe are worth exploring and can contribute to increased financial capacity. We are pleased that IDB has been developing balance sheet optimization efforts aligned with the recommendations. In addition to stretching its own balance sheets, the IDB Group must foster reforms to help countries more effectively mobilize and allocate domestic resources and enable and incentivize private capital mobilization toward global challenges.
Discussions for New Capital for IDB Invest
IDB Invest’s New Vision and Business Model represents an important opportunity to mobilize the higher levels of private sector investment that are critical for sustainable and inclusive, long-term growth and addressing global and regional challenges, while making more efficient and effective use of its own resources. As President Biden has stated, the United States is ready to begin negotiations on providing new capital to IDB Invest to support the New Vision and Business Model. Armed with greater capacities to support local currency financing, de-risking, and capital mobilization, IDB Invest will be able to accelerate the growth of the private sector across the region. The United States calls on Management to present the capitalization proposals for IDB Invest and the new IDB Group Institutional Strategy, and make progress on outstanding IDB Group reforms, to the Executive Boards by October.
The United States is committed to working with other IDB Governors, Executive Directors, and IDB Group Management to realize this comprehensive and exciting agenda for renewing the IDB Group’s support to the region’s growth and development.