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IDB and BNDES sign new $1 billion loan contract

The President of the Inter-American Development Bank, Luis Alberto Moreno, and the President of Brazil’s National Bank for Economic and Social Development (BNDES), Luciano Coutinho, signed a contract for $1 billion in Washington today, for a program to finance investments to expand and modernize micro, small and medium-sized enterprises in the country’s productive sector.

This is the second loan under a Conditional Line of Credit for Investment Projects (CCLIP) Program totaling $3 billion, approved in 2004. The purpose of the program is to help finance the BNDES Multisector Credit Program for Micro, Small and Medium-Sized Enterprises. BNDES may use the IDB line of credit in three successive operations of up to $1 billion each, over a total period of up to nine years. It is contributing $3 billion in local counterpart funding.

The first $1 billion IDB loan, signed in September 2005 and disbursed in 2005 and 2006, was used with the local counterpart funding for 31,755 credit operations averaging $54,000 each. Of these operations, 78 percent were for micro and small enterprises.

The loan signed today has a 20-year amortization period, with a grace period of up to four years. It is consistent with the IDB strategy agreed upon with the Brazilian authorities under the Economic Plan for 2004-2007, which is designed to achieve sustainable growth with social inclusion.

At the signing, BNDES President Luciano Coutinho announced that he intends to sign the contract for the third $1 billion installment of the line of credit by the end of 2008 and is already taking the necessary steps for its approval.

The new loan is guaranteed by the Brazilian government and will provide medium- and long-term financing for investment projects that will improve the companies’ competitiveness.  The IDB financing may be disbursed in local currency, and BNDES may opt for full or partial conversion of the loan into local currency. This innovative arrangement for IDB disbursements will help improve financial planning by addressing exchange risk.

BNDES carries out a large part of its operations indirectly, through local financial intermediaries. Since 1995, the IDB has supported five successful multisector credit programs with BNDES, disbursing a total of $4.5 billion. With the BNDES counterpart funding, the programs have provided credit to more than 150,000 enterprises in Brazil’s productive sector.

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