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IDB to start reviews for capital increases, boosting financing in short-term

MEDELLÍN, Colombia – The Board of Governors of the Inter-American Development Bank (IDB) today instructed the Bank’s management to “start immediately” to review the need for an increase in its ordinary capital, which currently stands at $101 billion, and a replenishment of its concessional lending window, the Fund for Special Operations.

The Board of Governors is the top policymaking body of the IDB, the leading source of long-term lending for Latin America and the Caribbean. The governors, most of who are finance ministers or central bank presidents from the Bank’s 48 member countries, met here this weekend for their 50th annual meeting.

The Board of Governors approved a resolution stating that the review of the need for a capital increase should include a “robust analysis of the nature and scale of long-term demand” for IDB lending. A committee of the Board of Governors will meet in the third quarter of 2009 to assess the progress made on this study and to propose next steps.

The Governors added that a proposal for a capital increase should include a strategy to make effective use of additional resources to support social safety net programs, poverty and inequality reduction, infrastructure investment and measures related to climate change. The resolution also called for the Bank to re-evaluate its private sector policy to support the region’s development.

Most of the IDB’s lending is for sovereign borrowers but the Bank also makes non-sovereign guaranteed loans to private sector companies and state-owned enterprises.

Short-term crisis response

In addition, the Governors tasked the IDB’s management with drafting options for expanding the Bank’s lending capacity using its current capital base in order to provide “short-term crisis response,” starting this year. This proposal must be presented by the end of April.

Under its present limits, the IDB can lend about $8 billion a year on a sustainable basis. In response to borrowing member countries’ rising demand for financing due to the global economic crisis, the IDB has sharply increased its volume of operations, reaching a record $11.2 billion in 2008. This year approvals could rise to as much as $18 billion, including loans from an emergency liquidity facility established last year.

The Governors, who said the options must be consistent with the IDB’s financial strength, instructed the Bank’s management to speed up the analysis of its capital adequacy framework and the review of its financial policy limits, as well as to consider mobilizing additional resources and other measures to help expand capital flows to Latin America and the Caribbean.

Regarding financial support for the region’s poorest countries, the Board of Governors instructed management to present by the end of April an array of options to expand the Bank’s capacity to make loans on concessional terms, including an acceleration of disbursements and adding resources to the Fund for Special Operations, with a timeline for its replenishment.

At the end of 2008 the Fund for Special Operations had assets totaling $6.3 billion. In 2007 the Board of Governors approved $3.4 billion in debt relief for the region’s poorest countries, Bolivia, Guyana, Haiti, Honduras and Nicaragua.