IDB $70 billion capitalization deal sealed

23/03/2010 | Lucien Chauvin

Capital increase approved despite accusations of US foot-dragging

An IDB capital increase was early yesterday approved after a marathon session at its annual meeting in Cancún – but the US, the bank’s largest shareholder, came under fire for obstructing a deal until the last moment.

Delegates settled on raising $70 billion in callable capital and $1.7 billion in paid-in capital. It was decided to write off $479 million owed the institution by Haiti.

Capitalization, which increases the bank’s total capital to more than $170 billion, will allow the IDB to approve $12 billion in loans annually to 2020.

Other agreements include a review after 30 months on the status of the reform process that is underway as part of the “better bank” initiative, and elimination of the 10% cap on lending to the private sector.

While the increase allows the IDB to double annual approvals from the average $6 billion in the past decade, the final amount was $10 billion lower than the proposal mooted by the chairman of the board of governors, Colombian finance minister Oscar Zuluaga, when the meeting got underway.

The deal was still further from the $300 billion floated by the blue-ribbon panel presented at last year’s IDB meeting, and less than the $100 billion discussed at the finance ministers’ meeting in Washington on March 2.

Governors had worked into the early hours to draft the document. Brazilian and other officials complained that the US was trying to force last-minute changes regarding environmental issues and linking some IDB funding to other multilaterals.

A Brazilian official said: “The US accepted to soften its position, and not impose an external monitoring through an environmental clause.” This was a reference to a requirement that US representatives on multilateral banks vote against projects that do not put an environmental impact study in place within four months, commonly referred to as the Pelosi Amendment.

Dominican republic finance minister Vicente Bengoa said that the delay in reaching consensus “was not for economic reasons”, but because Latin America is “not a priority” for the US, the IDB’s largest shareholder. “Latin America is not on the US agenda. They are focused on their health care legislation and other places, like Iraq.

“The US insisted on $60 billion and paid in capital of $1.1 billion, which for them would have been $65 million a year for five years. This was inconceivable. They finally conceded.”Argentina’s finance minister Amado Boubou told journalists that he was not happy with the $70 billion capital increase, predicting that it would prove to be too small. He said the process “left a bitter” taste, because with just a little more effort they could have increased the paid-in contribution to around $2.5 billion.

US assistant Treasury secretary Marisa Lago told reporters that the agreement guarantees “robust reform that would build on the better bank initiative already underway”.

Lago and IDB authorities focused primarily on how the capitalization will benefit Haiti’s rebuilding effort.

Sources in Cancun said the capitalization was a resounding boost for IDB president Luis Moreno’s re-election bid. Moreno staked his presidency on the approval of the plan.

Related stories


Editor's Picks


In Focus

  1. BRAZIL: Rousseff running out of time to restore economic credibility

  2. FINANCING LATAM’S BANKS: Niche currencies lead the way for LatAm exposure

  3. US QE tapering a good sign but watch the short end…

  4. JIM O'NEILL: Latin America can learn from Mexico’s efforts

  5. LATIN AMERICA: Filling the infrastructure financing gap

Parts of the democratic process are under siege.

Radmila Sekerinska, president, National Council of European Integration