Economy: World Bank Loans Cheaper and More Agile

The World Bank officially announced that it will reduce loan costs and simplify management procedures for loans to middle income countries in Latin America like Brazil, Argentina or Mexico, or creditworthy low-income countries such as El Salvador.
With the 0.4 percent reduction, the interest rates for World Bank loans equal the LIBOR rate and, in some cases, the LIBOR rate plus ten basic points. The interest rate, whose increase was spurred by the 1998 Asian crisis, will thus return to pre-1998 levels.
“Reducing loan costs is the result of the improvements made by countries in the region in their financial standing,” explained Augusto de la Torre, World Bank Chief Economist for Latin America and the Caribbean. “The World Bank is a multilateral cooperative of partners including middle-income nations. This interest rate cut on loans and the simplification of the procedures represents a response to demand coming by this group of countries.”
By simplifying its procedures and reducing pricing, the institution is delivering on the commitment made in September 2006 during the Annual World Bank Meetings in Singapore. In response to requests made by developing countries, the World Bank promised to revise loan pricing, including those in social and infrastructure sectors, which often do not attract private sector funding.
This measure eliminates a previous fee structure, which was among the most complicated in multilateral development lending, as it included six elements to determine the cost of a loan. The former structure has been replaced by a small front-end fee and a reduced interest rate spread.
The Executive Board of Directors of the World Bank Group took another crucial step this week with the decision to contribute a record sum of US$3.5 billion of its own income to grants and credits for the world’s poorest countries while completing the 15th replenishment of the International Development Agency (IDA), the World Bank agency that supports the poorest countries.
This contribution is more than double the US$1.5 billion pledged by the WBG for IDA 14 in 2005. In Latin America, recipient countries include Bolivia, Haiti, Honduras, Guyana and Nicaragua.
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