News Releases

Apr 3, 2006

IDB responds to new political and economic trends of Latin America and the Caribbean

Bank’s Annual Report notes increase in lending, new financial instruments

The Inter-American Development Bank will emphasize flexibility, response capacity, and new approaches and financial tools to assist the economic and social development of Latin America and the Caribbean in a period of important political and economic changes, according to the Bank’s latest Annual Report.

Lending by the IDB to its 26 borrowing country members totaled $7 billion during 2005, an increase of 17 percent compared with the previous year, while financing operations by the Inter-American Investment Corporation, a member of the IDB group that specializes in loans and investments to small and medium-sized business, more than doubled to reach $341.7 million.

The Bank also approved more than $89 million for technical cooperation projects in 2005 compared with $56.7 million in 2004.

IDB President Luis Alberto Moreno, who assumed office on Oct. 1, 2005, said the Bank will “redouble its commitment to financial democracy” and its efforts to improve the quality of life in the region. He said the IDB will promote  “innovative operations in the financing of education and small and medium-sized companies,” an increased flexibility and response capacity in operations with the private sector, new approaches to the financing of infrastructure and  “fair and easier access to credit” for national and subnational governments.

Moreno praised the continued application of sound macroeconomic policies in the region that have resulted in stability and the second consecutive year of significant economic growth and poverty reduction. He also recognized the challenges of adapting the Bank’s agenda to meet the needs of newly elected heads of state that will be chosen democratically in 12 elections during 2006.

 For the 12^th year in a row the IDB remained the main source of multilateral development lending to the region, while more than 50 percent of the Bank’s lending was targeted toward poverty reduction and social investments, exceeding the guidelines of the Board of Governors.

Notable among the poverty reduction programs during 2005 were financing for conditional cash transfer projects in Mexico, Argentina and El Salvador for a total of nearly $2.5 billion. From 2000 to 2005 the IDB loaned $4.5 billion for these kinds of projects in several countries, providing incentives to increase school enrollment and the use of health services by the poor.

New financial instruments

Among the new financial instruments adopted by the Bank during 2005 were deployment of a local currency facility, applied for the first time in a disbursement for a $300 million loan to Mexico to strengthen administration in its state governments. The ceiling on direct lending to the private sector was increased to $200 million from $75 million. In extraordinary operations the Bank under the new policy may lend up to $400 million for a private sector operation without government guarantees.

The Inter-American Investment Corporation, in the first operation of its kind by a multilateral financial institution, issued a bond in Colombian currency that was in turn onlent to leasing companies and small and medium-sized businesses.

The Bank’s Board of Governors adopted a new lending framework during 2005 that ends many restrictions on lending and makes financing more flexible and country-responsive while simultaneously enhancing accountability.

The governors also authorized a $502 million increase in the resources of the Multilateral Investment Fund, an autonomous fund administered by the IDB that is the largest source of technical assistance for the private sector in Latin America and the Caribbean.  The MIF approved 133 projects totaling $113 million during 2005, mostly grants. France, Haiti, Sweden, Switzerland and United Kingdom became new MIF members, bringing total membership to 38 nations.

In the area of reform of the state, the Bank approved 22 projects for a total of $1 billion to finance  fiscal and government reform, decentralization, administration of justice, modernization of legislatures and financial sector reform, among other projects. It approved 48 loans totaling $2.7 billion to enhance competitiveness, supporting operations such as air transportation in Ecuador, roads in El Salvador, information and communications in Trinidad and Tobago and tourism in Honduras.

The Bank’s direct lending and guarantees to the private sector without government guarantees rose to $683 million in 2005 compared with $456 million in 2004. These operations, managed by the Private Sector Department, included a record 11 guarantee operations under the umbrella of the $400 million IDB trade facilitation program, which increases the availability of short-to-medium term funding for exporters and importers.

The Bank continued its Business Climate Initiative in which it helps governments, in consultation with the private sector, identify the main obstacles to private investment and promote modernization of the regulatory framework. A Private Sector Advisory Council, made up of 40 prominent world business leaders with the support of the Bank’s Private Sector Coordinator, was established to offer guidance in promoting private sector development in the region.

The Bank approved eight loans totaling $205 million and 39 grants for a total of $10 million to support integration initiatives at the regional, subregional, hemispheric and multiregional levels, including strengthening the capacity of borrowing member countries to participate in the Doha Development Round trade negotiations.

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