25 February 2009
In light of the current financial crisis and future needs in Latin America, the Inter-American Development Bank makes plans for capitalization. The proposed amount for the capitalization will be determined according to the recommendations of an IDB advisory group on the issue.
The Inter-American Development Bank (IDB) is carrying out studies to determine the magnitude of what will be its first capitalization since 1995, aimed at coping with Latin America's future financing needs, the development bank's president Luis Alberto Moreno told BNamericas.
The entity has tasked an advisory group led by former Peruvian prime minister Pedro Pablo Kuczynski to come up with a proposal at its next annual meeting, to be held in March in Medellín, Colombia.
The bank's last capitalization was carried out 14 years ago to the tune of US$40bn, bringing the multilateral's ordinary capital to US$101bn.
"We need a much bigger bank that can lend much more money. Latin America's needs are great and we have to consider that the current crisis will last for a few years," Moreno said in a phone interview from IDB headquarters in Washington, DC.
While declining to give a figure for the planned capitalization, Moreno said it would be substantial.
"We seek a significant increase, that will allow us to boost our lending capabilities," he said, adding the final decision on the amount will be taken by the bank's shareholders.
The 26 Latin American and Caribbean borrowing nations own 50.01% of IDB. The US holds 30% of the bank's shares.
Last month, China formally joined IDB and became the bank's 48th member nation.
Moreno also forecast a long discussion among shareholders before the capitalization is approved, as the 1995 capitalization was only given the green light after 18 months of talks.
IDB has faced recent pressure to replenish its capital both from the region's political side as well as from increased demand for lending prompted by the global financial crisis and economic downturn.
The entity increased loan, credit guarantee and grant approvals by 18% to US$11.2bn in 2008. The bank has said it will lend up to US$18bn this year, including a US$6bn emergency liquidity facility.
IDB's loan portfolio stood at US$39.6bn as of end-2008, up from US$34.7bn a year earlier. The bank was carrying out 623 projects as of end-2008 compared to 580 at the same time in 2007.
The figures include financing from the bank and its two affiliates: the Multilateral Investment Fund (MIF) and the Inter-American Investment Corporation (IIC).
US$1BN INVESTMENT PORTFOLIO LOSS
Earlier this week, the multilateral said it was expecting to book close to US$1bn in losses on its investment portfolio in 2008.
Moreno said that most of that figure comes from unrealized losses, which will have no effect on the bank's lending or operational capacity and that the planned capitalization is in no way related to the issue.
Only US$71mn out of the US$1bn were actual realized losses, while most come as a result of mark-to-market accounting rules.
Moreno said losses mainly came from AAA-rated mortgage and asset-backed securities the bank invested in, and decided to hold them to maturity as they were experiencing mark-to-market losses.
About 99% of these securities have kept paying off all throughout the crisis, while 90% has kept its AAA rating, the executive added.
IDB's balance sheet is strong and keeps high levels of capital thanks to a policy that requires the bank to maintain liquidity at least at the same level as its projected lending for the next 18 months, Moreno said.
The idea of a development institution for Latin America was first floated during the earliest efforts to create an inter-American system, at the First Pan-American Conference in 1890.
Under an initiative proposed by then Brazilian President Juscelino Kubitschek, IDB was formally created in 1959.
by Jorge Porter BNAmericas