IDB Roundup

For the Inter-American Development Bank, the top issues at its annual meeting was to press the case for member countries to replenish the bank’s coffers to boost future lending. But the March meeting, held this year in Medellin, Colombia, was as much a place to ply new ideas, as it was for broaching the issue of raising new capital. 

Paul Collier, a professor of economics at Oxford, suggested one solution to populist anger over how the financial sector pushed risks to the limit and world financial markets to the brink. Countries should create the equivalent of “manslaughter” charges for financial crimes, Collier suggested at the IDB Seminar “Facing the Crisis: Economic and Social Policies for Turbulent Times.” 

Just like in criminal manslaughter, a person could be held liable for engaging in reckless financial behavior that caused harm to others, Collier said. “If [financial managers] would be criminally liable for reckless behavior, that would be a way to privatize losses,” he added.

Nobel economics prizewinner Robert Merton suggested the way to make the mega-bailouts of banks, carmakers and other companies more palatable to the public. “It might be sensible to create a sovereign wealth fund like Norway” did, said Merton, a professor of economics at Harvard Business School. There might be fewer objections to the government ending up with assets “if we put [them] in a sovereign wealth fund and say we are going to manage it in the interests of the American people.”

Most Latin American and Caribbean economic authorities scored high marks for taming out-of-control spending and reducing public borrowing. So the few voices of concern over the possibility of private sector debt problems in some of the countries came as a surprise. But over-borrowing at a time of increasingly difficult access to global financial markets could increase the financial vulnerability of a number of companies.

“The region has very high foreign reserves,” said Alicia Barcéna, executive director of the Economic Commission for Latin America and the Caribbean, based in Santiago, Chile. “The private sector is much more exposed than the public sector,” Barcéna told a LatinFinance breakfast.

Barcéna was echoed by Joydeep Mukherji, a credit analyst with Standard & Poor’s, who said rising foreign debt owed by private corporations could pose problems if the worldwide recession persisted. Good debt management by the public sector raised the ratings on sovereign bonds. “It set the conditions for the private sector to borrow more,” Mukherji said, adding that in some cases private sector losses could become public sector debt.

Placed in out-of-the-way offices, non-governmental organizations tried to make their voices heard though meetings with IDB leaders such as President Luis Alberto Moreno, and others. Groups like Amazon Watch view the replenishment of capital for the IDB as an ideal time to review the issue of more public involvement in bank lending. “Civil society should be part of the process,’’ said Atossa Soltani, the executive director of Amazon Watch.

Clinton’s First Encounter with Colombia

Former U.S. President Bill Clinton insisted he skipped the law books to lose himself in reading Gabriel García Marquez’s One Hundred Years of Solitude. “It’s true,” Clinton told a packed audience in Medellin. “I read it all through my class, and it caused a scandal, and my teachers got mad at me.”

Clinton said the book’s depiction of violence and social unrest in Colombia made a bad first impression. “I stumbled on to García Marquez’s book and I thought ‘I’ll never come back.’” But he said he had subsequently fallen in love with Colombia and visits often. 

Caption: Former U.S. President Bill Clinton offered insights into his own introduction to Latin American culture as he addressed issues of the global economic crisis and possible responses to promote development in Latin America and the Caribbean.