IDB leadership change an opportunity for usWednesday, July 01, 2020
Since 2010, Jamaica has held the record for receiving the highest level of support ever provided — as a percentage of gross domestic product (GDP) and on a per capita basis — by the Inter-American Development Bank (IDB), the largest multilateral financial institution in this hemisphere.
The novel coronavirus pandemic has increased the demand for IDB support in the region. At the same time, it has accelerated a US strategy to reduce reliance on China and to build new supply lines closer to the US. To meet the higher demand and pursue the new strategy the IDB needs more capital.
Normally, the president of the IDB leads the negotiation with shareholders for its capital replenishments; however, this time around the current president, Mr Luis Alberto Moreno, is completing his third term and is not allowed to stand for a fourth, so he cannot lead the negotiation. That job will fall to the new president.
Since 1959, there has been an unbroken agreement that all IDB presidents will be from the borrowing member countries in this region. However, in an audacious power play, the US seems to be poised to snag the post.
The Jamaican Government has already declared its support for Washington's nominee, Mr Mauricio Claver-Carone, a descendant of Cuban exiles and who runs the engagement with Latin America at the National Security Council.
Previously, he was an advisor at the US Treasury and was the US representative at the International Monetary Fund. He was also instrumental in designing the new US policy for supporting economic development.
Despite these solid credentials, when the Donald Trump Administration proposed Mr Claver-Carone for the number two slot at the bank, Mr Moreno blocked it. That decision may have inadvertently led to a watershed event for the bank.
What opportunities does this change pose for Jamaica, and why did we support it?
The renewed focus by the US on this region, and the radical shift in the leadership of the IDB, could combine to change restrictive policies that limit support for middle-income countries like Jamaica.
These short-sighted policies ignore the extreme vulnerability of small-island developing states to exogenous economic and natural shocks. This is a point constantly made by our prime ministers in international fora.
Additionally, the decades-long stagnation of Jamaica's productivity has compromised our competitiveness and resulted in low wages and a chronic foreign exchange shortage. To compete we need economies of scale, but our market is too small.
The simple solution is to invest in productivity and access overseas markets. However, globalisation of supply lines concentrated demand in hyper-efficient countries like China, and therefore crowded out micro suppliers like Jamaica.
But, as Chinese wages rise and the US seeks to diversify its supply lines toward regional producers, our private sector could gain new markets. The clear message is that the COVID-19 recovery plan should include a strong impetus to financing private investments to bring our productivity up to international standards.
There's no challenging the fact that COVID-19 has hit us hard. The radical change of direction at the IDB could be the opening we need so desperately to diversify our economy and find new external markets.
We did the right thing to support the change at the IDB; now we need to make sure our private sector has a chance to grasp this new opportunity.
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