Kick the Can

Originally published by El Faro

There are definitely times when no action is the best action. The current conundrum created by the United States’ unprecedented nomination of its own candidate for the Presidency of the Inter-American Development Bank is a problem that falls into this category.

There are definitely times when no action is the best action. The current conundrum created by the United States’ unprecedented nomination of its own candidate for the Presidency of the Inter-American Development Bank is a problem that falls into this category.

The Inter-American Development Bank (IDB) is poised for a leadership transition. The bank’s current president, Luis Alberto Moreno, has served three five-year terms.  His current term ends in October and competition for the soon to be vacant position is well underway.

Early in 2020, a number of names were being discussed as possible candidates.  However, in recent weeks the field has narrowed dramatically as the United States has surprised many by flaunting tradition and proposing its own candidate, Mauricio Claver-Carone. Aside from Claver-Carone, who has already cornered commitments from a number of countries, including Brazil, the other candidates are former Costa Rican President Laura Chinchilla and Argentina’s Secretary for Strategic Affairs, Gustavo Béliz, who spent almost 15 years at the Bank.

Since its inception in 1960, IDB leadership has been selected under an unwritten understanding. The Bank would be located in Washington but led by a Latin American. The number two position would be held by someone from the United States. Furthermore, since a representative of the United States serves as the President of the World Bank, regional banks have always been led by someone from their respective regions.

This is a key moment for the IDB. The global COVID-19 crisis has hit Latin America hard. Governments must provide urgently needed financial support to guarantee access to public health institutions, food, and other aid to those who have lost work, as well as help for businesses struggling to survive — all of this while the COVID-driven loss of economic activity has dramatically reduced the government’s normal revenue. Countries need money fast, and the bank is stretched by new requests. 

This is also a key moment because the bank will need its first capital increase in a decade. In recent years, the United States has not supported attempts to provide new funds.  

President Trump’s nomination of Claver-Carone on June 16th was controversial not only because it breaks with tradition, but because of the nominee himself. 

Mauricio Claver-Carone has been the U.S. Deputy National Security advisor overseeing the reversal of the Obama Administration’s opening toward Cuba and leading U.S. sanctions policy against Venezuela, both decidedly unilateral approaches. He also has experience in financial institutions having served as U.S. Executive Director at the IMF and in posts at the U.S. Department of Treasury.

Claver-Carone’s supporters believe he could shepherd a capital increase for the bank. Since the United States has impeded previous increases, picking their candidate might eliminate that problem. But this scenario would only go smoothly if President Trump is re-elected.

If elected at the September board meeting, the new IDB president would begin service in October, just a month before the U.S. election. If Joe Biden wins the U.S. presidency, the Bank’s leadership would be set for a complicated relationship with the new administration, and the new IDB president would serve through the entire term of Biden’s potential presidency. 

Furthermore, the new U.S. president does not unilaterally decide what new funds will be provided to the IDB — that requires Congress. Senator Patrick Leahy, of Vermont, the ranking Democrat on the Senate Appropriations Committee (which would have to approve any capital increase), made this unusual statement on June 26th, after Claver-Carone’s nomination:

As someone who has supported the IDB for decades, including at times when amendments were proposed to eliminate or reduce the U.S. contribution, it is important to be aware that this nomination could jeopardize United States support for, and cooperation with, that institution. Further, if the U.S. Treasury Department and other IDB shareholders believe this nominee will help to build support for a capital increase for the Bank in the U.S. Senate Appropriations Committee, of which I am Vice Chairman, Mr. Claver-Carone is the wrong nominee to make the case for such an increase.

What does this election mean for Central America? Central America knows what the politicization of financial processes looks like. It was the Trump Administration, under the advice of Claver-Carone, that slashed aid to the Northern Triangle countries, not because of corruption or for other fiscal reasons, but because it wanted to stop immigration to the United States. Now imagine that kind of leadership and manipulation at the head of the IDB. If we have learned anything from the Trump Administration, it is that it holds fast to its motto, “America First.”

Now imagine what the bank might look like with a different kind of leader, say a woman, a former President of Costa Rica, a country respected for its fiscal management and equitable economic development. That would present a very different vision for the Bank and for Central America.

The nominating process formally begins on July 27. The new IDB president will be chosen by the Board of Governors in an election expected to take place during the September board meeting. The rather complicated formula for calculating the winner is based on shareholding proportionality as well as a majority of the borrowing countries. 

There are things that can be done to keep the Claver-Carone power play by the United States from becoming a fait accompli.  Those countries opposed could come together behind one candidate, instead of the current two. As it is, votes would be split.  

The best outcome would probably be to wait. Without a quorum, there is no vote.  If there is no vote there is no new President. President Moreno retires in October. Why not wait and see the outcome of the November U.S. election, instead of potentially setting up the bank for years of conflict with its largest donor? The IDB is a solid institution that could operate without a president for a few months. In other words: kick-the-can.

One thought on “Kick the Can

  1. Good column.

    On Fri, Jul 31, 2020 at 4:32 PM Joy Olson’s blog wrote:

    > Joy Olson’s blog posted: ” Originally published by El Faro There are > definitely times when no action is the best action. The current conundrum > created by the United States’ unprecedented nomination of its own candidate > for the Presidency of the Inter-American Development Bank ” >

    Like

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