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IDB urges Latin America and the Caribbean to tackle reforms, seize the initiative

At annual meeting held in The Bahamas, Board of Governors take decisions to strengthen Bank to better serve the region

NASSAU, Bahamas – The Inter-American Development Bank today wrapped up its annual meeting encouraging Latin American and Caribbean countries to strengthen their fiscal positions and prioritize infrastructure investments in order to emerge stronger from the economic slowdown.

In a speech to the Boards of Governors of the IDB and the Inter-American Investment Corporation, IDB President Luis Alberto Moreno said: “The backlog of reforms is daunting, and the short-term challenges are great, but this is not the time to hesitate. It is time to seize the initiative.”

The Boards of Governors are the top policymaking bodies of the IDB and the IIC, which last year approved a total of $12.2 billion in loans and grants for economic, social and institutional development projects. Most governors are finance ministers, central bank presidents and other high-ranking officials in the IDB’s 48 member countries.

According to the IDB’s annual macroeconomic report presented during the meeting, regional economic growth in 2016 will be negative for a second year in a row. That weighted average, however, masks strikingly different performances, with some small Latin American economies growing at high rates while larger economies are mired in recessions.

In the report the IDB recommended that countries make necessary fiscal adjustments sooner rather than later and rebalance public spending to productivity-boosting investments, such as modernizing or repairing infrastructure.

It also advised governments to take advantage of opportunities such as the currently low oil prices to cut fossil fuel subsidies or raise gasoline taxes.

In his speech to the Governors, Moreno touched on the international furor set off by the leak of data on offshore structures.

“The new citizenry of the region demand a decisive stance to close any gaps allowing corrupt practices leading to tax evasion and money laundering,” he said. The IDB will continue working with governments committed to greater financial transparency, Moreno added.

Moreno also voiced hopes that Cuba may soon join the IDB. Commenting on U.S. President Barack Obama’s recent visit to Havana, he said: “Let us work together so we can also say ‘Yes We Can’.”

Highlights of the Annual Meeting

Caribbean issues featured prominently in the agenda of the annual meeting, the first one held in this region since 1979, with a strong emphasis on energy and climate change.

Special seminars focused on the prospects of transforming the Caribbean’s energy matrix, which currently depends heavily on liquid fossil fuels for electricity generation and motor vehicle transportation.

The IDB is assisting several borrowing member countries in developing low-carbon alternative energy sources, including wind, solar and geothermal plants.

Those efforts will get a boost from up to $3 billion in financing provided by the Japan International Cooperation Agency for an IDB-led program to promote renewable energy and energy efficiency investments across the region.

Climate-proofing infrastructure was another central topic of the annual meeting, with panel discussions on how countries can use cost-effective, natural solutions to prevent shoreline erosion and fight against the threat of rising sea levels.

The future of Latin American and Caribbean cities was also analyzed by speakers who underscored the need to improve urban planning to avoid sprawl, strengthen citizen security, and modernize public transportation to raise the region’s living standards and economic vitality.

One of the highlights of the annual meeting was a series of presentations by innovators from various Caribbean and Latin American countries, who are tackling problems ranging from disease-carrying mosquitos to raising the productivity of small-scale farmers.

In a special session, the governor of the People’s Bank of China, Zhou Xiaochuan, briefed Latin American and Caribbean finance ministers about the priorities on the agenda of the next meeting of the G20. The Chinese government currently heads that international body.

In addition, the IIC and the China-LAC Industrial Cooperation Investment Fund signed a memorandum of understanding to collaborate on projects in borrowing member countries.

The IDB and the IIC also hosted a meeting of the Americas Business Dialogue, which brought together finance ministers and business leaders to discuss productivity and economic policies.

Resolutions Adopted by the Governors

Climate Change Finance. Governors endorsed the goal of doubling the financing for climate-related projects to 30 percent of the IDB Group’s loan approvals by the end of 2020. The lending target is subject to demand from borrowing countries and clients and access to external sources of concessional financing.

Climate investment needs in Latin America and the Caribbean are forecast to rise to around $80 billion a year next decade – almost three times what the region invests today. The IDB Group will focus on projects that will help countries implement the commitments made last December at the Paris Climate Conference to reduce greenhouse gas emissions and to build resilience to climate change.

Complementing the Governors’ endorsement of the financing goal, the IDB announced the creation of a new Climate Change and Sustainability Department, which will be responsible for the Bank’s work on cities, rural development, tourism, environment and natural disasters, in addition to coordinating the IDB’s actions on climate change and sustainability.

Sustainability of Concessional Lending. Governors instructed the IDB management to prepare a proposal to merge the financial resources of the Fund for Special Operations (FSO) – the source of concessional lending for the poorest and most vulnerable member countries – with the Ordinary Capital (OC), the Bank’s principal source of financing.

The goal of the merger is to ensure the sustainable flow of concessional resources to the poorest countries. The merger will also strengthen the IDB’s balance sheet, as recommended by the G-20, by optimizing the Bank’s capital base. The transfer of the FSO’s net assets, valued at nearly $5.1 billion as of December 31 of 2015, would increase the OC’s equity by about 20 percent.

Grant Facility Transfers for Haiti. Governors approved a modification to the mechanism for transferring funds from the IDB’s Ordinary Capital to its Grant Facility, which finances the IDB’s grants for Haiti. Between 2011 and 2015, a total $1 billion were transferred in blocs of $200 million a year.

Going forward, transfers will be made in amounts consistent with the disbursement requirements of the Bank’s projects in Haiti, ensuring that the Grant Facility always has sufficient funds to meet projected operational needs.

Ratifying its support for Haiti’s reconstruction and development, the Board of Governors also authorized the Bank to continue approving more grants for Haiti over the coming years, totaling up to $1 billion.

Multilateral Investment Fund. Governors instructed the IDB’s management to draft a proposal on the future operation and financing of the Multilateral Investment Fund (MIF), which serves as an innovation lab to test alternative ways of promoting development through the private sector.

At present, using resources made available by its 39 donor countries, the MIF can provide as much as $88 million a year in grants through 2018. The proposal will include options to ensure the MIF’s long-term financial sustainability.

Annual Meetings of 2017 and 2018

Next year’s annual meeting of the Boards of Governors of the IDB and the IIC will take place in Asuncion, Paraguay. The Governors also welcomed an offer from the government of Argentina to host the meeting in 2018.

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