The Inter-American Development Bank expects a “new normal” of yearly financing to Latin America of between $25 billion to $30 billion.
The region’s financial technology industry is key to the creation of new economic growth avenues.
Supply chain disruptions present huge nearshoring opportunities for Mexico and the Caribbean.
When Mauricio Claver-Carone was elected president of the Inter-American Development Bank in Sept. 2020, he began a reform to give a greater voice to smaller countries in the region. As the first U.S. citizen ever at the helm of the bank — a decision met with resistance by some Latin American countries at the time — he has focused on efficiency gains and eliminating “political patronage.”
In a bid to offset the growing financial influence of China in the region, Claver-Carone’s goal is to provide greater IDB funding to Latin America — the U.S. is the bank’s largest shareholder, with 30% of its shares. Financing last year topped $23.4 billion, up from a previous 10-year average of between $12 billion and $17 billion.
“We can’t face trillion-dollar infrastructure gaps in the region with a billion-dollar institution,” the former U.S. director at the International Monetary Fund and adviser to former President Donald Trump told Market Intelligence. Claver-Carone argues that the new level of disbursements will not be a one-off due to the pandemic, but rather a new threshold.
Fintech grows fast in LatAm
The IDB executes loans and equity investments to companies through IDB Invest, its private sector arm, which has grown in relevance to top $9.3 billion in financing last year. A recent IDB report shows the Latin American fintech industry has doubled in size since 2018. With 2,482 companies as of last year, Latin American fintech firms represented 22.6% or almost a quarter of all fintechs in the global industry.
S&P Market Intelligence visited the bank’s headquarters in Washington, D.C. What follows is an edited transcript of the conversation.
 IDB President Mauricio Claver-Carone.Source: IDB |
S&P Global Market Intelligence: Last year’s disbursements came at a time of exceptional demand for COVID-19-related expenditures. What will be the levels of disbursements going forward?
Mauricio Claver-Carone: I think the new normal should be between $25 billion and $30 billion per year. I saw a huge opportunity in that the IDB was the most respected brand in the region, yet unknown in the United States. U.S. Congress has not authorized a penny for the bank since 1994. We can’t face trillion-dollar infrastructure gaps in the region with a billion-dollar institution. How are we going to mobilize private sector financing to really try to meet the challenges? We met a lot of resistance, don’t get me wrong. But fast forward to today: we actually accomplished over $20 billion in financing last year just by stopping political patronage, breaking silos and making the entity more efficient.
(Editor’s note: In 2021, a bill was introduced in the U.S. Senate for a capital increase for the IDB of up to $80 billion to “strengthen recovery efforts in Latin America and the Caribbean related to the COVID-19 pandemic”)
What are some of the recent changes at the IDB?
I ran for president based on two issues. One was the inefficiency of sovereign operations that took too long and were our biggest comparative disadvantage. Also, the fact that we lent for the sake of lending versus having a real development impact. And in the private sector, for every dollar of our balance sheet that we lend through IDB Invest, we were only mobilizing 40 or 50 cents. That is a huge failure. We lost lots of credibility.
How have the COVID-19 pandemic and the war in Ukraine shaped current prospects for Latin America?
The COVID-19 pandemic has contributed, ironically and at a very high cost, to historical opportunities in Latin America. There’s not a single human being today that does not understand the importance of digitalization. There has never been a greater marketing campaign. And now you can have another commodity boom, hopefully without repeating a lot of the mistakes from the past. It was like a perfect two-step: the pandemic first and now Russia’s war. The region can actually take advantage of these opportunities to help with its economic growth.
How can the financial technology industry contribute to this end?
I will put it this way. This is the once-in-a-lifetime opportunity to truly disrupt the grievances that have plagued the region for decades: informality, unbanking, you name it. … Not by talking about it or by doing studies, but by actually doing something about it. And we better do it because otherwise, we will miss out. Last year, there were over $20 billion in venture capital investments in Latin American tech. But here’s my big fear: The reason why it’s working is that governments haven’t figured out how to screw it up.
So how could governments squander the opportunity? Would you say regulation is unnecessary at this point?
These technologies are helping millions of Latin Americans to become banked, formalize their jobs and create small businesses. If it ain’t broke, don’t fix it. A lot of the digital tech investors in the region are people that got burnt 20 or 30 years ago and had said they would never return to Latin America again. They are coming back now, and when you ask them why, they say it is because they feel governments will not be able to catch up.
How do you see favorable trends playing against a challenging economic outlook?
What is the alternative? To sit down and have informal markets prevail as they have for generations? One is the solution to the other, and this is the greatest micro-solution we have seen in ages. If we don’t fully embrace this digital revolution in financial, educational and health technologies by incentivizing it as much as we can, then we are condemning the region to generations of greater informality and migration.
Supply chains continue to be disrupted and China’s zero-COVID policy could affect economic recovery further. How is that expected to shape the outlook?
When COVID-19 hit, it opened a manufacturing nearshoring opportunity. There was a recalibration of supply chains across the world. Those that worked and those that didn’t. The supply chains that did were the ones in the region, intra-Mexico, and in the Caribbean. The ones that did not were clearly the supply chains in China, and it is getting worse now. I don’t know a single U.S. company that would rather invest in China or India today than in Mexico.
Elsewhere in Latin America is complicated because of logistics, but Mexico should be going through a golden era of investment. Now has it taken full advantage of the opportunity? No, and obviously we are trying to help. It is not about being anti-China. My clients are the countries in the region. I don’t want a single U.S. company investing in China that has not first looked at Latin America and the Caribbean.
What is the main difficulty in promoting nearshoring opportunities in Latin America?
The biggest challenge here, frankly, is how small countries can take advantage of these opportunities. Ecuador, Dominican Republic, Guatemala, Panama, Uruguay and Paraguay. By the way, those are small countries that are doing things right. U.S. companies like scale, and always look at Mexico and Brazil first because of the sheer size. How do I get them interested in countries like Jamaica?
There is a wide availability of potential ESG assets in Latin America, yet the region is still lagging in wooing environmental-friendly capital. Why is that?
Latin America and the Caribbean is the most vulnerable region to climate events in the world, yet the least violator. Climate Finance is not a minus, but an additionality. It can create jobs, it can grow economies. There is $25 trillion in ESG money out there. We can transform the region just by getting 5% of that pool — now it is far less than 1%. The world has come a long way. So there’s not a single private company or institutional investor that’s not setting money aside for ESG. But what is the biggest problem that investors have? Greenwashing. That is why we created a Green Bond Transparency Index. Let us make the best use of our AAA rating to mobilize private capital. I’m taking that fight to the end.
