• IDB and other multilaterals launch liquidity facilities for Latin America and the Caribbean
Oct. 13, 2008 -- In the face of the global financial crisis, the Inter-American Development Bank (IDB) plans to approve a record volume of loans in 2009 and is setting up a new fast-disbursing $6 billion liquidity facility to help Latin American and Caribbean economies sustain growth. In addition, the Andean Development Corporation (CAF) announced a liquidity facility of $1.5 billion and the Latin American Fund of Reserves (FLAR) offered $1.8 billion as part of its liquidity arrangements.
"We are rallying to respond to our clients' needs," said IDB President Luis Alberto Moreno. "The origin of the crisis is outside of the region but can have potentially serious repercussions in Latin America and the Caribbean. Our countries have made strides in recent years to promote growth and reduce poverty. Those gains need to be protected, and that is why the IDB and its sister institutions are moving quickly."
The IDB's $6 billion Liquidity Program for Growth Sustainability will be provided to member governments. The aim is for the funds to be made available to domestic firms via commercial banks that may face transitory difficulties in accessing foreign and inter-bank credit lines as a result of the financial crisis in the United States and Europe.
Countries eligible to borrow from the Bank's ordinary capital can tap the $6 billion fund. The loan amounts would be determined by the IDB on a case-by-case analysis.
In addition, the IDB is prepared to accelerate loans to finance projects and enhance social programs and approve up to a record $12 billion in 2009, up from about $10 billion this year.
If the $6 billion liquidity facility is fully utilized, the resulting flow of committed funds to Latin America and the Caribbean would amount to about $18 billion in the course of 2009, an exceptional effort by the IDB prompted by the international financial circumstances. This would be an almost 80 percent increase in lending to the region and would be the largest and most rapid mobilization of resources in the IDB's 49-year history.
The IDB is leading a coordination effort with other multilateral institutions like the World Bank, the International Finance Corporation, the CAF, the Caribbean Development Bank (CDB), and the Fund of Latin American Reserves (FLAR) to ensure the resources are provided quickly.
The Executive President of the CAF, Enrique García, announced his institution had put into place a contingency liquidity credit line for $1.5 billion to support countries facing difficulties in accessing capital markets.
In addition, García offered its 17 member nations to raise the credit lines that the CAF has for financial institutions from $1.5 billion to $2 billion. These increases, together with other more traditional loans and financing mechanisms, will bring approvals up to $16 billion in 2008-2009.
FLAR offered its liquidity credit lines of $1.8 billion to countries, and could add another $2.7 billion in the coming months through its contingency lines to support balance of payments, depending on how market conditions evolve.
Due mostly to circumstances originating outside the region, the average growth rate of Latin American and Caribbean countries is expected to slow to 4.5 percent this year, from an average of 5.5 percent between 2002 and 2007. Recent events indicate that the financial crisis in the United States has spread to Europe and elsewhere, and will translate into slower growth worldwide in 2009.
"These developments are most unfortunate from the perspective of the Latin American and Caribbean region, given in particular the substantial efforts made by many countries to strengthen their macroeconomic management," said Moreno. "It is imperative for the IDB to take immediate measures to help countries in the region face this external shock."
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