The Inter-American Development Bank increased its lending to Latin America and the Caribbean by nearly 50 percent during 2003 compared with the previous year and disbursements reached a near record level, as economies of the region began to recover and resumed the path of economic growth.
IDB President Enrique V. Iglesias said in an end-of-the year report to the Board of Executive Directors that Latin America was expected to grow from 3.5 to 4 percent during 2004, compared with 1.5 percent in 2003. He said the anticipated expansion is “not enough, but much better than the average performance of the previous five years.”
IDB lending during 2003 totaled $6.8 billion compared with $4.55 billion in 2002, while disbursements totaled $8.06 billion, approaching the record of $8.4 billion reached in 1999.*
For the 10th consecutive year the IDB was the leading source of multilateral development financing for Latin America and the Caribbean, particularly in the smaller and poorer countries.
Lending exceeded Bank guidelines for emphasizing social investments, poverty reduction and lending to smaller and less wealthy nations. More than 44 percent of the volume of loans was designated for social investments and poverty reduction, while more than 37 percent of the lending volume for projects was focused on smaller and less wealthy countries.
The IDB approved 19 projects in 13 countries totaling $772.1 million to support reform and modernization of the state, including investments to promote trade, decentralization and fiscal and public sector reform.
Four emergency loans for a total of $3.18 billion were approved to assist Argentina, Colombia and Paraguay with poverty mitigation and macroeconomic stability.
Loans and guarantees directly to the private sector totaled $333.9 million, including the first private sector loan to Jamaica and the first international trade financing facility for Brazil. IDB syndicated loans for private sector projects, composed of resources from financial institutions with subscription of participation agreements with the IDB, totaled $231 million.
IDB grants for technical cooperation totaled $53 million for 276 projects, including those that support competitiveness, regional integration, social sector reform and innovation.
The Multilateral Investment Fund, a member of the IDB group that fosters the development of the private sector, completed 10 years of operations during which it has grown to become the leading provider of technical assistance to small business and microenterprise in Latin America and the Caribbean. During this period the MIF approved more than $900 million for 585 projects for a total cost of $1.6 billion, including local counterpart funds. During 2003 the MIF approved $71 million in financing for 68 projects. Given the positive contribution that the MIF has made to the development of the Region’s private sector, a committee of the Board of Governors is exploring the possibility of a replenishment of its resources.
New Initiatives
The IDB continued to develop new and more flexible financial instruments and tools during 2003 to achieve improved development results from its operations. Among the new measures was the adoption of a pilot program for a performance-driven loan in which disbursements would be contingent on measurable results.
The Bank adopted a new capital adequacy policy with a new lending rate methodology which contributed to a decision to reduce and stabilize lending rates, making pricing of the IDB resources very competitive among the multilateral lending institutions.
The Board of Governors approved the expansion of the mandate of the private sector window of the Bank to include the financing of international trade-related activities, and the Board of Executive Directors approved a conditional credit line for investment projects in which projects prepared by executing agencies with a good track record would have access in a more expeditious manner to new financing.
To strengthen its evaluation mechanisms, the Bank established a Development Effectiveness Office. In addition, an Office of Institutional Integrity was also established to strengthen the IDB’s internal control mechanisms, and steps were taken to upgrade the Bank’s procurement procedures.
Management and the Board of Executive Directors are undertaking a review of the Bank’s activities in support of the private sector to examine ways to achieve a more integrated, coordinated and cohesive approach that would contribute to enhance the development impact.
In his message to the Board, President Iglesias said the new initiatives and policies of the IDB, which reflect the evolving needs of borrowing member countries, are meant to transform the Bank into a more responsive institution, mindful of the relative development of each member.
Seven challenges
In reviewing the positive prospects for Latin America’s economies for 2004, Iglesias listed seven challenges for the Bank and the region to take advantage of the “window of opportunity” created by a new cycle of growth: reducing the debt burden of countries in the region, maintaining and deepening the reform process, increasing domestic savings, becoming more “proactive” in infrastructure development, devising “rapid disbursement” mechanisms to attend to pressing social needs, making the state a more effective policy instrument and taking steps to curb violence.
The IDB president said decisive action was needed to counteract a growing disenchantment with the reform process and in democracy – disillusionment manifested in heightened levels of public protest.
Iglesias encouraged countries to “continue to protect certain reforms that have been good”, particularly financial and fiscal reform.
* Note: The figures for the operations in the year 2003 are provisional. The final figures will be available when the IDB publishes its Annual Report 2003 in the first trimester of 2004.