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IDB looks to establish IFC-style private sector arm

Aug 13, 2013

The entity's role would include mobilizing private capital for PPPs, taking equity stakes in companies and facilitating sovereign wealth investment, the IDB's president says

The Inter-American Development Bank (IDB) is looking to set up a private sector arm that would mirror the World Bank's International Finance Corporation (IFC) in structure and function, IDB president Luis Alberto Moreno has said.

The focus of the new entity would include mobilizing private capital for public private partnerships, taking equity stakes in companies and projects and facilitating investment in the region by sovereign wealth funds, Moreno told LatinFinance in an interview.

Moreno said the goal was to "have a private sector arm solely focused on dealing with the private sector on delivering public goods."

He added: "We're also entering a phase where it's important to see stronger mid-sized companies grow and become more international in our region."

It is understood that the proposal for an IFC-style entity was one possible approach to enhancing the bank's private sector activities.

But Moreno confirmed the bank is advancing blueprints for the private-sector arm structure, which aims to increase the efficiency and effectiveness of its private sector operations, for an October governors' meeting. Moreno said he hoped consensus could be reached in time for the bank's annual meeting next March.

The IDB's existing private sector operations last year approved roughly $2 billion in loans, guarantees and grants. Moreno would not say how much capital such an entity would need, nor whether another capital increase could be on the cards if the structure is approved.

"We have run some scenarios but we need to discuss this with our shareholders first," he said. "The order of magnitude begins from using better the current capital to put in more capital."

The new structure would combine the bank's existing private sector operations  -  its four so-called windows: the Structured and Corporate Finance Department; the Inter-American Investment Corporation; the Multilateral Investment Fund; and Opportunities for the Majority  -  in order to boost private sector volumes and reduce costs.

The impetus behind the restructuring came from an audit last year assessing the bank's progress in fulfilling the commitments of its 2010 capital increase.  

"The report said: you have a set of private sector windows that are not efficient, that are losing synergies and you must address that," Moreno said. "That is what we're doing."

The bank had originally announced in March that it would explore proposals to reform its private sector operations.

The IFC model has served a rapidly expanding group of expanding multinationals. Some of the IFC's more high-profile equity investments in recent years have aided the expansion of Banorte and Grupo Sura. This month, it committed $150 million to an oil pipeline and terminal project in Colombia sponsored by a group that includes Pacific Rubiales.  

The full interview with IDB President Luis Alberto Moreno will be published later this month in our 25 Year issue www.latinfinance.com/quartercentury


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