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Key Areas
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 Private Sector Development
During the year, the Bank approved $683 million in financing
for 17 private sector projects, consisting of six senior
A-loans for a total of $385 million (three of which carried
corresponding “B-loan” syndications) and 11 guarantees
for a total of $298 million. The increase in the number of
guarantees over previous years reflects the Bank’s ongoing efforts to assist in development of local capital markets
and trade finance.
At year’s end, the Bank’s Board of Governors voted
to raise the ceiling on private sector projects from $75 million
to $200 million (and under exceptional circumstances,
when authorized by the Board of Executive Directors, to
$400 million). The maximum percentage of Bank participation
in financing a new private sector project remains
25 percent of the total project cost in the Bank’s larger
borrowing member countries and 40 percent in smaller
countries. For expansion projects the limit was raised to
50 percent of the total project cost in all borrowing member
countries.
Three operations for infrastructure financing in the region were
approved in 2005: a $75 million loan for the Quito International
Airport in Ecuador and two $75 million loans for capital investment in electric
power in Brazil, in the States of Mato Grosso and Pará. The Bank also approved
a $75 million warehouse facility for a capital markets project in Brazil that
will help develop the housing sector. The Brazilian Securities Mortgage Instruments
Warehouse Facility will be used to finance the origination and accumulation of
mortgage instruments until there is sufficient volume to place mortgage-backed
securities in the domestic capital markets. Another private sector operation approved in
2005 was a regional $75 million trade finance facility for Trade Opportunities Fund N.V.,
which will benefit medium-sized exporters that do not have direct access to the local
banking system.
BOX 5 • LOCAL CURRENCY FACILITY
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BOX 5 • LOCAL CURRENCY FACILITY
In response to increased demand from borrowers for local currency
financing as a way to help manage exchange rate risk, in November
2005 the Bank established the Local Currency Facility. Deepening of
local capital markets and increased stability in the region’s macroeconomic
environment provided a backdrop for the Bank’s moving
forward with this initiative.
Under the facility, the Bank can support borrowers with local
currency financing needs—particularly in countries in which the Bank
is able to source medium-term local currency funding—as well as
assist them in their debt management programs. The Local Currency
Facility offers public and private sector borrowers three options for
local currency financing: local currency
loans through currency conversion
of disbursements (and/or
outstanding loan balances); direct
currency swaps with Bank borrowers
against existing Bank debt; and
local currency loans/obligations
through conversion of called guarantees.
Demand for local currency
financing is expected to come
from central and subnational governments
as well as from private
sector entities.
In preparation for this initiative,
in April 2005 the Board
approved a pilot local currency operation for Banobras, a Mexican
development bank, allowing the borrower to convert disbursements
under a United States dollar–denominated loan into Mexican pesos.
The first disbursement was successfully made in November 2005,
and the Bank expects to continue delivering local currency on attractive
terms, subject to market conditions.
Although these innovative solutions may not currently be
suited for all clients in all countries, the Bank will continue to work
with countries to create the necessary conditions for local currency
lending in the future. It hopes to offer this instrument as one of its
financial products available to all borrowers. To this end, as part of
the initiative, the Bank has established a standing working group on
local currency financing that will help deepen local capital markets
and develop innovative financing approaches. |
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In 2005 the Bank approved $270 million in uncommitted
credit lines for 10 banks from six countries in the
region under the Trade Finance Facilitation Program. Under
this program, the Bank issues partial credit guarantees on
eligible trade-related instruments in favor of confirming
banks, absorbing the risk on the issuing banks.
This program has been fully operational since July
2005 and, as of December 31, 2005, the Bank had
outstanding guarantees of approximately $19
million, supporting trade finance transactions
of about $25 million.
The IDB Group’s private sector activities
in 2005 focused on local and regional capital
markets, leadership in remittances and support
for corporate governance throughout the
region. In order to better meet client needs, the
Bank approved a Local Currency Facility, which
is expected to attract a high level of demand
among private sector borrowers given its ability
to mitigate foreign exchange risk (see Box 5). The
Bank continued to increase its trade finance activities
and the use of partial credit guarantees that will
attract more investment to the region.
By the end of 2005, cumulative approvals since 1994
totaled 83 operations, including 63 senior A-loans and
20 guarantees, for a cumulative total amount of private
sector loans and guarantees of $3.5 billion. In addition to
the Bank financing, these projects received an additional
$3.8 billion in syndicated “B-loans” and coguarantees and
mobilized over $19.6 billion in total project costs.
The Bank organized several conferences on corporate
social responsibility in 2005, including the Third Ibero-
American Conference on Corporate Social Responsibility
in Santiago, Chile, and published a study entitled Corporate
Social Responsibility in Small and Medium Enterprises
in Latin America.
Inter-American Investment Corporation
An independent affiliate of the Bank, the Inter-American
Investment Corporation (IIC) makes loans and equity
investments in private companies in Latin America and
the Caribbean. In 2005, it approved 37 projects and programs
in 15 countries, plus two regional operations, totaling
$341.7 million. Established in 1989, the IIC is the only
multilateral development finance institution in the world
whose specific mission is to foster economic development
by promoting the creation, expansion and modernization
of small and medium-sized enterprises.
Such small and medium-sized companies
typically do not have access to
appropriate sources of credit or capital
in the region. The IIC lends to and invests
directly in them, and provides financing
indirectly through financial intermediaries
or equity funds. The IIC does not require
sovereign guarantees. To be eligible for
financing from the IIC, projects must further
sustainable development by creating
jobs, broadening capital ownership,
generating net foreign currency income,
facilitating the transfer of resources and
technology, utilizing local resources in an
environmentally sustainable manner, fostering
local savings or promoting the economic
integration of the region.
In 2005, the IIC made its first local
currency loans to five leasing companies in
Colombia. These five loans, totaling 150 billion
Colombian pesos ($66 million), mark
the first time that a multilateral institution
operating in Latin America has obtained
local currency funding to grant local currency
loans. The proceeds of the loans
will be used to provide financing to small
and medium-sized companies in Colombia
through medium- and long-term finance
leases for upgrading or purchasing fixed
assets. These loan transactions contribute
to the Declaration of Nuevo León goal of
tripling resources channeled to small and
medium-sized enterprises through financial
intermediaries. Over 1,000 such companies
are expected to benefit from the
five operations financed by these loans.
For further information on the IIC’s
operations, see its 2005 Annual Report,
which is published separately. For general
information on the IIC and for data on prior-year
operations, visit its website at www.
iic.int
Multilateral Investment Fund
The Multilateral Investment Fund, an independent
fund administered by the IDB,
approved 133 technical assistance and
investment projects totaling $113 million in
2005. Of these, 72 were grants for $72 million, 10 were equity or loans for $37 million and 51 were
part of MIF’s delegation of authority program for $4.1 million.
The focus of the MIF is to help introduce new ways
to strengthen micro- and small enterprise capacities,
stimulate improvements in the business environment and
engage the private sector in the development process.
Although primarily a technical assistance grant
instrument, the MIF also utilizes an array of loan, quasiequity
and investment mechanisms. Moreover, 80 percent
of MIF projects are carried out in direct partnership with
private sector business associations, trade groups, foundations
and other nongovernmental organizations, which
typically cover half the project costs.
>While most MIF projects promote socially responsible
business models as an integral part of their design, in
2005 the MIF also approved seven projects for $8.5 million
with the specific objective of advancing corporate social
responsibility, sustainable tourism and cleaner production.
The MIF also organized international conferences in
Brazil and Mexico to highlight market opportunities for the
region’s low-income majority and three corporate governance
courses in Lima, Mexico City and Buenos Aires.
During the year, the MIF continued its leadership role
in remittances through projects to increase the financial
resources of those who receive remittances and improve
the developmental impact of these funds. The Fund completed
12 studies/surveys, sponsored nine major conferences
and published a book on the global impact of remittances
on development entitled Beyond Small Change.
In 2005, the MIF replenishment process was completed,
with donors pledging $502 million. The new MIF
II Agreements reinforce the MIF’s special development
role and position it to maximize its development results.
Since its establishment, the MIF has approved 791 technical
assistance and investment projects for over $1 billion.
Including counterpart funds, some $2 billion has been
committed to MIF projects throughout the region.
The Social Entrepreneurship Program (SEP) is a
dynamic and participatory instrument through which the
Bank has been able to leverage external resources from
other donors, the private sector, NGOs and project beneficiaries,
using both long-term loans and technical cooperation
resources. In 2005, the Bank approved 20 SEP
projects for a total of $13.4 million. Of this amount, $8.3
million was financed by the Fund for Special Operations
and $5.1 million by various trust funds administered by the Bank.
The projects financed in 2005 under the SEP continued
to have a significant impact on improving the economic and social conditions of low-income micro- and
small enterprise sectors. Noteworthy examples included
the promotion of entrepreneurship among poor Honduran
graduates from vocational technical centers; a project to
improve the living conditions and incomes of Paraguayan
coconut producers, by financing a production plant for
biodiesel from vegetable oil; the strengthening of four village
banking programs that provide microcredit and savings
services to poor women in rural areas in Ecuador;
support for a project in Nicaragua that will provide electricity
to families in poor rural areas, by financing solarpower
equipment and strengthening their technical and
management skills; and a loan to a private potable-water
provider for rural areas in Bolivia. (Working papers on topics
pertaining to small and medium-sized enterprise can
be found at www.iadb.org/ar/micpub_en.)
Pursuant to the Private Sector Development Strategy
approved in 2004, the IDB established the Office of
the Private Sector Coordinator as the unit responsible for
the coordination and oversight of all of the IDB Group’s
private sector activities. Reporting directly to the president
of the Bank, the coordinator serves as a key advisor
on the group’s evolving business model for its private
sector activities. The new office is working to increase
the effectiveness of the group’s private sector efforts as
a priority area in order to promote growth and reduce
poverty in the region. The new Private Sector Committee
of the Bank, chaired by the coordinator, will improve
coordination among the members of the IDB Group,
streamline the approval process for private sector operations
and improve responsiveness to clients. Outreach
for the IDB Group as a whole has been improved through
the newly established Private Sector Advisory Council
(see Box 6).
+ BOX 6 • PRIVATE SECTOR ADVISORY COUNCIL
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