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IDB approves diverse portfolio to improve competitiveness and reduce poverty in Latin America and the Caribbean

The Inter-American Development Bank delivered a solid and innovative lending program in 2006, approving a higher number of loans and guarantees than the previous year, totaling 127 projects for nearly $6.4 billion.

According to the IDB’s latest Annual Report, disbursements in 2006 amounted to nearly $6.5 billion, a 22 percent increase over the previous year. For the 13th year in a row the IDB was the main source of multilateral lending to Latin America and the Caribbean.

Poverty-targeted operations totaled close to $2.3 billion (35.4 percent of the volume of lending), but many other projects are contributing indirectly to poverty reduction.

The Inter-American Investment Corporation, a member of the IDB group that specializes in loans and investments for small and medium-sized business, approved a record 46 loans for $338 million.

The Bank also approved $104 million in grants for technical cooperation projects in 2006, compared with $89 million in 2005.

IDB approvals included 76 loans public-sector investment projects totaling close to $3.6 billion, 17 policy-based loans for close to $1.8 billion and 20 operations without sovereign guarantees for $916 million. The latter category of loans and credit guarantees was made possible thanks to new policies approved at the 2005 Annual Meeting that raised the cap for such operations and expanded them to more sectors.

At the IDB-administered Multilateral Investment Fund (MIF) project approvals were $125 million, primarily in grants, an 11 percent increase relative to the previous year.

IDB President Luis Alberto Moreno described the results as satisfactory, considering that 2006 was a year of political change in many countries in the region and transition within the Bank. Although poverty rates have declined in Latin America and the Caribbean to below 40 percent for the first time since 1980, poverty and inequality remain major concerns.

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.

Notable among the poverty reduction programs during 2006 were a $28 million loan to Honduras and a $30 million loan to Nicaragua. In addition, seven loans totaling $370 million were approved for investments in water and sanitation in Ecuador, Haiti, Honduras, Nicaragua, Panama and Uruguay.

New initiatives

The IDB expanded private sector financing, lifting restrictions on large-scale, direct lending to the private sector that previously limited loans to only those for infrastructure, capital markets and trade finance. 

The Bank also extended lending without sovereign guarantees to subnational entities, such as provinces and municipalities, so that they can have more opportunities to promote economic development, assisted by the IDB, through partnerships with the private sector.

The Board of Governors approved a framework for debt relief for Haiti and expanded debt relief for Bolivia, Guyana, Honduras and Nicaragua, which have already received debt reductions under the Heavily Indebted Poor Countries (HIPC) initiative and the expanded HIPC initiative.

The IDB launched its Opportunities for the Majority initiative, designed to bring the benefits of growth to that 70 percent of the population with annual earnings of less than $3,000. The initiative focuses on strategic areas such as financial democracy and access to basic infrastructure services and housing.

Two other initiatives are fundamental to the goal of improving economic and social conditions for the region: the $20 million Infrastructure Investment Fund (InfraFund) to identify and develop major infrastructure projects and the $10 million Disaster Prevention Fund to assist countries in identifying the risks associated with natural disasters, which directly affect some four million people in the region each year.

The IDB launched its Sustainable Energy and Climate Change Initiative to promote alternative energy sources and clean fuels.

The Board of Executive Directors approved a realignment of the Bank’s organization, designed to increase the organization’s responsiveness and strategic and technical capacity.

The IDB approved its Environment and Safeguards Compliance Policy and Operational Policy to protect the rights of indigenous peoples.

In the area of reform of the state, the Bank approved 25 projects for a total of $1.5 billion to finance fiscal and government reform, decentralization, administration of justice, modernization of legislatures and financial sector reform, among other projects. It approved 52 projects totaling $3.2 billion to enhance competitiveness, supporting operations such as a program with a cluster approach to assist rural indigenous communities in Guatemala in developing business services, financing and technical support.

The IDB’s direct lending and guarantees to the private sector without government guarantees rose to $920 million in 2006 compared with $683 million in 2005. These operations, managed by the Private Sector Department, included 10 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.

Four loans approved during the year included integration-related components: programs for competitiveness in Colombia and Guyana, fiscal reform in Bolivia (customs and tax harmonization components), and public financial management in Honduras (customs component).  In addition, 39 grants for regional integration projects were approved totaling $16 million to support countries in their integration processes at the subregional, hemispheric and international levels, with special emphasis on trade.

Recognizing that recent elections in Latin America and the Caribbean have given voice to the poor and the excluded, Moreno stressed that it is the job of the IDB Group, in partnership with its member countries, to help bring the majority into the economic and social mainstream, in a lasting way. “I believe that we have laid a good foundation and made a good beginning,” the IDB president said. “The challenge now is to convert plans into actions and to deliver the benefits we are all so understandably eager and impatient to provide.”

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