The Inter-American Development Bank is in the process of forming a new four-year strategy to adjust to new dynamics in Latin America and the Caribbean as it rises to a middle-income region.
Officials within IDB are quick to clarify that it is a bank, not a donor, departing from providing basic aid toward more technologically advanced, targeted and complex projects based on changing priorities of clients.
And the bank’s head strategist said the new strategy — to be approved at the annual board meeting on March 26 in Busan before it rolls out in January 2016 — aims to reflect these new top priorities.
“Given that the base in Latin America is changing, our governors said the strategy should also change,” Veronica Zavala, manager of IDB’s Office of Strategic Planning and Development Effectiveness, told Devex.
“This is a bank that serves a region that’s increasingly middle-class which means there’s new challenges like avoiding middle-income trap. We need to find new ways of doing things,” she added.
The strategy is a result of a major “listening exercise” where IDB commissioned studies from think tanks and surveys of clients, academics and media in 27 focus groups throughout the world on what they consider to be the biggest problems in the region and how the bank can address those challenges.
Based on the feedback collected, the strategy contains three main priorities: innovation, social inclusion and “productive integration.” Part of the strategy is also integrating three “crosscutting issues” into every project: climate change and environmental stability, gender and diversity, and institutional capacities of governments throughout the region.
These will all become embedded into everything the bank does, Zavala said. But what are these priorities exactly, and what will they mean for implementing partners?
Fostering innovation to improve productivity
Over the past few years, IDB has increasingly partnered with the private sector in adopting new innovations to deliver more sophisticated products with a public good, and this will continue to be a priority.
“We want to be more innovative. Clients have told us they want us to be leaders to see opportunities and problems, and we have started. There’s a good seed of innovation for how we do things,” Zavala said.
IDB operations staff said working with big private companies on innovations in development projects is key so the bank can leverage their technological know-how.
IDB’s advantage is strong dialogue with governments, financing and expertise to bring projects to scale and make policy recommendations, they said. But companies like Visa, Google, Alibaba and DHL Express are enthusiastically providing more advanced expertise on technological innovation.
One example of such innovative thinking, she said, is more rigorous, state-of-the-art monitoring and evaluation involving randomized control trials with artificial scenarios.
ConnectAmericas, a new social media platform the bank launched to connect regional small and medium enterprises to investors abroad, as well as InvestAmericas, an online community to connect companies in need of funding to local and international investors, also reflect the bank’s new focus on innovation for development.
Other highlights include the Innovation Lab and Opportunities for the Majority, which promote and finance market-based, sustainable technologies and business models for the bottom of the pyramid. Developing wheelchairs that can function well outdoors or promoting maternal health through cellphones are most recent ventures.
Part of the plan, too, is to give back to the region by helping countries be more innovative or capture innovation “so they can replicate the things we give to them,” Zavala said, because it is better for the bank to disseminate its findings from measuring impact of innovations.
Working toward financial inclusion to decrease inequality
Although the region has seen gains in income overall, inequality has also grown in many countries and pockets of poverty persist. The bank needs to be more strategic on how to reach these changing demographics and switch its approach from focusing on aid to the poor to stabilizing the middle class, bank strategists said.
“The focus has switched from poverty to inequality: how to make the middle class more stable and thriving. That is something our clients and stakeholders think we need to be working on,” Zavala said.
Specifically, projects will target more indigenous populations and persisting marginalized poverty pockets with approaches to financial inclusion, banking the unbanked and bringing the poor into the formal economy.
Riots in countries like Brazil and Chile are a reflection of the precarious nature of newfound stability in many countries in the region despite their improvement, and so working on middle-income problems together with persisting poverty is important, said Manuel Arnott, consultant in the Office of Strategic Planning and Development Effectiveness.
Working toward equal growth in Colombia will also be a focus. Pockets of the country remain extremely underdeveloped due to violent conflict despite the robust growth of the overall economy, and developing these areas will be a priority as peace talks forge ahead.
Promoting regional and economic integration
The bank will increasingly aim to promote regional integration and take on bigger, longer-term projects that are more complex in nature with a more active role for bigger impact, Zavala said, so it can apply both its knowledge and financing into loans to become more of a “knowledge bank.”
The bank will focus on cross-border trade and energy projects to reduce trade barriers and costs of products for the poor. This will involve negotiating around electricity transmission lines to share energy across borders and promoting legalization of regional free trade agreements by encouraging ministers to harmonize.
Currently, regional governments are discussing forming an integrated energy market, and IDB could be useful in this process by pulling experience from other countries, financing studies and facilitating dialogue, Zavala said.
Zavala pointed to the Camisea Gas Project, a natural gas project in Peru known for its complexities, as an example of the type of project IDB will aim for.
The liabilities were great; IDB was able to provide a structure for safeguards, standards and management to get cofinancing and to enable the project to come to life, Zavala said, and “this is what we need to be doing more of.”
In addition to increased demand for “knowledge-added” assistance, clients are also asking the bank to provide sustained guidance and lending in projects for the long term, not just two or three years.
“The government knows we will be there for efforts like Camisea that take years and years to be implemented without any interest left or right,” she said.
For good education reform, for example, there needs to be a clear diagnostic of gaps, stakeholders and recipe for action, and it’s better for IDB to be involved on a regular basis over time.
“We’re a third party that can say state-of-the-art knowledge is XYZ and bring value throughout the process of a project, visiting to see progress, adding new learnings and adjusting to bring finances and live knowledge that goes throughout the life of the project,” Zavala said.
“It’s about capturing what we’ve learned and packaging knowledge plus finances together in a loan.”
If IDB is constructing a road project, for example, it needs to bring in new innovations and women to not only connect towns but also help produce sustainable jobs for people who never had formal labor, with the goal of making the project replicable and creating capacity for the government to replicate.
“Now it’s less about the amount of resources for a project but making those dollars count,” Zavala said. “We put in billions of dollars and need to do more and more of the types of projects that work with our strengths.”
Does IDB’s new strategy adequately reflect the most pressing needs of the Latin America and the Caribbean? Let us know by leaving a comment below.
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