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The Inter-American Development Bank excludes civil society just as it revises its work with the private sector

Added 27 Mar 2014

By Patricia Miranda, Latindadd and María José Romero, Eurodad

Just when we thought development banks were becoming more accountable, the Inter-American Development Bank (IDB) not only slams its door on civil society participation, but does so at a crucial moment for its institutional reform process.

The 2014 Annual Meeting of the IDB’s board of governors held this weekend (27-30 March) in Bahia, Brazil, excludes civil society organisations for the first time since 2006. This is a massive step backwards from a former inclusive approach, especially when the IDB is in the middle of an internal process that will lead to substantial changes in how it works with the private sector. Since the preferred option on the table seems to be to go in the direction of the World Bank Group’s International Finance Corporation (IFC), this might also see the Bank following a business model which has proved to be highly questionable when it comes to transparency, accountability and development results. Controversially, the IDB decided to instead organise a forum two weeks before in the same city, just for civil society organisations, thus denying CSOs access to decision-makers, finance ministers and even the media. This is despite the fact that CSOs have participated in previous IDB annual meetings when key decisions were made, including on IDB replenishment and debt relief.

Several organisations, including DAR and Asociación Ambiente y Sociedad, have expressed their concerns in a letter sent to the IDB president stating that “this is a massive step back” in terms of the relationship between the IDB and civil society.

Why must civil society have a seat at the table?

It is clear that private sector representatives will participate in the discussion of their role in development, with specific seminars on health and education, impact investing and small and medium size enterprises (SMEs), among others. Currently the IDB’s support to the private sector is spread across three separate facilities. Most private investment comes from the IDB’s “ordinary capital window”. Separately, the bank provides financing for SMEs through the Inter-American Investment Corporation, and grant assistance for private sector development through the Multilateral Investment Fund. Between 2004 and 2010, support to the private sector represented more than 30 per cent of the operations of the IDB.

Following the current trend of using publicly-backed lending to ‘leverage’ private finance, the IDB is immersed in a debate about whether to create a stand-alone private sector financing entity – like the IFC – or to try to consolidate the private sector function of the Bank within the ordinary capital of the institution.

According to a report published by the Center for Global Development the “IDB management appears to be squarely behind a merge-out option, but it’s not clear yet if the bank’s shareholders are on board.” Although little about the internal processes and positions have been commented on publicly, it is likely that the IDB president Luis Alberto Moreno would be presenting a plan to the board of governors at this weekend’s annual meeting.

Despite the options on the table, it is clear that some changes are needed. The current private sector development strategy of the IDB points to the need for close collaboration among the different sectors of the Bank. The IDB’s independent Office of Evaluation and Oversight concluded in a report published last year that when it comes to supporting private sector development: “The current structure and incentives in the IDB Group are inefficient and ineffective in encouraging coordination and synergy.”

The IDB has also faced many challenges in delivering and reporting development results, including in its private sector projects. Therefore, it is fair to ask what kind of support Latin American countries need from a development bank like the IDB, in times of abundant private sector resources, what kind of development projects they would support, which private sector actors should be targeted and with what instruments.

In addition, the future structure of the IDB might impact on the shareholding and governance of the bank. The current structure gives the US the biggest voice as a single country, with 30 per cent of the voting power, and the US - together with Canada and Japan - control 39 per cent of it. This makes them very dominant in the decision-making process, although they do not implement projects approved by the bank. This has long been criticised by the CSOs and by some Latin American governments, which in 2007 decided that “one country-one vote” is a more democratic and equal option, as established by the founding charter of the Bank of the South. It remains to be seen whether there is going to be a change on this front and in what direction this would be, particularly now civil society organisations are being pushed out.

Now what?

No matter what issues are on this year’s agenda, the IDB is a regional development bank whose processes are expected to follow the highest standards in terms of democratic participation and accountability. The lack of proper implementation of such standards by suddenly excluding civil society undermines the credibility of the Bank and poses an important reputational risk. This also brings up concerns about how the bank will address its future actions considering its goal is the implementation of an inclusive and sustainable development model, which is extremely worrying. CSOs will continue to advocate for an open and accountable process.