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Panama to reinvigorate its productive sector with IDB loan

The Inter-American Development Bank approved a $500 million loan on April 15 to help restore the flow of credit to Panama’s economy. The funds are expected to partially offset a shortfall in dollar-denominated lending to the productive sector triggered by the current global financial crisis.

The loan, which was issued from the IDB's recently created $6 billion Liquidity Program for Growth Sustainability, will be used by the Banco Nacional de Panama (BNP) to channel credit to eligible intermediary financial institutions that will in turn provide working capital and foreign trade financing to the industrial sector.

The BNP, as the borrower and executing agency, will establish the Fideicomiso de Administración e Inversión del Programa de Estímulo Financiero (Administration and Investment Trust Fund of the Financial Stimulus Program), and transfer the funds into it in the form of a loan, enabling intermediary financial institutions to access lines of credit financed with IDB resources.

The IDB set up the fast-disbursing Liquidity Program for Growth Sustainability in to help member governments respond to the needs of commercial banks that may face transitory difficulties in accessing foreign and inter-bank credit lines due to the global credit crisis.

Panama has a solid economy that grew at an average 8.8% between 2004-2008, far outpacing the 5.5% regional average. Additionally, its banking sector remains in a sound position. Nevertheless, signs of an economic and trade slowdown began to emerge in early 2009, prompting the government to take preventive action.

The loan is for a five year term, with a three-year grace period, at an interest rate based on 6-month LIBOR plus 400 basis points.