This paper presents the views of the Inter-American Development Bank (IDB) on higher education in Latin America and the Caribbean and offers a strategy for how it can promote improvement. The paper attempts to produce an accurate assessment and useful policy implications. The first chapter, "A Mixed Performance," contains a general assessment of the current situation. The second chapter, "Deciphering Higher Education's Obscure Texts," identifies the key functions performed by the region's higher education systems. Chapter 3, "Policy Issues," analyzes significant policy trends in diverse national settings and sets forth the IDB views on performance to date and desirable reform. The final chapter, "How the IDB Can Help," discusses the aspects of reform that might attract direct IDB assistance through a lending strategy delineated according to higher education functions. The paper proposes guidelines for IDB action but does not specify the financial amounts that would support each action. A central contention of the paper is that the performance of Latin American and Caribbean higher education systems is quite variable across countries and sectors, as well as across institutions and units. (Contains 9 tables and 52 references.) (SLD)