Bank Tries New Approach to Latin American Poverty

Much of Latin America has rejected the macroeconomic advice offered by Washington's financial institutions. The Inter-American Development Bank, recognizing the resistance, tries a new initiative.

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Some top economists have been meeting here in Washington this week to face a key question: Why is most of Latin America still so poor? For decades now, financial institutions based in the U.S. have promoted market reforms. Continued poverty has only turned Latin Americans against those reforms.

Here's NPR's Michele Kelemen.

MICHELLE KELEMEN reporting:

The president of the Inter-American Development Bank, Luis Alberto Moreno, of Columbia, has clearly taken notice of the political shift to the left in Latin America.

Mr. LUIS ALBERTO MORENO (President, Inter-American Development Bank): Institutions like ours always have to question the relevance. I think that is the trick to development.

KELEMEN: To remain relevant, Moreno enlisted big name economists, such as Hernando de Soto, to try to find out why the majority is still so poor, and what the bank can do about it. De Soto, who is President of the Institute for Liberty and Democracy in Peru, had some interesting findings: that the poor have assets worth much more than any financial institution in Washington can offer.

Dr. HERNANDO DE SOTO (President, Institute for Liberty and Democracy): The amount of resources that the poor of Latin America have in their hands are actually somewhere in the region of 40 to 90 times greater than all international organizations. The thing is that they aren't being put to good use.

KELEMEN: De Soto says the problem is that the majority of people lack simple legal tools. Small businesses can't get loans because they don't have property titles. In Mexico alone, he says, 94 percent of all enterprises don't have access to formal credit.

Dr. DE SOTO: Basically, credit is about having something to lose in exchange for somebody else's trust. Well, what happens if there are no titles to transfer? There is no credit. So what we're saying is being outside the law, not having property, not having enterprises that have shares - just two small little items - you're out of capital and you're out of credit; there's no way that you can grow.

KELEMEN: Mark Weisbrot, of the Center for Economic and Policy Research, thinks the Inter-American Development Bank is missing the big picture.

Dr. MARK WEISBROT (Co-Director, Center for Economic and Policy Research): In the last 25 years, you've had the worst economic growth performance in Latin America in over a century.

KELEMEN: Weisbrot blames the prescriptions from Washington that included privatization and tight fiscal policies. He says voters in half a dozen countries in the region have rejected this so-called Washington Consensus.

Dr. WEISBROT: Argentina, Brazil, Venezuela, Ecuador, Bolivia, Uruguay, where candidates ran very explicitly against what they call neo-liberalism; these candidates have won.

KELLY: Economists Hernando de Soto recognizes that the voters have come out against the Washington Consensus, but he doesn't see the tide really shifting.

Dr. DE SOTO: I don't think that anybody in his right mind in Latin America has proposed changing the rules of the Washington Consensus. I mean, you can kick it around. You don't like it. But they're all going for those fiscal policies. It's been 20 years now and they're doing it.

KELEMEN: The president of the Inter-American Development Bank says one thing he's taken away from this debate is that it's not enough to focus on macro economic policies. That's why he's launching a new initiative this week to focus on the micro, and to try to reach the majority of people untouched by market reforms.

Michele Kelemen, NPR News, Washington.

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