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International Banks

José Rente Nascimento
Inter-American Development Bank
Washington, D.C. USA

International banks, or multilateral development banks, are financial organizations that belong to the governments of a set of countries and are concerned with the increase of welfare in developing countries. They are important sources of funding and technical assistance for forest related activities in Latin American and the Caribbean (LAC) countries, principally for government institutions, but also for the private sector and nongovernment organizations. The multilateral developments banks operating in this region are combined in two sets of financial organizations with similar mandates: the Inter-American Development Bank (IDB) Group and the World Bank Group.

 
Some critical aspects differentiate these groups. The IDB was created in 1959 within the Inter-American System. It is a separate institution from the International Monetary Fund (IMF), which provides financing and technical assistance to countries with external payments difficulties, and from the World Bank, both of which are part of the United Nations system. Although the international membership of these institutions overlaps partially with that of the IDB, the majority of their capital and voting power belongs to the most developed countries, while IDB’s belongs to LAC countries.

These groups also differ in terms of the countries where they focus their efforts. The IDB concentrates a larger portion of its resources than does the World Bank on LAC’s smaller economies and is the largest source of multilateral financing for Central America and the Caribbean.
 
 
Both groups have policies that forest-based projects must comply with to assure their environmental, economic, and social sustainability as well as technical, financial, and legal feasibility.

The Inter-American Development Bank Group

The IDB Group is comprised of three institutions, namely, the Inter-American Development Bank, the Inter-American Investment Corporation (IIC) and the Multilateral Investment Fund (MIF), all with headquarters in Washington, D.C..

The IDB is the oldest regional development bank and largest source of multilateral financing for economic, social and institutional development; and regional integration in LAC. It uses resources raised in capital markets to finance projects in its regional member countries such as: investment loans for public sector investment projects, including guarantees to facilitate private investments; policy-based loans in support of public policies and institutional reforms as well as economic and social sector adjustments; emergency loans to help countries cope with financial crises or natural or other disasters; private sector loans and guarantees for infrastructure projects, capital market development projects, and trade; and grants and loans for national and regional technical cooperation projects.

IDB may also make up to 10 percent of its outstanding non-emergency loans and guarantees directly to private businesses without government guarantees. These resources typically finance projects for infrastructure (energy, transportation, sanitation or communications), capital market development, and trade finance. These supports can include partial credit and political risk guarantees for private sector projects financed with private debt.

The IIC, on the other hand, provides financing (in the form of equity investments, loans, guarantees, and other instruments) and advisory services to private enterprises in LAC. The IIC's mission is to promote the economic development of its regional member countries by stimulating the establishment, expansion, and modernization of particularly small and medium size private enterprises.

MIF is a unique technical assistance mechanism, whose principal goal is to use both grants and investments to demonstrate innovative ways to develop micro and small enterprise, build worker skills, strengthen environmental management and improve the functioning of financial and other markets. MIF finances small development projects in partnership with business groups, NGOs and government institutions to broaden the economic participation of smaller enterprises and their workforce, and strengthen the business climate.

The World Bank Group

The World Bank Group is made up of the following five institutions that operate in all developing countries of the world, including LAC countries: the International Bank for Reconstruction and Development (IBRD); the International Development Association (IDA); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for Settlement of Investment Disputes (ICSID).

While the IBRD and IFC are similar in terms of purposes and instruments to IDB’s and IIC’s, respectively; IDA, MIGA, and ICSID have no sister institutions in the IDB Group. On the other hand, MIF has no corresponding institution in the World Bank Group.

Using financial instruments similar to those discussed for the IDB, the IBRD provides loans and development assistance to middle income countries not only in LAC, but also in Asia, Africa and Eastern Europe. Like the IDB, the IBRD also gets most of its funding from selling bonds in international capital markets.

The IDA provides long-term interest-free loans (credits) and grants to the poorest of the developing countries to support economic growth, reduce poverty and improve living conditions; build the policies, institutions, infrastructure and human capital needed for equitable and environmentally sustainable development. IDA’s grants go to poor countries already vulnerable to debt or confronting the ravages of HIV/AIDS or natural disasters and represent the single largest source of donor funds for basic social services in these countries. In LAC, the currently IDA-eligible countries are Bolivia, Dominica, Guyana, Grenada, Haiti, Honduras, Nicaragua, St. Lucia and St. Vincent.

The IFC promotes economic growth by financing private-sector investments and providing technical support and advice to governments and businesses. In partnership with private investors, IFC provides loans and equity finance for business ventures in LAC countries.

The MIGA encourages foreign investment in developing countries by providing guarantees to foreign investors against loss caused by non-commercial risks. MIGA also provides technical support to help developing countries promote investment opportunities and uses its legal services to reduce possible barriers to investment.

The ICSID principally provides facilities for the conciliation and arbitration of disputes between member countries and investors who qualify as nationals of other member countries. Even though recourse to the Centre conciliation and arbitration is voluntary, once the parties have consented to arbitration under the ICSID Convention, neither can unilaterally withdraw its consent. Not all LAC countries are members of this Centre.

The IDB and the World Bank actively collaborate to avoid useless competition, assure consistency and promote complementarities of their supports in the promotion of sustainable development of LAC countries. They often cofinance policy reforms, projects and programs, and cooperate in a variety of technical areas in the region.

Source: the basic information used in this article was obtained from the Internet sites of the Inter-American Development Bank Group (http://www.iadb.org) and of the World Bank Group (http://www.worldbank.org) (14 April 2006)

Posted 3 August 2006

Revised 23 August 2007