INTERVIEW: LatAm needs to save lives but also livelihoods, IDB's Moreno

INTERVIEW: LatAm needs to save lives but also livelihoods, IDB's Moreno

Corporate & Sovereign Strategy Economy & Policy Funds People Interviews Latin America Coronavirus Video

LatinFinance spoke with Inter-American Development Bank President, Luis Alberto Moreno, on Monday April 27, 2020 in a wide-ranging discussion about the bank’s response to the COVID-19 pandemic and its approach to helping finance both near-term support and long-term recovery in the region. The pandemic has yet to reach its peak in the Latin America and Caribbean region. To listen to the full interview, click here or on the link at the bottom of the story.

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At the tail end of a 15-year tenure as head of the Inter-American Development Bank, Luis Alberto Moreno’s says he’s working 24/7 on the COVID-19 crisis and will likely remain that way until his successor is chosen in the fall.

A return to his native Colombia for a second annual meeting of the bank was postponed from March until September because of the rapid spread of the disease. The first time around he was able to show off a rebirth of sorts for Medellin which worked to shed its drug cartel reputation for one focused on economic innovation and growth.

The IDB, according to Moreno is going to increase total loan disbursements for member country governments by 50% this year to roughly $15 billion from $10 billion in normal times.

“These are unprecedented times and we’ve acted accordingly,” Moreno said in a telephone interview from his home nearby the bank’s Washington, DC headquarters.

“But we will be equally doing a lot more with our private sector IDB Invest. We will be doing close to $7 billion,” Moreno said.

Indeed, on Sunday the IDB teamed up with the Mexican Business Council, or CMN, to provide up to $12 billion in loans a year to small and medium-sized businesses in an effort to underpin their operations as they cope with the pandemic’s economic turmoil.

The majority of the money spread around the region will focus on “not only saving lives, but also livelihoods,” he said, meaning the focus of the cash is to bolster the social safety nets and basic incomes, especially for the informal workforce, through support for small businesses.


"As a result of the crisis, many of the traditional financial institutions that provide trade lines and because of the cascade of downgrades that you see, immediately they will try to cut many of these trade lines. So this is the space that we are trying to eventually to replace" - Luis Alberto Moreno, President, IDB

Latin American and the Caribbean region (LAC) is expected to suffer a 5.2% economic contraction this year before recovering with 3.4% growth in 2021, according to the latest World Economic Outlook report from the International Monetary Fund and World Bank.

Part of the effort to keep the economy’s from sinking any deeper is to use the bank’s resources to preserve value chains in the context of trade finance.

The World Trade Organization forecasts global trade cold shrink between 13% and 32% in a worst case scenario this year.

“As a result of the crisis, many of the traditional financial institutions that provide trade lines and because of the cascade of downgrades that you see, immediately they will try to cut many of these trade lines. So this is the space that we are trying to eventually to replace,” he said of the role he wants the bank to play in keeping trade flowing to the region.

What the IDB cannot do is fill in for the massive capital flight from the region. Overall, emerging markets have suffered an estimated $100 billion in capital flight just the last few weeks, according to the International Monetary Fund. This has contributed to a steady and steep depreciation in the region’s currencies, one that is ratcheting up even more pressure on governments in need of cash.

“No we cannot fill that gap. We have never been that kind of institution to fill those kinds of gaps. I think it is critical that countries continue to tap the market, can continue to use their own internal markets,” he said, adding: “this is a situation where you need all hands on deck. No one institution can solve it.”

When countries or companies do come back to the market en masse, Moreno is hopeful that climate change will resonate more, pointing out that the LAC region is home to 40% of the world’s biodiversity. The bank does about 30% percent of its lending for green finance initiatives.

On April 21, the IDB issued its largest ever public bond, a new $4.25 billion three year sustainable development bond to serve as a global benchmark. 

"What are countries looking for? They are looking for liquidity.... And equally they are asking for knowledge." - Luis Alberto Moreno, President, IDB

But with all the extra lending it is doing in the crisis currently, Moreno is not pushing to ask member states for capital injections.

“We are not in that position right now. We are doing the best with using the most efficient way our balance sheet,” he said.

Rather, he is concentrating on partnerships with development agencies such as JBIC (Japan Bank for International Cooperation), AFD (Agence Francaise de Developpement), and the DFC (US International Development Finance Corporation).

COVID-19 PROBLEMS

Moreno said the problem with this pathogen is knowing just how fast it can spread and what is the smartest response to the evidence of its ability to move from person to person.

“Some countries that were able to, like Chile, to start very early and increase the amount of testing. The same has been done by say Uruguay or Panama, and more recently Peru,” Moreno said.

High population density in most LAC nation’s main cities, combined with already weak and fragile health systems mean handling the pandemic is likely going to be a brew for high contamination and death rates. And while nation’s have moved to lockdown their populations, some leaders have drawn criticism for not moving swiftly or deliberately enough to enforce social distancing measures.

“There’s federal government’s like those in Mexico, in Brazil, and in Argentina, where you have seen governors and mayors in some of those countries begin to do lockdowns even before their national governments,” he said, adding that it wasn’t unique to the region, pointing out similar situations in the United States.

“The unique case of our hemisphere is that people need to go out and work. It is hard to have people confined where there are very small places to live in. This has been a major challenge,” Moreno said.

While multilateral lending institutions have stepped up with aid, and the IDB being no different, Moreno pointed out that there was more than just money being sought.

“What are countries looking for? They are looking for liquidity. They are looking for investments in the areas I just mentioned, around helping to protect lives and livelihoods through investments in the sanitary systems plus social safety nets and keeping jobs. And equally they are asking for knowledge.”

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djbases · Interview - LatinFinance Connect - Luis Alberto Moreno - President, IADB