Committee Tips Major IDB Funds Boost

A special commission recommended Sunday to the IDB that it lift funding to $230bn-$280bn from $100bn. The commission’s head, Pedro Pablo Kuczynski, called an IDB capital increase the central subject of this year’s annual meetings of the multilateral. “The urgency is that the possible alternatives, such as selling loans or guaranteeing the capital of some Latin American countries, all have downsides,” says Kuczynski, a former Peruvian finance minister. He adds that the proposed increase is not that large in relative terms. The committee’s recommendation starts the discussion, but the process is a “diplomatic dance” made more challenging by constraints on some donor countries facing slower growth and lower reserves. Kuczynski warns that the IDB will run up against limits this year, and the process to reach approval for such a capital raise could take as long as 2 years. The paid-in portion of the amount would be subject to negotiation, but if kept at current levels it would mean about $7bn, including about $2bn from the US. Kuczynski warns that alternative measures like selling loans to raise funds could be more costly in the long run. “The commission found that we should avoid financial engineering, not just because it’s the most discredited profession nowadays, but because we need to keep the AAA rating using a minimum amount of cash,” he says. The IDB has frontloaded available lending capacity and this year plans to approve up to $18bn, versus $11bn in 2008, up sharply from a 10-year trailing average of $5bn-$6bn, according to COO Dan Zelikow. “At this stage, we’re just asking for guidance. We’re not asking [shareholders] for a specific number, we haven’t recommended any particular number,” Zelikow tells LatinFinance, speaking of the capital increase.