Rift over lending opens at IDB

Some Latin American countries have come to the defence of economically troubled peers such as Venezuela which have received negative macroeconomic assessments from the Inter-American Development Bank (IDB).

The agreement establishing the IDB stipulates that "in making or guaranteeing a loan, the Bank shall pay due regard to prospects that the borrower and its guarantor, if any, will be in a position to meet their obligations under the loan contract."

Brazil has led calls on the bank not to suspend loans to countries that are in trouble from a macroeconomic point of view, which also include Jamaica and Belize, according to an official from the South American country. The move is also an attempt to shield Argentina from any credit freeze on its programmes.

This comes at a critical juncture for Argentina: the International Monetary Fund has issued a formal warning over the unreliability of its inflation statistics and is considering taking sanctions against the government of Cristina Kirchner if the problem is not fixed by November.

Argentina also has to submit a proposal to reopen the debt exchange for those bondholders that did not accept the previous round of debt restructuring after the 2001 debt default until March 29.

“With Argentina we have a strategy, we look at it project by project,” said Luis Alberto Moreno, president of the IDB.

Meanwhile, Brazil has come strongly in the defence of its troubled neighbour, although it insisted its solidarity would be extended to other Latin American countries, if needed.

“There are several issues on the table, not just Argentina. There are other countries that are facing difficulties in the bank. Brazil has always adopted the position that the bank must help these countries, regardless of who they are,” said Miriam Belchior, Brazil´s planning minister in an interview with Emerging Markets.

“The constitution of the IDB says that its great objective is to boost regional development. So it does not seem to us that one country should be prejudiced due to some possible instability at a given period of time. In our view, the IDB has to work (...) to prepare a series of measures to help these countries emerge from these difficulties,” she said.

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A task force is due to deliver its conclusion in June on macroeconomic assessment, but a delegate said the IDB was split on this issue. “There should not be an automatic suspension of programmes, which sometimes extend over 25 years and have a long term impact,” said Ricardo Carneiro, Brazil´s executive director at the IDB.

But Mauricio Cardenas, Colombia’s finance minister, said: “I think it is an important instrument. They want to look at the ability of a country to repay a loan, which is important for the shareholders of the IDB. We think it’s important as a signal on the exposure of the IDB vis-a-vis those countries.”

Meanwhile, Brazil is leading a group of countries that are pushing for an increase in loans to the private sector, as they consider the $70 billion capital increase that was approved in Cancun in 2011 as “insufficient”.

“We need financing to sustain growth in the region... Our proposal is that the IDB expands the private sector window, which would be a kind of second best option," Carneiro said.

"Depending on the way this is being done, it could leave the bank with some extra available resources to finance the public sector and demand some kind of capital increase from member countries. Brazil is very sympathetic to the idea of the reorganization of the private sector [window] that would imply some kind of capital increase,” Carneiro added.

Cardenas said that the IDB needed to be better equipped to lend to the private sector.

“We have access to the international market by placing our bonds, but that is not necessarily true for the private sector," he said. "The private sector is planning to engage in large infrastructure projects. They need to have access to long term low cost financing. That is what we want the IDB to provide.”

Luis Alberto Moreno, president of the IDB, sounded non committal. “There are discussions under way,” he said. “We hope to get a mandate from governors to analyze this issue in greater details.”

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