Civil society organizations challenge IDB commitments to development results and sustainability

30 June 2009

As member countries assess the 9th replenishment proposal advanced by the Inter-American Development Bank (IDB) on July 2 in Santiago, Chile, eight civil society organizations submitted recommendations on leadership steps the IDB should take in several critical areas before qualifying for any capital increase. These recommendations focus on two core areas of the IDB’s comparative advantage as a development bank in Latin America, Sustainability and Management for Development Results.

The Inter-American Development Bank (IDB) is preparing a $100-200 billion capital increase proposal, and along with it, a new institutional strategy to justify what will amount to a doubling or tripling of current Bank capital. As member countries assess the 9th replenishment proposal advanced by the IDB on July 2 in Santiago, Chile, nine civil society organizations submitted recommendations on leadership steps the IDB should take in several critical areas before qualifying for any capital increase. These recommendations focus on two core areas of the IDB’s comparative advantage as a development bank in Latin America, Sustainability and Management for Development Results.  The proposal is based on a series of conversations with Bank management and Directors, in addition to relevant research. The civil society proposal encourages Member Countries to ask the IDB to demonstrate improved performance in advance of the requested 9th capital increase.

Amazon Watch and Bank Information Center Press Release:

Read the correspondence: 

Civil society organizations (CSOs) concerned with IDB accountability, participation and transparency should contact their executive directors and relevant legislative representatives (PDF, 98KB) to request more information about the capital replenishment process.  Because each member country will have to pay for the capital increase, public participation is required in this unprecedented endowment of the IDB without the apparent systemic reform of the Bank's role in contributing to persistent poverty, inequality and environmental vulnerability in Latin America.

A recent response by Colombian Treasury Minister, Oscar Zuluaga Escobar to Senator Jorge Enrique Robledo Castillo's request for information regardng IDB Capital Increase process (June 3, 2009) reflects the IDB's reluctance to inform the public about sweeping decision making processes that are moving quickly at the Bank with little oversight.

Stress Tests as a Prerequisite for any Global Capital Increase

The U.S. Treasury recently outlined the Geithner principles (first stated at the IDB Annual Meeting of Governors in Medellin in March, 2009) as a mechanism for qualifying U.S. support for the five simultaneous capital increase proposals by public development banks. Treasury is preparing an application of these principles to each of the multilateral development banks (MDBs) that are reviewing Global Capital Increase (GCI) proposals. Of the five MDBs evaluated by the U.S. Treasury, the IDB ranks near the bottom in almost every category.

for a U.S. Treasury presentation of the Geithner principles, see:

Development results, rather than effort, distinguish the IDB from a commercial bank. However, the IDB lacks a system for results management that values evidence (PDF, 78KB), which impairs the necessary functional shift from project finance toward knowledge transfer. The IDB-8 Agreement called for “systematic assessment of the effectiveness of Bank development policies, of the results of Bank financed activities, and related processes” (AB-1704, Pgh 2.100). Despite other recent mandates to enhance its development effectiveness systems, the IDB continues to emphasize the volume and speed of annual lending over quality.

Read Civil Society's Issue Brief about how the IDB can manage for development results:

Despite a half century of development lending and an unprecedented capital replenishment in 1994 that was contingent upon catalyzing a lasting decline in poverty and inequality, the IDB has been unable to achieve these milestones.  Although the number of poor has grown more slowly than the total population, today there are more than twice as many people living in poverty than 50 years ago. Poverty and inequality are scourges that afflict more than 200 million people in the region, and children, women, and the elderly continue to be the most vulnerable (Address by Noel Aguirre Ledezma, Minister of Planning and Bolivian Governor to the IDB Annual Board of Governor’s Meeting in Medellin, Colombia, March 30, 2009).  

IDB performance in other IDB-8 mandates, such as regional integration, has been equally disappointing. Nearly a decade of support for two regional infrastructure initiatives (IIRSA and Plan Puebla Panama, PPP) have produced little in terms of deep economic integration and regional competitiveness, while triggering intensified land invasions, unsustainable land use, steady biodiversity loss, conflict and deforestation (PDF, 46 KB).  The IDB lacks adequate sustainability criteria for ranking IIRSA infrastructure projects and is therefore contributing to these risks (IDB-OVE IIRSA Evaluation, Op Cit). The Bank is providing almost no relevant sector analysis or capacity building to key institutions at the forefront of Amazon development policy. 

Despite some advances in mainstreaming environmental and social sustainability, its comparative advantage as a “green” bank in Latin America remains to be seen.  The IDB’s capacity to provide high quality advisory services on the key challenges to sustainability has been hampered by institutional design, resource and leadership commitments.  Recent initiatives on climate and sustainable energy have been at the margins of is core business, while poorly planned infrastructure and extractive sector investments have exacerbated land use contributions to GHG emissions. 

Read Civil Society's Issue Brief about how the IDB can improve its work on climate and sustainable energy:

The civil society proposal summary reads as follows:

Threshold Issues

• IDB Governance: The IDB remains a relatively closed institution, despite performance questions that demand greater openness.  The current IDB management is failing systematically to consider the views of many within and outside the Bank on the terms of a global capital increase.  This most recent evidence of an insulated and unaccountable style of governance damages the IDB’s reputation, it will diminish the effective management of financial resources, and perpetuates a decline in institutional leadership in key development debates. A formal mechanism that informs and involves civil society more systematically in the GCI should be activated immediately to provide greater transparency, participation and accountability in the GCI process. 
• Reaching the Poorest: The IDB lacks an adequate poverty reduction strategy.  Bias toward middle income country lending, poor data, and an inability to reduce inequality in the region have diminished the Bank’s effectiveness in its core mission. The recently announced temporary 39% increase in concessional lending is a positive first step. However, the IDB should go farther to eliminate blending, offer wider eligibility to emergency lending, and permit reprogramming of approved, undisbursed loans for dealing with the short-term liquidity crisis.  In the long-term, reaching the poorest will depend on better analysis and bold leadership in tackling Latin America’s inequality as vital departures from recent trends.  Poverty and inequality additionality criteria should be strengthened for private sector lending.

Top Recommendations

• Managing for Development Results: The IDB lacks an adequate system for evidence-based results management.  The corporate performance indicators for the 8th replenishment and subsequent operations indicators were neither sufficiently rigorous nor matched by information systems that now permit a satisfactory accounting of IDB effort or achievement of results. A full, independent performance review that assesses compliance with the 1994 replenishment conditions and encompasses the 2007 institutional realignment is a pre-requisite to an overhaul of the IDB's results delivery system. Reforms should include identification of meaningful corporate performance indicators, reorganization and strengthening of the internal and external performance evaluation function, which should extend to the allocation of greater funding and setting more ambitious evaluation targets.
• IDB and Sustainability: Climate-Energy-Forests:  Despite some advances in mainstreaming environmental and social sustainability, its comparative advantage as a “green” bank in Latin America remains to be seen.  The IDB’s capacity to provide high quality advisory services on the key challenges to sustainability have been hampered by institutional design, resource and leadership commitments. Recent initiatives on climate and sustainable energy have been at the margins of is core business, while poorly planned infrastructure and extractive sector investments have exacerbated land use contributions to GHG emissions.   Given the IDB’s plans to increase lending to infrastructure, the Environment Policy, its implementation mechanisms, and internal incentive structures must be updated to focus more on harm prevention over mitigation, adequate resources must be directed to address the primary challenges facing the region (climate change, biodiversity loss), and more invested into building regional institutional capacity, with special emphasis on the analysis and management of long-term, indirect or cumulative impacts.  Transforming the Sustainable Energy and Climate Change Initiative (SECCI) into a Bank division is positive, partial step toward a more necessary goal that should not come at the expense of charging all Bank departments with climate change responsibilities. The IDB must adopt a more comprehensive climate change strategy with specific targets on supporting transformative changes in the region’s energy and infrastructure sectors. Such a strategy would provide the innovative leadership needed to support the development of low-carbon and climate resilient economies in LAC, including robust targets to increase financing for renewable energy, the phasing out of support for fossil fuels, and the protection of indigenous rights in establishment of forest governance.

Organizations that contributed to this proposal:

• Amazon Watch (United States)
• Bank Information Center (United States)
• Both ENDS (The Netherlands)
• Center for International Environmental Law (CIEL, United States)
• Centro de Derechos Humanos y Medio Ambiente (CEDHA, Argentina)
• Environmental Defense Fund (United States)
• M'Bigua Ciudadanía y Justicia Ambiental (Argentina)
• Instituto Latinoamericano de Servicios Legales Alternativos (ILSA, Colombia)
• Oxfam America (United States)