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IDB Boosts 2008 Approvals in Effort to Ease Impact of Financial Crisis

The Inter-American Development Bank Group increased loan, credit guarantee and grant approvals by about a quarter to a record $12.2 billion in 2008, in an effort to help Latin America and the Caribbean weather the global financial crisis.

“IDB is striving to assist the region in these difficult times,” said IDB President Luis Alberto Moreno. “We are working with our member countries to defend the progress they made in recent years in the fight against poverty.”

The IDB reaffirmed its role as the leading source of long-term funding for Latin America and the Caribbean. The IDB increased backing for social programs designed to prevent millions from falling back into poverty and boosted financing for infrastructure investments and key reforms to boost competitiveness. China is set to become a donor member of the Bank and Spain and the IDB will work together on a big grant fund to improve water and sanitation services in Latin America.

Moreno gave the IDB’s Board of Executive Directors his annual year-end assessment on Wednesday, Dec. 17th. The total approvals for 2008 include financing from the Bank and its two affiliates: the Multilateral Investment Fund and the Inter-American Investment Corporation.

During the year, the Bank approved $11.5 billion in loans and guarantees that will use resources from its 2008 Ordinary Capital. The funds will finance 137 private and public sector projects.

The total approvals by the Bank also include operations of $900 million from its new fast-disbursing emergency liquidity fund. The $6 billion facility, created in October, provides funding for countries facing transitory difficulties in accessing international credit markets due to the financial turmoil.  

The Multilateral Investment Fund (MIF), which focuses on microenterprises, approved $166 million in loans and grants this year. The Inter-American Investment Corporation (IIC), which specializes in financing for small and medium-size companies, approved operations totaling $553 million.

All together, this adds up to $12.2 billion, against $9.6 billion approved by the IDB Group last year.

More than half the financing approved this year will fund projects in sectors such as energy, transportation, capital markets and information technology. About a third of the total will finance social sectors, including water and sanitation projects and natural disaster prevention. The remainder will finance public sector modernization projects.  

As a result of the increased approvals, the Bank’s loan portfolio expanded to $39.6 billion, up from $34.7 billion a year earlier. The Bank is carrying out 623 projects, compared with 580 at the end of 2007.

2009 Outlook

Latin American and Caribbean nations will continue to face an adverse external environment next year, which will reduce foreign investment flows and the demand for raw materials, Moreno told the executive directors.

Growth in the region will slow to between 2 percent and 2.5 percent next year from 4.5 percent in 2008.  

In the short term, the IDB will focus on supporting government programs to protect the poor from the impact of the slowdown, Moreno said. The Bank will also continue to invest in longer term programs that promote sustainable growth, reduce social inequality and strengthen public institutions.

“The IDB reaffirms its commitment to help the region face the effects of the recent financial market turbulence,’’ Moreno said. “The region must resist to the temptation of relying too much in the successes of the past and it must be willing to work towards the achievement of the primary goals of promoting sustainable development and reducing poverty.”

2008 Highlights

During 2008 the IDB took several steps to respond more quickly to the needs of its clients. Among this year’s highlights:

  • The creation of a $500 million credit line to help countries alleviate the impact of rising food costs.
  • The creation of a $6 billion Liquidity Program for Growth Sustainability to help countries facing transitory difficulties in accessing credit markets.
  • The increase in the number of loans and grants approved for three key IDB programs: the Sustainable Energy and Climate Change Initiative, the Water and Sanitation Initiative and Opportunities for the Majority.
  • The approval of China as a donor member of the IDB Group.  China will contribute $350 million to the IDB Group to bolster key programs, including $125 million for the Fund for Special Operations, $75 million for multiple grant funds and another $75 million for an equity fund managed by the IIC.
  • The creation of the Fund for Cooperation for Water and Sanitation, a Spanish initiative that is expected to provide up to US$1.5 billion in grants to countries in Latin America and the Caribbean over the next four years. The Fund will be managed by the IDB in partnership with Spain and recipient countries.
  • The creation of the Aid for Trade Strategic Fund and the AcquaFund, which will provide grants to finance projects to reduce trade barriers and improve access to water and sanitation, respectively.