General Policy

The urban population of Latin America shows a high rate of growth, in a setting of congested cities where an increased proportion of the economic activities in each of the countries of the region is concentrated. A substantial portion of this population is characterized by low levels of income, high rates of unemployment or underemployment, and inadequate living conditions. The legal instruments, administrative facilities and financial and human resources needed to steer effectively the process of urban growth and to also meet the growing demand for economic infrastructure and social services are often insufficient. Without a sustained effort by the countries to remedy current shortcomings and rationalize the growth of cities, this situation will deteriorate even further in the coming decades.

The Bank provides selective support for projects that contribute to developing the capacity of the countries to respond to the challenge of rapid urbanization, in accord with the priorities established by each country. This support is offered to the borrowing countries in the form of loan and technical assistance operations, whose objectives, eligible fields of activity, and operational criteria are defined later on.

The urban development policy is by nature multisectoral. It includes economically productive and social aspects, as well as those relating to institutional organization and the provision of basic services. Therefore, it is complemented by other Bank policies, particularly by the operational policies on industrial development, transport and social infrastructure, which contain specific criteria to guide the Bank's action in these respective sectors.


To improve the socioeconomic conditions of the urban population by means of:

a) support of projects for the generation of income and opportunities for productive employment, especially for the low-income sectors, including the increase in productivity of small economic units that operate at low levels of capital intensity per employee, and the creation of new units of this size;

b) the correction of present shortcomings in urban infrastructure, and planning for future needs for expansion in this area;

c) the quantitative and qualitative improvement in basic services for the population in the cities, especially for the low-income sectors; and

d) the reduction of the adverse effects of urban growth on the environment.

To strengthen the national urban systems and improve the internal functioning of the cities, by means of:

a) priority attention to the needs of small and medium- sized cities;

b) expansion of the economic base of the cities and promotion of the interrelationships between the population clusters and their surrounding rural areas; and

c) the concentration of efforts, in the case of large cities, on the physical and economic integration of marginal settlement areas with the rest of the city.

To increase the effectiveness of the institutions responsible for the formulation and administration of urban development policies and programs, by means of supporting the countries initiative to:

a) increase the national, regional and local capacity to define priorities and strategies, formulate, implement and evaluate plans and projects, and channel resources to cities, towns and specific social groups;

b) generate and transfer methods and techniques for the improvement of the administration of metropolitan areas and small and medium-sized cities; and

c) strengthen the financial solvency and the initiative and managerial capacity of local governments.

Fields of Activity

Projects eligible for loans and technical cooperation from the Bank may be sectoral or multisectoral, in the following fields of activity or combinations thereof:

1. PROVISION OF INFRASTRUCTURE AND SERVICES. The Bank finances projects to provide infrastructure and essential urban services, seeking to increase the coverage and effectiveness of such services and to make them more accessible to the low-income sectors. The Bank promotes the rationalization and appropriate maintenance of existing systems. The current sectoral policies guide specific financing for urban transportation, telecommunications, energy, marketing and supply of food, public health, environmental sanitation, education and training of human resources, and other social services.


a) In addition to financing specific industries, the Bank provides credit through global loans for small and medium-sized enterprises, and, when appropriate, participates in industrial park projects (Industrial Development Policy OP-722).

b) The Bank will cooperate in increasing and improving both the financing and the management of small enterprises in the informal sector. On the basis of the experience gained in the individual member countries and according to the criteria of the Small Projects Program, the Bank will consider operations on a broader scale to improve the economic performance of enterprises of this type, including the financing of working capital.

c) The Bank will continue to support the countries in the development and incorporation of technologies of low-capital intensity in the production process, particularly in the informal sector, taking into account the circumstances and particularities of each country (Policy on the Use of Intermediate or Light Capital Technologies OP-705).

3. STRENGTHENING OF URBAN DEVELOPMENT INSTITUTIONS AND INSTRUMENTS. The Bank contributes, through technical cooperation activities, to improving the managerial and planning capability of the authorities in charge of the development of small, medium and large cities in such areas as the preparation of plans, programs and projects, the undertaking of studies and research, and the training of personnel (specialists, middle-level technicians, municipal employees and extension workers). When it is necessary to reinforce the fiscal base of municipalities, the Bank receives proposals to modernize the cadastral, tax, tariff and other systems of revenue collection. The Bank also supports the dissemination of knowledge, information and results obtained from such operations, and promotes initiatives designed to improve the understanding of urban phenomena.


The following criteria will guide the preparation and analysis of Bank operations in urban development:

Urban Programming: The problems of urban development are complex, owing to the number and variety of sectors which influence the development of a city, and the strong interdependency among these sectors. The Bank seeks to assure that projects fit within a global development program or, in the absence of such a program, that the projects act as a catalyst for the adoption of plans and programs that contribute to urban development beyond the immediate objectives of the investments concerned.

Location of Projects: The Bank supports efforts made by the countries to avoid over-concentration of population, services and economic activity. To that end, it supports the development and consolidation of sub-systems of small medium-sized cities, by directing investments to places where development opportunities present themselves, making possible greater utilization of the nation economic potential.

In metropolitan areas the Bank will give emphasis to projects that:

a) within a comprehensive approach to improving existing systems, provide services to the marginal segments of the urban population;

b) alleviate severe pollution and environmental problems; and

c) foster the productive capacity of the informal sector.

Development of the Economic Base: The Bank encourages urban development strategies that combine support for the formal and modern sector of the economy with the transformation and development of small enterprises in the informal sector. The actions of the Bank with regard to the formal sector are guided by the criteria set forth in the industrial development policy and other relevant sectoral documents. In the informal sector, the Bank's actions are guided by the criteria of the Small Projects Program.

As regards the informal sector, given the diversity of the existing units, programs of support will have to consider criteria for selecting enterprises and activities based on their economic potential and market prospects. The Bank will support efforts to generate employment and to transform small economic units, provided that they enhance the viability of such enterprises and avoid the reproduction of their conditions of poverty. In this context, forms of economic organization and productive association should be analyzed which ensure a larger scale of production and better use of the available resources.

In general, actions in support of the urban informal sector require greater levels of integration than the more conventional programs for financing small and medium-sized industries. This implies that it is advantageous to link the credit components of the projects with technical assistance, training, technological research (productive and managerial), measures to improve entry into markets, and improvement of the social infrastructure. This combination of efforts requires the execution of special programs by institutions or organizational units suitably prepared to undertake them. In many cases it will be necessary to find inter-institutional solutions that combine the efforts of various types of organizations.

Community Participation: The participation of the beneficiary communities will be a basic element in the urban development projects supported by the Bank. In some projects, particularly in those designed to benefit the marginal population and the informal sector, it is essential that the beneficiaries take part in all phases of the project, exercising their capacity to understand and assume responsibilities as well as to take the necessary actions.

Multisectoral Projects: In the case of multisectoral projects it is essential to include only the basic and relevant components, to adequately define the coordination mechanisms required for the integrated execution of the project, and to avoid substituting for the specialized agencies which have responsibility for specific sectors. The internal consistency of the project must be made clear and the technical and institutional relationships between components determined in such a way that the incorporation and size of each is justified.

Design and Follow-up: Urban development projects must be designed with the flexibility necessary to undergo periodic readjustments with regard to a suitable follow-up and evaluation system. When appropriate, the projects will include provisions for the transfer of the results and experience to other localities faced with similar problems and engaged in the same kind of activities.

Financial Criteria: Projects related to the financing of electric energy, telecommunications, water supply, waste disposal and natural gas systems, etc., generally administered by public or private entities in the field of services, will be governed by the existing policies on tariffs outlined in OP-708. In projects of a different nature which arise out of community or local government initiative, as in the case of the paving of streets, the construction of community centers, slaughterhouses, etc., the Bank encourages that payments for the provision of services be collected or that betterment levies be introduced in order to achieve the highest possible recovery of construction, operational and maintenance costs, taking into consideration the financial capacity of the communities. In any event, all costs and the complete plan of financing, including possible government subsidies, should be made explicit.

The Bank supports the establishment and consolidation of systems of credit for low income urban entrepreneurs who have no access to conventional credit schemes. Special attention will be paid to the strengthening of financial institutions, both public and non-governmental, and to technical assistance which facilitate an effective mobilization and channeling of internal and external savings towards investments and other productive purposes for small entrepreneurs. Emphasis will be placed on the development of mechanisms which improve the efficiency of credit institutions, reduce private and institutional transaction costs and avoid the concentration of institutional credit.

The Bank encourages communities or municipalities to gain the higher value acquired by land located near projects, within the norms of each country, which results from the investment in such projects.

Urban Land: The Bank supports the countries' initiatives that call for specific solutions to urban land problems: the land tenure and tax system, the use of common lands, provision for green areas, and the incorporation of new areas on the outskirts of cities. The project studies take into account these factors, as well as the impact of investments under consideration.

Housing: The Bank will support borrowing countries' efforts to improve the living conditions of the low income population, encouraging governments to pursue policies to efficiently mobilize private and public resources to help households in solving their housing problems. Consequently, Bank activities in housing will have the following objectives:

a) Support policies and sustainable programs and projects directed to improve housing conditions for low income households.

b) Improve public sector effectiveness both as a facilitator of private sector initiatives and in the management of public resources allocated to the sector.

c) Promote sector-wide allocative efficiency of housing markets and related markets such as land, financing and construction materials and services.

The Bank will provide financing for programs and projects that directly improve the housing conditions of the low income population. Fields of activity include financing for new cost efficient housing solutions (for instance, basic core housing and sites and services) or the upgrading of existing low income settlements and housing. The Bank will finance subsidy schemes for housing when these can be demonstrated to be efficient and equitable means of promoting improved housing conditions for the low income population. Subsidies should always be transparent, well targeted and explicitly itemized in government budgets. There should also be sufficient evidence that the subsidies can be sustained until sector objectives concerning the low income population are attained.

The Bank will provide policy advice, technical cooperation and financing for the design and implementation of sector-wide reforms aimed at removing constraints to the efficient and equitable allocation of resources in housing. Fields of activity include, but are no limited to, the improvement of the regulatory framework for housing production, the promotion of efficient urban land markets, the establishment of efficient and sustainable housing finance mechanisms, promotion of private investment in rental housing, and the development of an efficient and competitive building industry. Deficiencies in housing finance mechanisms will be addressed within the framework of sound financial sector policies.

Preparation of Bank housing programs will be based on an analysis of the causes of the relevant sectors problems. Project identification will be based on an analysis of the relative merits of different types of solutions to the problems and issues identified. To ensure maximization of the impact of Bank involvement in housing, project selection and design will pay attention to the expected impact in relation to the scale of the relevant problem and to the sustainability of the solutions proposed.


Prevailing Reference Document:
GP-110-2, February 1985
GP-110-4, June 1994,
GP-110-5, March 1995.

* The operational policies of the Inter-American Development Bank are intended to provide operational guidance to staff in assisting the Bank's borrowing member countries. Over the course of the Bank's more than 40 years of operations, the approach to developing operational policies has taken various forms, ranging from the preparation of detailed guidelines to broad statements of principle and intent. Many policies have not been updated since they were originally issued, and a few reflect emphases and approaches of earlier years which have been superseded by specific mandates of the Bank's Governors, the most recent being the Eighth Replenishment mandates of 1994.

In accordance with the Bank's information disclosure policy, the Bank is making all of its operational policies available to the public through the Public Information Center. Users please note that the Bank's operational policies are under a process of continuous review. This review process includes preparation of best practice papers summarizing experience at the Bank and other similar institutions, and sector strategy papers.

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