Governors of the Inter-American Development Bank are set to approve a plan this weekend to boost the capital of its private sector arm, IDB Invest, by $3.5 billion, officials have confirmed.
The deal, poised to be inked when shareholders of the institution meet Sunday, will bring to an end a years-long process at a moment of critical need for the region’s private sector, which is caught in the cross-hairs of flagging growth and exorbitant borrowing costs.
Officials, including Paraguay’s finance minister Carlos Fernandez, who is also a governor of the bank, told LatinFinance Thursday that there is “broad agreement” among shareholder countries to approve the proposal, and he does not foresee any obstacles to its acceptance.
Earlier Thursday, IDB president Ilan Goldfajn said that “the decision is going to be made now, that is the doubling of IDB Invest.”
“More than that, let the board decide,” he added in comments to reporters on the sidelines of the bank’s annual meeting in the Dominican Republic.
The bank president also said a new mechanism was under works to augment capital available to emerging market economies, whereby the IMF would deposit financial reserves of member countries, denominated in Special Drawing Rights (SDRs, the IMF’s unit of accounting), with multilateral development banks, in order for such capital to be leveraged for new lending.
‘TRANSFORMATION’
He said a preliminary decision on the new plan could be made this month before being submitted to the IMF board in April.
“This is scale. With this and capitalization, we can work towards the transformation of IDB Invest and increase our capacity to loan up to $110 billion in the next 10 years, or $11 billion per year, on top of what we already do,” said Goldfajn.
IDB Invest CEO James Scriven, meanwhile, said that capital deployment should now be the principal focus. “More important is what we will do with that capital,” he said at a press briefing.
The IDB capital increase has been on the agenda for several years, but Goldfajn, who assumed his role in January last year, has worked on an ambitious reform agenda in order to obtain the support of the bank’s main shareholders.
He said the bank’s business model would seek to crowd-in additional capital by evolving into “an originate-to-share business model, with the capacity to further scale the impact of its operations, and mobilize more investment in the region while redistributing risk.”
Goldfajn said special emphasis will be placed on social issues, climate change mitigation and adaptation as well as sustainable growth.
‘DEVELOPMENT CHALLENGES’
“The usage of that capital for the objectives of climate and social agenda is to be able to attract foreign direct investment and domestic savings into development challenges of our region. This is where we will start doubling or tripling the impact of what we are doing. We have to move away from the concept of what we are investing in but using our money to de-risk or re-risk the investments that are coming [from] abroad to be able to attract the $53 trillion of impact investors that you have globally looking for investment and development challenges,” Scriven said.
“The main point is the change of focus on impact,” Luiz Gabriel Azevedo, IDB Invest chief strategy office, told LatinFinance in an interview.
“We want to move away from the traditional MDB model of ‘buy and hold’ to a model in which we serve as a catalyst, as a conduct to bring others to maximize mobilization, the flow of impact investors channeling their visions to the region,” he said.