DAVOS, SWITZERLAND A Latin America appears again. While the region was once seen as a source of problems in times of crisis, it is now seen as part of global solutions Climate urgency and that Green agendasaid the president of the InterAmerican Development Bank (IDB), Ilan Goldfajn.
In an exclusive interview with Estadão/Broadcast during the World Economic ForumIn Davos, Switzerland, Ilan highlighted the region's growing importance and said it expects to increase the IDB's lending potential by $132 billion over the next decade through a capital increase.
In his opinion, Brazil could become a reference in the development of a regional market for climate finance if projects already underway progress.
According to Goldfajn, both Mexico and Brazil are growing faster than previously expected. Photo: Hélvio Romero/Estadão
Below you will find the most important excerpts from the interview:
Davos has been the scene of important debates around the world, with rising geopolitical tensions, low economic growth and uncertainty about the impact of artificial intelligence. What reading do you leave here with?
In 2023 the world was better than expected. Everyone thought there would be a recession, but that didn't happen. We finished 2023 with falling inflation and the prospect of a rate cut, the economy hasn't slowed down that much, so the feeling is better. There is a global tendency towards fragmentation with all the global conflicts. The question remains how to work on it.
This was a main theme of the forum… restoring trust…
Rebuild trust because it has been broken. The world is very fragmented. There is little trust, a lot of geopolitical conflicts, countries doing business with those who are friendlier or closer.
There has been a lot of talk about the end of globalization and a division of the world into two, with the West on one side and countries linked to China on the other. Do you see this division?
I prefer the term fragmentation because there may be multiple initiatives rather than just two sides. “Nearshoring” (moving production to countries close to the desired market) has fragmented the world.
And how do you see Latin America in this context?
Latin America occupies a special position because it benefits from many of the consequences of this situation. Mexico benefits from “nearshoring”. The race against global warming benefits countries like Brazil that have renewable energy sources. Conflict also raises an important question about food security, and here too countries like Brazil offer an option. It is a time when Latin America is reemerging because it has a special role to play in this global context. But we have conflicts, wars, divisions. How can you regain trust?
Forecasts for Latin America have improved slightly this year, but still point to low growth in the region.
We have many lost decades behind us. Forecasts always suggest that there will be an improvement next year or two years from now and that growth never happens. We are now in a time where both Mexico and Brazil are growing faster than previously thought. Is this already a sign that Latin America is occupying a new space and surfing this global moment? Could it be. Latin America is part of global solutions. The world needs Latin America. It is no longer just Latin America that the world needs. It became something more symmetrical.
How does the role of the IDB fit into this context?
The IDB took over the presidency of the multilateral and regional development banks this year, at a time when there is much talk about reforming these organizations. We work with a global agenda. It's not that easy because the world demands a lot and there isn't enough money for everyone. But there is a cooperation agenda.
And what was the financial interaction with countries like?
The IDB conducted the world's largest debt swap with Ecuador at $1 billion, and now everyone wants in on it. It was an exchange of the old debt for a new one with the bank's guarantees. Of the $1 billion, half of the funding will go toward protecting the Galapagos Islands. Now Barbados wants a debt exchange for climate protection, Panama for health.
What about climate change?
We had a hurricane in the Caribbean and Mexico, fires in Chile, the worst drought in 100 years in Argentina and Uruguay. There were several events and the countries of the Southern Cone called for a protection network against global warming. That's why we developed clauses in the loans that if the country is affected by a climate disaster, it has a twoyear grace period without paying the debt repayment amount. The country has suffered, it has no money, it is not to blame for the climate event, it has to spend money and at this moment we are in greater need. But that's not enough. We are currently working on section 2.0.
What would it be?
It is, so to speak, an insurance policy that countries can access in the event of climate events and where the IDB will pay the premium for this option. Then the hurricane came and the country didn't have to pay anything for two years. This is a new feature that we have not installed yet. We are now asking the states for money to strengthen capital.
They said that countries demand a lot from the IDB. And Brazil?
The IDB helped Brazil structure green bonds as part of a $2 billion mission, and the country asked us for help with the exchange rate issue for climate finance. We're working to see if we can make progress here. It can be innovative. Due to the interest rate structure in Brazil, it has always been difficult to hedge longterm exchange rates and therefore you have less investments. In order to increase climate finance, this risk must be addressed. If we succeed, this will not be a Brazilian problem, but a global one. Everyone is talking about it. The World Bank and IMF want to develop local markets for this. If we can do something that works in Brazil, it will spread around the world.
And when does it appear?
The teams work intensively. My team is in Brazil this week. They speak to the central bank, the National Bank for Economic and Social Development (BNDES). We talk to everyone to see if our ideas are feasible. It's the technical part. We have to see how we implement it.
When?
The idea is as quick as possible. It won't be years, but months.
And the financial potential of this project?
The IDB will start with $2 billion in the liquidity fund and $1.4 billion in the currency swap. It's $3.4 billion, that's the beginning. These numbers are close to the required volume, obviously slightly higher. But that's the beginning. When it reaches a global dimension, the sky is the limit.
Haven’t banks done this kind of work before?
Private banks are always thinking about it and are willing to do it, but it is an expensive solution that cannot be developed further. Things end up happening, but on a smaller scale. What changes today? Given the problem we face and the time we have, the scale needs to be much larger. If you believe in global warming, and I think there are few deniers these days, time is against you. It is the tip of the iceberg that could be scalable if successful.
Is the currency hedging project for climate financing the focus of 2024? Any other measures?
We have several actions related to Amazônia Semper and several other projects. Brazil was the country where we paid out the most in 2023. We have projects in all sectors and ministries. We are helping to organize and finance the G20 summit with the Brazilian presidency, as we did in Argentina. The same applies to COP30.
And what is the payout outlook for Brazil this year?
Teams are starting to work on a number, but I think it can be higher. I am more ambitious with regard to Brazil, but also Latin America. The IDB has more lending capacity and I want to take advantage of it. The big limitation is to have good projects because we don't waste money. Money to finance liquidity is held by the IMF or goes to the market.
Do you see this in Latin America?
At the moment I understand. But it's a cultural change when you look at the impact, and it can't be solved tomorrow.
How are the talks with Argentina going in the new government?
Argentina has often been asked for fiscal consolidation. The country spent much more than it earned, leading to deficits, inflation, instability and budget imbalances. This new government says they're going to do it a certain way, they want to do it quickly, they want to do everything. From the conversation with Javier Milei's government, the IDB says this is great. The bank is here to help with this consolidation so that it is as efficient as possible.
As?
It is good to consolidate to protect the most vulnerable. Not only is it fairer, but it is also socially sustainable.
His management also comes after crises at the IDB, including ethical scandals…
Exactly. It was a year in which we solved several problems and stopped fighting. And this year we will present our 2030 strategy to the Board at the annual meeting in March in the Dominican Republic.
What's the big issue?
The focus of this agenda is to focus on climate and social issues. What matters is how it works. It is necessary to change the culture. We have several campaigns and projects. Impact can only be achieved with concentration, organization and leadership. What I want is something very similar to the BC+ agenda, and that was a jumble of things. The agenda is to create impact and be transparent. It is a change that will take time, but last year we already took major steps in this direction.
And what are the IDB’s ambitions in terms of lending potential?
We have optimized the resources we can lend and hired an insurance company for our loans, allowing us to lend more. We estimate that the IDB plus IDB Invest, our private arm, could grow credit potential by $132 billion more over the next decade than we already do today. It's quite a lot. These resources will come from both IDB capital and member countries from which we would like to inject more capital into the bank.
And is the focus on lending in the social and ecological areas?
Socially, ecologically, but also in the area of increasing productivity and regional integration. We have several regional projects, Amazônia Semper, Brazil's program to integrate routes with South American countries, a regional operation in the Caribbean, so we have this agenda that concerns infrastructure and also technology. And it's not just physical, it's digital too.
There was a lot of talk about artificial intelligence in Davos…
I admit that we are still not sufficiently concerned with artificial intelligence. Both the IDB and Latin America need to catch up and move forward. When I come back, this will be one of the main focuses. On the one hand, there is a path that can change everything, but at the same time you have to be careful.