The president of the Inter-American Development Bank explains how it will be working to help Latin American and Caribbean countries to help themselves in 2009.

This year is a decisive one for the Inter-American Development Bank (IDB) and its donor and borrowing members. As the bank’s board of governors meet in Medellín, Colombia, in March, it will celebrate its 50th anniversary and the entrance of China as the 48th member. It is also a time to take firm action as Latin America and the Caribbean faces the consequences of the biggest financial crisis in decades.

Borrowing and donor members will need IDB support more than ever to co-ordinate policies and lay the groundwork for sustained development and better distribution of wealth.

The current financial crisis has dramatically increased the potential role of the IDB and other multilateral agencies. The IDB is uniquely positioned to support projects in riskier environments but with high social returns.

Greater resilience

So far, Latin America and the Caribbean have fared better than in previous financial crises. The region has increased its resilience with an unprecedented $400bn in international reserves and a reduction in government debt to 35% of gross domestic product from 51% six years ago. Most countries have adopted sound fiscal policies, credible central banks and well-supervised banking systems.

Yet they will still need support from the multilateral system because international credit markets are likely to remain constrained. The region is at risk of losing historic gains against poverty if counter-cyclical policies are not adopted. Governments and local companies need to access financing.

The IDB has taken a pragmatic approach and has partnered with countries to support the region since the crisis deepened in September. The bank and its affiliates boosted loan and grant approvals last year by about one-quarter to a historic high of about $12bn. This support could be even higher in 2009.

The bank also created a $6bn emergency liquidity fund to provide domestic banks in the region with foreign currency financing so they can finance their lending to local companies. The fund is aimed at supporting private investment so that growth can be sustained despite the turmoil in credit markets.

Conditional cash transfer programmes – where poor families collect money if they keep their children in school and take them to regular health check-ups – are an effective way to protect the poor during recessions, while stimulating domestic demand at the same time.

So far, 15 countries in our region have such programmes and in December 2008, the IDB approved $400m for Mexico’s Oportunidades, one of the region’s pioneering cash transfer programmes.

Investment in infrastructure

Infrastructure investment is also crucial to help the region to protect its growth. The IDB is acting as an honest broker, helping various constituencies come together to make projects happen. One such effort at cross-sector collaboration is the Water and Sanitation Spanish Fund for Latin America and the Caribbean. The Spanish government will work with the IDB to manage the first $400m of $1.5bn in grants pledged to the region’s water and sanitation sector. The bank will help identify projects for joint financing and oversee their execution.

It is also seeking to create opportunities for profitable investments by private firms in programmes that have a social benefit. For example, the bank is guaranteeing 35,000 microloans by Cemex, a Mexican cement company, to provide access to paved roads in poor rural areas.

The Inter-American Investment Corporation, an affiliate of the bank, is helping university ‘master of business administration’ programmes to perform risk analysis for small and medium-sized companies, which banks can then use to give loans.

The measures being implemented by the IDB, however, are still small compared with the challenges imposed by the crisis. Much more needs to be done.

The bank is talking to its shareholders to find ways to increase its lending capacity. IDB financing increases during difficult times and this is the time the region needs help the most.

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