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Latin America’s challenge: Stability, integration, democracy

The Inter-American Development Bank is deploying a greater variety of financial instruments and products to assist Latin America and the Caribbean to resume the path of economic growth and overcome an economic crisis that has impacted several countries in the region, the IDB said in its 2002 Annual Report.

The report said the region must overcome a daunting international context and the prospect of more slow growth in 2003. “Per capita income in Latin America is now lower than it was five years ago, consumption is stagnant and investment has fallen to its lowest point in the past decade,” it said.

The IDB noted positive signs during the crisis, including the region’s “commitment to macroeconomic stability, international economic integration, and democracy. These foundations, absent two decades ago, must be strengthened in order to foster sustained recovery throughout the region.”

As part of its program to help the region regain growth, the Bank is using new financial instruments and has “developed a strategy – flexible yet containing a series of common core elements” that assigns priority to improving competitiveness of productive activities, increasing the quality and coverage of education and health services, strengthening public institutions, promoting regional integration and strengthening environmental management.

During 2002 the Bank increased its use of several new instruments and products, such as innovation loans, multiphase loans and sector facility loans – three product lines that, taken together, make up the flexible lending instruments established by the Bank’s Board of Governors in 2001.

The Board of Executive Directors in 2002 recommended a two-year mandate, subsequently adopted by the IDB’s Board of Governors in February of 2003, to create the International Trade Finance Reactivation Program to help the region expand international trade and fill the vacuum left by a reduction in traditional sources of trade finance. The initiative will enable the IDB to provide credit to financial institutions to finance imports and exports and apply its various guarantee capabilities to confirm letters of credit and back the issuance of other instruments supporting trade finance.

Commenting on the Annual Report, IDB President Enrique V. Iglesias said the Bank “will respond to the urgent need to accompany countries in the recovery of economic dynamism.” He noted that while the economic crisis has brought to the foreground “new political forces inspired by social demands, the new leadership has been clear in asserting that change will not be bought at the expense of the macroeconomic equilibrium that has been achieved over a period of years.”

IDB: largest source of development lending

The IDB remained the largest source of multilateral development lending to the region during 2002 for the ninth year in a row. The Bank last year approved 77 loans totaling $4.55 billion to fund projects for a total cost of $7.6 billion, and made disbursements totaling the equivalent of $5,836.5 million,

The Bank continued to support poverty reduction and improvements in social equity, with 43 loans approved in 2002 for $2.9 billion. These totals represent 69 percent of the lending volume and 58 percent of the number of projects for regular lending in that year, thereby surpassing the target in these areas of 40 percent in terms of dollar volume and 50 percent in terms of number of operations.

The Bank’s governors during 2002 approved a new lending framework for the 2002-2004 period that, among other measures, enables the IDB to deliver up to $4.5 billion in fast-disbursing policy-based loans for the triennium and establishes a permanent window for emergency loans.

The IDB during 2002 approved an emergency loan – $500 million for Uruguay to strengthen social expenditures at a time of financial crisis – and $65.4 million in grants for technical cooperation.

The less developed countries of the region, those whose per capital incomes is less than $3,200, received  $2.01 billion in Bank financing, or 44 percent of the total, exceeding the minimum guidelines set by the Board of Governors.

Loans and guarantees approved by the IDB's Private Sector Department totaled $316.4 million from ordinary capital and $70.5 million in syndicated loans. Six of the seven loans and guarantees that the Private Sector Department approved during 2002 were directed to the smaller and more vulnerable countries. Among the projects was the Bank’s first direct private sector loan to Guatemala – $25 million to support electricity distribution – and a pioneering capital market project, a partial credit guarantee of a portion of the principal and interest payment on a mortgage bond issue in Colombia.

The Bank delivered approximately $123 million in debt relief to the four Bank members eligible for assistance under the initiative to help Heavily Indebted Poor Countries (HIPC): Bolivia, $47 million; Guyana, $10 million; Honduras, $20 million; and Nicaragua, $46 million.

The largest IDB loan ever for Mexico was approved, $1 billion for the consolidation and expansion of the Oportunidades anti-poverty program, the successor to Progresa .

The Inter-American Investment Corporation – an autonomous affiliate of the IDB that promotes the establishment, expansion, and modernization of small and medium-sized enterprises – approved 20 projects for a total of $123 million.

The Multilateral Investment Fund, administered by the Bank, continued as the major source of technical assistance grants for microenterprise and small business development and approved 65 projects and two special programs for a total of $98.6 million in 2002. The Board of Governors is scheduled to discuss MIF operations during the Bank’s 2003 Annual Meeting in Milan March 24-26.

The Bank took steps in 2002 to strengthen its evaluation and monitoring systems, improve its development effectiveness and streamline operations.

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