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Strong demand for small firm financing

The Inter-American Investment Corporation channeled $223 million to Latin American and Caribbean companies in 1998, exceeding its target for the year by 24 percent.

The IIC, a member of the IDB Group that makes equity investments and loans to small and medium-sized enterprises, effectively doubled the dollar volume of its financing approvals over 1997 levels. It approved 28 new projects in 14 countries and four regional investment initiatives; $35 million went to equity investments and $188 million to long-term loans.

"Our growth reflects the persistent demand for financing among the region's small and medium-sized companies," said Jorge Roldán, IIC chief economist. "It also shows that innovative and fast-growing companies are thriving in the region, even with last year's difficult macroeconomic conditions."

The IIC in 1998 also continued to expand its participation in private equity investment funds that specialize in particular sectors, such as energy or environmental enterprises. By year-end, the corporation had stakes totaling $95 million in 21 different funds. Altogether, these funds are channeling $1.1 billion to some of the region's most promising companies.

Half of the IIC projects approved in 1998 are located in the region's smallest economies, where corporate financing can be particularly hard to come by. The new projects span a variety of sectors, as evidenced by the following examples:

An Argentine company that processes and safely disposes of medical and industrial wastes. The IIC investment will enable the company to build a new incinerator and purchase technologies necessary to meet the growing demand for these services.

A new Ecuadorian finance firm that will work with banks and investors to issue bonds backed by local mortgages. This service, a first in Ecuador, will help create a secondary market for mortgages and contribute to developing the capital markets that are essential to encouraging investment by home-building and construction firms.

A Honduran power company that will build a 60-megawatt thermoelectric plant designed to sell electricity to the national service. The company will be one of the first to operate under a new law permitting private participation in the energy sector, and it will help to alleviate the country's pressing power shortages in the wake of Hurricane Mitch.

A Nicaraguan finance firm that will offer leasing services for amounts of as little as $40,000 to small companies that need new equipment or other capital goods to expand.

Although none of the IIC's investment projects in Central America appears to have been seriously affected by Hurricane Mitch, the Corporation is coordinating activities with the IDB's regional departments, local commercial banks, and other groups with a view to supporting reconstruction efforts. The IIC's strategy in the affected countries will emphasize financing projects that will create jobs, rebuild infrastructure, and provide capital to the most heavily damaged productive sectors, such as agribusiness.

During 1998 the IIC also formally accepted Suriname and Belize as members, meaning that every one of the IDB's borrowing member countries is now a member of the IIC. Last year all but two of the IDB's non-borrowing member countries also expressed an interest in IIC membership.

With demand growing for the IIC's services, its member countries have recently approved a proposal to significantly increase the corporation's capital resources.

 

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