Sunday, March 08, 2009

Synopsis of Interview with Alberto Moreno

Latin Business Chronicle

The Inter-American Development Bank (“IDB”) recently released an interview with the IDB President Alberto Moreno. Mr. Moreno mostly focused on what the IDB is doing to help mitigate the effect the global credit crisis has on Latin America. Moreno first said that the IDB has set aside about $6 billion emergency liquidity fund so that companies can continue to obtain financing. He said that Costa Rica, El Salvador and Jamaica have all used this fund so far. Moreno said that the IDB will also have $12 billion in its usual capital available for countries to borrow from. If the IDB uses both the emergency fund and the usual capital, the total lending in 2009 could reach $18 billion, which would be a record for the IDB.

The President said that the crisis will affect Latin America because there will be less credit available for emerging economies and because the demand for commodities will continue to drop. He noted that the region’s strong banking regulations have helped limit the direct effects of the crisis, but that many international banks have reduced their presence and that it could negatively affect Latin American banks.

In terms of poverty, Mr. Moreno offered somber statistics. He said that based on the region’s experience in previous economic downturns, as many as 12.7 people could fall back below the poverty line. In order to avoid this possibility, Mr. Moreno said that the IDB had to be flexible to the countries’ needs. Since 2003 over 48 million people have been brought out of poverty, and in order to protect these gains it is important that countries provide the necessary social nets for their poorest citizens. He cited a recent $400 million loan for Mexico’s Oportunidades program as a good example of such a net. The program seeks to ensure educational funding for Mexico’s poorest children.

Finally, Mr. Moreno urged countries to continue to invest in infrastructure projects and to avoid protectionism. On infrastructure, he said that these projects would provide jobs and also lay the foundation for future growth. On protectionism he said that “it is important to have in mind that there is no proven alternative to trade and integration as a path to prosperity and poverty eradication.”

1) Mr. Moreno said that many countries in the region would not be able to pursue the same aggressive counter-cyclical strategies of rich nations because they do not have enough money. Will $6 billion in emergency funds be enough for the whole region? Will $18 billion be enough?
2) What reason would Latin American countries have for engaging in protectionism? Unlike larger industrial countries, it doesn’t seem that Latin American countries could provide for all of their needs without some type of trade.

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