For more than 60 years, the Inter-American Development Bank (IDB) has served Latin American and Caribbean (LAC) countries as a regional vehicle for collective action. The bank and its private sector arm, IDB Invest, lent a record-breaking $21.6 billion in 2020, much of which was directed at helping the region recover from the COVID-19 pandemic.
In the coming months, the IDB will consider a capital increase for the first time since 2010. This potential increase is a critical opportunity to address the region’s needs and articulate a vision for the IDB in the coming decade. It is also a rare opportunity for the United States and its allies to reaffirm their commitment to democracy. One way would be for Taiwan to join the IDB as an “economy” the way that Taiwan is a member of the Asian Development Bank as an “economy” as part of an expansion of overall shareholders in the IDB.
The need for a capital increase has never been greater. Latin America is among the hardest-hit regions of the world in terms of the health and economic effects of the COVID-19 pandemic. Twenty percent of the world’s cases — and 24% of deaths — occurred in Latin America. Regional economies contracted by an average of 8.1% in 2020, and an estimated 25 million people fell into extreme poverty. The IDB is well positioned to offer assistance and advice, and a capital increase would allow to IDB to help more.
However, a capital increase also provides an opportunity to re-evaluate the bank’s strategy, operations and shareholding structure. In exchange for an increase, shareholders may make some “asks” of management. During the 2010 increase, there was an agreement to set aside $2 billion in the form of soft grants for Haiti which, at the time, was recovering from an earthquake that killed an estimated 250,000 people.
This time around, the capital increase could free up shares of the IDB, allowing the bank to finally reflect the region’s changing economic and political landscape by including a number of countries that will be key partners in the coming decade. The IDB should look to increase its current membership from 48 to 58 countries, even if it means that the United States and other members end up diluting some of their shares. The IDB Board of Governors should also consider inviting new shareholders into IDBInvest, the IDB’s private-sector arm.
New members could include Australia, Asian countries or even Gulf states. The LAC region’s trade with Asia has increased dramatically. China is now either the biggest or second-biggest trading partner for 23 out of 33 countries in Latin America and the Caribbean. Other Asian economies, including Japan, India, Singapore and Korea have also significantly expanded their trade relations.
This capital increase is an opportunity for the United States and Taiwan’s nine regional allies to bring Taiwan into the IDB. There will be tough negotiations within the IDB regarding this decision, as the region is divided over its relationship with China. But Taiwan is recognized by nine countries in the region, and the United States holds over 25% of IDB shares and therefore has de facto veto power regarding the capital increase.
For those who say that we need to be sensitive to China, those voices need to consider the facts below. China has destabilized the region by supporting the Maduro regime in Venezuela. In 2019, China ruined the IDB’s 60th anniversary summit planned to be held in China when it refused to seat the Guaido interim government’s delegation to the IDB. China has committed egregious human rights violations within its own territory against the Uyghur population, and has crushed Hong Kong’s democratic institutions.
Furthermore, China’s negligence in the early stages of the COVID-19 pandemic significantly hindered efforts by the World Health Organization (WHO) to develop testing and begin work on a vaccine. In recent years, China has effectively squeezed Taiwan out of other multilateral institutions, like the WHO and the International Civil Aviation Organization (ICAO).
Taiwan could join as an “economy,” as it has been a member of the Asian Development Bank since 1966. This won’t be cheap for Taiwan — China contributed about $350 million when it joined in 2008. But joining the IDB makes sense given Taiwan’s economic clout. Indeed, Taiwan is a bigger investor, trading partner and provider of aid to the LAC region than several existing IDB member countries, such as Norway, Austria, Finland, Portugal, Slovenia, U.K., Croatia and the Netherlands.
It has a bigger trade volume with the region than Austria, Finland and Norway combined. Taiwan has historically allocated between 30% to 50% of its foreign aid budget to Latin America. Moreover, LAC countries have much to learn from Taiwan, which successfully escaped the middle-income country trap as a successful democracy and developed an innovation-led economy.
A potential capital increase is the perfect opportunity for IDB members to solidify their economic ties with Taiwan, while articulating a global vision for the IDB in the coming decade. Taiwan membership in the IDB should be a non-negotiable condition for the United States if it decides to support a capital increase.
• Daniel F. Runde is senior vice president & Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS).