The Inter-American Development Bank and the Washington Consensus: Neoliberal Restructuring under the Reagan Administration

Abstract

This work aims to analyze tensions between the Reagan administration and the Inter-American Development Bank (IDB) during the late 1980s, that ultimately resulted in a major IDB policy shift: from a public sector, member states-centered institution, the Bank became an active participant in what was later called the “Washington Consensus”, a set of free market-oriented, neoliberal reforms proposed by Reaganomics.

Under the presidency of Antonio Ortiz Mena (1970-1988), the IDB established itself as a leading institution providing substantial project-based loans to the Least Developed Countries (LDCs) of Latin America, mainly targeting investment in infrastructure, public sector and agriculture. However, critical sources of friction between the IDB and the US presidency were rooted in the Bank’s social and public sector-oriented policy proposals, that were increasingly perceived as inconsistent with Treasury-suggested provisions aimed at successfully overcoming the 1980s debt crisis through the implementation of the Baker Plan for Sustained Growth, a proposal by Secretary of the Treasury James A. Baker to avoid sovereign default of the LDCs.

The Baker Plan, following the insight of a 1982 US Treasury report on US involvement in Multilateral Development Banks, called for a de-emphasizing of the public sector, which was deemed inefficient, suggesting privatization and free capital flow. Additionally, the plan envisaged the adoption of stricter conditionality provisions tied to the allocation of new loans, and the implementation of US veto power on the Bank’s operations, a proposal resting on underlying political tension, the result of US reluctance to approve credit to Soviet leaning Latin American countries (for example Nicaragua under the Sandinista government, to which the Reagan administration was imposing harsh sanctions).

Leveraging on its position as the Bank’s largest shareholder and capital provider, the US engaged in “shareholder activism” to influence the Bank’s policy. Failed negotiations between the IDB’s management and the Reagan administration ultimately culminated with President Antonio Ortiz Mena’s resignation in 1988, three years short of the end of his term.

Drawing both from archival sources and secondary literature, this work attempts to analyze the issue at hand, ultimately interpreting the neoliberal shift and free trade-oriented structural adjustment as a strategy aimed at reestablishing US economic hegemony, exacerbating core-periphery dynamics.