WASHINGTON, July 1, 2020—World Bank Group President David Malpass today delivered the following remarks at the virtual 2020 Washington Conference on the Americas:
Let me begin by saying that it’s great to be back at the Washington Conference on the Americas. It’s been one of the most dependable value-added events in Washington, with a focus on achieving success for all the people of the Western Hemisphere.
I’d also like to begin with a thanks to the United States for being the host country for this event; and for hosting so many of our organizations, including the World Bank Group (WBG) of which I’m honored to be President; also the Inter-American Development Bank (IDB) and the Organization of American States (OAS), which are both so important to the region; the Council of the Americas that sponsors this conference and where I was grateful to be a member and on the Board of Directors; and of course the U.S. State Department where this event is normally held. I’ve named just a few of the anchors for this event; there are many others. The freedom and security that we enjoy here today is a key part of the effectiveness of our organizations, and I wanted to open with that acknowledgement.
When I started attending this conference in the 1980s, it was already a “must attend” event for those working on the region’s daunting financial problems and development. I’m glad to be here today, though I’m deeply saddened that it is again a very difficult time for Latin America and the Caribbean.
I started travelling in Mexico and Central America in the 1970s, overland in those days, and began working for the U.S. government on regional issues in 1984. There was important follow up to the Kissinger Commission Report on Central America, as well as country and regional aid programs, the multilateral engagement, and the ever-present need for macro and micro-economic reforms, growth and more resources.
At the U.S. Treasury, I worked on the Latin debt crisis, travelled with Secretary Baker to the Antigua Summit of regional leaders in 1987 and supported him on the trade legislation that enabled Canada free trade, NAFTA and the successful Chile free trade agreement. As Treasury’s Deputy Assistant Secretary for Developing Nations, I testified on the positive changes underway at the World Bank on the environment and on the very constructive leadership transition at IDB, from President Ortiz-Mena to President Enrique Iglesias.
With Secretary Brady joining the Reagan and then Bush-41 Administrations, the Brady plan enabled securitization of the syndicated bank loans that were weighing on the region and the legal system. In 1990, I moved to the State Department as Deputy Assistant Secretary for Latin American Economic Affairs and pushed forward the Enterprise for the Americas Initiative that pursued debt-for-nature swaps and regional trade and development initiatives such as the Caribbean Basin Initiative and IRS section 936 benefits. Crises were frequent, including Haiti, Panama, Nicaragua, Venezuela, Peru and more, but none of the challenges were as widespread as those the region is facing today.
More recently, as Under Secretary for International Affairs at the U.S. Treasury in 2017 and 2018, I was pleased to help launch the America Crece initiative aimed at “Growth in the Americas,” which is working to expand growth, energy, electricity and infrastructure. And we completed the U.S. portion of the capital increase package for the World Bank and International Finance Corporation (IFC) and continued the major International Development Association (IDA) funding that is so important for the world’s poorest countries. Since October 2017, the G20 and International Monetary and Financial Committee (IMFC) communiques have included an important new phrase regarding growth, which I’ll read:
“Strong fundamentals, sound policies, and a resilient international monetary system are essential to the stability of exchange rates, contributing to strong and sustainable growth and investment.”
This close linkage of fundamentals, exchange rate stability and sustainable growth is at the core of the resilient recovery we all desire.
I know – that’s too many details on my Latin America work. “TMI” as my kids say – too much information. I wanted to share some details in part because we need to look for meaningful actions and initiatives now – steps that will mitigate the hammer-blow of this pandemic and help build a strong, resilient recovery. It’s clear that international cooperation needs to be strengthened – on finance, growth, development and political progress. I’ll describe our World Bank efforts in a moment, but first off, we should recognize the current environment. For Latin America, recent decades had seen significant improvements in health, with large reductions in infant and maternal mortality and gains in health service coverage and affordability. Education had seen advances, with improvements in access and enrollment. The poverty rate had fallen from 43% in 2003 to 24% in 2018.
But even before the pandemic, Latin America was hit hard by the global slowdown, with private sectors under pressure, inequality widening, and political systems showing fragility.
Global growth had slowed significantly in the year before the pandemic, and many countries in Europe were already in recession. The stimulus programs in many of the advanced economies were generating only a narrow set of winners.
With the pandemic, it’s a “perfect storm” of external and domestic shocks. Output losses among the G7 countries and China are leading to lower export demand and lower commodity prices. Tourism has collapsed, dealing a severe blow to small island nations in the Caribbean. In financial markets, the flight to safety has confronted many countries with lost access to financial markets and higher borrowing costs.
Our World Bank economists are projecting a contraction in Latin America’s GDP of over 7% in 2020. This is the worst contraction since the start of reliable data in 1901, deeper than the Great Depression and much deeper than the Latin debt crisis or the 2008 recession. It hits the poor and vulnerable the hardest – through illnesses, job and income losses, food supply disruptions, school closures and lower remittance flows.
The poverty rate had been falling since the early 2000s but will go up significantly as tens of millions of people lose their jobs. I mentioned having participated in the Antigua Summit in Guatemala in 1987. A core value for the region at the Summit – and now – is democracy and the rule of law. It provides the path to higher living standards and the freedoms we cherish. Yet political systems were fragile before the pandemic and will be severely challenged now.
What is the WBG doing to support the region now and going forward?
The WBG’s objective is assisting countries to meet the dual challenge they now confront: (i) addressing the health threat, and the social and economic impacts of the COVID-19 crisis, while (ii) maintaining a line of sight to their long-term development vision. Along with the IMF and the IDB, we at the WBG are providing immediate support to the region through (1) emergency health operations to save lives, (2) crisis response operations to save livelihoods, preserve jobs, and ensure more sustainable business growth and job creation, and (3) technical assistance and policy advice to manage both the immediate pandemic policy response and the recovery.
To limit the harm of COVID-19, it is important to secure core public services, maintain a private sector and get money directly to people. This will allow a quicker return to business creation and sustainable development after the pandemic has passed. During this mitigation period, countries should focus on targeted support to households and essential public and private sector services; and remain vigilant to counter potential financial disruptions.
During the recovery period, it will be important that countries allow an orderly allocation of new capital toward sectors that are productive in the new post-pandemic structures that emerge. To succeed in this, countries will need reforms that allow capital and labor to adjust relatively fast—by speeding the resolution of disputes, reducing regulatory barriers, and reforming the costly subsidies, monopolies and protected state-owned enterprises that have slowed development.
Importantly, transparency of all government financial commitments, debt-like instruments and investments is a key step in creating an attractive investment climate and could make substantial progress this year.
Moving forward, the region should work to strengthen policies, institutions and investments to achieve higher incomes for all, especially the poor, and more resilient, inclusive and sustainable growth. The region faces a pressing structural reform agenda that it must pursue in order to reignite both growth and hope.
I’d like to mention an important personnel change at the World Bank. As many of you know, Axel van Trotsenburg became Managing Director for Operations, replacing Kristalina Georgieva. Carlos Felipe Jaramillo has become Vice President for Latin America and the Caribbean, and I hope you will all get a chance to meet him as he works with me, Axel and other World Bank and IFC managers on the issues I’ve been discussing.
There is no doubt that the health and economic challenges facing Latin America and the Caribbean are vast and the risks great. The WBG is eager to work with countries across the region to respond to the crisis and build a strong recovery process. Our hope is that people in the region make strong gains in living standards in the next decade. Future generations’ prosperity will depend on bold action now. The WBG stands ready to help our clients move their country and regional goals forward.