The boards of governors of the Inter-American Development Bank (IDB) and IDB Invest has approved a historic road map for a series of institutional reforms for the IDB and mandated a proposal for a capital increase for IDB Invest, the bank’s private sector arm.

The governors’ actions are expected to modernise the IDB, IDB Invest and IDB Lab, which is the innovation laboratory, ushering in a new, 21st-century business model that will help countries across Latin America and the Caribbean more effectively address challenges, including poverty and inequality, climate change and the need for digitalisation.

The proposed reforms will also empower the bank to accelerate inclusive and sustainable growth by strengthening the synergies between the public and private sectors, ensuring equal opportunities for women in areas including education, business and justice, and doing more to help countries reach net-zero emissions targets.

“Our record year in 2021 proved how the IDB can optimise its balance sheet and mobilise resources, but the new IDB can do even better. This is a historic moment for the IDB and IDB Invest. The boards’ actions mean we are gaining the muscle, flexibility and tools needed to support the urgent needs of Latin America and the Caribbean in the 21st century,” said IDB President Mauricio Claver-Carone at the bank’s annual meeting.

“The pandemic hit our most vulnerable citizens hard. Now the region faces rising inflation, higher global interest rates, and shifting geo-economic and geopolitical concerns. We rose to the occasion in 2020 and 2021, but we can now do even more by leveraging our strengths. Thanks to the governors’ actions, we are now empowered to better help the region by mobilising more private sector resources and doing more in critical areas such as climate change and gender equality,” he said.

The new business model envisioned for IDB Invest, or IDB Invest 2.0, will be developed over the next six months and submitted to the boards for approval this fall.

The IDB will act as a hub, linking the private sector work of IDB Invest with partnerships and projects on the public sector side. This will enable the bank to better leverage trillions of dollars in private sector assets that the region must access to successfully combat climate change.

This 21st-century business model aims to assist the IDB when it comes to working with governments to correct market failures and structural bottlenecks that today prevent investment, improve institutions, strengthen the rule of law, and improve the business climate.

The new approach also calls for transitioning IDB Lab from an innovation lab to an innovation hub, allowing it to do more to scale up the impact of private sector projects and leverage its capacity to take on risk to do experimental work in frontier sectors and invest in early-stage projects. IDB Lab’s agility and ability to respond rapidly to clients’ needs will enhance the bank’s capacity to test innovative ideas and carry out pilot programmes that can be expanded to meet regional development goals.

The governors’ endorsement will make the IDB more innovative and responsive, with enhancements to project design, a new Comprehensive Portfolio Management System to measure and achieve results, and updated financial and technical instruments. This will lead to more effective support for government reforms, new contingent and rapid-disbursement facilities, more innovative climate-change instruments, increased execution capacity for counterparts, and risk appetite and equity investment policies that will favour private sector projects and operations.

Combined, these new approaches, along with plans to more ambitiously tackle climate change and gender inequality, is expected to help the region meet its evolving development needs, while helping to reduce poverty and protect its most vulnerable people.

“I am immensely proud of the analytical work done by our experts, and I thank our boards of governors and our executive directors for their overwhelming support,” President Claver-Carone said. “This is not the destination, but truly the beginning of our journey to help our member countries, as we make the IDB the gold standard of operational excellence. Our region deserves no less.”

The next annual meeting of the IDB and IDB Invest is scheduled to take place in Panama.