FROM THE OFFICE OF PUBLIC AFFAIRS

President Iglesias, fellow Governors, ladies and gentlemen: on behalf of Secretary Snow, I would like to thank Peru and Minister Kuczynski for hosting our meeting.  President Bush places great value on our relations with Latin America and the Caribbean, and on the work of the IDB.

Increasing Economic Growth in Latin America and the Caribbean

 I am pleased that since we gathered together one year ago, important progress has been made in reestablishing economic stability following the shocks and uncertainties of 2002.  Improved macroeconomic policies have underpinned many of these improvements, thanks to the leadership of many in this room.

 With progress towards stability, policymakers can rightly focus on increasing growth.  While the region is recovering—real GDP growth in the region is estimated at 1.6% for 2003 and projected at 3.8% for 2004—we can agree that growth has been unacceptably low for the region given its potential. 

Raising economic growth—specifically through productivity growth—is the lynchpin for improving living standards.  The link between growth and poverty reduction is unmistakable.  In this current widow of opportunity, reforms to lock in solid macroeconomic policies are essential.  Many countries in the region are making progress in enhancing debt management, improving monetary policy, implementing structural fiscal reforms to strengthen tax administration, institutionalizing spending discipline, and reducing rigidities in public budgets.  

But macroeconomic stability, while necessary, is not sufficient for spurring growth.  Addressing microeconomic impediments is an indispensable part of the growth agenda.  This means strengthening financial sectors and expanding access to financing for the private sector, particularly small businesses; eliminating labor market distortions; investing in education and infrastructure; lowering trade barriers; improving investment climates, fighting corruption, and encouraging entrepreneurship; and harnessing the full development potential of remittances.

Let me say a few words about the role of the US in this effort, and what the IDB can do to support the efforts of countries in the region interested in pursuing this agenda for growth.

U.S. Agenda for Increasing Economic Growth in Latin America and the Caribbean

 In addition to a large bilateral development assistance program, the Bush Administration is pursuing a variety of initiatives to lay the foundation for higher growth in the region.

For example, we are promoting an ambitious trade agenda in the Hemisphere.  The U.S.-Chile free trade area agreement is complete, and an agreement with five Central American countries and the Dominican Republic has been negotiated.  We have announced negotiations with Andean countries and with Panama.  We will replicate the successful trade capacity building initiative in our dialogue with the Andean countries.  Our efforts toward a Free Trade Area of the Americas continue.

We are also working to facilitate access to a powerful source of funds for development:  remittances from workers in the United States.  Building on the groundbreaking work by the MIF, the U.S. has worked to promote increased competition and expand access to the financial system.   The U.S.-Mexico Partnership for Prosperity helped halve the cost of remittances from the United States to Mexico since 1999 and bring more remittances into the formal financial sector.  The United States is committed to working with Latin America and the Caribbean to achieve the Summit goal of halving the average cost of remittance transfers to the region by 2008.

In addition, we are honoring our Monterrey Consensus commitments by tying increased development assistance to performance through the Millennium Challenge Account (MCA).  This fiscal year, several countries in Latin America and the Caribbean are candidates for MCA funds. 

The Role of the IDB in Increasing Growth

We have been working positively and constructively with IDB Management to help implement our vision for improved effectiveness at the MDBs.   This includes emphasis on economic growth and managing for results. We believe the IDB must give greater attention to managing for results, and expect that through the Office of Development Effectiveness the Bank will establish a comprehensive results measurement framework. 

President Bush is an active proponent of grant financing for development, particularly for the poorest countries.  Therefore, we continue to urge discussions about how the IDB can provide grants to the region, including through the Fund for Special Operations.

As donors, we are very interested in seeing results from the use of our money and intend to monitor this more closely than in the past.  But we think borrowing countries, who provide capital but also pay interest on loans, should be even more interested.   Therefore, we would like to see the IDB publicly disclose information on progress during project execution.  Transparency of results can be a powerful vehicle for increasing effectiveness and accountability.

       Effectiveness and accountability are also hampered by corruption.  President Iglesias made a bold commitment to several governance initiatives last year in Milan.  Since then, the Office of Institutional Integrity was created, an important step.  The new information disclosure policy puts the Bank ahead of other MDBs in some areas.  The review of procurement is another area in need of change.  We want to work with Management to implement new policies and procedures to achieve accountable, transparent and efficient IDB corporate and project procurement systems. 
 
Development of a vibrant, entrepreneurial private sector is indispensable to economic growth and poverty reduction.  To catalyze growth, one of the IDB’s most effective tools is its relationship with public and private sector actors.  The Bank’s new private sector strategy recognizes this, and seeks to maximize the IDB’s impact on private sector development.  We look forward to Management’s implementation plan to realize the promise of this vision. 

Consistent with the private sector strategy, we believe consolidating the Bank’s private sector activities into one operational unit will increase efficiency and leverage the strengths of the IDB Group.  Therefore, would support a merger of the private sector department into the Inter-American Investment Corporation to form a new IIC.  Of course, this merger must be done on a scale that is financially viable for the Bank and new IIC.  It must also preserve the focus on small and medium enterprises and retain expertise in private sector finance for infrastructure and the broadening and deepening of capital markets.  It will likely require a high-level person to coordinate and bring order to the Bank’s private sector activities, both operational and policy, on a temporary basis.      
   
This proposal is strengthened by the Memorandum of Understanding between the IIC and Multilateral Investment Fund to collaborate on finance for small and medium enterprises.  The IIC and MIF are each ideally suited to establish this program.  We wholeheartedly support this initiative.  By combining the strengths of the MIF and IIC in a coordinated fashion, we also believe the Bank group will be well positioned to help realize the 2007 goal of the Nuevo Leon Declaration of tripling credit to SMEs.

The MIF is also the primary IDB vehicle to provide grant financing to the private sector.  In the MIF, grant financing funded projects with demonstration effects to show how changes in public sector policies and practices create private sector benefits.  We are particularly interested in seeing MIF resources directed towards the poorest countries to reduce the time it takes to start a business.  If we are serious about creating jobs, the average number of days to start a business in Latin America, which at seventy-one is the highest of any region in the world, must be reduced. 

In conclusion, I think that important progress has been made in strengthening the region’s economies over the past year.  The ongoing challenge is to lay the foundation for sustained economic growth.  The IDB is moving forward on important initiatives to improve the overall environment for growth.  By working together, we can create and maintain the policy and institutional environment that underpins lasting development and makes assistance truly effective.   The United States is committed to working closely with all the countries of the region in this effort.