 Okay folks, we're gonna get started. I'm Dan Rundy, I hold the Shrier Chair here at CSIS. I wanna welcome you to our new building, if you haven't been here before. It's the good news is we have a new building. The bad news is we're still working out some of the kinks in terms. So if the acoustics are slightly off or it's a little colder than we're still adjusting the AC, so just bear with us. And I ask my fellow panelists to also do the same. We have a very interesting panel and on the record conversation about the future of the Inter-American Development Bank and the private sector. We have panelists, three of whom are gonna be speaking in a personal capacity, and I'll indicate which of the three are speaking in a personal capacity. And then we have my very good friend Gustavo Arnavot, who is the US Executive Director for the Inter-American Development Bank, for the United States, for the US and is gonna be speaking on behalf of the United States government. But let me just, you have their biographies in front of you, but I also wanna indicate, we have Dr. Maria Gonzalez Miranda, who is the Executive Director for Mexico in the Dominican Republic. We have Director Leo Cruz, for Executive Director for Belgium, China, Germany, Israel, Italy, the Netherlands and Switzerland. So it's a multiple personality situation. And then we have Kurt M.A. Kisto, who is the Executive Director for the Bahamas, Barbados, Guyana, Jamaica, Trinidad and Tobago, as well. But if I'm correct. So you have their bios in front of you. The way we're gonna run this is I'm gonna ask each of the speakers to make a formal statement. I'm gonna first spend two to three minutes explaining what the heck is the IDB? Why are we having this conversation? Then I'm gonna ask each of the folks to make a formal statement. And then I'd like each of the panelists to respond. I may, as the Chair, ask a couple questions. And then we're gonna open it up for Q&A as well. So let me start with, what is the Inter-American Development Bank? It was started in 1959. It's the largest development bank in terms of lender to the region. I believe it's larger than the World Bank in terms of its actual lending activities in the region. So it's a very major development player. 50.1% of the shares are owned by the borrowers. The largest individual shareholders, the United States, with 30%. It was started in the Eisenhower administration but really got started in a serious way under President Kennedy. And he's remembered fondly at the Inter-American Development Bank. I know there's a statue or there's a bust of President Kennedy in the main foyer at the Inter-American Development Bank. The main lending line of the main set of lending activities for the Inter-American Development Bank, it lends out about 11 to 12 billion dollars a year in what's called the main part of the Inter-American Development Bank, of which about a billion five is private sector, various sorts of private sector lending activities. From that window, if I'm correct, it's not, they cannot make equity investments out of the main Inter-American Development Bank lending line. So the first thing you should think about is there's this first set of activities got the main Inter-American Development Bank that has shareholdings and shareholders and has a specific board. There's separately another thing that's called the Inter-American Investment Corporation, the IIC, which is primarily focused on, primarily focused on small, medium-sized enterprises. They can make equity investments but haven't as of late in the last 10 years or so. And between sort of their own activities as well as sort of catalyzing other investments is about another billion dollars, if I'm correct, more or less. And then there's something that's very, very special at the Inter-American Development Bank that was started under George H. W. Bush that has been championed by both Republicans and Democrats and then also shareheld by other countries as well. It's something called the Multilateral Investment Fund, also known as the MIFF. The Multilateral Investment Fund makes, can make equity investments, can make venture capital investments, invest in a variety of investment funds in the region, has also, but it's about $200 million a year, about a hundred a year in terms of money out the door. And about 70% are in the form of grants. My connectivity with them originated about 10 years ago. They were under Don Terry when he was running the MIFF. He was someone who was a big proponent of looking at the impact of remittances on development. I think he was an early innovator in that particular space. The IDB as a whole was an early innovator, I think, and thinking strategically about remittances and one of the great contributions of the Inter-American Development Bank. There's one other thing. There's something called opportunities for the majority, which is if you go back to sort of, let's say there's three buckets, there's the Inter-American Development Bank, there's the IIC and there's the MIFF. In the main set bucket, the Inter-American Development Bank, there's something called opportunities for the majority, which is a relatively small chunk of the private sector activities. It's about 50 or $60 million a year. It's primarily focused on base of the pyramid sets of activities. Our thinking here at CSIS was to host a variety of the shareholders as opposed to members of the management and these executive directors, as I said, are speaking in their personal capacity, except for Gustavo, who's speaking on behalf of the United States. Because there are rumors that the Inter-American Development Bank is at a transition point in thinking about what role, there's certainly thinking about what's the role of the Inter-American Development Bank in the context of a region that's had 10 fabulous years. It's really had my view is it's had the 10 best years in its history economically. And you have a variety of countries now. You have a number of countries that are becoming upper middle income. You have some countries that are very poor like Haiti and Nicaragua and you have countries that are in between. But if you look at places like Costa Rica and Peru where I've been to in the last six months, these are countries that are inspiring in the kinds of changes that have happened. But I think it creates dilemmas for development institutions like the Inter-American Development Bank. At CSIS we've done two reports and now we'll stop that I think are relevant to this discussion. One is called our shared opportunity, which was a bipartisan commission that looked at the role of the private sector in development and looked at how the various sorts of instruments, so I think the conversation or the description I made of the IDB, the main IDB, the IIC, the MIF, the opportunities for the majority, these sorts of various windows or instruments and how they work together or how they work more strategically together is something that the United States is having a conversation about and it's a conversation that's going on all around the world and thinking about how do we leverage various instruments in a changed and changing context for development and as we hit sort of a ceiling in a period of frankly of austerity where I think my view is the 10 year bull market on official development assistance is over. I don't think we're gonna see large increases globally of ODA over the next five years or even the next 10 years. The second report is something we wrote called strategic foreign assistance transitions looking at the role of how should the United States rethink its relationship with middle income countries. My view is it's really hard sell in the United States to give traditional chicken or beef, foreign aid to countries that have space exploration programs that have starter bilateral foreign assistance programs of their own, but we need to repurpose our cooperation and trade relationship to have a more sophisticated relationship. We shouldn't be offering chicken or beef, foreign aid. We ought to be offering things that look like sinking funds or rethought trade relationships and we looked at five countries in the last 30 years where the United States had exited such as Portugal or Costa Rica or Croatia and one of the Baltic states and what we had left behind is how we'd repurposed our relationship, our reframed our relationship to look more like our relationship with South Korea as opposed to say our relationship with Haiti. So with that, all that, I'm going to stop talking and I'm gonna ask Maria who is speaking in a personal capacity who is the executive, who holds the role of executive director for Mexico and they're making a republic to make a few remarks. Maria, the floor is yours, just push the button. Many thanks and thank you so much for the opportunity to be here. I'm really glad to have this opportunity to talk to you about these issues. I think the question here is that we have to ask ourselves is how the multilateral development banks that I did in particular may remain relevant if not and has their development role in a world that is already characterized by a very rapid and profound change in the balance of economic and political power at a global level. And I think to understand how the IDV can transform itself or should transform itself along with other development banks, we need to understand what these changes are about. I think at the risk of sounding a little bit oversimplistic, I think a first change is the one in the balance of the dynamics of economic activity between advanced economies, emerging markets and low income countries. The last two groups have greater potential output growth for the medium and long term. And as they develop, they are also becoming relatively more integrated to financial markets, gaining much greater access to alternative sources and funding, including at a bilateral level by some of the most buoyant emerging markets that are around, for example, China. What this has implied is that the multilateral development banks have lost some space as a main finance source for both the public and the private sector in the region, in Latin America and the Caribbean, compared to what used to happen decades ago. With this said, I think we should not fall ourselves in thinking that they do not remain as relevant source of funding, especially during low parts of the economic cycle. In Latin America and the Caribbean, those lower income countries with relatively less access to international financing flows still have some 50 to 70% of their external financing represented by multilateral development banks. In middle income countries like Mexico, multilateral development banks still source some 20% of the external debt, even at points of high liquidity financing around in the international markets. It is still true, however, that no MDB or the multilateral development banks together would be capable of doing all the very heavy lifting for the financing that the Latin American, Caribbean region has in terms of needs, including once we add the private sector. A second issue is that more and more countries have developed institutionally and politically, and this reflects in the international arena. This is, in no minor part, the results of the change in balance of the economic power, and this means that the type and quality of the relationship between the multilateral development banks and the borrowing countries has to truly turn into one of partnership. If there is going to be buying of the reforms and through absorption of the technical advice and cooperation that comes with IDB lending or funding in general, it also means that a new level of responsibility almost emerged from member countries of the borrowing, borrowing member countries of the multilateral development banks and middle income countries in particular within those institutions. With this, I don't want to be misunderstood in saying that the multilateral development banks are not needed anymore. It's just that we need to get what the situation is about to know where they need to evolve. I think a few things that just to finish in terms of where should we getting into, in my opinion. Number one, multilateral development banks are still incredibly useful to construct the backbone of structural reforms that continue to be needed if middle income countries are going to consolidate their development. When dealing with the public sector, multilateral development banks provide a great level of additionality in terms of their technical cooperation, a sale of quality, which helps the governments in these countries to garner political support for reform. This implies that we need strong MDBs with sufficient technical quality, reputation and intellectual leadership and presence to support sound public policy frameworks. And it also means that multilateral development banks need to listen to governments and understand where they can and cannot be useful for middle income countries, for example, the greater value comes from areas of intervention with multilateral development banks are properly articulating their lending with the government's development plans and respond flexibly to the needs stated by the country authorities. A second point is that MDBs are still an important source of public financing and even more so at the low parts of the economic cycle. In times of high uncertainty in the global financial markets, MDB public financing can still be a critical component of the country's capacity to manage their micro-fiscal risks appropriately in a manner that protects economic development and the most vulnerable groups. Because since we cannot forget that middle income countries are still faced with critical developmental challenges, important intra-country differences like high poverty inequality which remains serious problems in most middle income countries in the world we do need the multilateral development banks to still have a presence in our countries. This implies that we need MDBs to be sufficiently large and also financially resilient. Until now, much of these resilience had come from the structure of the MDBs in which advanced development partners could support the vagaries of international capital markets and provide backing and support to the development institution roughly at any point in time. But with this being less and less the case, we need to ensure not only that the MDBs have sufficient resources, but also that they are managed in a way that is more suitable to the new realities. In regional development banks in particular, this will require for the middle income countries to gradually gain greater say and also greater responsibility in building or helping build financial offers to ensure that global shocks that may impinge in the region in a highly correlated manner will not affect the soundness of the multilateral development bank itself. This also requires start using resources ever more effectively. A third point is that when working with the private sector, multilateral development banks are mostly a catalyzer. Certainly, multilateral development banks like the IDV cannot cover all the development needs for the private sector, nor they should. They need to help countries develop deeper financial markets rather than crowd at private sector actors. In this sense, cooperation with older donors and private sector agents to enter market segments that are not being attended due to market failures and the presence of externalities is crucial. We should not see these organizations as competitors, multilateral development banks do not compete between them and in any case, competition is actually a good thing. They need to become useful partners which can help structure interventions that generate an important demonstration effect or that help repair some market failures allowing the private sector to flourish. And last, but not least, multilateral development banks can be a very crucial broker for functional cooperation agreements. They have a comparative advantage helping multiple countries coordinate agendas and resources to development ends. Self-app cooperation initiatives form an important part of these efforts. Thank you. Thank you. Gustavo. Great to have you here. Thank you, Dan. Let me start off by thanking CSIS and you in particular, Dan, for organizing this panel. You've been involved in development finance and development activities for at least a decade longer. And I know you've been a strong advocate for the U.S. involvement in multilateral organizations. So thank you for your thought leadership in this area. What I want to do is provide a brief overview of why the United States is even involved in the IDB why it's important to us. Touch a little bit upon the private sector which I know is a subject that's very important. It's a part of a review that's ongoing now within the IDB which I think can be and should be historic. And then later on in the questions I can provide for their details. But as you mentioned, the bank was established in 1959 by President Eisenhower and then following up very strongly by President Kennedy. Really in the context of the Cold War, we recognized back in the late 50s, early 60s that the region with all the poverty, the lack of democracy was very vulnerable to encroachments by the Soviet Union and their allies. And so we needed to do something to attack poverty and equality in a very direct way which is how we got involved. Happily we won the Cold War that is behind us. But at the same time, we continue to be very, very interested in what happens in the region. First, we don't want any rollbacks. We're very proud of how the region has been democratized. And except for one country in the region, my native Cuba, it is a region that by and large is fairly democratic. Clearly we have to continue to see what happens in particular countries. But the region from a political perspective, from an economic perspective has grown and evolved, matured tremendously since the bank was founded 50 years ago. And the United States is very dependent on the region. A lot of people don't realize that we export more, the United States exports more to Latin America and the Caribbean than we do to Europe. Three times what we export to China, for example. A region that is still developing economically. And so one can only imagine as the region continues to mature economically how much that will mean for demand for goods and services from the United States. So it's critically important that we be engaged in the region. We have shown, at least during the administration, strong support for the IDB when we advocated for help to structure the capital increase that we got a few years ago. Capital increase that doubled the lending capacity at the bank from roughly $6 or $7 billion per year prior to the global financial crisis that began in 2008 to roughly $11 to $12 billion. And I have to tell you that this was not an easy thing to do given the fiscal environment in which we find ourselves in and continue to find ourselves in. Trying to convince the Congress that this was a worthy investment. I think in the end the investment the United States made and taxpayers made was a very smart one. Without getting too much of the details of the capital increase, the portion of the paid-in capital that U.S. taxpayers have to invest in is roughly $510 million over five years, $102 million per year for five years. And that investment is going to support an additional $50 to $60 billion of additional investments in this region of the world that was so important to us. So I think it was a very smart investment from in terms of effectiveness, but also its efficiency. And we are a very strong supporter of the bank and the lending that it does. On occasion we're accused of not caring enough because we might abstain or vote no on a particular project, but overwhelmingly I would say that we support the lending of the bank. So long as the lending is done in a way that promotes strong development, effectiveness, and impact, and of course, long as it's being done in a way that's consistent with the policies of the IDB. With respect to the private sector, this for the United States is a very important area of programming. The charter of the IDB provides, authorizes the bank to engage in the private sector. We'll also do it, as Dan mentioned, through a couple of, a few other windows, including the MIF and the IIC, and also opportunities for the majority. But the bulk of it is really, the big number is done through the bank. And we lend directly to some financial institutions, or otherwise, to private companies in the region. Perhaps the signature investment that we've made is the $400 million investment in connection with the Panama Canal expansion, which is so important and only for Panama, but I think it's gonna have a huge effect in the United States. Vice President Biden was in Panama recently and talked about the kind of impact that the expansion of the canal is gonna have on US ports, a very positive impact that it will have. But the bank, I think, I think we believe that the bank can do a better job in the way that it's now deploying its capital in the private sector, which is one of the reasons why we're engaged in this review of these windows and actually ourselves, what's the best way of maximizing development impact? Really, that should be our primary focus. And then we can focus later on on scalability, how big it should be, et cetera. But we wanna make sure that whatever we're spending in the region, whatever investments we're making, we're doing it in a way that maximizes the development effect of those investments. So we very much welcome the review. It's a review actually that began over a decade ago, and I think we're taking it up again under direct instructions from our governors who earlier in the year met in Panama and decided that instructed the board of executive directors, which is what we set to study this issue and to give guidance to management and to work with management carefully on coming up with different alternatives. Sorry, Gustavo, you guys haven't been looking at it for 10 years ongoing. You're revisiting it after 10 years, correct? That's right, that's right. And just let me just finish by saying that in a couple of the ways that we engage in the private sector, as I mentioned, we do make direct investments in companies, but we also work with the public side of the bank, if you will, working with governments in order to ensure an enabling environment so that private business, private enterprise can thrive. So we work with the governments to identify bottlenecks, to identify regulatory areas that can be, we can bring our expertise to ensure that you can have efficient capital formation in these areas, in various countries, that you can have whatever legal regulatory changes can be made in order to provide for more effective security interests, for example, that can be pledged in order to promote in the finance regions, better ways of identifying property interest, again, for the purpose of being able to finance transactions and being able to enable sales of real and personal property. Those are the kinds of things that we also engage in, about promoting capital markets as well and savings, structural tax reforms, et cetera, anything that really ultimately promotes the development locally of savings and of capital. Thank you. Thanks, Gustavo. Thank you very much. I'm gonna ask Mr. Kistoda to speak next, please. Thank you, Dan, and very good morning to you all. We're gonna have a couple minutes to say something about the IDB and the risk of repetition, even though we all sit on the same board. I will try to go off my script on what I have prepared to try to add some more value to the discussion. I think the role of the IDB and the necessity of the IDB has been very well described and articulated thus far. I think I will look at more of the challenges to the IDB and challenges to the IDB in dealing with small island development states, particularly my experience from the Caribbean. A very good starting point would really be to admit that development is dynamic, that development is not a static state of, could never be a static state of affairs, that development will always be aspirational, and the whole process is really an iterative one, and it's not a state that we can truly say that we have arrived at or we have evolved to, because if we are really thinking and if we are really innovating and if we are really growing, we should constantly keep pushing what is that glass ceiling or what is the barrier of how we think and conceive development. And I think that could be a starting point in terms of the kinds of processes that we're looking at now in shaping the role for the Inter-American Development Bank and the Inter-American Development Bank within the structure of the international, financial architecture. Everything we do is driven by change, everything we do is driven by focus, everything we do is driven by strategy. One must constantly reorient, one must constantly be cognizant of changing clients' needs. And I think most of the change that is taking place and most of the drivers of this change rarely is arising from the way multilateral development financing and the way development financing is emerging within the marketplace. The plethora of new actors, especially new countries on a bilateral basis making development financing available and increasing role of access to capital markets, the role of large transnational firms and a strong voice and innovative development strategies being employed by the enduous sector brings several new challenges to multilateral development banks. And I do believe that this is the context in which the IDB needs to position itself and think about its role and think about its relevance to its member countries in the region. Thinking about small island development states, the constituency with which I represent, as you know, some of the highest indebted countries in the world fall within that category, whereas some strong middle income countries fall into that category. They are all small economies, they are all vulnerable, they're all open to external economic shocks, but they're all open to shocks from climate change in which all development and all development aspirations can easily be wiped out or can easily return to start or return to zero within a day or within two days. These are the kinds of challenges that we must look at and we must be particular cognizance of. I recently came back from a public-private partnership forum in the Caribbean and the discussion hinged on given the high indebted situation in the region and the closure of fiscal space, how do we drive growth? And this growth, everyone, it was the consensus needs to come from and could come from the private sector. This in itself defines a role and defines a space of how the IDB can and could react with such countries. Given that the spaces for policy-based lending is closing, how do we engage in the discussions that we need to engage in? What is the best role for the IDB within the Caribbean in facilitating PPPs? Is it one of access to finance? Is it one of knowledge? Is it one to ensuring that the best practices of PPPs are applied within the region and adapted to the peculiarities of small island states with respect to scope, with respect to size and respect to opportunities? How do we use the IDB knowledge and the IDB relationship with these countries to foster the right type of PPP arrangements that would indeed facilitate the kind of private sector lend road, especially when the fiscal space is closing and the government has few opportunities for fueling such type of growth? There's much talk now as was hinted here on reorganization of the private sector, windows of the IDB, with a view to making it more efficient and relevant to the actors in the region. I do believe that the IDB with its reach in the region, I do believe the IDB with its knowledge in the region, I do believe the IDB with its relationship in the region has tremendous potential to play a catalytic role with the private sector and understanding the government policy framework for private sector growth in the region. This obviously has to be a process that needs to be very well thought of. I do believe the main challenge for the IDB is defining its space. There are many actors, other MDBs, non-state actors, but where does the IDB fit in? Where would it have the most transformational capability? How can it be most catalytic in doing so? And I do believe that that is where we should focus the debate and bring the creative energies of being a multilateral bank, being a bank that has creative institutions like the multilateral investment funds and building on the strengths not only of the IDB as a bank and its non-borrowing members, but using the strength and local knowledge and successes that we have had within Latin America itself over the 10 years, seeing borrowers as well as non-borrowers as partners in thinking through the new development agenda and especially one that is private sector-less. Thank you. Thank you very much. Dr. Cruz, if you would please, just push the button. Thank you, Dan. It's a great honor for me, having been invited to listen Europe and especially in Germany, well-known and recognized institution of the highest reputation. I'm deeply grateful for this invitation. I don't have to refer to the macroeconomic situation of the Latin American countries because all of you know that the macroeconomics foundations in many countries are compared to other regions of the world relatively solid. Of course, we have to recognize that the medium-term outlook is less favorable than in the previous decade, but the latest OECD outlook on Latin American economy, 2013, states that the overall perspectives remain positive. It is nothing new to state that SMEs are of highest relevance for a healthy economy in each and every country. In fact, in a lot of countries, the SMEs are the backbone of the economic success and the wealth of the people. Being a German, allow me a very brief view on the German middle stand to illustrate its importance for economic growth in Germany. Germany has about 3.5 million small and mid-sized businesses collectively known as middle stand. About 99, 99% of all German companies are SMEs. They contribute as much as 52% of total economic output. They are responsible for 37% of the overall turnover of German companies and provide employment for 79%, 79% of the labor force. Many SMEs are global players in valuable niches that are largely invisible to the average consumer, tools, parts, components that are niches that are critical to manufacturing process. The middle stand incorporates companies with fewer than 500 employees or less than 550 million annual revenue. And another important factor is that the training provided by the German middle stand makes a major contribution towards the future of the economy. A major contribution towards the comparatively low level of youth unemployment, we have about 7.5, 7.9%. In Spain, for example, you have 56% youth unemployment. In overall, 83% of all trainees are trained in the middle stand, in the SMEs. So the SMEs form the heart of the country's social market economy and serve as the key engine of growth and employment. I told you this because I wanted to explain the reasons why we in Germany specifically emphasize the SME questions. If you look at Latin American, we find a couple of similarities, but a lot of difference. SMEs are equally a fundamental building block of the productive structure in Latin America, accounting for, as we guess, around 99% of the businesses and employing about around 67% of the employees in the region. However, in comparison, SMEs in Latin America contribute relatively little to GDP, which reflects their low level of productivity. In addition, levels of internationalization of SMEs in Latin America are significantly lower than in Europe and in East Asia. While only around 10% of Latin American SMEs engage in export activities, 40% of European SMEs do so. Therefore, to us, the importance to support private enterprises, to support SMEs in Latin America is one of the keys to a sustainable and healthy development of a country and its society. It also contributes considerably to a much better diversification of wealth and access to goods and services. For us, it is of some importance that all four existing private sector windows of IDB should be part of one effective entity. To achieve a maximum development impact, the IDB's public operations and private activities need to be coordinated in a way that a business-friendly and investment-conducive environment is fostered. This kind of coordination approach requires a far closer cooperation of the public and the private sector landing arms of the IDB group than it has been practiced under the present institutional setup. Despite the numerous efforts undertaken to overcome the coordination challenges. As you all know, Latin America is a continent of mostly middle-income and higher middle-income countries. I would not say at the moment that Latin America is awash with liquidity, but, generally speaking, domestic and foreign sources of investment capital are not short in supply. Argentina excluded, which is a special and totally inadmissible case of its irresponsibility and misbehavior. Latin America has a well-functioning bank banking and financial sector that provided to be astonishingly, astonishingly, astonishingly, astonishingly difficult word for me, sorry, astonishingly crisis resilient during the past economic and financial turbulences. Particularly, larger companies can tap the national and regional capital markets, including through the issuance of corporate bonds as an alternative source of financing. Also of some importance is that IDB is not the continent's sole development bank. This leads immediately to the question, what should, against this very briefly outlined background, what should be IDB's private sector look like? What is IDB's role as an investment financier? The IDB is in terms of financial capacity, a small institution, a small institution. Even under the scenarios geared at maximizing the non-sovereign guaranteed lending, the IDB's groups lending to the private sector represents only a minimal percentage of Latin America's total private sector investment value. Not only for this reason, IDB cannot do everything. The banks resources are to be used for investment expenditures for which alternative sources of finance are not available. The IDB needs to focus on niches in which it can operate with high development effectiveness, development impact, and most important, as we say, additionality. Therefore, we highly recommend a reality check what IDB can realistically finance with the resources likely to be available. The degree of selectivity is a key factor which level of development effectiveness IDB can achieve. As regard to the funding of the private sector operations, I would like to add that IDB should also focus on leveraging its own financial contributions and acting as a catalyst for co-financing and the crowding in of additional resources. We recognize that equity investment is also a key element in this approach. Let me summarize my remarks in specifying a few priorities for IDB private sector engagement as we as I personally see it. First, lending to and investing in companies in countries with less developed financial markets. Second, assistance to micro, small, and medium-sized enterprises with no access to commercial loans, at least not at reasonable rates. Thirdly, supporting companies engaged in sectors such as public infrastructure and agriculture and activities related to green growth, climate change, renewable energy, energy efficiency, and environmental protection. Don't know, fourth, provision of long-term financing in venture capital if otherwise it is unavailable. Fifth, provision of loans denominated in local currencies, in particular to SMEs. Sixth, fostering financial innovation and the development of domestic financial intermediaries through financial lines. And last, development of a counter-cyclical lending and investment pattern as opposed to the currently prevailing pro-cyclical lending pattern. Thank you very much. Thank you very much, Leo. I very appreciate your going into detail on your view of this. I'm quite appreciative and I thank all the panelists, but I thank you in particular, Leo, for those very, very thoughtful remarks. But I heard a number of things from the panelists. I heard some things about the IDB could do a better job. I heard about middle-income countries need a greater say. Barring countries need a greater say. I heard throughout something about what's the role or where its value is, the shorthand in the biz is what's our additionality, which is the fancy term for what's our impact, how are we making, what's our contribution to this, what makes us special. But then I also think, I thought your comments, Leo, in terms of here are some specific areas that in particular, while I have you on the panel, can you, how do you pronounce Schaudenfreude, by the way, since astonishingly is, is it Schaudenfreude, right? Everyone in American English uses Schaudenfreude. Schaudenfreude. That's it. Schaudenfreude. Schaudenfreude. Thank you. Thank you. I was wondering. That bad feeling, you shouldn't have that. No, no, he should never have it exactly. But the, what I do think is when I think about these, when I think about these sort of streams of within the comments, I want me to put to each of you, I thought Leo had a very detailed list that throughout I heard we need to pick, we should pick where we can make a difference, where we ought to add value where we can make, and I think Leo named it listed seven. So let me start with each of the panelists just to reflect on Leo's list of seven, for example. Is this where you would put your, and obviously some folks may not be in a position to say, well, I want to think about this a little bit more, but this is Leo's personal view, but why don't I start with you, Gustavo, you've been in the finance business a long time before you got into the development, before you got into public service. What's your reaction to Leo's suggestion of those seven areas? Well, my answer is I'd like to think about them a little more, but however, there's something that he said, which I think is very important. He put in perspective the size of the lending capacity of the IEB, particularly in the private sector context, in the context of all the private sector financing needs of Latin America and the supply, if you will, of capital that's out there. We provide really a very small amount, and even if we were to double, triple, quadruple, and believe me, we're not gonna get anywhere close to that in connection with this private sector view that's undergoing, it's still gonna have a very minimal impact overall. That's why we have to be very strategic about how we pick and how we choose when to intervene. And I think Leo put his finger on it, is that we should only intervene where there is some kind of a market failure, some imperfection in the private sector that is not making available the capital at the perceived risk levels are so high that we see a worthy activity to engage in, and that's why we wanna step in for demonstration effect, or because, like I said, the capital just isn't there otherwise, and that's where we can have the most impact, I think. So, Maria, you talked about being a catalyst, I think also a little bit what Gustavo was talking about in terms of not supplanting what's already out there, could you talk, what's your reaction to Leo's list? I think it's a very comprehensive list. I tend to agree with it, I would not say that expanding the capacity of the IDV to lend to small and medium enterprises or to micro enterprises is something that would be useless. I think one of the characteristics also of lending to SMEs is that or micro and small enterprises is that you can actually have a very important impact with just even a few thousand dollars. So, really, you do get to develop an important reach when you do the expansion of capital in these institutions. I, with that said, it's also true that the IDV's role, same as in the case of any other multilateral development bank, is not to lend to institutions or to firms that are large and can finance themselves easily, either domestically or internationally. So, there is a balance to be kept. While we cannot cover everything, I also alluded to the fact that there is a very important task in addressing market failures segments of the market in which the private sector is not coming in. Part of it is going to be the IDV going on its own. In some other cases, it's going to come with other development partners. It can be private sector, it can be other multilateral institutions, it can be bilateral funds. Each case is going to be different, but the truth is Latin America and the Caribbean in general and there are many countries in the region which suffer from this. It's a place with a very shallow financial sector. We do need to get in in a significant way and be able to demonstrate that certain types of operations can be done and help articulate this intervention so that others can come later on. So, having capacity to do that I think is and enough resources to do it in a way that it becomes clear that that impact is there and that others can come in after us is I think very important. Kurt, you talked about the new actors, the increased access to capital markets. You talked about the need to understand where to add value. Could you, in relation to your comments and in relation to Leo's comments as well as the other panels, would you just like to respond to that? Do you agree with sort of that? Is that the universe that you would agree to? I could agree in general to Leo's comments and I think the real starting point on what I think I repeated maybe too much in my opening comments is the challenge for the IDB to define its space and define its role in facilitating private sector led growth. And what can the IDB bring to the table and what can it do best? And there's a lot of buzz on the talk about capital and I want to say that it will be wrong to assume that part of the problem of financing private sector led growth in Latin America and the Caribbean is capital. I think in many cases and many instances if a proper diagnostic is done that capital itself or the availability of capital may not necessarily be the problem. The issues may rarely be how to leverage capital or how to access capital or how to make available capital relevant to the financing needs. And many of my colleagues made the point of the large SME sector in Latin America and we should also recognize and talk about the large informal SME sector in Latin America and herein lies an opportunity for the IDB as well. For example, giving us whole knowledge and working with governments and working on the policy side and guiding the kinds of reforms that would allow the formalization of the informal sector and then supporting that with the kind of financing and capital tools and let me just give an example. I just came back from leading a private sector mission of the bank to my own country, Trinidad and Tobago where we had the highest levels of the private sector executives of the bank represented and it was very clear that there was no issue of liquidity and there was no issue of capital within the banking system but that the traditional commercial banking system in my country does not have the risk tools, does not have the guarantee tools, does not have the knowledge tools in knowing how to translate the excess liquidity into financing products to stimulate private sector growth and development. When you have traditional private sector lending that is based on assets to leverage financing, how do you translate that to based on lending for cash flow? How do you unleash capital to facilitate lending for innovative thought? We live in a knowledge growth and knowledge led economy, innovation is going to come through knowledge. Where are the financing products in the region and this is not a Caribbean problem, I think it's a Latin America and Caribbean problem as an example do we have the necessary financing products to finance ideas, to finance innovation where there's no asset or there's no necessary determined cash flow now and I think we need to take the debate and we need to take the discussion out of the narrow focus of only capital or we need to take the debate and discussion of what is the IDB and what are the specific needs that our strengths can meet and where can we be the catalyst and anytime we limit our thoughts that the issue is one thing or the other, I think that is where we begin to confuse what can be done or cannot be done and I think very important for multilateral banks in general is the issue of partnership which was alluded to by many of my colleagues and if you look at the actors within the global market space the participants in development if I'm to pick the NGO sector only I think NGO sector has evolved in the last few years from being advocacy to monitoring and evaluation but to finance as well. The mere fact that we live in a world where we now have impact investment fund means there's a whole blurring of what is traditionally the role of a multilateral development bank in financing development and the role of entrepreneurs in financing development and I think the monopoly of policy and financing policy led growth both in the public sector and private sector that monopoly is being diluted from multilateral development banks and there's a blurring and emerging of that into the private sector and into the NGO sector so we're really seeing a big division of the pie but with our straight lines it's all blending, it's all merging and that's why I said let us not look at it as static the rules are significantly changing we are living in the development world where the rules are changing and we're financing for development as we traditionally think of it is not the way it is evolving and in thinking about the reorganization and the reform of the private sector just to summarize my thoughts we should not limit it to an issue of capital and we should understand the role of the various actors we should understand the impact of the various actors can make we need to admit the shortcomings from a policy side that is tapping private sector led growth in Latin America and the Caribbean I do believe that the IDB given this long experience on the policy side we need to understand this well and we need to be a partner bringing all this together to really find the spaces within which we can have that catalytic effect for the good that we see there's a lot of thoughtful people in the room and I could ask several more questions of the panelists but I'm looking at a number of folks that I know are either at IFC or they've worked in philanthropy or they've worked at AID who are in the audience and as part of sort of this broader conversation I know we think about comparables like the nexus of USAID trade and development agency OPEC, the EXIM Bank in the U.S. context or we look at in the Dutch context you have the Dutch aid agency along with the very interesting development institution FMO you have at the World Bank Group IFC which combines both technical assistance they call it advisory services along with equity investments along with lending and investments and funds in one entity which was a comment that Leo made that perhaps that you know at the same time there's also we've been having a conversation here at CSIS about the fact if money's not the vector if it's about being a catalyst and it's about networks and knowledge networks and providing expertise then maybe it's not necessarily the traditional metric has been how much ODA are we spending or how much money are we pushing out the door what's our volume in a lot of these development finance institutions at IFC if you were an investment officer you were a bigger deal if you were lending more money as opposed to less if you had a bigger bilateral aid budget that was more important and better in this new world if what I'm hearing from the various panelists says that well money may not many is important but the vector of other things it's about being a catalyst it's about having knowledge that maybe perhaps maybe based on Kurt's comments maybe it's not just about what's the size of the amounts of money that you're pushing out though to be financially viable given the current model of a multilateral development bank you need a certain amount of money that you're lending out every year to kind of keep the lights on I'm very happy to call on people I know that so I'm hoping that some of the folks who I'm hoping are going to speak will speak so why don't we open it up and let's see what hands come up otherwise I'll start calling on people okay my friend in the front row here and we'll do this world bank style we'll collect two or three questions if you can identify yourself just in the form of a brief statement or a question my name is Peter Cleves I'm from the Inter-American Development Bank as a consultant for the MIF and also as a foundation official with Avena and the Ford Foundation worked in many of the main objectives now what I've heard on the panel is again beginning with the idea that the money is not the primary resource the IBD has I heard what the attributes that you do have would have to be mobilized one of them is the hurdle rate use money to lower the hurdle rate to reduce the risk in a certain investment for the private sector legitimize an investment because of your presence and your reputation provide monitoring and evaluation support because of your network of offices and then use your links with government better than the private sector in many cases to improve financial markets and regulations and financial institutions the goals of the donors one SMEs, support SMEs employment close the income and quality work on climate control, strength in civil society debt relief, fortify links with the dynamic markets China and India and also continue lending knowing institutions there's the momentum factor to what degree really is there a possibility of making significant changes when you have a lot of interest in maintaining each of the activities that are current present does the do the donors have enough ability to work among themselves to really set out what the real priorities of the organization should be and second can you get the institution actually to abide by it when they all want to do their own things they've been doing all along Peter one or two other questions or comments I'll take one more if not I think Peter this gentleman here my name is Andrew you I'm lead counsel Deutsche Bank for Latin American Caribbean just to give a perspective I guess a private sector perspective and I know that the IDB has been and just to take further this idea of partnership between public and private sector and also what Dr. Croyts and Mr. Arnovat mentioned about that IDB could be very useful to fill in gaps where there is a market failure for example there's possibly been a long history between IDB and the private sector in financing for example in terms of the A and the B loans and certainly seen a lot of transactions where the IDB and other private sector branches of say the World Bank have acted together with multilaterals in partnership I've seen recently though following the financial crisis many more impediments placed on activities of banks primarily in terms of say bank regulatory capital and leverage ratios which has really put a break on activities of banks such as Deutsche and other investment banks in terms of making loans into Latin America I would imagine that in these situations the ability of institutions such as IDB and IFC to partner with the global investment banks would be very welcome and I'm just wondering if there has been if you've seen much dialogue between the IDB and the private sector there's been an increase in the dialogue since the financial crisis so one question on political willingness of shareholders to make some sort of change and thank you Peter for that question I was thinking that myself and then I think the other question is sort of the changing global financial environment I also think of things like Basel III sort of the changes in regulation that have made less financial capital available as well as frankly in this country Dodd-Frank to some extent has impacted things like SME lending capital funds that are available in Latin America that do have sort of maybe perhaps not unintended consequences but perhaps as part of this financial regulatory change financial regulatory environment there is less capital and so perhaps it increases the role for organizations like whether it's the African Development Bank and the African Context I've certainly seen that where there's been less money available from money center banks in Europe for infrastructure financing in Africa and there's a lot more opportunity if you have each of you all would just respond to each of those questions and if we do it economically we'll take one or two more questions from the group so I'll start with you Gustavo Peter's question I agree change management is difficult particularly for an organization that's been around for over 50 years as large as it is but we have a few things I think going in our favor one in connection with the capital increase it wasn't just an agreement that we had on an increase in the capital of the institution but also about important reforms and important priorities so this was an opportunity for the shareholders to come together and identify what kind of a bank do we want to be or modalities how do we want to do what it is that we're trying to accomplish and among those was a recognition that we needed to invest more money in the small and vulnerable economies in the region and also a greater priority for clean energy and renewable energy so for example beginning in 2015 25% of our projects have to be in clean and renewable energy also climate change mitigation those are an important priority identified by the United States working with other shareholders the other thing is that actually a couple of other things I want to mention is that I think all the shareholders recognize that we have to do a better job when it comes to how we're deploying our capital in the private sector so there's a recognition of that I don't think we have to convince too many people of that and how we get there of course is subject to a conversation we're currently having I don't know where we're going to end up it's going to be a multi-year initiative and so I think we have to be patient we have to work I think all of us very hard in good faith to try to improve the operations of the bank in the private sector but I think we're very much committed to doing that and the last thing I want to mention which is the issue of relevance one of the things that I'm particularly proud of is this is the bank because it is owned because the majority of the owners are borrowing countries and they have the greatest mistake in the bank they are the ones who are using the capital and at least under the current management I give them a lot of kudos I think working very closely with the various countries identify the needs clearly identify where the capacity is the bank to meet those needs but really trying to do the best they can to remain relevant and I travel through the region that's one of the things I hear the most about the current management and how the relevance today is greater than I think you know it's ever been and one of the ways what some of you know Kurt mentioned is how we're working with the social entrepreneurs and this is I think I give a lot of kudos to the leadership of the bank that really focuses on this particular area which I think can have a lot of impact going forward okay we'll just go down the line here Leo why don't you respond to those Maria thanks Ben I think the a bit general answer to the different questions is to state I think that private sector activities of a development institution are not valuable as such some people might think so but I don't don't think so they are valuable and they are important because they these activities are used to initiate developing processes so the private sector activities whatever that might be of a development institution like IDB must have a development effect the private sector I always say is not the golden calf where we dance around and praise it for it being a golden calf but we need the private sector engagement to have certain purposes secondly I would say what I mentioned already briefly in my statement the bank cannot cannot be will not be cannot be a competitor to the commercial banks to the commercial sector the commercial lending institutions that role is for certain reasons impossible to play for the IDB because IDB is much too small as I said and IDB has not the capacity and cannot really and should not compete but IDB should use the commercial sector the for example supporting SMEs you cannot do directly of course you need the commercial banks but the commercial banks don't do that very often because they need a security so you have to establish incentives you have to establish what the bank is doing already but to do that more extensively to give guarantees to commercial banks credit lines so they can make use of them then giving that out to SMEs for example and there are many other aspects but for example the training it was mentioned by court I think and by Maria and by one of you people the training not everybody not every SME is a valuable SME guy who is around the corner grilling bratwurst might be of some valuable for the consumers but not really valuable as being productive he or she can develop can develop if he or she gets training if he or she gets access to a limited to a responsible amount of credit but again this has to be thought out and that's best has to be done by let's say commercial banks which are close to the people which know the situation in particular the local situation so and that needs again training training for the people in the commercial banks who are who are who are selected or who are identified to do this job but again you cannot expect from a commercial bank to take this costs you know you take this risk that needs to be secured for example by a credit line or by a grant or what have you of a bank like IDP so not being competitor but using the commercial banks as intermediaries to reach this development the fundamental relevant aims thank you Maria thanks okay one thing I would like to say is that there is a difference between saying that the IDP or any multilaterally in general because or even a domestic development bank needs to act as a catalyzer or resources and saying that the scale at which it operates doesn't matter I think those are the different things and are complementary because right now I think the discussion kind of switched into saying well you know if you're a catalyzer it doesn't matter what size you are the magnitude of your operations and I do think both are complementary are not competing you can do more catalyzing with more resources you can do more operations in more countries at the same time or touch on different segments that are not being attended to so one thing is not against the other anybody's pretending that any multilateral development bank should go and cover all the needs that are there in the region because that's I mean it's impossible not all the multilateral development banks together can do it but I think there is a balance there is another element too which is when you're trying like we're trying now because when you're thinking of strengthening their role that you have on how you interact with the private sector and you try to switch instruments or not to switch but to widen the number of instruments that you have available and you try to do for example more equity that also has a financial aspect of it that side that you need to think of because you are also talking about a financial institution which is the multilateral development bank which is going to engage in different type of operations it's not the same thing in terms of capital requirements to make a loan and to make an equity investment so if you're trying to be engaged into new ways of interacting with the private sector and that also entails doing more equity which is something that for example we're talking about right now at the IDB that also has a minimum requirement of what you have in terms of equity in your balance sheet and that's the solution and there is a minimum that you need to show that you can actually do those operations to have the impact to have the the reach and to make it sustainable financially for the institution itself because you have to think of the two things right so I just wanted to mention that it's not it's true that serving as a catalyzer is important I think that's the role of the development institutions but thinking that you can do that with nothing would also be a little bit far rich. Regarding the political aspect of it I think I think in general there is quite a bit of consensus at the IDB in particular that we need to do the most we can with the resources and that there is some focus that has to be had and there is some need for strategic and medium term planning in terms of where we want to get. With that said I think one of the comparative advantage and here I'm going to go back to the public sector aspect because the fact that we are expanding or strengthening our activities on the private sector doesn't mean that we are abandoning the public sector role and one thing that is important and I alluded a little bit to this when I did my first statement is that the more we deal with middle income countries that have better institutional frameworks and better policy frameworks the best way to engage with the public sector for these kind of developing banks is to engage with, articulate themselves with the public sector national development plans. I mean you do have a policy framework that is dictated by the government and then the IDB comes and has a very good dialogue it has in my opinion the comparative advantage of the IDB is that it knows how to insert itself flexibly in those programs that the governments are having so that requires focus but it also requires some flexibility and some capacity to adapt to whatever these governments are starting to need and the region is changing and is developing different needs and in that case the bank also needs to learn to evolve and to be able to respond to those needs. Thank you. I will start with Peter I will start simply by saying necessity drives change and from what was said if you look at the variety of countries within Latin America and the Caribbean which are members of the Inter-American Development Bank you have heavily indebted countries or countries who cannot borrow anymore or countries who have no access to capital markets with very little space to absorb any more public sector financing. You have larger countries middle income countries who have access to international capital markets so governments can access high levels of financing for public expenditure and you have large bilateral arrangements for financing of public sector projects and infrastructure works so I think by necessity the IDB in dealing with the challenges both of the needs of its membership and for the role that it can continue to play to maintain relevance necessitates a need towards moving towards enhancing its engagement with the private sector and enhancing the way it deals with and its capacity to manage the private sector needs in the region so I think necessity given the drivers of change and the political consensus and willingness that exists will lead the transformation but as you said in any bureaucratic organization change management and transformation is indeed a process and it takes focus to manage that but I remain fairly optimistic that there is the will there is the organizational will there is the political will and I think the driver is really the necessities that exist from both the client point of view and from both the bank remaining relevant point of view I accept that in terms of access to finance I think that Basil Tree and Dot Frank has has shrunk some of the availability to doing business with a traditional sector for which finance has been available and again this with the improved need for financial governance both in the commercial banking sector and in the rural development banking sector forces forces an institution like the American Development Bank to start to think deeper into partnerships to start to think deeper into engaging with and dealing with new and emerging actors to really summarize what I think is the role of the IDB it is to leverage its knowledge it is to leverage its relationship and to echo Maria they must also have the necessary and optimum level of financial capital if the bank is to leverage its high capital of knowledge and its high relationship capital it must have that sufficient and necessary and optimum level of financial capital to have a truly transformative role in development in Latin America and the Caribbean well I think we'll have to leave it at that thank you all and please join me in thanking the panel