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IDB Board of Governors approves new lending framework and modernization of lending policies

The Board of Governors of the Inter-American Development Bank has adopted a New Lending Framework to guide lending operations during the four-year period 2005 through 2008. The governors also supported the elimination of restrictions on lending in order to modernize policies and make them more flexible and effective in assisting the economic and social development of Latin America and the Caribbean.

The Bank will retain its three basic categories of loans – investment loans, policy-based loans and emergency loans – but it will eliminate minimum limits on disbursement periods, which in the past were three years for investment loans and 18 months for policy-based loans.

For the New Lending Framework, the ceiling for investment loans from ordinary capital was set at cumulative amount of $20.6 billion for the four-year period, while the limit on policy-based loans was set at accumulative amount of  $9.8 billion. A revolving aggregate amount of $6 billion will continue to be available for emergency loans.

The governors agreed that the Bank should take a more programmatic approach to lending and to become more flexible, strengthening its country focus as well as the programming capacity of borrowing nations. The governors asked the Bank to continue measures to improve development effectiveness and to strengthen its nonfinancial products, technical assistance and analytical capacity.

The actions by the Board of Governors followed steps already taken by the IDB Board of Executive Directors to lift restrictions on cost elegibility for financing. The Board ended restrictions for the financing of taxes and fees and recurrent expenditures, as well as those for the financing of working capital, land, commercial buildings and severance payments for institutional reforms.

The policy changes were adopted to align Bank rules with the current framework designed to achieve greater country focus in the lending program, attend more closely to the needs of borrowing countries and harmonize procedures and rules more closely with other multilateral lending organizations.

Loans will be authorized on the basis of results-based criteria that will be guided by the positive impact a project will have on its development objective.

The project must be technically, financially and economically viable, and guarantees will be necessary to demonstrate that the resources from an IDB project loan will be used efficiently and solely for the purposes for which the loan was made. In addition, the cost of the loan must be sustainable in accordance with the borrower’s fiscal capacity.

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