The Inter-American Development Bank

by Diana Tussie

For Latin America and parts of the Caribbean, the Inter-American Development Bank (IDB) is the leading institution today. Since it began operations in 1960, it has become a source of financial, technical, and intellectual resources to the region. Its early mission was to be a "university of development" and the IDB has focused on the smallest and poorest countries in the region.

But the IDB, like its other regional counterparts, is being increasingly criticized and is little understood. In 1991, Diana Tussie set out to determine whether the IDB had been an effective agent of development. And given Latin America's growing income disparities, is it able to take on the emerging challenges of the development agenda, including such issues as governance, military spending, and the need for gender-sensitive development strategies?

Growth And Governance

The IDB began operations in October 1960, six years ahead of the other regional banks, but 70 years after the first attempts to overcome U.S. resistance. Unlike the Asian Bank, the borrowing member countries (BMCs) have always held a majority vote and supplied the president. And unlike the Asian and African Banks, from the outset it has had a concessional arm-the Fund for Special Operations (FSO)-as part of its legal structure. The IDB has raised resources through replenishments on a four-year funding cycle, which has involved protracted negotiations for both the ordinary capital and the FSO funds. This backing allowed the Bank to lend a total of $63 billion over its first 33 years. The IDB now has the ability to lend $7 billion indefinitely to its borrowing members. At the end of 1994, when the eighth replenishment negotiations were concluded, the cumulative capital subscriptions amounted to some $100 billion, of which $4.1 billion was paid in.

To ensure funds for the dozen smallest and poorest countries, a cap of 65 percent has been set on resources to the seven largest countries (Argentina, Brazil, Mexico, and Venezuela in Group A; Chile, Colombia, and Peru in Group B). The IDB has acted more as a financial intermediary with these bigger countries, and as a development institution for the smaller. Although headquartered in Washington, it has always kept strong roots in Latin America and, more than the other Banks, it has led an intellectual dialogue on the social aspects of development.

A few figures from 1984-92 (p. 99) illustrate how the IDB's loans have often approached World Bank lending in total volume (exceeding it in 1984, 1991, and 1992). And while 70 percent of disbursed loans are concentrated in Group A and B countries, on a per capita basis, the Bank has favoured the smaller 18 countries (Group C comprises six, mostly Caribbean states, and Group D, the dozen poorest):

	Disbursed loans to:
	Groups A & B		Groups C & D
	(in US$ millions)		(in US$ millions)
	IDB	World Bank	IDB	World Bank
1984	2,249	2,765	1,071	264
1988	1,076	4,731	524	533
1992	4,214	4,804	1,777	857

The IDB has diverged from the World Bank in policy matters. When the debt crisis overwhelmed Latin American economies in the 1980s, the World Bank cut back on commitments but the IDB provided compensatory resources. It was also slow to follow the World Bank in policy-based lending to oversee economic adjustment.

Problems And Challenges

Relations with the World Bank, Tussie says, are cooperative over the bigger countries where there is an abundance of good projects and the World Bank and IDB provide complementary skills, but more competitive in the smaller countries, such as Guyana, where the IDB has had a more sustained presence. For either Bank, it is not now cost-effective to prepare small loans below $50 million, and Tussie recommends more on-lending to the subregional banks.

In the Bank's early days, about 12 percent of loans went to projects of regional integration in energy and transport, but such plans collapsed in the 1980s with fiscal crises and civil wars. Tussie hopes the Bank will more vigorously help make the present haphazard schemes of economic integration more compatible and anticipate needed adjustments.

Three Country Studies

In the three countries studied at greater depth in the course of the multilateral development banks project-Argentina, Bolivia, and Costa Rica-the IDB has historically provided more funds than the World Bank. Its largest ever loan of $210 million went to finance construction of the Yacyreta Dam, the Paraguayan-Argentine hydroelectric station, that has been criticized as underprepared and oversized. An earlier project at Salto Grande, however, is seen as a model in anticipating environmental effects. The Bank lent a notable $300 million to Argentina's private sector before the debt crisis made servicing loans difficult.

Bolivia relied heavily on the IDB during its 1982-86 crisis years, when tin prices collapsed, Argentina was slow to pay for gas imports, and the World Bank froze its commitments. Tussie credits the IDB with significant improvements in Bolivia's social conditions.

Again in Costa Rica, the IDB compensated for the World Bank's withdrawal during the 1982-84 crisis. In the 1990s, the Bank moved into adjustment lending, whereas it had earlier focused on energy and agricultural projects: the Arenal hydroelectric project has over-runs in time and cost, but the resettlement of two communities was done in an "orderly, efficient, and socially responsible manner."

About The Book And Author

Published in 1995, this study is part of a larger project on the multilateral banks, launched by the North- South Institute in 1991 and supported by the Canadian International Development Agency, the Ford Foundation, the Swedish Ministry for Foreign Affairs, the Norwegian Ministry for Foreign Affairs, the Netherlands Ministry for Development Cooperation, the Inter-American Development Bank, the Caribbean Development Bank, the African Development Bank, and the Asian Development Bank. The results are presented in four volumes, one on each of the regional development banks, plus a synthesis volume, Titans or Behemoths?, by Roy Culpeper, published in 1997.

Diana Tussie is a senior research fellow at the Facultad Latinoamericana de Ciencias Sociales (FLACSO) in Argentina.

Available at a cost of $25 from: Renouf Publishing Co.