March 29 (Bloomberg) -- The Inter-American Development Bank is seeking to nearly triple its capital, with $180 billion in new funding from its member countries to help Latin America weather the global financial crisis, said Pedro Pablo Kuczynski.

The proposed increase, about 4 percent of which would be paid in cash over several years, could sustain annual lending of $15 billion, Kuczynski said at the bank’s annual meeting in Medellin, Colombia. The Washington-based IDB, the region’s largest development lender, wants to approve loans for $17 billion in 2009, up from 2008’s record $11.1 billion, he said.

“Although the request seems big, it’s actually quite modest,” said Kuczynski, a former Peruvian finance minister who is heading an outside panel of experts to evaluate the IDB’s capital increase proposal. “We could easily disburse $20 billion this year if we had the money.”

The global credit crisis that’s depressing trade, capital inflows and foreign investment is “the worst shock ever” faced by Latin America, Nicolas Eyzaguirre, Western Hemisphere director for the International Monetary Fund told reporters in Medellin yesterday.

As the region falls into recession for the first time since 1983, with a simultaneous collapse in credit, remittances and tourism, demand for assistance from the IDB, IMF and other multilateral lenders is rising.

‘Demand’

U.S. Treasury Secretary Timothy Geithner arrives to Medellin today to debate the IDB’s funding request, the first in 15 years, with bank governors from China, Japan and 46 mostly Western Hemisphere nations. The U.S. is the bank’s biggest shareholder, with a 30 percent stake.

“In our opinion we have to increase the size of the bank,” said Paulo Bernardo, Brazil’s planning minister and IDB governor. “We believe that the bank clearly isn’t in the condition to face the demand in the region.”

The request for new funding is unrelated to the bank’s losses last year of about $1 billion, on bad investments in mortgage-backed securities, Kuczynski said.

Still, the losses, the first ever by the bank in its 50 year history, have generated concern among IDB governors who are expected to vote on the proposal tomorrow.

“Obviously when you administer an organization that has losses you need to take responsibility for them,” Venezuelan Finance Minister Ali Rodriguez told reporters today.

2008 Losses

Despite the concerns Rodriguez said he would follow the consensus of other governors when they vote to authorize or not a search for additional funding.

Peter Kent, Canada’s minister for foreign affairs in charge of the Americas, urged caution.

“It’s not a time to make a snap judgment on capitalization,” he told reporters, without referencing the losses directly.

The IDB reported nearly $1 billion in investment losses last year, after plowing as much as 60 percent of its cash reserves into mortgage-backed securities, according to a review by Oliver Wyman, the consulting unit of Marsh & McLennan Cos.

Among the bad investments was the October 2007 purchase of securities issued by Countrywide Financial Corp, after the collapse of the subprime mortgage market had already caused the mortgage lender’s shares to plunge more than 50 percent, according to the review.

‘Diplomatic Ballet’

The IDB has disputed the consultant’s findings, saying the mortgage and asset-backed securities peaked at 42 percent, not 60 percent, of its investment portfolio.

After writing down the securities by an average 25 percent, the figure fell to 26 percent, chief financial officer Ed Bartholomew said in an interview prior to the meeting.

Kuczynski said he was satisfied with the bank’s explanation, adding that the assets in question were rated AAA investment grade and continue to perform.

“If the bank hangs on to theses paper until maturity, in the next year or two then probably the losses will be far les than the accounting losses,” said Kuczynski.

The realized “losses probably will be far less than the accounting” mark-downs,” he said.

Still, he said getting each member country to approve a capital increase would be a “diplomatic ballet,” possibly involving a shift in member-nation quotas.

“What we’re doing now is like putting a soccer ball on the field to start a match,” he said, adding that approval process could take one to two years, maybe more.

Remittances, Poverty

Under the current proposal, the U.S. would be required to contribute in cash about $350 million a year for four years, he said.

Remittances to Latin America and the Caribbean from migrant workers are forecast to fall this year for the first time on record, as unemployment rises in wealthier nations.

If the crisis persists two years, poverty could swell by as much as 12.7 million people, according to IDB estimates.

To contact the reporters on this story: Joshua Goodman in Rio de Janeiro jgoodman19@bloomberg.net

Last Updated: March 29, 2009 17:11 EDT