An exceptional year for Latin America

21/12/2004 | www.iadb.org

Growth in the region will reach 5.5 percent in 2004, an "exceptional" performance far better than expected, according to IDB President Enrique V. Iglesias

The economies of Latin America and the Caribbean experienced an exceptionally good year during 2004, but steps are needed to increase investment to ensure that growth and stability can be sustained in the years ahead, Inter-American Development Bank President Enrique V. Iglesias said in his annual year-end address to the IDB’s Board of Executive Directors.

Growth during 2004 is expected to reach 5.5 percent, more than a full percentage point more  than expected at the beginning of the year, while the region’s debt ratios are falling, inflation remains low, and currencies are competitive, he reported.

“Frankly, it was an exceptional year,” Iglesias told the Board. “For the second consecutive year the current account in the region shows a positive balance.” He praised the leadership of the region for demonstrating maturity, pragmatism and skillful macroeconomic management.

He cautioned that the region needed to continue its reforms, promote greater investment and reduce unemployment to sustain the good performance. Growth is expected to ease to 4 percent during 2005, he said.

IDB lending

The Bank, which is assisting the process of economic and social development, was the leading source of multilateral development lending for Latin America and the Caribbean for the 11th year in a row, particularly for smaller and more vulnerable countries.

Commitments in IDB loans and guarantees to the region during 2004 totaled $6 billion compared with $6.8 billion* during 2003, including one emergency loan for $200 million to the Dominican Republic to support the sustainability of social reforms, 10 direct private sector loans and guarantees for a total of $456.5 million as well as a $400 million regional trade finance facilitation program, a pioneering project. The Bank also approved two syndicated loans totaling $125 million.  Disbursements of public and private loans totaled $4.6 billion.

The Bank, as mandated, by its governors continued to concentrate its efforts in programs to achieve greater social equity and poverty reduction, paying special attention to the smaller and more vulnerable countries. Bank operations were formulated within the framework of its institutional strategy: social development, modernization of the state, competitiveness and regional integration.

As the leading regional development institution, the Bank also supported 297 operations totaling $50 million of nonreimbursable funds to finance technical cooperation projects.  In addition, the Multilateral Investment Fund (MIF), an independent fund administered by the IDB that is the region’s largest financer of technical assistance to support private sector development, approved 109 grants and investments for a total of $103 million. Forty-four percent of the MIF operations were grouped in project clusters in order to achieve a greater catalytic effect.

In 2004, a number of countries in the region were hit by natural disasters, which prompted the Bank to increase the amount of fast-response resources available to borrowing members that suffer such catastrophes.

Institutional innovations

During 2004 the Bank made use of a new set of instruments and approaches to enhance the development impact of its operations:  the first conditional credit line, to Brazil’s Banco Nacional de Desenvolvimento Econômico e Social, and a loan for the expansion and consolidation of a social protection system, also to Brazil, the first under the recently approved Sector-Wide Approach (SWAp), which will rely on national procedures to disburse and account for funds. The Bank also approved its first performance driven loan – a $30 million operation to Nicaragua to support maternal and child health care.

In another new development, the Board of Executive Directors approved a proposal to enable the IDB to extend local currency guarantees to public sector entities.  In parallel, the Bank issued its first bonds in Latin American national currencies to support a portion of its funding operations that raise resources on world capital markets to help finance the IDB’s lending program.

The Board of Governors accepted an application by South Korea to become the IDB’s 47th member country and second Asian country member, in addition to Japan. To become effective the application must also be approved by South Korea’s parliament.

A coordinator was appointed to strengthen the Bank’s and its affiliates’ ongoing program in support of the private sector in Latin America and the Caribbean.

Challenges ahead

President Iglesias said the Bank will continue to undertake measures to achieve greater flexibility and effectiveness in delivering its financial and nonfinancial services, while enhancing the efficiency and transparency of its activities, taking into account the unique characteristics of each borrowing country.

He said the Bank’s activities would respond to an emerging agenda of Latin America’s leadership that emphasizes the following areas: public policies that encourage investment and growth and create opportunities for all, strengthening the management capacity of the state, placing new importance on infrastructure and rural development, expanding trade, strengthening the private sector, investing in technological innovation, developing capital markets, fighting corruption, promoting regional investment, enhancing citizens’ security and reforming the state – particularly at the local level

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