The Inter-American Development Bank (IDB) Group plans to step up its private-sector financing to put transaction volumes on a par with its sovereign funding efforts, vice president Jordan Schwartz told LatinFinance.
Under the changes to be put to member countries next year, IDB Invest, the bank’s private sector arm, will expand its capital to roughly equal the commitments on the sovereign side of the business, Schwartz said in an interview.
This rebalancing is expected to put both divisions on a par “over the next couple of years,” he said.
“We see greater leaning forward into equity, greater tolerance for risk that will be permitted by this increased level of investment,” Schwartz said.
The bank currently approves between $13 billion and $14 billion a year in public-sector financing in Latin America and the Caribbean, while IDB invest doles out between $6 billion and $8 billion a year.
“I would see that number growing in general, our own number going up on the public sector side to about $16 billion a year as we lean into our risk tolerance. I see with the recapitalization and [IDB Invest’s] own efforts at squeezing their balance sheet to get to similar levels of investment,” he said.
He said that major shareholders like the US support the rebalancing between the public and the private sectors. Schwartz, who is also COO of the bank, said he was confident the proposed capital increase for IDB Invest will be approved during the IDB Group’s next meeting in April.
“We cannot have two neat divisions — one small division looking at deals and one large division doing public investments and in public goods — or else we’re not going to be able to achieve our growth objectives and our poverty alleviation objectives, let alone our transition objectives on the climate front,” he said.
ECUADOR, BAHAMAS
Schwartz said the development bank plans to do more debt-for-nature deals after this year’s transaction in Ecuador. The Bahamas is next, he said.
“We will be using a policy-based guarantee in order to do something very similar. So, we further leverage the balance sheet of the institution by guaranteeing the credit that will be provided by commercial financiers to Bahamas, because we are able to pass along our credit advantages, particularly during a high interest rate period,” said Schwartz. “It allows Bahamas to restructure their debt and still commit to investing a portion of that in conservation.”
The IDB will structure the necessary technical assistance to allow the nation to protect its marine reserve, he said.
“I think this is the kind of thing that we will be doing a lot more. It combines our ability to interact with the markets to utilize their own balance sheet directly, but then to also assure that there is an environmental or social return that comes from the reprofiling or restructuring of public sector debt,” Schwartz added.