Inter-American Development Bank: ‘It’s all about trust’

By Aaron Humes: A report by the Inter-American Development Bank (IDB) says nine out of ten people in the region do not believe others can be trusted. Levels of trust in the region are one-fourth that of developed nations in the Organization of Economic Cooperation and Development (OECD).

The Bank says key reforms are needed to promote trust and boost post-COVID recovery. A lack of trust is shown to undermine firm growth and innovation. Dealing with power and information asymmetries is needed to improve trust.

Trust: The Key to Social Cohesion and Growth in Latin America and the Caribbean studies the root causes of mistrust in the region and offers recommendations for policymakers on how to turn this challenge into an opportunity to help address some of the region’s most pressing development issues, such as low productivity and innovation, lagging investment, and high levels of informality and tax evasion.

“Building trust through greater transparency and stronger institutions should be at the center of the policy agenda in Latin America and the Caribbean. Placing trust at the center of government decision-making will measurably advance development in the region,” said IDB President Mauricio Claver-Carone. “Greater trust means less red tape that burdens businesses and hurts investment and innovation. It means more transparent governments that are committed to delivering on their promise and being accountable for them. And finally, it is also about engaged citizens who will voice their opinion and participate to strengthen democracies and support more inclusive societies.”

The IDB has been working closely with member countries to strengthen institutions, support the rule of law and promote greater transparency and integrity in its Vision 2025 development plan. Higher trust could be a boon for achieving tighter regional integration, strengthened supply chains, more productive small and medium-sized businesses, and greater digitization, which are among the priority areas the IDB has identified as opportunities to accelerate the region’s recovery in the post-pandemic period.

The study recommends that governments in the region – when designing public policies – create incentives for public officials, economic agents, and citizens to act in a trustworthy manner.

Governments must reduce differences in the access of information by investing in high-quality regulatory bodies and educating and making more information available to citizens to empower them to detect and deter untrustworthy behavior. Governments must also reduce power asymmetries by increasing accountability and strengthening third-party enforcement institutions so citizens and firms feel they can rely on these institutions when mistreated by governments, firms, or other citizens.

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