IDB responds to calls for new crisis credit lines
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IDB responds to calls for new crisis credit lines

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The IDB is poised to announce to new stand-by credit lines for crisis hit countries

The Inter-American Development Bank (IDB) is set to present to its governors two new lines of stand-by credit for countries faced with economic downturns or natural disasters.

The Bank will use these meetings to outline plans for contra-cyclical lines – to deal with a downturn - of up to $300 million per incident of and $100 million per operation for reconstruction in the wake of natural disasters.

The Bank has had an emergency window for crises designed in 2002 but it has not proved easy to access or much used. Uruguay has been calling for permanent contingency facilities that can be used preventively the Dominican Republic, and Colombia have also expressed interest.

“It’s a line of insurance that they can immediately disburse in the event of a crisis,” said Koldo Echebarría, general manager and chief development effectiveness officer for the Office of Strategic Planning and Development.

Recipients need to comply with a series of conditions outlined by the IMF in order to be eligible, and the money can only be used for development purposes, such as support of programs designed to alleviate poverty.

Echebarría said it was an efficient use of resources and cheaper than the country itself financing a stand-by line to support social programs during economically-straitened times.

The World Bank already has contingency lines for natural disasters which have been successful, he said. These lines will be particularly suitable for smaller countries where they can have a large impact, he added.

The IDB is turning its attention to the region’s less developed countries in the region as part of the conditions attached to its $70bn general capital increase (GCI) of which will allow it to increase spending by 50% to $12bn per year.

The Bank is increasing its lending to these countries, which represent just 10% of the region’s GDP, to at least 35% of total lending, up from an average rate of 26% between 2006-09.

“In our 2012 operational program, we are proposing to lend close to 40% of our total to these countries,” he said. Lending to Honduras, Nicaragua, Bolivia and Guyana should double in the next 10 years.

He admitted that while most borrower countries supported the conditions of the GCI lending to poorer countries, pressure was coming from big countries for more lending especially at the sub-national government level and in the private sector.

Brazil is seeking significant infrastructure lending to bolster plans for the World Cup and Olympics, which it is set to host in 2014 and 2016, respectively.

The transition to a greater focus on poorer countries will require a greater dedication of resources. “We have had to increase staff and add operational analysts to help deal with project execution units and spend heavily on systems management,” Echebarría says.

Dealing with poorer countries will also put greater emphasis on areas such as policy reforms and governance.

The Bank is seeking to move away from pure social programmes that alleviate poverty such as the Bolsa Familia in Brazil or Familias em Accion in Colombia, to programmes that support productivity improvements, such as education and job training.

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