By Daniel Bases and Javier Mozzo
MEDELLIN, Colombia, March 29 (Reuters) - The Inter-American Development Bank should increase its capital by between $150 billion and $180 billion as members seek more loans to counter the impact of the global financial crisis, a commission studying the bank's requirements said on Sunday.
The IADB, one of the region's top lenders, is holding its annual meeting in Medellin, where Latin American financial leaders are discussing how to tackle the world slowdown, which has battered exports and slashed prices of their commodities.
The IADB is seeking to bolster its capital from $101 billion after last increasing its funds in 1994-1995. This year it expects to lend $18 billion, including a $6 billion from an emergency fund, but member demand could be much higher.
'If you were to add up what everybody is talking about, you would be way above $20 billion for this year, for 2009. For 2010, probably the same, again,' said Pedro Pablo Kuczynski, a former Peruvian prime minister heading the IADB commission.
In the last five years development loan requests to the bank averaged $7 billion annually, Kuczynski said. He said the rise in requests is due to the shutdown of the capital markets. While they have just started to reopen, borrowers are paying a higher price for their debt.
IADB President Luis Alberto Moreno said the governors of the bank have reached a consensus to increase the bank's capital but that a formal agreement is still being negotiated.
'The governors of the IDB have come to the decision to move, to authorize management and to start the process that will lead to a capital increase,' Moreno said, describing the contents of the unofficial letter.
Asked if he hoped to have it signed by the end of the meeting, Moreno said: 'I hope. A draft is still a draft.'
The IADB summit comes just before leaders of the world's 20 largest economies meet on Thursday to debate how stricter regulation of financial markets, stimulus measures and trade finance can spur world economic recovery after the sharpest downturn in decades.
The World Bank said on Friday Latin America and the Caribbean region face zero growth this year and an increasing probability of contraction as the global crisis batters their exports, commodity prices and remittances.
SUPPORT
China, the IADB's newest member, is in favor of the capital increase as well.
'I think, anyway it is good, it is good. For this moment for overcoming the financial crisis to increase the capital,' said Chinese Central Bank Governor Zhou Xiaochuan.
'There is another possibility, if the IDB issue some kind of financing instrument like a bond or note, we can consider to support,' he said.
Kuczynski told Reuters that there were no dissenters among the governors of the bank for the capital increase, which is mostly callable capital, not real money.
'No. The issue is obviously for the U.S., can they sell something like this to (the U.S.) Congress and when?' he said, adding 'Of course we are not experts on Congress so we'll have to see.'
The United States is the largest shareholder in the bank, with a 30 percent voting share.
Kuczynski said there was a 50/50 chance the capital increase would come through in a timely fashion.
'Fast would be 1 year. Slow would be three years,' he said.
CONGRESSIONAL SCRUTINY
The IADB itself was hit by the financial crisis to a degree that caused influential U.S. Senator Richard Lugar, a Republican from Indiana, to question the scale of losses, which he put at $1.9 billion.
Last month the bank reported a $1 billion net investment loss in fiscal 2008, mostly due to a reduction in market prices of asset-backed securities.
Total losses were about $1.6 billion, the bulk of them unrealized losses on investments. Realized losses were $71 million.
Kuczynski said the commission has recommended the IADB review its risk assessment on reserves but said the bank's losses could be smaller if it holds the debt to maturity.
'If the bank hangs onto this paper to its maturity in the next year or two, probably the losses will be far less than the accounting losses,' Kuczynski said.
Lugar sent a letter expressing satisfaction with the bank's answers to his inquiry, he said.
(Writing by Patrick Markey in Medellin; Editing by Steve Orlofsky) Keywords: FINANCIAL LATINAMERICA/ (pat.markey@thomsonreuters.com; +57 1-634-4137; Reuters Messaging: pat.markey.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
MEDELLIN, Colombia, March 29 (Reuters) - The Inter-American Development Bank should increase its capital by between $150 billion and $180 billion as members seek more loans to counter the impact of the global financial crisis, a commission studying the bank's requirements said on Sunday.
The IADB, one of the region's top lenders, is holding its annual meeting in Medellin, where Latin American financial leaders are discussing how to tackle the world slowdown, which has battered exports and slashed prices of their commodities.
The IADB is seeking to bolster its capital from $101 billion after last increasing its funds in 1994-1995. This year it expects to lend $18 billion, including a $6 billion from an emergency fund, but member demand could be much higher.
'If you were to add up what everybody is talking about, you would be way above $20 billion for this year, for 2009. For 2010, probably the same, again,' said Pedro Pablo Kuczynski, a former Peruvian prime minister heading the IADB commission.
In the last five years development loan requests to the bank averaged $7 billion annually, Kuczynski said. He said the rise in requests is due to the shutdown of the capital markets. While they have just started to reopen, borrowers are paying a higher price for their debt.
IADB President Luis Alberto Moreno said the governors of the bank have reached a consensus to increase the bank's capital but that a formal agreement is still being negotiated.
'The governors of the IDB have come to the decision to move, to authorize management and to start the process that will lead to a capital increase,' Moreno said, describing the contents of the unofficial letter.
Asked if he hoped to have it signed by the end of the meeting, Moreno said: 'I hope. A draft is still a draft.'
The IADB summit comes just before leaders of the world's 20 largest economies meet on Thursday to debate how stricter regulation of financial markets, stimulus measures and trade finance can spur world economic recovery after the sharpest downturn in decades.
The World Bank said on Friday Latin America and the Caribbean region face zero growth this year and an increasing probability of contraction as the global crisis batters their exports, commodity prices and remittances.
SUPPORT
China, the IADB's newest member, is in favor of the capital increase as well.
'I think, anyway it is good, it is good. For this moment for overcoming the financial crisis to increase the capital,' said Chinese Central Bank Governor Zhou Xiaochuan.
'There is another possibility, if the IDB issue some kind of financing instrument like a bond or note, we can consider to support,' he said.
Kuczynski told Reuters that there were no dissenters among the governors of the bank for the capital increase, which is mostly callable capital, not real money.
'No. The issue is obviously for the U.S., can they sell something like this to (the U.S.) Congress and when?' he said, adding 'Of course we are not experts on Congress so we'll have to see.'
The United States is the largest shareholder in the bank, with a 30 percent voting share.
Kuczynski said there was a 50/50 chance the capital increase would come through in a timely fashion.
'Fast would be 1 year. Slow would be three years,' he said.
CONGRESSIONAL SCRUTINY
The IADB itself was hit by the financial crisis to a degree that caused influential U.S. Senator Richard Lugar, a Republican from Indiana, to question the scale of losses, which he put at $1.9 billion.
Last month the bank reported a $1 billion net investment loss in fiscal 2008, mostly due to a reduction in market prices of asset-backed securities.
Total losses were about $1.6 billion, the bulk of them unrealized losses on investments. Realized losses were $71 million.
Kuczynski said the commission has recommended the IADB review its risk assessment on reserves but said the bank's losses could be smaller if it holds the debt to maturity.
'If the bank hangs onto this paper to its maturity in the next year or two, probably the losses will be far less than the accounting losses,' Kuczynski said.
Lugar sent a letter expressing satisfaction with the bank's answers to his inquiry, he said.
(Writing by Patrick Markey in Medellin; Editing by Steve Orlofsky) Keywords: FINANCIAL LATINAMERICA/ (pat.markey@thomsonreuters.com; +57 1-634-4137; Reuters Messaging: pat.markey.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.