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Discussion at IDB Annual Meeting Focuses on Obstacles to Private Sector Development
Political unpredictability has emerged as a significant obstacle to fostering the private sector in Latin America, a topic extensively debated during the Annual Meeting of the Inter-American Development Bank (IDB). While discussing strategies to boost the private sector through regulatory reforms, an area where Javier Milei’s administration in Argentina has been particularly active, Argentina was specifically mentioned in the context of this political uncertainty.
Argentina Mentioned in Context of Political Unpredictability
During a panel titled “Boosting the Private Sector in Latin America and the Caribbean,” Michael Stott, Latin America editor for the Financial Times and the panel’s moderator, posed the question: “We know that in Latin America, a common complaint from the private sector is political unpredictability and uncertainty. Much of the region is in a four-year political cycle, in some cases copying the US idea of holding legislative elections mid-term, turning it into a two-year political cycle, as in Argentina. And often these political swings occur between the left and the right. Do you see any way to generate consensus among Latin America’s political elites on the right path to accelerate growth, the right way to involve the private sector, and subsequently, create a consensus that lasts beyond a political cycle?”
This was the only direct mention of Argentina during the panel. These words were addressed to Rodrigo Valdés, the IMF’s Western Hemisphere Director, who has previously faced strong criticism from President Milei.
IMF’s Valdés on Challenges Faced by Presidents
“We are a region with presidential systems very different from those in other parts,” Valdés began in his response. Regarding the factor of political unpredictability, he identified a distinctive feature of the system as “presidents who come to power with a mandate (ideas, plans, proposals) that they do not fulfill because they have a minority in Congress.” Without naming Argentina or Milei, the IMF official described a parliamentary weakness consistent with the situation in the country.
Notably, these statements occurred a week after the Chamber of Deputies approved the DNU (Decree of Necessity and Urgency) on the agreement with the IMF, rather than a bill, as various political sectors had demanded.
Key Factors for Private Sector Growth
During the past year, Milei has directed harsh comments towards Valdés, describing him as someone who “has bad intentions” and “does not want Argentina to do well.” Nearly two months after these remarks, in September, Valdés ceased to be directly involved in negotiations between the IMF and Argentina, with Luis Cubeddu taking over as the lead representative.
At the end of the panel, attendees had the opportunity to ask questions. The moderator opened the floor to the audience, and this media outlet inquired with Valdés about the progress of the current negotiations between the IMF and Argentina. “I have nothing to add to what the Fund has already communicated,” he replied.
Prior to this, the IMF official had spoken about three key factors to boost the private sector. First, he mentioned the cost of access to capital, which he associated with public spending, stating that the deficit has a “collateral effect.”
Second, he argued that a country’s degree of predictability can help private investment. In this section, he indicated that tax schemes should be “structures that are not under review.”
Security was the third key element of support for the private sector listed by Valdés. The IMF official said that if countries managed to halve homicides, they could favor an annual growth of 0.5% of the size of their economy.
IDB’s Role in Fostering Private Sector Development
Echoing this sentiment, IDB President Ilan Goldfajn considered that the public sector “cannot do it alone” and “must create the conditions” for private sector development. He emphasized the need for “laws, institutions, and infrastructure.”
Previously, Goldfajn had announced an increase in the IDB’s lending capacity, which is currently $25 billion per year, with the aspiration to reach $38 billion annually by 2030. Sources from the organization indicated that half of this increase could be directed towards private sector actors and the other half towards governments.
Resumen en Español:
Durante la Reunión Anual del Banco Interamericano de Desarrollo (BID), se debatió sobre la “imprevisibilidad política” como un obstáculo para impulsar el sector privado en América Latina, con mención específica a Argentina. Rodrigo Valdés, del FMI, señaló cómo presidentes con minoría en el Congreso tienen dificultades para cumplir sus mandatos, situación que se asemeja a la de Argentina. Valdés también destacó el costo del capital, la previsibilidad (incluyendo sistemas fiscales estables) y la seguridad como factores clave para el sector privado. El presidente del BID, Ilan Goldfajn, resaltó el rol del sector público en generar condiciones favorables para el sector privado y anunció un aumento en la capacidad crediticia del BID.
Resumo em Português:
Durante a Reunião Anual do Banco Interamericano de Desenvolvimento (BID), debateu-se sobre a “imprevisibilidade política” como um obstáculo para impulsionar o setor privado na América Latina, com menção específica à Argentina. Rodrigo Valdés, do FMI, apontou como presidentes com minoria no Congresso têm dificuldades para cumprir seus mandatos, situação que se assemelha à da Argentina. Valdés também destacou o custo do capital, a previsibilidade (incluindo sistemas fiscais estáveis) e a segurança como fatores chave para o setor privado. O presidente do BID, Ilan Goldfajn, ressaltou o papel do setor público em gerar condições favoráveis para o setor privado e anunciou um aumento na capacidade de crédito do BID.
