Private Sector a Priority for Inter-American Bank, Says U.S.

Recommends a focus on small businesses, trade, debt relief

The challenge facing the region's governments and the Inter-American Development Bank (IDB) is ensuring Latin America's poor have access to opportunities afforded by a successful private sector, says Clay Lowery, the U.S. Treasury Department's assistant secretary for international affairs.

This is essential, he said, because the growing gap between those who benefit from economic growth in Latin America and those who are left behind produces polarized societies.

In April 3 remarks at the Second Plenary Session of the IDB annual meeting in Belo Horizonte, Brazil, Lowery explained that Latin America's poor are being left out of the region's economic growth.

"New market opportunities do not raise living standards for people who are cut off from markets," he said. "We must redouble our cooperative efforts in this region to give the poor the tools to seize opportunity."

As part of this effort, Lowery said, the IDB must engage the region's private sector.

"The private sector is the engine of output, jobs and growth," he observed. "Our challenge is to find effective ways to ensure that the poor have full access to all of the opportunities afforded by a thriving private sector to improve their living standards."

Lowery applauded the agreement reached at the IDB annual meeting to expand the institution's private-sector mandate, and he indicated that the United States welcomes a comprehensive private-sector engagement plan. He cited research that indicates 90 percent of job creation in the region is through micro-, small and medium-sized enterprises, and said that these enterprises should be a "central priority" for the IDB.

Increased trade, Lowery said, also would increase economic opportunities in the region. He added that the United States will continue to pursue bilateral agreements while also working to advance World Trade Organization talks, and he called on the IDB to increase Latin America's trade capacity through technical assistance.

Lowery said the IDB also should play a part in easing the debt burden of Latin America's poorest countries, allowing those nations to invest in health care and education. To this end, he hailed the IDB's appointment of a special committee to develop a proposal for debt relief. The United States will work with the committee to craft a proposal by the end of the year, Lowery said.

The full text of Lowery's statement on debt relief is available on the Treasury Department Web site.

Following is the text of Lowery's remarks in Belo Horizonte, as prepared for delivery:

U.S. Department of the Treasury
Press Room
April 3, 2006

ADDRESS BY THE TEMPORARY ALTERNATE GOVERNOR FOR THE UNITED STATES OF AMERICA, SECOND PLENARY SESSION OF THE ANNUAL INTER-AMERICAN DEVELOPMENT BANK MEETING

U.S. TREASURY ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS CLAY LOWERY
BELO HORIZONTE, BRAZIL

On behalf of President Bush and Secretary Snow, I would like to thank the people of Brazil for hosting the Governors of the Inter-American Development Bank. Brazil is an auspicious setting for the first Annual Meeting of the Bank under President Moreno. It demonstrates the benefits that come from strong economic policies.

Continued Growth in the Region

Good economic policies in much of the region have permitted countries to take advantage of the strong global economy and pursue export-led growth. And, in contrast to experience in previous expansions, countries are maintaining the fiscal discipline needed to reduce debt ratios, as well as keep inflation on a downward track. Finance ministries in a number of countries are restructuring their debt profiles to reduce foreign exchange linkages and develop local debt instruments, in some cases with long maturities. All of this is reducing vulnerability to external shocks, but it is critical to lock in fiscal and monetary discipline to protect these hard won gains.

Yet many of the poor in the region are left behind and out of this progress. The widening gap between those who benefit from growth and those who do not polarizes societies. New market opportunities do not raise living standards for people who are cut off from markets. We must redouble our cooperative efforts in this region to give the poor the tools to seize opportunity: access to education and financing, infrastructure links to markets, reductions in barriers to starting and growing a business, and the capacity to enforce contracts and protect property. This institution must play a central role in these efforts, concentrating on those areas where it can produce the largest gains.

Challenges Facing the Bank

The new presidency at the Bank offers an opportunity to reflect on the challenges and opportunities the institution faces. Tighter fiscal policies and rising national incomes have reduced demand for the Bank's traditional financing and so the volume of lending has been falling. To the degree that this reflects better economic conditions it is no bad thing. But it also raises the question: How does the Bank remain relevant to the region?

The answer is not simply to increase the volume of loans back to its historical level - quantity is not the answer. What matters is quality - assistance that delivers real and relevant results for people. As President Moreno has frequently said, the private sector is the number one priority for the IDB. The private sector is the engine of output, jobs and growth. Our challenge is to find effective ways to ensure that the poor have full access to all of the opportunities afforded by a thriving private sector to improve their living standards.

We are very pleased that agreement was reached here in Belo on the proposal to expand lending to non-sovereign guaranteed entities and expand the bank's private-sector mandate. We fully appreciate the efforts of everyone to reach this positive outcome. I also welcome management's commitment to propose a comprehensive plan to improve the effectiveness and coordination of the IDB's private sector windows. This is absolutely critical if the Bank is to remain relevant to the region and we look forward to working with management and other shareholders on this essential task over the coming months.

We continue to believe that a focus on small and medium enterprises (SMEs) should be a central priority for the IDB Group. There is research that suggests that up to ninety percent of job creation in the region is through micro, small, and medium enterprises. Our hemisphere's leaders endorsed this approach at the 2004 Summit of the Americas by calling on the IDB to focus on expanding bank lending to small businesses.

Enterprises need infrastructure and the poor need access to markets. President Bush proposed last year an innovative fund - the Infrastructure Facility of the Americas - to catalyze private investment for infrastructure by reducing private investors' search cost for good projects in the region. The just-approved InfraFund initiative incorporates this concept as one of its components. We look forward to working with Bank staff to successfully implement the IFA and to a subsequent stream of private investment.

Increasing trade must also be a component of any strategy to increase the economic opportunities available to the region. The United States will continue to work for bilateral agreements as well as the successful conclusion of the Doha round of negotiations. The Bank plays a vital role by increasing trade capacity through technical assistance to lower regulatory and institutional barriers to trade.

Finally, it is also important that the Bank focus on the poorest countries in the region. The United States recently pushed for and secured agreement on a landmark debt relief initiative calling for 100-percent cancellation of the region's poorest countries obligations to the World Bank, the IMF, and the African Development Bank. We believe that the IDB should play its part easing the debt burden on the poorest countries, expanding the resources they have available to invest in health and education, and increasing the effectiveness of the FSO.

We are very encouraged by the decision of the Board of Governors to establish a special Governors committee to develop a proposal for debt relief and reform of the FSO. We look forward to the work of this committee, with the goal of bringing forward a proposal for Governors' consideration by the end of the year.

Poverty exacts an intolerable human toll. The poor in this region are sending a message to the governments and leaders of this region, including the United States and to the IDB. It is an urgent message and one that deserves a rapid, serious, and effective response. We need to spread opportunity to reap the benefits of private sector led growth to those left out and left behind. Together with President Moreno and all the bank's shareholders, we look forward to our revitalized efforts to realize this vision for all of the hemisphere's citizens, but especially for the poorest among them.

Thank you very much.

Source: U.S. Department of State

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