18 April 2009
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.