IDB-9: Lending Instruments
Beuermann, Diether; Huppi, Monika; Sembler, Jose Ignacio; Kavalsky, Basil
The IDB-9 Agreement asks whether the financial instruments of the Inter-American Development Bank (IDB) are properly aligned with the needs of clients. Before the global financial crisis, the Bank's concern was with the competitiveness of IDB financing; as borrowers gained increased access to global capital markets, the price advantage that IDB had in terms of lower interest rates and higher maturities was often outweighed by the high transaction costs of borrowing from IDB. With the advent of the crisis, the dynamic changed: it was no longer a question of whether there was demand for IDB funding, but whether IDB could provide funding with the speed and at the levels that the crisis dictated. This evaluation examines IDB's lending instruments from both these perspectives. Since 2000 IDB has added a large number of investment instruments in an effort to lower transaction costs and address specific needs of its borrowers. The range of investment lending instruments equals or exceeds that of other multilateral development banks. More recently Management has been working to streamline these instruments and eliminate those that are being only intermittently used: the innovation loan and sector facilities have been discontinued, and the performance-driven loan was allowed to lapse after the pilot period, pending further review and evaluation. The Bank has made significant progress on reducing the time lapse from concept stage to loan approval for all instruments, substantially lowering transaction costs. The story is more problematic with regard to IDB's ability to respond to the needs of borrowers during a crisis. A special instrument created for this purpose met with limited take-up: only five operations were approved, and three of them were cancelled. IDB has recently adopted contingency lending instruments that should allow for a more timely response to economic crises or natural disasters. One tool that IDB still lacks is a viable lending instrument that disburses against the achievement of results.