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Peru improves ability to respond to natural disasters with IDB support

A $300 million contingent loan will help country to finance extraordinary expenditures to confront in case of earthquakes

The Inter-American Development Bank (IDB) has approved a $300 million contingent loan through its Contingent Credit Facility to help Peru mitigate the impact that severe or catastrophic natural disasters could have on its public finances.

Due to its geographic location, and different social, economic, and demographic factors, Peru is s highly exposed to a number of natural l threats such as earthquakes of high potential impact. In fact, Peru has been identified as one of the most vulnerable countries in the hemisphere to multiple natural threats, and ranks twentieth among the world’s most economically active countries in vulnerability to three or more adverse natural events.

The loan will provide Peru with rapid access to liquid resources so that it can deal, on a timely basis, with extraordinary expenditures that could arise in emergencies caused by severe or catastrophic natural disasters. This operation will help Peru not only improve its financial planning, but also promote the development of effective mechanisms for the comprehensive management of natural disaster risks such as the Comprehensive Natural Disaster Risk Management Program (CNDRMP). The CNDRMP, which was an IDB requirement to grant the country access to the Contingent Credit Facility, promotes improvements in the identification, reduction, and financial management of risks, as well as in disaster management.

The IDB financing consists of a $300 million 15-year loan from the Bank’s ordinary capital with a 5.5-year grace period and interest rate based on LIBOR.

The IDB is one of the leading multilateral lending institutions in the area of disaster financial risk management. The Bank is providing support to Latin American and the Caribbean countries in designing financial strategies to manage the fiscal impact of natural disasters; improving financial information systems and data collection; and structuring financial coverage through different instruments such as reserve funds, contingent loans, and risk transfer instruments.

At the end of the year, the Bank will be providing natural disaster coverage to seven countries in the region through contingent loans for a total amount of nearly $1,000 million.