The policymaking committee of the IDB's Board of Governors set a his toric new course for the Bank in November by approving procedures by which the Bank will join with other multilateral institutions to counteract the negative effects of worldwide monetary speculation and volatile financial flows.
The assistance program, which was subsequently approved by the full Board of Governors, is designed to support countries that have already put in place effective economic and social reforms but are nevertheless suffering from the contagion of financial shocks that have originated outside the region.
To meet the challenge, the committee in a special Nov. 12-13 meeting in Washington, D.C., recommended that the board authorize the Bank to increase its lending by up to $9 billion for a one-year period over and above its normal levels, which in recent years has been between $6 and $7 billion.
The emergency lending will enable the Bank to join with the International Monetary Fund and the World Bank in providing financial assistance to countries whose fiscal balance is threatened by the recent Asian financial crises and the Russian debt default. These events have induced investors to withdraw resources from all emerging markets, often without regard to the economic and political profiles of specific countries.
The resulting volatility in financial markets is threatening to undo a decade of reforms in Latin America and the Caribbean. These reforms, which have been carried out with great sacrifices, are now showing very favorable results.
With the purpose of supporting governments' efforts to mantain stability and continue reform programs during the crisis, the Bank has offered emergency loans of up to $3.4 billion for Brazil, $2.5 billion for Argentina, and $1.25 billion for Colombia.
Brazil has already received a $1.1 billion IDB loan to support microenterprise and small business. This financing would be included as part of an IDB package for that country that could reach $4.5 billion. The IDB funds would be part of a $41.5 billion package for Brazil, to which the imf will contribute $18 billion; the IDB and the World Bank, $4.5 billion each; and leading industrial nations, $14.5 billion.
"The progress that Brazil has made under the Real Plan is historic," IDB President Enrique V. Iglesias said during remarks on the emergency financing offered to that country. "We are committed to continuing our efforts over a broad front in supporting the government to ensure that the gains made by the poor are sustained and improved in the years ahead and that the process of stability and development will resume with dynamism very soon," he added.
The primary purpose of the emergency financing is to support programs that are designed to assist the poor and to enable countries to continue structural reforms. The new loans are designed to be quickly disbursed in order to help beneficiary countries to strengthen their monetary reserves. The $2.5 billion emergency loan for Argentina, for example, was approved by the Bank's Board of Governors on Dec. 16 and signed by Argentine government and IDB officials on Dec. 21. By Dec. 22 the first $1 billion of the loan had been disbursed.
The interest rates, terms and fees of the new loans (to be established by the Board of Executive Directors) will be more stringent than regular Bank loans. These conditions, said the Committee of the Board of Governors, will maintain "the basic indicators that ensure the Bank's financial soundness."