What Does the Inter-American Development Bank Do?

What Does the Inter-American Development Bank Do?

The Inter-American Development Bank aims to bolster economic and social development in Latin America and the Caribbean, but critics say reforms are needed.
A sign promotes the IDB Board of Governors meeting in Panama City, Panama, in March 2023.
A sign promotes the IDB Board of Governors meeting in Panama City, Panama, in March 2023. Arnulfo Franco/Associated Press
  • Founded after World War II, the Inter-American Development Bank is the largest source of development financing in Latin America and the Caribbean. The United States is its biggest shareholder.
  • In recent decades, the bank has provided the region with financial support, including through debt relief in Haiti and elsewhere, and helping countries weather the COVID-19 pandemic.
  • But its critics say the bank, and other development banks like it, are in need of reforms to effectively fulfill their missions, especially on climate issues.


For more than six decades, the Inter-American Development Bank (IDB) has been the leading source of long-term financing for economic, institutional, and social developments in Latin America and the Caribbean. In that time, the bank has significantly expanded its membership and increased its capital base. In 2021, as the COVID-19 pandemic ravaged the region, the bank mobilized a record $23.4 billion in financing to help countries respond.

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Since its inception, however, the bank has faced several criticisms. Some analysts say that the IDB is inefficient when it comes to project implementation, while others claim that the differing interests of its members impede its ability to get things done. Meanwhile, the bank is looking to catalyze more private investment and accelerate climate financing.

Why was the Inter-American Development Bank created?

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The idea of a regional bank to drive economic and social development was originally put forth [PDF] by Argentine lawyer Juan Bautista Alberdi in 1844. By the early twentieth century, Latin American countries were becoming increasingly dissatisfied with their limited representation in international finance institutions such as the World Bank. It was not until after World War II that U.S. President Dwight D. Eisenhower backed the idea, concerned about deepening inequality and growing Soviet influence in the region. In 1959, the United States and nineteen other members of the Organization of American States (OAS) drafted the IDB charter [PDF].

In the decades since, the bank has elected seven presidents, nearly tripled its original membership, and increased its capital from an initial base of $1 billion to more than $170 billion today. Its scope of work has also expanded, with the bank recognizing the need to go beyond traditional economic development projects to support principles including gender equality, diversity, climate action and environmental sustainability, and the rule of law. Almost every country in the Western hemisphere is now a member, with the notable exception of Cuba, in line with Havana’s exclusion from other regional organizations.

What does it do?

The IDB’s primary goals are promoting social inclusion and equality, boosting productivity and innovation, and strengthening regional economic integration. It offers assistance to public and private sector clients in two primary ways:

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Grants. The IDB directly offers funds to help organizations enhance their technical knowledge, expertise, and capacity. Haiti has benefited most heavily from grants, receiving $2 billion over a ten-year period following the island’s devastating 2010 earthquake. Haiti continues to receive IDB grants amid its worsening security situation.

Loans. The bank provides loans and loan guarantees to promote economic, development, and social projects across a range of sectors, such as education, infrastructure, and sustainable tourism. These loans can offer more flexible conditions and long-term financing options, as well as advisory services, though their “preferred” status means their repayment takes priority over that of loans to other lenders. In some cases, they can also be offered at below-market rates, though currently only Guyana, Honduras, and Nicaragua qualify for this subsidized financing.

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In addition, the IDB conducts economic research and provides technical assistance, policy advice, and training, among other responsibilities.

What is its budget?

In 2021, the IDB and IDB Invest, the bank’s private sector arm, mobilized a record $23.4 billion in financing, a $1.4 billion increase from the previous year; this included a record $4.5 billion for projects related to climate change.

Since it was established, the IDB has undergone nine capital increases, which the bank does not have a regular schedule for, although many other multilateral development banks do. The largest and most recent increase was in 2010 in response to the 2008 global financial crisis; it added $70 billion [PDF] to the bank’s existing $100 billion capital, significantly increasing its lending capacity. Prior to 2010, the IDB could only lend about $8 billion per year, excluding emergency cases.

The funds for IDB lending come from four main sources:

  • member country contributions;
  • fees and interest from IDB loans;
  • international bonds issued by the IDB, which holds a triple-A rating; and
  • equity accumulated since the bank’s creation.

All members of the IDB contribute annually to the Ordinary Capital, the bank’s main source of funding, a small part of which is held in cash. The rest is known as callable capital, which members have committed to but are not required to make payments on unless the bank faces an imminent financial risk. (To date, the IDB has never called on its members to make these payments.) Following its 2010 capital increase, the IDB has sought to direct at least a third of its lending to borrowing members with the lowest per capita income, such as El Salvador, Haiti, and Nicaragua.

How is it organized?

The bank is part of the larger entity known as the IDB Group, alongside IDB Invest (previously the Inter-American Investment Corporation) and IDB Lab (formerly the Multilateral Investment Fund). Together, IDB Invest and IDB Lab work with clients from the private sector and entrepreneurs in the region; the IDB itself does not make direct investments.

Like the World Bank, the IDB’s supreme authority is the Board of Governors. Each IDB member country appoints a governor to the board—often finance ministers, central bank presidents, or other top economic officials—whose voting power is determined by the amount of capital contributed by their country. Alongside overseeing the bank’s activities and administration, the Board convenes an annual summit to set high-level policy. At the latest summit in Panama City, Panama, in March 2023, governors mandated the development of a capital increase proposal for IDB Invest and discussed a new institutional strategy proposal, expected for approval in 2024. Meanwhile, day-to-day board decisions fall to fourteen executive directors who handle matters such as approving individual loan proposals and setting interest rates. 

The Board of Governors also elects the IDB president, who serves a five-year term and chairs the executive director meetings. Ilan Goldfajn, previously the head of Brazil’s central bank, has led the IDB since December 2022. He has identified several priority areas for his administration, including addressing food insecurity and climate change and investing in more sustainable digital and physical infrastructure.

Who are its members?

Ownership of the IDB is divided among forty-eight sovereign states, which are the bank’s members and shareholders. In addition to contributing to the bank’s capital, regional members are required to be part of the OAS, while non-regional members must be part of the International Monetary Fund (IMF).

The IDB is unique in that developing member countries exercise more power than in many other international institutions: the twenty-six borrowing members together control slightly more than half of the bank’s total shares. When it was first founded, this led some critics to deride it as a “debtors’ bank” with a perceived higher risk of default.

But the IDB’s twenty-two non-borrowing members still have significant leverage in decision-making. The United States, a non-borrowing member, is the IDB’s single largest shareholder with 30 percent of the vote, followed by Argentina and Brazil at 11.4 percent each.

What are some leading examples of its work?

For decades, the IDB has been a source of financial support for struggling countries. In 2007, for example, the IDB extended debt relief totaling about $4.4 billion to Bolivia, Guyana, Haiti, Honduras, and Nicaragua as part of a global, multilateral effort to reduce poor countries’ unmanageable debt. In 2020, in response to the COVID-19 pandemic, the IDB Group approved some $8 billion in financing for public health and employment needs. It also mobilized $1 billion for vaccine acquisition and distribution and increased the overall availability of funds. Other IDB grant funds have gone to helping countries integrate migrants via improved health, education, housing, and security services.

To receive IDB loans, countries must generally go through a lengthy project cycle, which includes drafting and getting approval for a loan proposal. Of all the projects in the IDB’s active portfolio, nearly a third are located in Argentina, Brazil, and Uruguay, while more than 40 percent are focused on state reform, water and sanitation, and social investment. For example, one project is currently underway in an effort to improve water services in the province of Buenos Aires, Argentina, while another is working to enhance the digital governance capabilities of Brazil’s subnational governments. Historically, almost one-fifth of all IDB projects have been in Argentina and Brazil.

The IDB has increasingly worked directly with other multilateral institutions to implement its programs. Most recently, it signed a four-year partnership with the World Bank to deepen cooperation on improving sustainable development in the Amazon Rainforest, climate resilience in the Caribbean, and digital access across the region. The agreement comes as several high-level officials, including U.S. Treasury Secretary Janet Yellen, are calling on multilateral institutions to “modernize” their approach, including by mobilizing more private capital. The IDB and the IMF have made similar reform commitments.

What do critics say?

Even as the IDB’s ambitions have increased, some policymakers contend that the bank and many other development banks like it require reform to effectively meet today’s needs, especially urgent global threats such as climate change. A 2022 report by the IDB’s independent evaluation office found that only 53 percent of IDB public sector projects were considered successful in the core areas of effectiveness, efficiency, relevance, and sustainability. On effectiveness alone, only 27 percent of IDB projects achieved their expected outcome. However, a Canadian government meta-review [PDF] of IDB reports revealed that 63 percent of project evaluations showed positive outcomes.

Independent evaluators say there are several factors that impede the bank’s ability to carry out its mission, including the frequent turnover of Board members, the differing interests of each member country, a lack of institutional transparency, and the absence of accountability for senior management. Further, the bank is not divorced from the politics of its members, and some analysts point to tensions between left- and right-leaning countries. Goldfajn himself has argued that the bank should try to sidestep these fissures by being “less ideological [and] more technical.

Timeliness is another issue, as some critics say that the IDB is too slow and inefficient. A 2018 IDB report [PDF] revealed that it takes an average of 424 days between a project’s approval and the beginning of implementation, and sometimes more than five years for a project’s funds to reach 80 percent disbursement.

Other analysts point to the potential for the IDB to better address climate change. While the bank has taken some steps in that direction, including by setting new environmental standards for clients, some experts say that it could do more given the scale of the crisis. By creating climate-resilient economies, the IDB can help “drive growth, job creation, and investment while reducing risks to public finances,” the University of Sussex’s Guy Edwards and the 2050 Pathways Platform’s Marcela Jaramillo write for Global Americans. 

What’s the United States’ relationship with the bank?

As a founding member and the largest shareholder, the United States has played one of the biggest roles in the bank’s development, giving Washington a unique influence. Since the bank’s inception, there has been a tacit agreement that the president would be from a Latin American country while the vice president would be a U.S. citizen. Former IDB President Mauricio Claver-Carone (2020–2022), an American born to parents of Cuban and Spanish descent, has so far been the only exception to this rule.

Relations worsened under President Donald Trump, who adopted a more hard-line approach to the region than his predecessors. Along with seeking to curb illegal immigration and freezing foreign aid, Trump reduced funding to regional organizations, including the IDB. In 2017, his administration ended U.S. contributions to IDB Lab, marking the first time since the lab’s founding in 1993 that the United States did not help to replenish its coffers. Trump also nominated Claver-Carone in what some Latin American countries felt was an affront to their autonomy.

President Joe Biden, on the other hand, has vowed to “reinvigorate” the IDB and other hemispheric economic institutions, which he hopes can help combat slow growth and high inflation across the region. In the U.S. budget for fiscal year 2024, his administration allocated $75 million for IDB Invest to further catalyze private sector investment. Washington is also working to increase the participation of U.S. firms in more than $4 billion worth of government contracts financed by the bank each year.

At the same time, the bank is becoming ensnared in U.S. concerns about China. Despite owning less than 0.1 percent of all IDB shares, China’s membership allows it to bid on IDB-funded infrastructure projects. Between 2010 and 2020, Chinese construction and engineering companies won $1.7 billion in IDB-funded contracts; U.S. firms won contracts worth only $249 million over the same period. In July 2023, a group of four senators introduced bipartisan legislation aimed at countering China’s “coercive economic agenda” in the region by increasing transparency of China’s activity at the bank. If passed, the bill would require public reporting of all IDB projects involving Chinese funding or participation.

Recommended Resources

This IDB annual report gives a comprehensive overview of the bank’s performance in 2022.

IDB President Ilan Goldfajn discusses his vision for the bank during this 2023 event hosted by the Center for Global Development.

The Center for Global Development’s Koldo Echebarria and 3ie’s Carola Alvarez lay out three ways in which the IDB can improve.

This Backgrounder looks at the Organization of American States.

The International Food Policy Research Institute’s Eugenio Díaz-Bonilla and the IDB’s María Victoria del Campo explain the history [PDF] behind the creation of the bank.

For the Wilson Center, former President of Peru Francisco Sagasti argues that multilateral development banks need to reconsider their structures and strategies.

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Will Merrow created the graphics for this Backgrounder.

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