IDB President sees a chance for Latin America to grow – 10/05/2023 – Market

The president of Latin America’s largest development bank called on leaders to transform the region’s economy by seizing export opportunities for green energy, food and critical minerals.

Ilan Goldfajn, president of the IDB (Inter-American Development Bank), plans to increase loans by US$20 billion (about R$103.4 billion) over the next decade. He believes this would help the region take advantage of the clean energy transition and closer production to the US market, as well as respond to population demands for improved health, education and digital infrastructure.

“This is an inflection point,” Goldfajn told the Financial Times in an interview during a visit to London. “This is not just a narrative, there is actually an opportunity to be seized… we will participate in everything we can do in terms of renewable energy, clean energy, clean minerals and things like that.”

With two-thirds of the world’s lithium reserves and 38% of its copper, Latin America could play an important role in providing the raw materials needed for the transition to electric vehicles and renewable energy, Goldfajn believes.

China currently dominates the market, raising concerns among Western nations about energy security.

Latin America also holds a prominent position in global food exports, potentially making it part of the solution to some of the world’s most pressing challenges, the IDB president said. Grain exports were hit hard by Russia’s invasion of Ukraine.

However, Goldfajn also warned that governments in the region need to invest to improve education, enhance productivity and ensure a stable investment environment to fully profit.

The IDB president explained the measures the region must take to take advantage of its abundant and cheap solar and wind power to export green hydrogen. “You need to organize, plan, bring resources, have the rule of law and regulation”, he assessed. Chile has been a pioneer in this area, with Brazil’s new left-wing government also enthusiastic.

Former president of the Central Bank of Brazil, who also worked at Credit Suisse and headed the Western Hemisphere division of the IMF, Goldfajn stated that he will prioritize results over loaned amounts.

Talking about a hypothetical $500 million digitization project, he said, “You approve and release the money and everyone is happy when you’ve released everything. But now, we want to look at, ‘Tell me how much and then how are you going to measure it? , how are we going to keep up?’ That will be our measure of effectiveness.”

Negotiations with other banks

Goldfajn also advocated greater coordination with other multilateral development banks.

The IDB signed a four-year partnership with the World Bank at the end of August to collaborate on combating deforestation in the Amazon, helping the Caribbean deal with climate disasters and improving internet access for poorer people in Latin America.

“The agreement with the World Bank is a step forward,” said Goldfajn. “It’s the first agreement where we didn’t just sign a letter of intent saying ‘let’s be friends’. We actually have working groups and we only signed when they came with action plans.”

The IDB was discussing similar cooperation pacts with the Latin American Development Bank and the IMF, but would only sign agreements when there was a consensus on the results, he added.

Goldfajn arrived at the IDB amid turmoil after his predecessor, the American Mauricio Claver-Carone, appointed by Trump, was fired in September last year. An outside investigation found that the former lobbyist had maintained an undisclosed intimate relationship with a subordinate to whom he gave two large pay raises. Claver-Carone denied the allegations.

Goldfajn was elected president last November with U.S. support and moved quickly this year to unite the team behind a new vision for the Washington-based bank.

Project to overcome triple challenge

His team is working on a formal proposal to the 48 member countries for a capital increase for the private sector lending portion of the IDB. This will likely be in the range of $3 billion to $5 billion, although Goldfajn has not confirmed a specific figure.

This proposal will be made at the bank’s next annual meeting in March 2024, along with a new seven-year strategy for the IDB. The goal is to help Latin America and the Caribbean adopt clean energy and face what Goldfajn calls the region’s triple challenge: governments with little money, populations pressing for better public services and low growth in the region.

New financial tools can help, which could include loans to Caribbean nations that allow them to suspend payments in the event of a climate disaster, or pioneering green loans like Uruguay’s $1.5 billion sovereign bond last year. The IDB provided technical assistance on the project, the interest rate for which decreases if greenhouse gas emission reduction targets are achieved.

“All countries in the region have problems with climate change,” Goldfajn said. “So there is an opportunity here for the region to seize, be those who invest in clean energy, change the matrix [energética]export part of it”.

As an example, he cites a $400 million IDB loan made in June to help Chile use its cheap and abundant renewable electricity to build a green hydrogen export industry. “Green hydrogen is on the rise because there is a lot of demand coming from Europe,” Goldfajn said. “And this is a region that can produce it more cleanly… We need to seize the opportunity.”