IADB unveils expanded private-sector lending plan

Wednesday, June 7, 2006

By Gilbert Le Gras

WASHINGTON, June 6 (Reuters) – The Inter-American Development Bank unveiled on Tuesday a six-point plan to alleviate poverty in Latin America and the Caribbean partly through expanded use of private-sector financing.

The recent commodities boom has curbed Latin American needs for loans to cover budget shortfalls so one of the first things IADB President Luis Alberto Moreno said he did when he took office eight months ago was order a focus on helping key sectors of the region’s economy.

“We have the Inter-American Investment Corporation which lends to small and medium-sized companies. What we want to do is integrate the bank’s operations with the IIC, but I don’t want to give the impression we will only do private-sector loans,” Moreno said in his Washington office.

The Washington-based multilateral agency can lend up to 10 percent of its $50 billion portfolio to the private sector but currently lends under 3 percent. Moreno said part of the six-point plan would be funded by increased use of the IIC.

Until April’s annual meeting in Brazil, IADB private sector lending was limited to infrastructure, export finance and partial credit guarantees. An amendment passed at the meeting broadened the scope to include agro-business, manufacturing and extractive industries and services like tourism and finance.

The initiative effectively shifts the IADB’s focus to microeconomic projects from macroeconomics and it includes housing, infrastructure, financial services, small to mid-sized companies, communications and basic identification documents.

The five-year plan is scheduled to run from 2007 to 2011.

One aim is to multiply the financing by bringing on funding partners onto these projects from public-private partnerships to loans to cities and provincial or state governments.

“There’s a great opportunity in Latin America now that civil society is more active and there’s good corporate social responsibility,” Moreno said.

Not all projects are big ticket items but they do have long term consequences in determining people’s level of inclusion in the formal economy.

For instance, 8 million Latin American children do not have birth certificates and millions more people lack necessary identification to get services, apply for a job or vote.

One consequence of this and other kinds of exclusion is that the 360 million Latin Americans earning $300 a month or less have an estimated $2.3 trillion in assets, be it a home or small business, that they cannot use as collateral.

“Yes, there will be more lending, but these actions will make the bank more relevant,” IADB multilateral investment fund manager Don Terry said.

Source: Reuters (link opens in a new window)