March 2002

THE IDB AND BRAZIL'S NORTHEAST

IDB FINANCING PROGRAMS IN BRAZIL’S NORTHEAST FOCUS ON ECONOMIC DIVERSIFICATION, INFRASTRUCTURE, ENVIRONMENTAL PROTECTION

Complement efforts to develop historic region

The Northeast of Brazil was the first area of the country to be settled by European colonists. Rich in cultural and historical heritage, it accounts for a third of the country’s population and a fifth of the national territory.

While the region is poor compared with the more industrial south of the country, it nevertheless exerts a strong cultural influence on the rest of Brazil, as reflected in cuisine, customs and folklore. Widespread poverty and vulnerability to devastating, periodic draughts have made the Northeast subject to special attention on the part of the government, which in recent decades has promoted faster growth and economic diversification to help the area catch up with the wealthier and more industrialized south.

The Superintendency for the Development of the Northeast was established in 1959 to lead the development effort in the region, comprised of the states of Maranhão, Ceará, Piauí, Rio Grande do Norte, Paraiba, Pernambuco, Alagoas, Sergipe, Bahia and northern Minas Gerais.

Although in recent decades the Northeast has grown faster than the rest of the country, it still has far to go to catch up. About 55 percent of all Brazilians living below the poverty line reside in the Northeast. Industry and tourism are growing in importance in an area traditionally dependent on sugar cane, cattle, tobacco, cacao and other tropical products.

Indexes of child mortality and illiteracy are higher in the Northeast than in the wealthier states, and there are periodic migration flows to the south states during times of drought.

IDB financing

The Inter-American Development Bank has entered into a partnership with Brazil with the goal of addressing the social and environmental needs of the Northeast while raising employment opportunities.

The Bank has provided more than $2 billion in financing to the area, focusing activities on sanitation, surface transportation, environmental protection, infrastructure and economic diversification.

The largest single loan to the area, a total of $400 million, was approved in 1994 to finance an expansion of tourist infrastructure, including the rehabilitation and restoration of historic sites and the modernization of airports.

A $240 million loan was approved by the IDB in 2002 for the second phase of the tourism development program, a national priority because of the economic diversification, job creation, and foreign exchange generation that tourism represents.

The IDB financing will help build a more attractive and sustainable tourism sector, with greater infrastructure, sanitation, environmental protection and public policy capability.

The largest environmental operation for the Northeast, a loan of $264 million, was approved in 1994 to improve sewerage and potable water services for the municipalities along Todos Os Santos Bay in the state of Bahia. A loan of $145 million was approved in 1991 for an environmental clean-up program in Belem, the capital of the state of Para. A grant of $1.7 million from the Japan Special Fund, which is administered by the IDB, was approved in 1995 to protect the ecosystem and archaeological sites of Serra da Capivara National Park.

For urban transportation, a loan of up to $86 million is being prepared for 2002 to assist the city of Fortaleza in improving bus circulation through better planning, integrated routes and facilities, exclusive bus and pedestrian lanes and better terminals.

During 2001 the Bank approved more than $378 million in financing for private sector, natural gas-fired power plants in the states of Bahia and Pernambuco.

Known as Termobahia and Termopernambuco, the power plants are among a series planned to be built on an accelerated basis to help ease the country’s energy shortage and establish a new model for private sector participation in the energy market.

The IDB has established a partnership with the Banco do Nordeste (BN) to make more credit available to entrepreneurs. An IDB loan of $150 million approved in 2001 supports a comprehensive program of BN to strengthen the competitiveness of small and medium-sized enterprises. In 2002 an IDB loan of $30 million to the BN supports a massive expansion of activity by the bank’s microenterprise lending arm, CrediAmigo.

Sugar production has historically been the mainstay of the economy in the Zona da Mata of the state of Pernambuco, but the industry was hit hard by the withdrawal of subsidies during the 1990s.The IDB in 2001 approved a $90 million loan to finance investments that will promote economic diversification in the Zona da Mata, raise educational levels, and encourage participation by ordinary citizens and civil society in the development, planning, and administration of projects in such areas as potable water, sanitation, education, job training and health.