The Inter-American Development Bank and the Global Financial Crisis: Promoting Productive Development

Abstract

This paper reviews the response of the Inter-American Development Bank (IDB) to the 'global financial crisis', against the background of its analysis of regional development priorities prior to the crisis. Between 2003 and 2009 the Bank developed a focus on 'productive development': 'industrial' policies for open national economies in an integrated world economy, with an emphasis on productivity-enhancing social and labour-market reforms. Its response to the crisis reflected the fact that as far as Latin America and the Caribbean (LAC) was concerned, it was short-lived, and gave way to a phase of global rebalancing in which conditions for renewed growth were largely benign (with easy access to capital and strong demand for commodities), but at the same time variable in their impact, and fraught with risk. The period between 2008 and 2013 was as much one of opportunity as crisis; production and trade were as significant as finance, though there were financial risks that needed to be managed; and intra-regional variation was as important as 'global' impact. The Bank consistently stressed the need to be ready to restore and maintain the momentum of productive development once the world economy as a whole emerged from the crisis period. In 2013, as the crisis drew to a close, the Bank again highlighted long-running problems of low productivity and domestic savings, and identified the prevalence of informal labour and inefficient firms as the principal obstacles to sustained growth. It argued, therefore, that policy should focus on the reallocation of resources, the elimination of perverse incentives, and the promotion of productivity-enhancing structural reform.