kennedy school, harvard university 1 3 december, 2004 challenges facing latin america & the...

Kennedy School, Harvard UniversityKennedy School, Harvard University 113 December, 20043 December, 2004

Challenges Facing Latin America & the Caribbean

(LAC)

The Way We Work, The Work We Do

Inter-American Development Bank

Stephen Doherty

3 December, 20043 December, 2004 Kennedy School, Harvard UniversityKennedy School, Harvard University 22

Introduction (Personal)Introduction (Personal)

• Modernization of the State specialistModernization of the State specialist– State and Civil Society division (SC2)State and Civil Society division (SC2)– Regional Operations Department 2, - Central America, Regional Operations Department 2, - Central America,

Mexico, Panama, Dominican Republic & HaitiMexico, Panama, Dominican Republic & Haiti

• IDB 13 years, on education & governance (social / public sector IDB 13 years, on education & governance (social / public sector economist)economist)

• African Development Bank 4 yearsAfrican Development Bank 4 years

• Consultant in Not-for-Profit Management Training Company on Consultant in Not-for-Profit Management Training Company on Health Reform (UK) and Management Training (Ecuador)Health Reform (UK) and Management Training (Ecuador)

• Taught at the Project & Development Planning Center of the Taught at the Project & Development Planning Center of the University of Bradford in England for 6 yearsUniversity of Bradford in England for 6 years

• Tax Inspector in the UK Inland Revenue (*)Tax Inspector in the UK Inland Revenue (*)


Introduction (Personnel)Introduction (Personnel)

• The Board of Governors (unpaid, part time, in country)The Board of Governors (unpaid, part time, in country)• The Board of 14 Executive Directors (paid by IDB – full time)The Board of 14 Executive Directors (paid by IDB – full time)• President, 2 vice presidents, 1 Secretary, 1 Auditor 10 President, 2 vice presidents, 1 Secretary, 1 Auditor 10

managers & 100 Chiefs / advisors etcmanagers & 100 Chiefs / advisors etc• 29 country representatives (27 Borrowers + Paris & Tokyo)29 country representatives (27 Borrowers + Paris & Tokyo)• 1000 professional & 600 administrative staff (+ or - )1000 professional & 600 administrative staff (+ or - )

– Indefinite (finance, funds management, admin, Indefinite (finance, funds management, admin, operations)operations)

– Fixed term 1 to 5 years renewableFixed term 1 to 5 years renewable– Rotation for special technical skill, Research, Policies, Rotation for special technical skill, Research, Policies,

StrategiesStrategies• 500 long term consultants (+ or - )500 long term consultants (+ or - )• ??? ??? Short term consultants (experienced specialists)Short term consultants (experienced specialists)• ??? Internationally recognized figures Ministers/Professors??? Internationally recognized figures Ministers/Professors• Interns, studentships, Young Professionals, “secondees”Interns, studentships, Young Professionals, “secondees”


Introduction (Division SC2)Introduction (Division SC2)

• Access to JusticeAccess to Justice• Citizen SecurityCitizen Security• Development of Civil Society, Participation, Accountability, Development of Civil Society, Participation, Accountability,

Social Auditing, and Promotion of Democratic InstitutionsSocial Auditing, and Promotion of Democratic Institutions• Fiscal (budget) and Economic Management, Tax Reform, Fiscal (budget) and Economic Management, Tax Reform,

(Income, Sales, Customs and Land Taxes) Transparency and (Income, Sales, Customs and Land Taxes) Transparency and AccountabilityAccountability

In Region 2 other divisions work on:In Region 2 other divisions work on:

• Social Development (health, education)Social Development (health, education)

• Financial / banking, infrastructure, water, sanitationFinancial / banking, infrastructure, water, sanitation

• Environmental remediation & rural development (land titling)Environmental remediation & rural development (land titling)

• Disaster PreparednessDisaster Preparedness

• Municipal and Local DevelopmentMunicipal and Local Development


LAC – The BountyLAC – The Bounty

GEOGRAPHYGEOGRAPHY

• Land-locked countries 2, Africa 15Land-locked countries 2, Africa 15• Navigable rivers (compared with Africa) and coastsNavigable rivers (compared with Africa) and coasts• Varied relief & climate, even within countries - no Sahara Varied relief & climate, even within countries - no Sahara • LAC more urbanized (good for access to services but slums LAC more urbanized (good for access to services but slums

pose a challenge in the short run)pose a challenge in the short run)• Useful crops - cereals, sugar, soy, beef, fisheries, coffee, Useful crops - cereals, sugar, soy, beef, fisheries, coffee,

rubber, palm oil, plus genetic storehousesrubber, palm oil, plus genetic storehouses• Useful minerals, oil (Venezuela, Mexico, Ecuador, Colombia), Useful minerals, oil (Venezuela, Mexico, Ecuador, Colombia),

nickel, gold, silver, tin, coppernickel, gold, silver, tin, copper• Low population density Brazil/China, Argentina/India, Low population density Brazil/China, Argentina/India,

Bolivia/France GermanyBolivia/France Germany• Moderate population growth (1 – 2% pa)Moderate population growth (1 – 2% pa)• Stabilizing population - social services less of a burdenStabilizing population - social services less of a burden


LAC – The BountyLAC – The Bounty

History & CultureHistory & Culture

• No multinational wars, long indigenous histories, long period No multinational wars, long indigenous histories, long period of independence - Haiti 1804 many others around 1819of independence - Haiti 1804 many others around 1819

• Varied, relatively non-conflictive cultures, common religion Varied, relatively non-conflictive cultures, common religion coexisting with traditional beliefscoexisting with traditional beliefs

• Linguistic homogeneity: 2 languages give access to 90% of Linguistic homogeneity: 2 languages give access to 90% of populationpopulation

• Little ethnic competition for same resourcesLittle ethnic competition for same resources• Plentiful supply of labor, once based on immigrationPlentiful supply of labor, once based on immigration• Now high emigration but not a brain drain as in Africa / AsiaNow high emigration but not a brain drain as in Africa / Asia• Remittances >$32 billion per year back to LA Remittances >$32 billion per year back to LA • All countries in LAC except Haiti have elected governments All countries in LAC except Haiti have elected governments

following peaceful transitionfollowing peaceful transition


Social ProblemsSocial Problems

• Wealth very narrowly held - LA the most unequal continent in terms Wealth very narrowly held - LA the most unequal continent in terms of wealth, land and income distribution of wealth, land and income distribution ((UNDP’s UNDP’s 2004 Human 2004 Human Development ReportDevelopment Report, LAC has 6 out of 13 countires with the world’s , LAC has 6 out of 13 countires with the world’s most unequal distribution of income and consumption (Gini most unequal distribution of income and consumption (Gini coefficients over 0.55 + the 20/80 rulecoefficients over 0.55 + the 20/80 rule))

• 43% or 200 million poor & increasing (Uruguay 12% to Honduras 43% or 200 million poor & increasing (Uruguay 12% to Honduras 80%)80%)

• Half the poor of LAC live in Brazil (30%) & Mexico (43%)Half the poor of LAC live in Brazil (30%) & Mexico (43%)• Plentiful labor meant cheap labor, immigrants but also Plentiful labor meant cheap labor, immigrants but also encomiendasencomiendas, ,

indigenous people and slavesindigenous people and slaves– Less reason to develop, educate, train workers because they Less reason to develop, educate, train workers because they

were cheap and plentifulwere cheap and plentiful– Result - poor basic education, poor public healthResult - poor basic education, poor public health– Life is seen as cheapLife is seen as cheap

• LA is the most violent continent. Violence correlates with inequity LA is the most violent continent. Violence correlates with inequity rather than poverty rather than poverty per se per se (El Salvador Murder rate 110/100,000, US (El Salvador Murder rate 110/100,000, US 11, UK 1. Civil wars have claimed 200,000 in Guatemala, 70,000 in El 11, UK 1. Civil wars have claimed 200,000 in Guatemala, 70,000 in El Salvador, 45,000 in Nicaragua)Salvador, 45,000 in Nicaragua)


Economic ProblemsEconomic Problems

• Denied access to or afraid of free trade and adverse terms of Denied access to or afraid of free trade and adverse terms of trade in dealings with powerful economies BoP deficitstrade in dealings with powerful economies BoP deficits

• Leads to international borrowing and debtLeads to international borrowing and debt• Once a tendency to trade protectionism (protects powerful Once a tendency to trade protectionism (protects powerful

internal interests)internal interests)• Tendency for LA to seek less threatening but less beneficial Tendency for LA to seek less threatening but less beneficial

bilateral trade treaties in preference to free trade. (Trade bilateral trade treaties in preference to free trade. (Trade agreements reduce customs income by the way)agreements reduce customs income by the way)

• Tax sacrifices are lowest in the World, (Guatemala 12% of Tax sacrifices are lowest in the World, (Guatemala 12% of GDP) the poor can’t & the rich won’t pay (discretionary) GDP) the poor can’t & the rich won’t pay (discretionary)

• Ambitious & expanding social programs chronically under Ambitious & expanding social programs chronically under fundedfunded

• Requiring inflationary domestic debt, andRequiring inflationary domestic debt, and• Reinforcing the cycle of poor education and social services for Reinforcing the cycle of poor education and social services for

the poor while Universities are freethe poor while Universities are free


Problems & EffectsProblems & Effects

• Wealth often came from a narrow range of products – often a Wealth often came from a narrow range of products – often a single product – sometimes criminal – often foreign controlledsingle product – sometimes criminal – often foreign controlled

– Unstable in the economic sense – price / demand Unstable in the economic sense – price / demand fluctuations, booms and busts, “exit”fluctuations, booms and busts, “exit”

– Unstable in the political sense: control the product – Unstable in the political sense: control the product – control the county (class or clan struggle)control the county (class or clan struggle)

• Illegitimate economic activities: Crime (drugs) distorts the Illegitimate economic activities: Crime (drugs) distorts the economy, corrupts government, may make a pariah stateeconomy, corrupts government, may make a pariah state

• Bolivia / Colombia represent one extreme of political instability, Bolivia / Colombia represent one extreme of political instability, Paraguay & Guatemala (pre 1995) anotherParaguay & Guatemala (pre 1995) another

• Sometimes violence with stability, sometimes with instabilitySometimes violence with stability, sometimes with instability• Even Aid itself can be destabilizing where it is a high % of Even Aid itself can be destabilizing where it is a high % of

economic assets & where groups can struggle for controleconomic assets & where groups can struggle for control• Groups exist apart from the mainstream – indigenous zones, Groups exist apart from the mainstream – indigenous zones,

the informal economy etc not identifying with the nation – the informal economy etc not identifying with the nation – Mayans in Guatemala / ChiapasMayans in Guatemala / Chiapas


Problems & Effects Problems & Effects (Reading)(Reading)

1.1. Collier, Paul and Anke Hoeffler, ‘On economic causes of civil Collier, Paul and Anke Hoeffler, ‘On economic causes of civil war’, Oxford Economic Papers, Vol. 50 (4), pp. 563–573, war’, Oxford Economic Papers, Vol. 50 (4), pp. 563–573, 1998. 1998.

2.2. Collier, Paul, ‘Doing well out of war: an economic Collier, Paul, ‘Doing well out of war: an economic perspective’, in Greed and Grievance: Economic Agendas in perspective’, in Greed and Grievance: Economic Agendas in Civil Wars, ed. M. Berdal and D. Malone. Boulder, CO: Lynne Civil Wars, ed. M. Berdal and D. Malone. Boulder, CO: Lynne Rienner, 2000.Rienner, 2000.

These findings are surprising / undermine your preconceptions!These findings are surprising / undermine your preconceptions!


Political Problems/GovernancePolitical Problems/Governance

• Impressive constitutions butImpressive constitutions but• Administration of law serves the rich elite; access is restricted, Administration of law serves the rich elite; access is restricted,

cumbersome, expensive cumbersome, expensive • Politics serves the rich elite, non-representative, non Politics serves the rich elite, non-representative, non

participatory, non democratic, not accountable, non informativeparticipatory, non democratic, not accountable, non informative• Economic & fiscal management promotes rent seeking, Economic & fiscal management promotes rent seeking,

influence peddling & waste rather than social resultsinfluence peddling & waste rather than social results• Budgets / accounts / investment decisions not transparentBudgets / accounts / investment decisions not transparent• Patrimony neglectedPatrimony neglected• Government purchasing not systematic nor impartial Government purchasing not systematic nor impartial • Corruption widely accepted – impunity for the powerful (until Corruption widely accepted – impunity for the powerful (until

now! Nicaragua -1 president, Costa Rica 3 Presidents!!!)now! Nicaragua -1 president, Costa Rica 3 Presidents!!!)• Oversight (internal / external control) is weak Oversight (internal / external control) is weak • State – private sector “capture”State – private sector “capture”• Blurring of roles of Legislature, Judiciary & ExecutiveBlurring of roles of Legislature, Judiciary & Executive


Problems & EffectsProblems & Effects

• Into this instability slips (Chile, Argentina), slides (Honduras, Into this instability slips (Chile, Argentina), slides (Honduras, Haiti, Cuba, Nicaragua) or storms (Panama,El Salvador, Haiti, Cuba, Nicaragua) or storms (Panama,El Salvador, Guatemala, Grenada) foreign intervention, not always with Guatemala, Grenada) foreign intervention, not always with the best interests of the poor majority of Latin Americansthe best interests of the poor majority of Latin Americans

• Result has been Civil wars, coups, dictatorship & only recent Result has been Civil wars, coups, dictatorship & only recent

establishment of democratic transition from one government establishment of democratic transition from one government to anotherto another

• And wider neglect of the country itself, increasing And wider neglect of the country itself, increasing vulnerability to disaster, social fragmentation, economic vulnerability to disaster, social fragmentation, economic disruptiondisruption


Human Costs - Human Costs - The Case of LandThe Case of Land

• With opaque law & concentrated land holding, titling small With opaque law & concentrated land holding, titling small plots of the poor for example is not a priorityplots of the poor for example is not a priority

• Squatting tolerated in the absence of land reform and as a Squatting tolerated in the absence of land reform and as a social safety valve. e.g. “El Guasmo” Guayaquil, Ecuadorsocial safety valve. e.g. “El Guasmo” Guayaquil, Ecuador

• Land acquires value only for what it can produce BUT:Land acquires value only for what it can produce BUT:Without title land:Without title land:

can’t be sold to liberate its use or user, can’t be sold to liberate its use or user, can’t be offered as security for development loans can’t be offered as security for development loans can’t be taxed to create income for local governmentcan’t be taxed to create income for local government

• No incentive to maintain, protect – leading to environmental No incentive to maintain, protect – leading to environmental degradation & tragedies of Mitch, Gonaives (Haiti)degradation & tragedies of Mitch, Gonaives (Haiti)

3.3. de Soto, Hernando, “The Mystery of Capital: Why Capitalism de Soto, Hernando, “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere else” Basic Triumphs in the West and Fails Everywhere else” Basic Books, 2000Books, 2000


The Case of Land in HaitiThe Case of Land in Haiti

““ In In HaitiHaiti, the poorest nation in Latin America, the total assets of , the poorest nation in Latin America, the total assets of the poor are more than one hundred fifty times greater than all the poor are more than one hundred fifty times greater than all the foreign investment received since Haiti's independence the foreign investment received since Haiti's independence from France in 1804”from France in 1804”

““ But they hold these resources in defective forms: houses built But they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. located where financiers and investors cannot see them. Because the rights to these possessions are not adequately Because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow local circles where people cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment”loan, and cannot be used as a share against an investment”

De SotoDe Soto

http://www.ild.org.pe/posters/diagnoses_en.htm#a


A Human View of DevelopmentA Human View of Development

4. 4. Sen, Armatya, “Development as Freedom” Knopf, 1999Sen, Armatya, “Development as Freedom” Knopf, 1999

“Freedom, is at once the ultimate goal of economic life and the most efficient means of realizing general welfare. It is a good to be enjoyed by the world's entire population”

• A move away from the idea of investment-led growth and trickle down to the idea of direct intervention at the point of the problem. We can’t wait for societies to be rich before they become democratic, free, educated, healthy etc

• With this view of Latin America our mix of priorities has a

clearer core

• How to incorporate vague concepts into operations?


Problems to Projects Problems to Projects - Our Work- Our Work

• IDB more like a mutual aid society / credit union. 47 owners 26 of IDB more like a mutual aid society / credit union. 47 owners 26 of whom are borrowerswhom are borrowers

• Owners ( regional & non- regional) meet at an AGM raise concerns in Owners ( regional & non- regional) meet at an AGM raise concerns in seminars prepared by leading world figures seminars prepared by leading world figures

• From concerns arise mandatesFrom concerns arise mandates• Management (Washington) develop mandates Management (Washington) develop mandates (through research, (through research,

studies, workshops, presentations, consultation,studies, workshops, presentations, consultation, leading figures, leading figures, experts, staffexperts, staff) into… ) into…

• SSector strategiesector strategies ** by IDB’s Central Divisions to underpin… ** by IDB’s Central Divisions to underpin…• Country assistanceCountry assistance strategies and… strategies and…• Studies, investment projects and grants by the operations by the Studies, investment projects and grants by the operations by the

operational departments, prepared by…operational departments, prepared by…• Me and about 150 colleagues, Governments, IDB Country Office Staff Me and about 150 colleagues, Governments, IDB Country Office Staff

and hundreds of technical consultants, to be…and hundreds of technical consultants, to be…• Executed by the GovernmentsExecuted by the Governments• Supervised by IDB Country Offices & Evaluated by OVESupervised by IDB Country Offices & Evaluated by OVE


1 Sector Strategies **1 Sector Strategies **

• Economic growth and stability through fiscal managementEconomic growth and stability through fiscal management• Economic integrationEconomic integration• Expand social welfare and equityExpand social welfare and equity• Increase education coverageIncrease education coverage• Promote equity for women and girlsPromote equity for women and girls• Protect the natural environmentProtect the natural environment• Promote democracyPromote democracy• Promote social inclusion of indigenous people and Afro-Latin Promote social inclusion of indigenous people and Afro-Latin

communitiescommunities• Promote transparency and reduce corruptionPromote transparency and reduce corruption• Participation in governanceParticipation in governance• Diminish violenceDiminish violence• Measure impact & development effectivenessMeasure impact & development effectiveness • New focus on ethics New focus on ethics


2 Country Programs2 Country Programs

From a country strategy to influence & effectiveness:From a country strategy to influence & effectiveness:• Action planAction plan• Technical Cooperation Grant PipelineTechnical Cooperation Grant Pipeline• Studies both routine (Country Financial Accountability Studies both routine (Country Financial Accountability

Assessment & Procurement Report) & specialAssessment & Procurement Report) & special• Lending programLending program Loans of many types & purposeLoans of many types & purpose• Investment, (defined outputs and defined budgeted inputs) (Both Investment, (defined outputs and defined budgeted inputs) (Both

soft/concessional & ordinary )soft/concessional & ordinary )• Institutional Support, (expected results in terms of institutional Institutional Support, (expected results in terms of institutional

performance, and flexibly defined actions)performance, and flexibly defined actions)• Policy Based, (agreements to take action and loans to spend as Policy Based, (agreements to take action and loans to spend as

country pleases in exchange)country pleases in exchange)• Sectoral (modality approved November) (common funds go into Sectoral (modality approved November) (common funds go into

the budget in support of broad targets)the budget in support of broad targets)


3 Projects3 Projects

Project cycle Project cycle (And your chance to participate)(And your chance to participate)

• Identify need, agree scope, agree dimensions of results. Identify need, agree scope, agree dimensions of results. (Staff & (Staff & Consultants)Consultants)

• Assess costs, feasibility of alternatives, action plan, budget, Assess costs, feasibility of alternatives, action plan, budget, review lesson learned review lesson learned (Staff & specialist consultants)(Staff & specialist consultants)

• Approve (Board of Executive Directors / President)Approve (Board of Executive Directors / President)

• Execute, monitor (3 to 5 years) (the Government & Execute, monitor (3 to 5 years) (the Government & IDB Country IDB Country Office, both with contracted consultantsOffice, both with contracted consultants))

• Evaluate impact – lessons learntEvaluate impact – lessons learnt ( (Office of Evaluation & Office of Evaluation & OversightOversight))


4 Country Strategies / Projects4 Country Strategies / Projects

An exceptional approach – response to crisis / concurrent workAn exceptional approach – response to crisis / concurrent work

• November 1998: Hurricane Mitch killed about 11,000 people November 1998: Hurricane Mitch killed about 11,000 people and destroyed Central America’s agricultureand destroyed Central America’s agriculture

• It destroyed houses of the poor who squatted by the rivers It destroyed houses of the poor who squatted by the rivers because all the good land had been taken to grow….Bananasbecause all the good land had been taken to grow….Bananas

• It destroyed schools, water supply, health services, jobs, the It destroyed schools, water supply, health services, jobs, the transport system, agricultural productiontransport system, agricultural production

Immediate need housing, water, food, servicesImmediate need housing, water, food, services

• Huge inflow of aidHuge inflow of aid

• Medium term need, reconstruct lost clinics, homes, schools, Medium term need, reconstruct lost clinics, homes, schools, roads (Investment projects)roads (Investment projects)

• BUT…. Reconstructing the same? Or incorporating mitigation BUT…. Reconstructing the same? Or incorporating mitigation measures? (Technical Cooperation)measures? (Technical Cooperation)


5 Project Development5 Project Development

• Longer term review planning, land use & economic Longer term review planning, land use & economic management to prevent such a storm being a disaster again. management to prevent such a storm being a disaster again. (Technical Advice)(Technical Advice)

• But could Honduras manage this?But could Honduras manage this?

• Could Honduras also manage the huge influx of promised aid?Could Honduras also manage the huge influx of promised aid?

• The Country Financial Accountability Assessment and The Country Financial Accountability Assessment and Procurement both indicated NOProcurement both indicated NO


6 Problem Definition 6 Problem Definition CFAA/CPRCFAA/CPR

• Poor accounting for funds, vague recordsPoor accounting for funds, vague records

• Huge & growing debt at varied terms, internal & external, huge debt Huge & growing debt at varied terms, internal & external, huge debt servicingservicing

• Idle assets due to poor cash management, yet…Idle assets due to poor cash management, yet…

• Weak tax & customs revenue - fiscal deficitsWeak tax & customs revenue - fiscal deficits

• Couldn’t relate spending to needs & priorities / No idea of needs, Couldn’t relate spending to needs & priorities / No idea of needs, value for money from government spending etcvalue for money from government spending etc

• Little participation in formulation or monitoring of BudgetLittle participation in formulation or monitoring of Budget

• Weak and corrupt procurementWeak and corrupt procurement

• High levels of discretion in all aspects of public sector management, High levels of discretion in all aspects of public sector management, weak legal framework, lack of financial management skills, corruption weak legal framework, lack of financial management skills, corruption (low TI rankings)(low TI rankings)

• Weak control, audit & poor public / political accountabilityWeak control, audit & poor public / political accountability

• Poor economic performance, inflation, slow growth, Poor economic performance, inflation, slow growth,


7 Problem Inversion - Goals7 Problem Inversion - Goals

• PROCESS:PROCESS:

• CFAA, CPR & Tax studies supplement diagnosis in Fiscal AreaCFAA, CPR & Tax studies supplement diagnosis in Fiscal Area

• OBJECTIVES:OBJECTIVES:

• New accounting standards, laws, manuals, and Integrated New accounting standards, laws, manuals, and Integrated financial management system financial management system

• Better budget preparation and planningBetter budget preparation and planning

• Better debt & cash, law, contracting, repayment etcBetter debt & cash, law, contracting, repayment etc

• Methods and Laws to increase tax & customs revenueMethods and Laws to increase tax & customs revenue

• Monitoring system to link spending to needs & prioritiesMonitoring system to link spending to needs & priorities

• Improved public accountability, reduced discretion, stronger Improved public accountability, reduced discretion, stronger legal framework, financial management / procurement skills, legal framework, financial management / procurement skills, ethics codeethics code

• Link budget to banking and interest rate policyLink budget to banking and interest rate policy


8 Project Approval & Execution8 Project Approval & Execution

PROCESS:PROCESS:

• Dimensions of problem, costs of solution & project studiesDimensions of problem, costs of solution & project studies

RESULTS IDB APPROVES:RESULTS IDB APPROVES:

• $14 m Procurement project with $8 funds from USA, Canada, $14 m Procurement project with $8 funds from USA, Canada, Sweden, Spain & UK, 2003Sweden, Spain & UK, 2003

• $15 m Fiscal Modernization Project to improve revenue collection $15 m Fiscal Modernization Project to improve revenue collection and public spending in Honduras (2004) with $3 million grant from and public spending in Honduras (2004) with $3 million grant from SwedenSweden

• World Bank approves technical assistance soft credit to improve World Bank approves technical assistance soft credit to improve poverty targeting and expenditure trackingpoverty targeting and expenditure tracking

Related actions:Related actions:

• IDB approves $22m project to support municipal reforms (nov 2004)IDB approves $22m project to support municipal reforms (nov 2004)

• Prepares policy based loan to improve fiscal / tax laws (2005)Prepares policy based loan to improve fiscal / tax laws (2005)


Other OperationsOther Operations

• For the period 2003 to 2005, the IDB is expected to lend about For the period 2003 to 2005, the IDB is expected to lend about $5.7 billion for projects for reform and modernization of the state $5.7 billion for projects for reform and modernization of the state of which Honduras is but one exampleof which Honduras is but one example

But some examples of impact from personal experienceBut some examples of impact from personal experience

• Panama: floating debt reduced by $450 million by improving Panama: floating debt reduced by $450 million by improving treasury and municipal tax increased by $25 simply be revaluing treasury and municipal tax increased by $25 simply be revaluing smallholdings now a mall (2001)smallholdings now a mall (2001)

• Nicaragua: Private Debt reduced by buy-back program (1996). Tax Nicaragua: Private Debt reduced by buy-back program (1996). Tax revenues and equity increased in through new tax laws and codes revenues and equity increased in through new tax laws and codes (2003)(2003)

• Mexico: Quality & coverage of schooling increased for 1.2m poor, Mexico: Quality & coverage of schooling increased for 1.2m poor, rural & indigenous children (1997)rural & indigenous children (1997)

• Haiti presented its first budget for 7 years, on time as a result of a Haiti presented its first budget for 7 years, on time as a result of a policy based loan (2003)policy based loan (2003)


A Word of CautionA Word of Caution

• By 1900 Argentina was among the richest countries By 1900 Argentina was among the richest countries • Uruguay had a model welfare state observed by Uruguay had a model welfare state observed by

Germany and the UKGermany and the UK• Around 1900, LA was tied in the world economy – Around 1900, LA was tied in the world economy –

classic age of imperialismclassic age of imperialism – free trade, labor & – free trade, labor & capital flowscapital flows

• China was mainly of economic significance as a China was mainly of economic significance as a market not a producer and major creditormarket not a producer and major creditor

• India was a colony, now a technology powerhouseIndia was a colony, now a technology powerhouse

Progress for LA is not guaranteed nor Progress for LA is not guaranteed nor irreversible. Competition will be intense in irreversible. Competition will be intense in the next centurythe next century


Thank You & Follow upThank You & Follow up

• Browse the website Browse the website www.iadb.orgwww.iadb.org

• For a copy of this presentation send an email to:For a copy of this presentation send an email to:

[email protected]@iadb.org

or or

[email protected]@iadb.org

• Any questionsAny questions

mailto:[email protected]



kennedy school, harvard university 1 3 december, 2004 challenges facing latin america & the...

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