In a surprise move Tuesday, the US Treasury announced its intention to nominate Mauricio Claver-Carone to the presidency of the Inter-American Development Bank (IDB), a role traditionally held by a citizen of a borrowing member country from the region. Shortly thereafter, the nomination was endorsed by Brazil, Colombia, and Ecuador. If all voted according to their public statements (the vote is secret), the US nominee already has at least 45 percent of the vote in the bag ahead of the election scheduled for September 2020. Other sources reported that El Salvador and Paraguay have also backed the US candidate. The only other candidate announced formally is Gustavo Béliz of Argentina, supported by his own country and Mexico so far.
It is a critical time for the region. Even before the COVID-19 pandemic, several countries—Argentina, Ecuador, and Venezuela—were already immersed in a profound economic, fiscal, and social crisis. External factors had been contributing to a decline in regional growth as well—falling prices of major commodity exports and dollar appreciation in the context of large (and increasing) dollar-denominated external debt were already slowing growth. And Latin America is the developing region with the lowest domestic savings ratios and very low and decreasing total factor productivity, so, with only a few exceptions, long-term growth rates have been low, and well below other regions, such as East and South Asia. Although the region made notable progress in poverty reduction during the “commodity boom” period, public spending and critical structural reforms in social sectors like health and education lagged, and gains from growth were not shared among the broad base of the population. Informality is overwhelming in some countries, affecting government revenues and regulatory capacity. Latin America is now the most unequal region in terms of income distribution and is home to eight of the world’s 20 most economically unequal countries.
Latin America is now the most unequal region in terms of income distribution.
When COVID-19 hit, neither health nor social protection systems were up to the task. Brazil, Mexico, and Peru are now home to the most COVID-19 deaths and cases per capita in the world. The Economic Commission for Latin America and the Caribbean estimates that nearly 29 million people will fall back into poverty, and the numbers of extreme poor will grow from 16 to 83 million. The region also faces a migration crisis in Central America and from Venezuela, and border control restrictions in the US and regional receiving countries have led to greater use of irregular routes and, in some places, a humanitarian and rights disaster. A financial crisis may also be looming.
By rejecting the convention of a Latin American heading the IDB, the Claver-Carone nomination could be interpreted as supporting an end to the “gentleman’s agreement” that has governed the non-meritocratic election processes at the multilateral development banks since the 1960s—an American at the World Bank, a European at the IMF, a Japanese at the ADB, and a Latin American and African at their respective institutions. In fact, the rules of the IDB, like those of the World Bank, allow for any member country to nominate a candidate. Yet, the Trump administration’s rejection of convention and embrace of meritocracy across the multilateral development banks would be more plausible if it had started at the World Bank last year, or if Claver-Carone’s candidacy had not been met with suspiciously quick support from many countries in the region, well before a strong field of candidates could emerge officially. Other names that had been informally floated included Laura Chinchilla, a former president of Costa Rica, who merited a chance to compete.
More importantly, the IDB’s track record of presidents from the region does not fall squarely into the same outdated category as the American presidency at the World Bank or Japanese presidency at the ADB. Nationalities have varied across IDB presidencies and the tradition of a president from the region reflects a uniquely compelling characteristic of the institution—it is the only multilateral development bank where the borrowing member countries hold the majority of shares and voting rights. This is one reason why the presidency is usually held by a national of the region and cannot be imposed by the US despite its ownership of 30 percent of the shares and voting rights. The vote is decided with a simple majority win and at least 15 borrowing member countries in support.
The countries out in support of Claver-Carone so far have their own asks, of course—Colombia asks for a capital increase, Ecuador asks for attention to social issues, Brazil asks for the executive vice president role. Every country needs urgent economic relief given the COVID-19 crisis and believes that the US will deliver for them. But the US should be clear and supporting countries should demand clear answers on the record: what is the US offering to the region in exchange for a change in the rules of the game? How should we assess the winner’s relative merits and performance going forward? And how will the consequential US presidential election just two months later affect the organization? Watch this space.