IDB president pledges collaboration with Biden on capital increase, Central America

WASHINGTON — The Inter-American Development Bank is eager to work with the incoming U.S. presidential administration on a host of urgent priorities for Latin America and the Caribbean, IDB President Mauricio Claver-Carone told Devex.

Claver-Carone, who was formerly an official in the administration of President Donald Trump and is the first American to lead the regional lending institution, said he intends to work closely with President-elect Joe Biden’s administration, including Treasury Secretary nominee Janet Yellen. Collaboration is needed to secure a capital increase for the bank, foster development in the Northern Triangle countries, and address the impact of climate change in the region, Claver-Carone said.

“There’s a lot of things we can do together. … I take President-elect Biden at his word when he talked about us coming together, for the nation healing, and for us working in a bipartisan fashion,” Claver-Carone said. “There’s no greater issue where we can show that bipartisan cooperation and working on these issues of mutual interest than on Latin America and the Caribbean and on helping our neighbors during this historic crisis,” he added.

“If we come together,” he continued, “we can show the region that the United States can work together, put political partisan differences aside. … That’s good for the IDB, that’s good for the region, that’s good for the United States.”

Claver-Carone, who has been in his post for two months, has publicly congratulated Biden on Twitter but said he has not spoken with the president-elect directly. He said he has been in touch with members of the transition team.

During the IDB campaign, Biden opposed Claver-Carone’s candidacy on the grounds that it broke with the precedent of IDB being led by someone from the region. While the U.S. is the bank’s largest shareholder, an American has typically held the No. 2 spot as executive vice president of the institution.

As the Latin America and Caribbean region faces slow growth, severe health and economic impacts from the COVID-19 pandemic and related lockdowns, and unprecedented natural disasters, Claver-Carone’s ability to secure a capital increase will be key to his — and IDB’s — success. He made doing so a central tenet of his campaign to lead IDB over the summer.

For that, he will need the blessing of Yellen, who served as Federal Reserve chair in Barack Obama’s presidential administration. Claver-Carone said IDB estimates the region’s needs coming out of the pandemic to be approximately $25 billion per year, while the institution’s current lending capacity maxes out at $12 billion.

He said he sees Yellen as an “excellent” future partner.

“Janet Yellen has a career where she cares about poverty reduction and lifting people out of poverty. That’s our business. That’s what we do,” Claver-Carone said. “We want to be able to show her … the needs of the region. We want to be able to show what the IDB does in the region, the work it does in the region to help lift people out of poverty and help have a social, economic impact. I think we can make a very convincing argument, and I think she will be very compelled.”

One of the biggest areas of collaboration Claver-Carone said sees for IDB and the Biden administration is an “Alliance for Prosperity 2.0” that will be “bigger, more efficient, more impactful.”

“I have a copy in my desk ready to present to them for their review,” Claver-Carone said.

When he was vice president in the Obama administration, Biden was tasked with developing a plan for the Northern Triangle countries of El Salvador, Guatemala, and Honduras to spur development and economic growth and to decrease migration to the U.S. border. The original Alliance for Prosperity, which was developed in partnership with IDB, was a $750 million initiative that required regional governments to put forth their own capital and meet certain governance conditions, like reducing corruption.

For his presidency, Biden is proposing a $4 billion plan that will roll back the Trump administration’s cuts of U.S. foreign assistance to the region that were imposed as punishment for the flow of Northern Triangle citizens consistently arriving at the U.S. border. Partly because of these cuts, the original Alliance for Prosperity never saw the benefits it promised. Major development improvements that lead to migration reductions often take a decade or more to show in data, and no substantive impact can be measured over just a few years.

Claver-Carone said there are now additional tools — like the new U.S. International Development Finance Corporation — that did not exist during the Obama administration, which can also facilitate development in the Northern Triangle.

“At the time, what was set forth was a framework with a lot of conditions in regards to changes mostly in the public sphere and dealing with governance issues that are very important and security issues which are very important,” Claver-Carone said.

But “I think there needs to be a more comprehensive package,” he said. “I think the original Alliance for Prosperity really missed out. It talked about creating the atmosphere for private sector investment in order to create jobs and lift people out of poverty, but it lacked it.”

Some of the conditionality attached to the original Alliance for Prosperity could have been a deterrent to its success through private sector investment, Claver-Carone said. These objectives could be reached by focusing more on bringing American companies to the region, he added, because those operating there must follow certain U.S. legal requirements.

“We’re asking discipline from these countries to a degree, but they’re not seeing the benefit of it in the short term. I think that if they see the benefit in the short term it’s also a great incentive for them to do the right thing,” Claver-Carone said. “When we are equity investors, we bring our governance standards as well. IDB Invest does; the DFC does. When U.S. companies go into Central America, they bring the Foreign Corrupt Practices Act with them and therefore forces, incentivizes good governance, transparency.”

The region faces additional challenges on top of COVID-19, which itself is likely to lead to increased migration. Last month, two of the strongest hurricanes seen in Central America in years hit in a span of less than two weeks.

The international community funds an average of only 3% of the recovery costs for natural disasters in the region, according to Claver-Carone. This will be nowhere near enough to address the storm damage in countries such as Nicaragua, Honduras, Guatemala, and El Salvador on top of economic impacts from the pandemic, which could further affect migration.

Claver-Carone said he also hopes to create “champions” of IDB in the U.S. Congress, which has traditionally not been actively involved in bank matters. Support from lawmakers, as well as the presidential administration, will be required to secure a capital increase.

“If there is not a time to argue for a capital increase to meet all these needs … so that countries don’t need to choose between saving lives, feeding people today, and mortgaging their future generations, we need to be able to have the financing necessary to fill those gaps, and those gaps are pretty significant,” Claver-Carone said. “The IDB is ready, willing, and able to partner up with a future Biden administration to do so.”