Bank projects attract $13 billion from equity and debt institutional investors
The Inter-American Development Bank’s support for the private sector in Latin America and the Caribbean continues to grow, despite the recent financial volatility of some countries and an economic slowdown for the region.
By the end of 2002 the Bank’s active portfolio of private sector projects, financed without government guarantees, totaled $2.45 billion from ordinary capital and $3.4 billion in syndicated loans. The total cost of the projects was $13 billion. Every $1 invested by the IDB from ordinary capital in private sector projects helped mobilize $5.42 from debt and equity investors.
The percentage of lending directly to the private sector without government guarantees increased to 3.78 percent of the Bank’s portfolio in 2002, compared with 2.7 percent in 2001.
Of the 52 active private sector projects, those located in smaller and more vulnerable markets received $289 million in financing from the Bank’s ordinary capital and $1.1 billion in syndicated loans.
During 2002 the IDB approved five loans for private sector projects and two guarantees for a total of $316.4 million and two syndicated loans totaling $70.5 million. Among the projects were the first Private Sector Department project for Guatemala, a $25 million loan for the electricity sector, and the first in the airports sector, a guarantee of $150 million for the Dominican Republic.
Innovations
The Bank during 2002 closed its first bond guarantee in Latin American local currency for a private sector infrastructure project and also approved its first private sector mortgage market guarantee.
A local currency bond guarantee for the equivalent of $75 million supported a toll road concession to Rutas del Pacífico to enhance the highway and toll road system linking Santiago to the ports of Valparaíso and Viña del Mar. The total bond was equivalent to $300 million, the largest for infrastructure with local capital market financing in Chile. Project Finance and Project Finance International magazines both acclaimed the operation as a "Deal of the Year."
In the housing sector, a $5 million IDB guarantee was leveraged to support the equivalent of $50 million in mortgage bonds issued by a private bank in Colombia in a pioneer effort to establish a new financial instrument for the housing market.
Multisectoral global financing
The IDB provides credit to private enterprises through multisector global loan programs, in which resources are channeled to firms through onlending by national financial institutions. During 2002 the IDB approved two global multisectoral loans, one to Uruguay for $180 million, the other to El Salvador for $42.4 million.
The loan to Uruguay provides medium- and long-term credit to private firms during a time of financial crisis. For El Salvador, the loan increases competitiveness of small- and medium-sized companies as part of the country’s ongoing process of industrial modernization and restructuring. A technical component of that project strengthens national financial services.
MIF
The Multilateral Investment Fund, an independent fund administered by the IDB, has become a key mechanism of the IDB Group in promoting inclusive economic growth in Latin America and the Caribbean. MIF projects focus on private sector development, testing new approaches to foster micro and small enterprise, build worker skills, strengthen environmental management and improve the functioning of financial and other markets. Through grants and investments, MIF projects are also reaching out to involve a broader spectrum of populations in the development process. Over 75 percent of the initiatives are done in partnership with private sector NGOs and business groups.
Since its inception in 1993, the MIF has approved more than 520 projects for a total MIF commitment of $830 million, making it the major source of technical assistance grants for micro and small business development in the region. Together, MIF and its partners have mobilized more than $1.6 billion for technical assistance and investment projects. MIF has also invested in 35 venture funds to provide risk capital to small- and medium-sized firms, many of them high tech, that are either starting up or expanding. During 2002 its Donors Committee approved 67 projects for a total of $94.4 million
Continuing its tradition of pioneering new areas of development, the MIF has hosted a series of seminars and funded research to raise the awareness of the importance of remittances sent home by immigrants living abroad. Within a decade migrants from Latin America living in Europe, the United States and Japan are expected to send home $300 billion, making remittances a major source of national income in many countries. The MIF is working with cooperatives and other financial institutions to encourage migrants to reduce the cost of their remittances by using the formal financial system. At the same time, the MIF is financing projects to channel some of the resources from remittances into productive investments.
IIC
The Inter-American Investment Corporation, a member of the IDB Group, promotes the development of private sector small and medium-size enterprises in Latin America and the Caribbean through loans, guarantees, and equity investments.
During 2002 it approved 20 direct projects for 15 countries, plus four regional projects, for a total of $123.4 million. An additional $105.5 million was mobilized through private equity funds in which the IIC was a partner and through subloans by local financial intermediaries drawing on loans from the IIC.
The direct projects are expected to create more than 9,000 jobs, generate annual exports worth $225 million and contribute $168 million per year to the region’s GDP. The total cost of the projects is $316 million.
Among the highlights of IIC operations during 2002 were a loan to agribusiness in Chile that will promote new technology and leverage better prices for products, a loan to an energy company in Costa Rica that became the first company in Latin America to receive ISO 14001 environmental management certification, and funding for private higher education institutions in El Salvador and Costa Rica.
Links:
IDB Private Sector Department
MIF
IIC