Canada offers new support to the Inter-American Development Bank

This year's Summit of the Americas takes place in the context of the worst global economic crisis in generations.  While the crisis began in developed countries, its effects are hitting emerging and developing economies with increasing severity.  Canada's focus for the Summit is encouraging free trade and discouraging other countries from moving back to protectionist measures.

With the attention of the region on the economic situation, the Summit is an opportunity to connect Canada's strengths and effective response to the crisis to the circumstances and needs of regional partners while building on the outcomes of the London G20 Summit.  Canada is working towards recovery in its own economy and providing leadership internationally:

• Canada's strong stance against protectionism and in favour of further liberalization is opening new markets for our partners in the hemisphere
• Fixing the financial system is essential to restoring credit and investment flows to emerging economies
• Canada's banks are solid thanks to our sound approach to financial sector planning
• Accelerated, effective fiscal stimulus contributes to global demand and recovery
• Canada is making a substantial contribution to strengthening the resources of the international financial institutions, especially the IMF and the IFC global trade facility.

It is with this in mind that Prime Minister Stephen Harper announced today that Canada will work to temporarily increase the Inter-American Development Bank's (IDB) lending capacity in response to the financial crisis.  Today's announcement responds to the urgent capital needs identified by the IDB as essential to an effective response to the effects of the economic crisis in the Americas.

"Canada is the only country taking a leadership role in responding to a critical need in such an innovative way," said the Prime Minister.  "This has not been done before and is a very significant contribution."

This timely increase in support to the IDB will provide countries in the region with greater access to credit to promote economic growth, an essential element of economic recovery.  It will double temporarily Canada's lending capital at the IDB.

The IDB is a valued regional institution in which Canada plays an active role. The Bank is the main source of multilateral funding for economic, social and institutional development in Latin America and the Caribbean, and Canada is a non-borrowing regional member.  Canada joined the Bank in 1972.  The IDB is the oldest and largest regional development bank in Latin America and the Caribbean.  Canada will host the annual meeting of IDB Governors in 2011.

For more information on Canada's partnership with the IDB, please consult: www.infoexport.gc.ca/eng/development-humanitarian-aid-markets/inter-american-dev-bank.jsp

Backgrounder

Canada's Capital Investment in the Inter-American Development Bank

This announcement to temporarily make available up to US$4 billion to increase  the Inter-American Development Bank's lending capacity represents an almost 45 per cent increase in the IDB's lending capacity and is a further demonstration of Canada's commitment to the Americas.

Canada has been a regional, non-borrowing member of the Inter-American Development Bank (IDB) since 1972.  The Minister of Foreign Affairs is Canada's Governor to the IDB. Canadian International Development Agency leads on day-to-day operations and the Department of Finance provides financial oversight.  At the Bank's 2009 annual meeting in Medellin, Colombia, IDB Governors confirmed that Canada would host the IDB's annual meeting in 2011.

Canada's capital investment in regional development banks, including the IDB, consists of a mix of monetary investment ("paid-in capital") and guaranteed investment ("callable capital").  Canada currently owns 334, 887 shares in the IDB, for a subscribed capital investment of just over $4 billion US.  Of that total investment, $173.7 million US is paid-in and 3.866 billion US is callable.

Rising borrowing member demand on the IDB due to the global economic crisis has put pressure on its internally-set policy lending limits.  The IDB estimates it can lend about $8 billion US a year on a sustainable basis.  However, due to rising borrowing member demand, the IDB has sharply increased the volume of its operations, reaching a record $11.2 billion US in approvals for 2008.  For 2009, the Bank estimates approvals could rise to as much as $18 billion US.  The Bank's policy lending limit states that total lending cannot exceed total reserves plus non-borrowing callable capital (usable capital).  The remedy to these lending constraints would be to either reduce loans outstanding (e.g. sell loans) or increase usable capital (through a redefinition or a real increase).

The proposed temporary capital subscription to the IDB of up to $4 billion US in additional Canadian callable capital would directly increase the Bank's lending room by increasing the amount of its non-borrower callable capital.

Each dollar of new Canadian callable capital would result in one extra dollar of potential lending capacity to the Bank and the region.  This innovative proposal will temporarily double Canada's callable capital at the IDB.  The new shares would not carry voting rights.