IDB shareholders are moving decisively towards approving a capital increase, at least in principle, at the governors’ meeting on Monday.
Objections to an increase among large shareholders including the US and Brazil have largely been overcome, diplomatic and political sources confirmed yesterday in Cancun.
A source close to the discussions said last night that the IDB’s biggest shareholder, the US, is seeking a 60% increase in the institution’s capital base, but the vast majority of governors are pushing for a $80 billion – or 80% — hike.
The source added that although “a declaration will be signed in Cancun,” there “will probably be some work to be done over 60 days before we reach a full agreement.”
Colombia’s finance minister Oscar Zuluaga told reporters last night that a plan for a $80 billion capitalization had been widely accepted. Paid-in capital would be around 4% of that, based on earlier capitalizations. Countries would have around five years to pay in what is eventually approved. “We are preparing a final proposal and will have it ready for Sunday to achieve consensus,” Zuluaga said.
“Consensus is building, but we still have a way to go”, Canadian foreign affairs minister Peter Kent told Emerging Markets.
“We are confident that we will reach an agreement in principle, if not an absolute agreement, by the end of the meeting,” he said.
Kent said that delegates might agree only in principle on the capitalization but that a deal had to be in place before the March 31 Haiti donors’ meeting in New York.
Consensus seems to have narrowed on the proposal – which includes the overall capitalization, replenishing the Fund for Special Operations and specific provisions for rebuilding Haiti – to 80% of the bank’s capital, i.e. $80 billion in callable capital.
Opposition to capitalization by the US, the IDB’s largest shareholder, appears to have softened. In a telephone briefing, senior US Treasury officials said that “the specific numbers on the capital increase remain to be negotiated this weekend, but we see as a very positive outcome one that supports a very substantial increase in loan volumes compared to pre-crisis levels”.
This is a shift from statements made earlier this year, when US officials said reform of the IDB was “an essential prerequisite” to an increase.
A key selling point of capitalization is the tragic legacy of the earthquake in Haiti, since the IDB is positioned to take a lead on reconstruction. The US officials said: “We want to work on extinguishing Haiti’s debt to the IDB, which means that we have to consult with donors on financing the cost of that debt.”
An Argentine official said his country “supports the capital increase. [...] We need to put our money where our mouth is.”
Mexican Finance Minister Ernesto Cordero said that disagreements on the amount of an increase are narrowing. “We started at extreme opposites but in the last meeting in Washington [March 2] we managed to reduce the range of discussion.” A Brazilian official who took part in negotiations said that “everybody agrees about a minimum requirement of $12 billion to be released every year.”