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LATIN AMERICA:
IDB Capital Boost - Drop of Water in Sea of
Crisis
By Mario Osava
MEDELLIN, Colombia (IPS) - The United
States’ cautious backing has cleared up
doubts about a new increase in the
Inter-American Development Bank’s (IDB)
capital, which has been called for by the
multilateral lending institution’s governors
as well as by the countries of Latin
America.
But the additional credit will do little to
ease the effects of the global crisis,
officials say.
The IDB should boost its capital from 100
billion dollars to between 250 and 280
billion dollars, according to the president
of the Bank, Colombian economist Luis
Alberto Moreno, who based that estimate on a
study by an independent committee headed by
former Peruvian prime minister Pedro Pablo
Kuczynski.
A consensus around the need for a hike in
IDB capital is taking shape, but it will
require a lengthy process of negotiations to
actually bring to fruition, said Moreno.
The 50th meeting of IDB governors approved a
resolution for the Bank’s management to
"immediately initiate a review of the need
for a general capital increase of the
ordinary capital and replenishment of the
Fund for Special Operations," and to
present, by April this year, alternatives
that would help the bank increase funding
for "short-term crisis response."
The presence of U.S. Treasury Secretary
Timothy Geithner at the IDB annual assembly
in Medellín, Colombia over the weekend, and
his address at the opening session on Sunday
night, fuelled hopes that the institution
will soon have the funds to expand loans to
Latin America and the Caribbean, with the
aim of compensating for the plunge in
international flows of private capital.
With a 30 percent voting share, the United
States has a decisive influence over all IDB
decisions.
"To help address the region's demand for
finance this year and next, we encourage the
IDB to expand its existing resources," said
Geithner, after stating that the Bank has a
"unique ability to help countries implement
tailored programmes to restore sustainable
growth."
But the additional loans will be a mere
"drop of water," and will not offset the
huge contraction of foreign investment in
Latin America, Dominican Republic Finance
Minister Vicente Bengoa told IPS.
However, "at least it will help mitigate the
effects of the crisis, especially the social
impacts," by expanding public spending, he
added.
In his view, bolstering the IDB’s capital to
280 billion dollars would enable it to
increase its annual loans to the region to
between 15 and 18 billion dollars. The
record, reached in 2008, was 11.2 billion
dollars, but the average over the last five
years was seven billion a year.
Nevertheless, that is a small amount in
relation to the fall in foreign investment
in Latin America, which crashed from 184
billion dollars in 2007 to 89 billion
dollars last year, and may be as low as 43
billion dollars this year, according to the
Economic Commission for Latin America and
the Caribbean (ECLAC).
The funds from the IDB, the World Bank, and
the Andean Development Corporation combined
"do not compensate for the spectacular fall
in capital flows," but it is important to
expand the capacity of these institutions to
"partly offset the loss in private
investment," said Uruguayan economist
Enrique Iglesias, former IDB president and
current secretary general of the Ibero-American
Secretariat.
Bengoa said he was worried that the actual
expansion of the IDB’s capital would be put
off. "Setting up committees implies
resistance and delays," and the new funds
are "urgently needed in the region, to
prevent recession and a crisis of governance
that could arise from a worsening of social
problems that would trigger strikes and
disturbances," he said.
It would be "short-sighted" of Washington to
stand in the way of an increase in the
Bank’s capital, because a recession in Latin
America would aggravate the U.S. crisis,
since 40 percent of this region’s imports
come from the United States, he argued.
It is in the United States’ interest for
things to go well for Latin America, said
Iglesias.
The increase in capital would not be a major
burden for the Bank’s 48 members. The
payments would amount to just four percent
of the 180 billion dollar increase in
capital – that is, 7.2 billion dollars – and
the rest would be callable. To maintain its
30 percent share, the United States would
have to provide 2.13 billion dollars.
In addition, the payments would be made in
four annual quotas, said Kuczynski, who put
the total value of loans that the IDB could
"sustainably" grant in a year at 15 billion
dollars, once its capital was boosted.
The IDB, which is celebrating its 50th
anniversary at its Mar. 27-31 annual
meeting, has increased its capital eight
times, the last of which occurred in 1995,
under Iglesias, when it was boosted by 40
billion dollars.
The amounts currently being discussed are
"modest," taking into account the inflation
of the last 15 years and the needs imposed
by the international financial crisis, said
Kuczynski.
Poor countries like Bolivia and Haiti were
seeking an expansion in the Fund for Special
Operations, which provides them with low
interest, long-term loans.
Another new development was China’s
admission as the IDB’s 48th member, which
will bring an additional 350 million
dollars, to be especially earmarked for the
poorest countries and investments in small
companies.
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