MercoPress. South Atlantic News Agency

IDB agrees to 70 billion USD capital increase and condones Haiti’s debt

IDB president Luis Alberto Moreno during the press conference

The Inter American Development Bank’s (IDB) board agreed to a 70 billion US dollars capital increase, an amount that should allow the organization to lend 12 billion a year, bank President Luis Alberto Moreno said during the annual meeting in Mexico.

IDB member countries also agreed to forgive 479 million USD in debt owed by Haiti and to grant the impoverished country an additional 2 billion over 10 years, Moreno told reporters Monday in Cancun. IDB is the largest Latinamerican and Caribbean multilateral credit organization.

“This isn’t only the largest increase in the history of our institution, but it will also allow us to be the largest source of multilateral resources for the region” Moreno said at the IDB event.

Governors from IDB negotiated until one in the morning Monday over the recapitalization as US officials conditioned their support on stronger environmental safeguards, Brazilian Planning Minister Paulo Bernardo said. The IDB, which approved a record 15.5 billion USD in loans last year, said lending could fall to 7 billion annually without a capital increase.

The panel last year said the bank needed a capital increase of as much as 178 billion to sustain annual lending of 18 billion as it seeks to meet the region’s development needs. A smaller capital increase reduces funding to the region at a time when Central American and Caribbean nations are relying on multilateral lending to help pull out of the global recession.

The US was seeking to strengthen environmental safeguards and disclosure policies that align the IDB with the highest standards among multilateral development banks, according to a US Treasury official who spoke on condition of anonymity.

The US is IDB biggest shareholder, with a 30% voting share. Brazil has a 10% stake. The bank is implementing a series of reforms such as a system of metrics to evaluate the effectiveness of all of its loans, Daniel Zelikow, bank executive vice president, said in an interview.

The IDB is also standardizing the loans it offers to countries so that they are more similar to financial products offered in the market, Zelikow said. For example, 3.5 billion of 58 billion of the bank’s outstanding loans are denominated in local currencies, he said.

“The more we can get countries to borrow in their own currencies, the more financially stable they’ll be” Zelikow said. “Most successful sovereign liability managers don’t want to take exchange-rate risks”.