March 18 (Bloomberg) -- China will help the Inter-American Development Bank finance $12 billion in loans for Latin America and the Caribbean this year as the region struggles to recover from the global financial crisis.
The region is forecast to grow 3.9 percent through 2017, down from 4.8 percent during the five years before the 2007 global recession, the Washington-based lender said in a March 17 report released during the bank’s annual meeting in Panama City. The People’s Bank of China will help finance $2 billion in loans, with most of the credit going to Latin American companies, according to the IDB.
While slowing inflation is giving central banks in Latin America leeway to stimulate growth, the region will be held back by falling commodity prices and widening fiscal deficits, the IDB said. Out of 21 major economies in the region that were reviewed for the bank’s study, only Colombia, Trinidad & Tobago and Belize were in better fiscal shape than before the financial crisis.
The bank urged governments to invest in infrastructure and boost domestic savings to revive growth, saying that “the space for monetary policy action has shrunk.”
Still, Mexico’s central bank unexpectedly cut borrowing costs March 8 for the first time since 2009, reducing its key rate to 4 percent. Colombia’s monetary authority has lowered its benchmark by 1.5 percentage points to 3.75 percent since June and the central bank may step up purchases of the dollar to weaken the peso, Colombian bank Governor Jose Dario Uribe said.
“For the Colombian economy it would good and appropriate if the peso was a bit weaker,” Uribe said in a March 16 interview on the sidelines of the Panama City meeting.
Brazil, Latin America’s largest economy, has been caught between the slowest growth since the aftermath of the Lehman Brothers collapse in 2009 and the fastest annual inflation in 14 months. A possible cycle of rate increases could limit growth to 3 percent while failing to slow inflation to the central bank’s target, Ilan Goldfajn, a chief economist for Itau Unibanco Holdings SA, said in a March 16 interview.
Brazil may receive as much as $3.7 billion this year from the IDB as the country prepares to host next year’s soccer World Cup and the 2016 summer Olympics.
Established in 1959, the IDB is the biggest source of development financing for Latin America and the Caribbean, according to its website. The lender has 48 members, including the U.S., Brazil and Mexico.
The bank’s annual meetings are close to becoming “obsolete” as the region emerges from the global crisis, said Walter Molano, head of research at Greenwich, Connecticut-based BCP Securities LLC.
“Latin America is no longer in flames like it was in the past,” Molano said in a March 16 interview in Panama City.
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