MEDELLÍN, Colombia – The Inter-American Development Bank today closed the 50th annual meeting of its Board of Governors, starting a review process for a capital increase in light of the challenges posed by the global economic crisis on Latin America and the Caribbean.
The Board of Governors, the Bank’s top policy-making body, brings together representatives from the 48 member countries of the IDB, the leading source of long-term lending for this region.
Colombian President Álvaro Uribe, Panamanian President Martín Torrijos and Bahamas Prime Minister Hubert Ingraham attended the closing ceremony of the Board’s two-day conference.
In his remarks, IDB President Luis Alberto Moreno listed the activities that took place during the Medellín meeting, which drew nearly 6.000 participants and included a day dedicated to economic opportunities for young people and seminars on the impact of the global crisis.
Since last year’s meeting in Miami, Moreno noted, the world economy has taken a turn for worse. The region’s relative strength, accumulated after six consecutive years of growth, has helped delay the full blow of the downturn, he said.
Moreno warned that the region will face increasing difficulties, and that some countries will have to confront bigger challenges than others. He highlighted the case of Central American nations, which have seen their exports, their fiscal revenues and remittances flows dwindle.
The IDB has made an effort to increase approvals while private capital flows contracted. Last year, the Bank approved a record of $11.2 billion, far above the average of $7 billion in recent years. This year approvals may rise to $18 billion.
Nonetheless, in order to maintain high levels of financing until international capital markets recover and the crisis ebbs, the IDB will need to review its policies.
“We have made a significant effort to provide a counter-cyclical response to the crisis,” said Moreno. “Facing an unprecedented increase in regional demand, the IDB is in a situation in which its borrowing capacity requires innovative and creative solutions that will allow us to continue to support countries in this difficult environment, without affecting our impeccable credit reputation.”
President Torrijos applauded "the IDB’s courage" for acting in a counter-cyclical manner and helping borrowing member countries at a time when credit markets are crippled and foreign investment is retreating.
As an example, he mentioned that the IDB was one of International financial institutions that last year approved long-term loans to finance the expansion of the Panama Canal, the biggest infrastructure project underway in the region.
For the Panamanian president, Latin America and the Caribbean today face “colossal challenges," that are more daunting than the problems the region had 50 years ago, when the IDB was founded.
Prime Minister Ingraham said Caribbean countries consider "vital" both an increase in the IDB’s ordinary capital and a replenishment of its Fund for Special Operations (FSO), which provides soft loans to the poorest countries in the region.
Ingraham noted that, because of the capital market paralysis, several middle-income countries like the Bahamas will need to turn to multilateral banks to get resources that will allow them to move forward with investments in priority sectors.
Colombia’s Finance Minister, Oscar Iván Zuluaga, who took over as Chairman of the IDB’s Board of Governors, expressed confidence that the meeting in Medellín will be remembered as the beginning of a new increase for the IDB’s ordinary capital.
The ordinary capital, the IDB’s main source of funding, amounts to $101 billion, including cash contributions and callable capital. Its last replenishment took place in 1995, when member countries agreed to increase capital by $40 billion.
In one of the main resolutions adopted in Medellin, the Board of Governors instructed management to begin a review of the need to increase the Bank's capital. A committee of governors will meet in the third quarter of 2009 to review the evaluation’s progress.
Brazil’s Planning Minister Paulo Bernardo Silva backed an “immediate” revision of the IDB’s capital adequacy, noting the Bank’s ability to respond to the crisis is “seriously compromised.”
The Brazilian minister, whose country has historically been the IDB's largest client, said the “timeframe for this debate […] is incompatible with the urgent demands of the region to combat the crisis.”
Paulo Bernardo said there was a need to “immediately expand” the IDB’s credit and disbursement facilities to respond in a timely fashion to the region’s needs.
To that effect, the Board of Governors also instructed management to prepare options to expand the Bank's financing capacity in the short-term. These proposals are to be presented before the end of April.
The 2010 annual meeting of the Board of Governors of the IDB will take place in Cancun, by invitation of the government of Mexico.