Ilan Goldfajn, president of the IDB: “The new global environment favors Latin America”

2023-09-17 00:12:19

CORRESPONDENT

WASHINGTON

Updated Sunday, September 17, 2023 – 00:12

J. M. CADENAS

Ten months ago, Brazilian Ilan Goldfajn became president of the largest development agency in Latin America, the Inter-American Development Bank (IDB), which last year alone lent 23.4 billion dollars (21.9 billion euros).

Goldfajn arrived at the IDB – in which Spain has an important presence – under exceptional circumstances, after his predecessor, the American Mauricio Claver-Carone, was dismissed by the representatives of the 48 member countries of the institution. The president of the IDB, who was previously president of the central bank of Brazil and director of the World Bank for America, has been one of the participants in the Santiago Ecofin between the EU and Latin America.

Companies in Europe and the US give Asia more priority than Latin America. I think that is no longer the case. Climate change is already here, and Latin America not only has enormous reserves of the minerals necessary for the energy transition, such as lithium or copper, but it also has tremendous potential to export clean energy. The Russian invasion of Ukraine made food security a priority, and the region is one of the largest agricultural producers in the world. The private sector sees us differently than it did in the past. On this trip to Spain and in my participation in Ecofin I have explained that we have to ensure that the complementarity between what the European Union needs and what Latin America wants occurs in practice. The region needs investment in areas such as the climate agenda, digitalization and the defense of biodiversity, and the EU is interested in financing projects in these areas. It is not just a theoretical concept, but something very real, as it shows that we are entering into the details of this collaboration between both regions. So, the new world environment favors Latin America? Yes. In fact, in Europe there is a perception, both in the public and private sectors, that we are at an inflection point in the world economy that makes Latin America become more important. Now: optimism is not enough; We have to work to take advantage of the opportunity. Opportunities do not come for free. A permanent problem in the region is underinvestment in physical and, now, also digital infrastructure. So what numbers are we talking about? The region allocates less than 2% of its GDP to physical and digital infrastructure, and needs to invest one more percentage point in that [unos 57.000 millones de euros anuales]. We have to attract private investment, because public resources are not enough. And, if we look at the social section – education, health – the need for investment is even greater. Does Latin America offer legal stability to attract investment? Just a week ago, a New York judge ordered the State of Argentina to pay a company in that country and a US fund 16 billion dollars (15 billion euros) in compensation for the expropriation of YPF from the Spanish company Repsol in 2012. The first thing investors ask us is about the solidity of the institutions, the regulations, the rule of law. In general, the region is increasingly valuing institutionality, and at the IDB we notice it, because we are having more and more projects to help countries improve institutions and regulatory frameworks. It is one of the things I was referring to before when I said that we have to make an effort to ensure that this opportunity does not pass us by, because we not only need infrastructure but also a favorable institutional environment. And it is true: Latin America as a whole should offer more legal stability, but we must take into account that in such a large and heterogeneous area there are very stable countries when it comes to the rule of law.

Latin America has achieved very good results in stabilizing its economies, but its growth is very low. Certainly too low to escape poverty. Are you caught in the famous middle-income trap? And, by the way, be honest: are you tired of being asked that question? We can’t afford to be tired of that question, so no problem. The key is why productivity is growing so little in the region. And there are several reasons: we invest less than necessary; perhaps we place a lower value on education than in other parts of the world; There is the problem of institutionality that we have talked about; It is likely that our regional integration is less than it should be; We have a larger informal economy than on other continents, and informal jobs generally have more difficulties generating growth with high productivity. You mentioned education. Do you need to improve the human capital of Latin America? I believe that there is a lot of talent, but it is necessary to improve the quality of basic education. You have also spoken of regional integration that may be less than what would be necessary. In Latin America there are always blocks of countries that have more or less opposing integration models, and that also change members depending on the political future of the countries. It is never very clear what the objectives of commercial integration in the region are. This is the case of commercial integration, but there are also other forms of integration, for example in physical and digital infrastructures, or what I call ‘soft integration’. , which affects regulations.
#Ilan #Goldfajn #president #IDB #global #environment #favors #Latin #America