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IDB Governors set roadmap to strengthen Bank, increase resources to fight crisis

SANTIAGO, Chile – The Inter-American Development Bank (IDB) has obtained a mandate from its highest governing body to quickly complete the technical studies surrounding a capital increase that seeks to help Latin America and the Caribbean tackle challenges like climate change and poverty alleviation. The IDB will also make an additional $6 billion available to assist borrowing countries affected by the financial and economic crisis.

Meeting in Santiago on July 2, the IDB Board of Governors set a December 2009 deadline for the technical discussions on the capital increase and a replenishment of the Fund for Special Operations (FSO), the IDB’s concessionary lending facility. The Board of Governors, made up of top financial officials from the IDB’s 48 member states, will meet again in Madrid on October 8 to continue to work on the issue.

In Santiago, Governors reviewed the initial technical documents presented by management on the need for a capital increase. Management and several governors noted that the Bank is close to utilizing its full lending capacity after strong countercyclical increase in financing in recent years in the face of the global crisis. The IDB will have to scale back operations in the future, unless more capital is made available. The IDB’s backlog of projects in the pipeline has held steady at $25 billion, despite record levels of approvals and disbursements in recent years.

“The Board of Governors has provided us with a clear mandate to quickly move with the capital increase review,” said IDB President Luis Alberto Moreno. He said management would continue to improve and elaborate technical documents that deal with a broad range of issues, from the analysis of the expected future demand of the Bank to the framework that tracks the development effectiveness of the Bank’s programs.

“We will be busy in the coming months but we are on track to make the IDB more responsive to the development needs of its member countries in a difficult economic environment,” Moreno added.

$6 billion in additional resources

The governors welcomed Canada’s offer to temporarily increase its share of the callable capital of the Bank by $4 billion for a period of five to eight years. The callable capital is the portion of the IDB’s large capital base committed by countries though not paid in, and is used to determine the amounts of loans and guarantees the Bank can allot.

Governors and management noted that the IDB needs to continue to manage its resources conservatively to ensure it maintains its top credit ratings.

The Canadian contribution will come on top of $2 billion in additional resources that will become available following changes in June to rules limiting the Bank’s lending capacity. The IDB eliminated its Policy-based Lending Authority, a rule that limited total loan outstanding and guarantee exposure to the callable capital of non-borrowing members plus the paid-in capital and general reserves of the Bank.

The decision to end the policy-based rule will bring the IDB, the biggest source of long-term lending for Latin America and the Caribbean, in line with other multilateral institutions, whose lending is limited by their net borrowings and the lending limits set in their charters.

The added resources are to help countries in Latin America and the Caribbean weather the impact of the global financial crisis on their economies and social spending, as the Bank moves ahead in evaluating its first capital increase since 1994.

While the added resources will provide some relief to countries facing a difficult economic situation, Latin America and the Caribbean continue to face pressing long term development challenges, from producing sustainable and green energy to revamping infrastructure and making education and innovation key ingredients to compete in the global economy.

“Despite these short-term measures, we need more in the face of the dire needs by countries,” said Oscar Iván Zuluaga, the finance minister of Colombia and the chairman of the Board of Governors.

Between 1994 and 2008 the IDB provided about $109 billion of loans to the region. About half of the total loans with sovereign guarantee financed programs to promote social equity and reduce poverty. These programs have helped build thousands of health facilities, trained teachers and improved classrooms, built over 730,000 kilometers of roads and provided drinking water to 4.2 million households in the region, among other accomplishments.

In addition, the BID has either financed or advised 16 conditional cash transfer programs in the region, which seek to break the cycle of poverty by linking benefits to ensuring parents keep their children in schools and take them regularly to medical checkups.