State-Owned National Development Banks in South America: The Politics of Board Composition

A public development bank has a hybrid financial and developmental character. While it provides long-term capital to finance projects, such as any other investment bank, it prioritizes financing projects from which substantial social and economic welfare accrue. In order to perform its functions successfully, the organization needs a highly skilled and competent board of directors working in the interface between government and the bank's bureaucracy. Development banks performance is strongly associated with its governance system capacity to insulate the boards of directors and management from undue political interference. An ill-designed process of board composition may lead to political indications of unskilled directors, which, in its turn, often produce mismanagement of public resources and harms the institution's legitimacy. This paper will comparatively analyze the process of board formation in public national development banks in South-America (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela) in order to identify patterns and evaluate these institutions' experiences. The study will discuss the importance of establishing clear rules and processes for board composition in order to mitigate political interference and to maintain these banks' operation sustainable and accountable. Finally, it will propose a set of good practices based on the procedures used for the appointment of board members by the analyzed cases, which can be used as a benchmark for other state-owned development banks in the future.