The World Bank has a new president and the signals it has sent in a short period of time point to Latin America. Ajay Banga, who was nominated by US President Joe Biden and who took the reins of the Washington-based multilateral leadership on June 2, announced on short notice that his first two international destinations will be Peru and Jamaica, where he is this week. Moreover, he did it, in an atypical way, together with the Inter-American Development Bank (IDB), the largest bank of its kind in the region.
The fact that Panga’s trip was only ten days after taking office, and that it was to Peru, sends a signal that the Latin American region could become a priority for the bank. The bank’s perception was that it focused too much on Asia and Africa, where competing economic and political interests from China, the United States and Europe.
In Peru this week, Panga and Goldfin met with the economy minister as well as the interim president, Dina Boulwart, Latin America’s sixth-largest economy and who until recently was considered a role model in economic policy. In the past decade, Peru has opened up to international trade while maintaining strong public finances and a low level of indebtedness. This formula has lifted millions of people out of poverty. However, this has led to increased inequality, and in recent years, the country has suffered a setback: 2.7 million more people are poor today than before the 2020 pandemic.
“It was a short visit and I think they are somehow trying to use the visit to improve the confidence of private investors in Peru,” says Luis Alberto Arias, a Peruvian economist and former vice president from the Central Reserve Bank.
And it is that Peru is going through a difficult time. First, in January and February, social protests over the president’s imprisonment escalated to the point that highways and roads were closed. An estimated 60 people were killed in the clashes. In addition, some sectors of the economy were paralyzed. Then, in March, a cyclone hit the northern coasts of the country, wreaking havoc with torrential rains and flooding of rivers. Now, a high weather phenomenon known as El Niño is expected to affect agricultural production this summer.
“The social protests are like the Sword of Damocles that we still have, and it is not yet known whether they will return or not,” Arias says. Only 5% of the population trusts the interim president’s ability to govern. The first quarter of the year was full of uncertainty in Peru, as the next presidential election was scheduled. “Most people today believe that this system will last until 2026, although there are still people who think it may not last that long,” says Arias.
It is remarkable that the President of the World Bank begins his international tour with visits to Latin America, moreover, that he does it with the President of the Inter-American Bank, says Federico Poli, economist, consultant to multilateral organizations and former CEO. Director of the Islamic Development Bank in Argentina. Perhaps it is too early to say that it will now head towards Latin America. Polley adds that the Bank prioritizes Africa and part of Asia, and it doesn’t mean that they have said anything that the strategy is going to be modified.
In announcing its short tour of the region, Bank claims Panga is on a “mission to rewrite the game’s guide.” “The World Bank Group is called upon to develop and lead global efforts to empower low-income countries while improving the quality of life in middle-income countries,” the June 8 statement read. “At the same time, the institution must confront the climate crisis, debt, and insecurity.” food, epidemics and fragility; and accelerating access to clean air, water and energy.”
This change coincides with a change made from the White House. In January, Biden announced he would begin negotiations with 11 Latin American countries to boost their economies, in a kind of agreement that falls short of a free trade agreement. Dubbed the Economic Association for American Prosperity, it includes Barbados, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Mexico, Panama, Peru and Uruguay.
“It seems to me that this proposal that Biden is making, other than the fact that the proposals still lack strength, is an approach that the region should take advantage of, specifically to be proactive and ask the United States for what it needs,” Polley says.
Arias agrees. “When you look at it, you say, why was Latin America first compared to other regions? This is actually an important change in the policy of the World Bank and it would be very interesting for the United States to start looking at Latin America with greater relative importance, ”says the Peruvian expert.
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