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China to join the Inter-American Development Bank

China will join the Inter-American Development Bank as a donor member, building on its growing links with Latin America and the Caribbean.

The Asian giant will become the 48th member country in the Washington, DC-based IDB, the single largest source of long-term lending for the region.

“We are thrilled to bring a large and growing economy like China into a community of nations that are working together to resolve the complex development challenges facing Latin America and the Caribbean,” said IDB President Luis Alberto Moreno. “It is a historic decision that takes China’s thriving commercial relationship with our region into the development sphere.”

China has agreed to contribute $350 million to the IDB Group to bolster key programs at a time when the world economy is under duress. The funds would be distributed as follows:

  • $125 million will go to the IDB’s Fund for Special Operations, which provides soft loans to Bolivia, Guyana, Haiti, Honduras, and Nicaragua.

  • $75 million will go to multiple IDB grant funds to strengthen the institutional capacity of the state, including municipal governments and private sector institutions.

  • $75 million is for an equity fund to be administered by the Inter-American Investment Corporation (IIC), which lends to small and mid-sized private businesses.

  • $75 million is to be administered the Multilateral Investment Fund – the IDB arm that focuses on microenterprises.

"China's membership in IDB will provide both sides with a new platform and opportunity for increased two-way trade and investment and greater technological cooperation,” said Zhou Wenzhong, China’s ambassador to the United States. “This is a win-win decision that will serve everyone's interest."

"China will, after officially joining IDB, cooperate closely with Bank, support the IDB in reducing poverty and promoting development, and share our experience with the countries of Latin America and the Caribbean for the purpose of mutual benefit and common development," he added.

Over the past decade China has become an increasingly important commercial partner for many countries in this region. Trade between Latin America and the Caribbean and China jumped 13-fold since 1995, from $8.4 billion to $110 billion in 2007.

China is now this region’s second biggest trading partner after the United States. In 1995 it was the 12th biggest, trailing Japan and Germany, among others.

 “The flow of ideas, resources and technology between China and Latin America has grown exponentially in recent years,” said Moreno. “China is an increasingly important commercial partner and investor for the region and a vast new market our exports.”

China’s entrance was approved by other member countries in a month-long voting process ended on October 15. The 26 Latin American and Caribbean borrowing nations own 50.01 percent of the IDB. The United States holds just over 30 percent of the shares.

China will purchase 184 shares, or 0.004 percent of the IDB’s ordinary capital, which became available after the breakup of Yugoslavia. China will be the IDB’s third Eastern Asian member after Japan and South Korea, which joined in 1976 and 2005, respectively.

The IDB Group is expected to approve about $10 billion in new programs this year and $12 billion next year.

As an IDB member country, China will be represented at the Board of Executive Directors, sharing a chair with other donor nations. Executive directors oversee for the day-to-day oversight operations, approve loans, establish policies and set interest rates, among other duties.

China will also have a seat on the Board of Governors, the IDB’s top decision-making body. Governors, who are usually finance ministers or central bank presidents, meet once a year to review the Bank’s operations and make major policy decisions. Next year’s meeting will be in Medellin, Colombia, marking the IDB’s 50th anniversary.

The IDB employs about 2,000, with offices in its 26 borrowing member countries and in Tokyo and Paris.

China, IIC and MIF

China will become the 44th member of Inter-American Investment Corporation. It will acquire 110 shares in the IIC, or 0.16% of its subscribed capital. China will contribute $75 million to set up a special equity fund administered by the IIC to invest in small and mid-sized businesses and financial institutions in Latin America and the Caribbean.

 “We expect China’s contribution to have a demonstration effect that will pave the way for more resources,” said IIC General Manager Jacques Rogozinski.

China will also contribute $50 million to the IDB-administered Multilateral Investment Fund. In addition, it will provide $25 million to a new Fund for Increasing Productivity and Promoting Inclusive Economic Growth.

China is the fifth biggest donor of the MIF, joining the United States, Japan, Spain and Republic of Korea.

“China’s adherence to the Multilateral Investment Fund is in line with our strategy to promote new partnerships to test new ideas, leverage know-how and the impact of private sector development projects,” said MIF’s acting general manager, Fernando Jimenez-Ontiveros.