March 2002

THE IDB AND BRAZIL

Brazil is one of the founding members and had a key role in the creation of the Inter-American Development Bank, now the largest and oldest of the regional multilateral development banks and the main source of international development lending to the South American giant. Brazil is tied with Argentina for the position of largest shareholder of the Bank among its developing country members, with each having 10.75 percent of capital and voting power.

Proposals to create an International American Bank go back as far, at least, as 1889. Many inter-American meetings dealt with proposals to establish a hemispheric bank. The Inter-American Economic Conference that took place at the Quitandinha Hotel, in Petrópolis, Brazil, in 1954, went the furthest to draft proposals that would constitute the parameters for the future charter of the IDB. The initiative received renewed impetus in 1958 when Brazilian President Juscelino Kubitschek wrote to U.S. President Dwight D. Eisenhower and suggested a hemispheric effort to raise the living standards of Latin America. That initiative, subsequently known as Operação Pan-Americana, promoted the concept of a bank that would provide financing to the region for economic, social and institutional development as well as integration. This was the goal for which the IDB was created in 1959.

Brazil is also a member of the Inter-American Investment Corporation (IIC), a part of the IDB Group. The Corporation supports small and medium size businesses in Latin America and the Caribbean. The South American country is also a member of the Multilateral Investment Fund (MIF), an autonomous fund administered by the IDB that fosters private sector growth and microenterprise in the region.

The Bank and the IIC Annual Meeting in Fortaleza, Brazil, on March 11-13, 2002, will be the third Annual Meeting of the Bank in Brazil.

During its 42 years of operations, the IDB has approved 290 loans for a total of $23.4 billion for Brazil, making the country the largest borrower from the institution. Main sectors benefiting from the Bank’s lending have been industry, tourism, science and technology; transportation and communications; health and sanitation; social investment and microenterprise; energy; policy reform and public sector modernization. As of December 2001, the Bank’s active portfolio in Brazil comprises 50 programs for a total of $9.52 billion. In addition there are ten private sector operations for a total of $537.1 million in loans from the Bank’s own resources, 26 technical cooperation operations for a total of $37.7 million, 22 small projects for a total of $3.9 million, and 26 programs of the Multilateral Investment Fund for a total of $61.2 million.

The Bank’s Private Sector Department (PRI) program supports strategic projects in infrastructure that emphasize additionality and have a demonstration effect, such as gas-based electric generation and regional initiatives in energy. The risk of a deficit in energy production in Brazil gives power projects the highest priority both for the country and for the Bank. In the transportation sector, PRI seeks to diversify its loan portfolio, originally concentrated on toll roads, to include ports, railroads and urban transportation. Among private sector initiatives in Brazil supported by the Bank are those for regional integration with Argentina in gas and electricity.

The MIF concentrates its support to the Brazilian private sector on four areas: investments in transportation, energy, infrastructure and potable water; consolidation of small- and medium-sized enterprises through access to venture capital funds; establishment of conflict resolution mechanisms; and improvement of labor competitivity.

The Bank’s overall strategy, consistent with the Brazilian government’s economic program for 2000-2003, supports sustainable growth in a context of stability, aiming at lessening inequality and poverty. Its main components are:

• State reform and modernization at the federal, state and municipal level.
• Improvement of competitiveness and of international market access for Brazilian products. These goals will be achieved by reducing the "costo brasileño," modernizing production, strengthening the financial system, supporting micro, small- and medium-sized companies, rehabilitating infrastructure, developing tourism and furthering regional integration.
• Reduction of poverty and inequality. This goal will be achieved by giving priority to programs in education and health and increasing the efficiency of social expenditure, decentralizing social services, and seeking close partnerships with communities and civil society organizations.
• Environmental management and natural resource conservation, with special emphasis on the protection of vulnerable ecosystems.
• Cofinancing by the private sector and official credit agencies for operations where the Bank’s support may attract additional financial resources.
• Regional integration, including infrastructure for integration, will receive growing attention.