IDB $8b credit line address external shocks, disasters

Published: Thursday | October 11, 2012 Comments 0

The Inter-American Development Bank (IDB) launched two new contingent credit facilities for Latin America and the Caribbean last week, one to help countries deal beforehand with shocks caused by external financial crises and another to help nations cope with the aftermath of natural disasters.

A new Development Sustainability Contingent Credit Line (DSL) will make $6 billion available to the IDBs 26 borrowing member countries over the 2012-2014 period, with a maximum of $2 billion per year and with unused resources from one year carrying over to the next.

The new line is designed to help countries protect its poorest citizens from sharp fluctuations in commodity prices, global liquidity crises and other exogenous factors, the bank said in a release.

A separate Contingent Credit Line for Natural Disasters (CCL) will help countries cover urgent financing needs that arise immediately after a natural disaster, it said.

The overall amount for natural disasters is capped at $2 billion for 2012-2014. In addition, a separate and currently available Contingent Credit Facility for Natural Disasters (CCF) is being expanded, the IDB said.

Many of the poorest citizens of Latin America and the Caribbean region have seen their lives improve in recent years, thanks to better social programmes and macroeconomic management, said IDB President Luis Alberto Moreno.

Development banks such as ours can help protect these policies and social programmes from earthquakes, floods, commodity price fluctuations, external financial crises and other events that are beyond the control of governments, he added.

The new DSL was approved by the IDB board of governors in a vote and replaces the previous $3 billion emergency lending facility. It is designed to specifically protect programmes and policies that assist the poor from external financial shocks and is capped at a maximum of $300 million per country, or 2 per cent of a countrys GDP, whichever is lower. Countries get the contingency line approved before the event takes place.

The drawdown period is three years from the effective date of the loan contract. The DSL has a three-year grace period, a six-year maturity and a loan spread equal to the IDB variable lending spread for sovereign guaranteed operations financed by the ordinary capital, plus 165 basis points.

To facilitate coordination, financial terms are similar to those offered by other multilateral development institutions.

Natural disaster assistance

The Contingent Credit Line for Natural Disasters is to provide borrowing member countries with resources to cover urgent financing needs that arise immediately after a natural disaster, until other sources of funding can be accessed.

The country limit is $100 million or 1 per cent of GDP, whichever is lower.

The facility carries a three-year grace period and a 14-year maturity, and is priced on the London Interbank Offered Rate or LIBOR.

The new natural disaster credit line will complement the currently available Contingent Credit Facility for Natural Disasters (CCF), a more restrictive facility created to help countries deal with catastrophic natural disasters.

Unlike the CCL, the CCF has no overall limit, though the limit per country has been set to $300 million or 2 per cent of GDP, whichever is lower.

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