Sarah Babb


On her book Behind the Development Banks: Washington Politics, World Poverty, and the Wealth of Nations

Cover Interview of August 16, 2009

A close-up

One of my favorite sections in the book is about how the Reagan administration disciplined the Inter-American Development Bank (IDB) in the 1980s.

The IDB was founded in 1959 to provide loans to Latin American governments; at that time, American policymakers hoped that such loans would keep Latin American countries out of the Communist bloc.  Although the U.S. always had an unusually large voting share in the IDB, for many years, it was also willing to give a lot of leeway to the bank’s Latin American management and regional members.

The Republican revolution of 1980 changed all that.  Many Republicans in Congress began to argue that the banks were big useless bureaucracies with socialist tendencies; they became very irritated when the IDB persisted in making loans to the Sandinista government in Nicaragua.  In a negotiation over replenishing the IDB’s resources, the Reagan administration demanded that the bank make some big changes.  They wanted to alter the voting structure to give the U.S. more power, to put more Americans in the bank’s management, and for the IDB to start its own version of structural adjustment lending for free-market reforms.

The IDB’s president, Antonio Ortíz Mena, didn’t want to be pushed around, and said so.  But then the Reagan administration held up the negotiations, and refused to ask Congress for appropriations.  Ortíz Mena resigned, and a new president finally negotiated an agreement in which most of the original U.S. demands were met.  Among other things, the new replenishment committed the IDB to making policy-conditional loans under the supervision of the World Bank.