Q&A: Retiring IDB VP on how research is pivotal to lending effectiveness

WASHINGTON — In 2007, the Inter-American Development Bank Board of Directors approved a reorganization for the nearly 60-year-old multilateral development bank. Among other changes, that effort created a vice presidency of sectors and knowledge mandated to use research and data to inform IDB lending. Santiago Levy became the first to fill that role in 2008, shortly after he had joined the bank as chief economist. He was responsible for the quality of IDB’s analytical work, which was expanded and honed to make its lending and technical cooperation more impactful. Levy said that he felt an obligation to ensure the work addressed the pressing issues impacting development in Latin America and the Caribbean. Challenges faced in the region and lessons learned from IDB projects can help inform development work around the world, he said. Levy, who left IDB last month due to its mandatory retirement age, plans to stay in Washington and continue working in development. He recently sat down with Devex to discuss his tenure at the bank and how the evolution of its knowledge sector helped make better loans to increase development effectiveness. This conversation has been edited for length and clarity. How did you see key regional issues evolve over your tenure? There’s been quite a change of themes along those 10 years. Soon after I arrived, macro issues came to the forefront. I came to the bank in August 2007, just when the world financial crisis was hitting. In the initial years, there was a lot of attention to short-run macroeconomic management and particularly, to how the region was going to sort out a crisis that people didn’t realize was going to be so deep. That faded after 2010-11 when it was clear that fortunately the region, this time, was not thrown off by the world financial market. Other issues have come to the forefront. When I arrived at the bank, climate change and sustainable energy were there, but they were not fully incorporated. What has happened in the past decade is an across-the-board learning process in the bank, but more importantly in the region, that sustainability and climate change are not European and American issues, they’re world issues. And there’s been a process by which this agenda has now been incorporated as part of the development agenda. There are many others. Gender and diversity also grew in importance as everybody learned that aside from an equity issue, they are development issues in a deeper sense. “Sustainability and climate change are not European and American issues, they’re world issues.” --— Santiago Levy, former vice president of sectors and knowledge, IDB Why did the bank need to develop a knowledge sector? For a very simple reason. If you’re lending money with a sovereign guarantee, that’s really easy. You lend money, you have a sovereign guarantee of the country, you get money back and you can have a financial business that is pretty safe, and in a way fairly boring and not very effective. If you want to lend with development effectiveness, that’s a different business altogether. Lending with development effectiveness, with a strong development impact, is much more difficult. It can’t be done unless you really understand the nature of the challenge in the particular area in which you’re lending. What’s an example of an area where knowledge improves effectiveness? Everybody says education is so important. So yes, we can lend $100 million to Bolivia for an education loan and they can buy bricks, mortar, windows, and cement to make a building and put a label outside that says “school.” Or, you can lend the same $100 million and really ask why the quality of education in Bolivia is so low: Problems with early childhood development? Are teachers underpaid? Has technology been incorporated? When you ask these sort of questions the answer is not obvious. So if you really want your $100 million to be effective, you have to understand the constraints for educational quality in Bolivia and that requires research. “Take a loan after it’s finished and ask yourself the question: “If I were to do it again would I do it identically?” And most likely the answer’s ‘no’ — for every loan, which is good.” --— What role should evidence-based decision-making play at the bank? Large. Very large. That’s the difference between just inventing or guessing, and trying to inform your opinion with evidence. It doesn’t mean that it is the ultimate and the only element of a decision. There might be other considerations. Were there any moments where you wished you would have had more time to develop knowledge related to a project? Take a loan after it’s finished and ask yourself the question: “If I were to do it again would I do it identically?” And most likely the answer’s “no” — for every loan, which is good. It’s very much case-by-case but you’re learning from experience, and learning is an ongoing process. You spearheaded a process to overhaul the bank’s sector framework documents. Why was this an important process to streamline the knowledge sector? The process of generating policies was not a productive process. It was disorderly, it was sometimes in response to the latest fad. Second, it was disconnected from the organizational structure of the bank, from the areas that generated knowledge. Third, there was no useful feedback from those strategy documents to day to day work of the bank. You would do them, you would put a huge amount of investment, you would deliver them to the board — and then the next morning, business as usual. What challenges did this pose? The challenge was to make a process that was more systemic, more predictable with more quality control, and more useful to the bank and to the countries — and also more updated. A lot of the policies that were there before were 15-20 years old. After the capital increase, we took advantage of that to revamp the whole process. There was a confusion to what documents were normative, binding, and what documents were for orientation purposes but not necessarily binding. “Looking back, probably a mistake on my part is that I should have done more of that [south-south cooperation].” --— Sector framework documents are documents that are not approved by the board — they’re discussed with the board. This creates a mechanism for dialogue between the board and the teams in which nothing is at stake. This is really very important. In discussing a sector framework document with the board, there’s nothing at stake, no money, no nothing, no country. Just “look, this is what we think are the main problems with fiscal policy in Latin America, these are the lessons that we’ve learned. This is what we’re doing research on, this is what we’re advising countries on.” And then four years later, you redo it. What was the bank’s role in encouraging south-south cooperation? There’s not enough of it. Looking back, probably a mistake on my part is that I should have done more of that. Hindsight is 20/20, but if I started again there’d be more interchange with the Asian Development Bank and African Development Bank and other organizations working outside of Latin America and the Caribbean. Has the bank’s knowledge generation given it more credibility in countries? Absolutely. That was objective number one. We are a credible interlocutor. From the point of view of the ministers, we wanted to put the following idea: IDB is an interlocutor that is worth engaging with. It is worth it for the environment minister of Guyana to sit with our people who know about the environment and spend two hours. We may or may not do a loan. But the minister thinks, “yes, it is worth it for me to spend two hours with environmental people.” That’s the quality. We’re of course not the only reference point, but we’re one of the main reference points for work on the region. And it’s good we’re not the only one because then there’s a monopoly and monopolies are not good. There should be competition.