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Facing the gathering storm

The past six years have been among the most glorious for Latin America’s once-fickle economies. Growth was fed by soaring commodity prices and generally more cautious fiscal policies. Almost 40 million individuals were swept above the poverty line.

As the effects of the financial crisis in the United States and Europe deepen, Latin America and the Caribbean is bracing for the storm. Raw material prices are sharply lower and government budgets are tested.

Growth in the region will likely to slow to between 2 percent and 2.5 percent in 2009 from 4.5 percent a year earlier. Capital flows into the region are likely to fall below the required $250 billion. Millions may be pushed back into poverty again.

The Inter-American Development Bank and other multilateral agencies can play an important role in expanding resources for governments and enterprises to finance investments and in bolstering international reserves to give central banks in the region more leeway to conduct monetary policy.

The magnitude of the crisis requires creative thinking and quick reactions.

To lessen the impact of the crisis, the IDB and its two affiliates, the Multilateral Investment Fund and the Inter-American Investment Corporation, approved a record $12.2 billion in loans, credit guarantees and grants in 2008. This is 27 percent higher than the $9.6 billion approved in 2007, reaffirming the IDB’s role as the leading source of long-term funding for Latin America and the Caribbean.

The IDB approved operations totaling $900 million in 2008 from its new fast-disbursing emergency liquidity fund. The $6 billion facility, created in October, provides funding for countries facing transitory difficulties in accessing international credit markets due to the financial turmoil.  The funding will go for domestic banks so they can lend to local firms to support their investments and operations.

Conditional cash transfer programs for the poor, a growing alternative that the Bank supports, has also been an important measure to defend recent achievements in the fight against poverty during these trying times. The IDB has provided financing to expand and improve the scope of such programs in the region in the past year. Fifteen countries in Latin America and the Caribbean are using such programs to fight poverty in urban and rural areas, including Mexico and Brazil, which pioneered the programs in the 1990s.

In 2009, helping countries cope with economic difficulties will be a key priority for the IDB, when the Bank commemorates its 50th anniversary.

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