2000 Annual Report

As they entered the new millennium, most of the countries of Latin America and the Caribbean had managed to recover from the external shocks that affected their economies during the past twelve months. Their commitment to the relatively speedy design and implementation of economic measures that would spur recovery from the previous year's stagnation was decisive in the return to high levels of foreign investment that boosted economic expansion by year end.

In many cases, the strength of the economic recovery was closely linked to decisions made at the national level that allowed domestic economic structures to adapt quickly to the shifting international situation. Moreover, as the Inter-American Development Bank (IDB) notes in its annual report for 2000, the external environment was favorable for the region, due chiefly to the growth of the U.S. economy, the rise in the price of oil and other goods, and reasonable conditions for tapping the international capital markets. The IDB does point out, though, that rising interest rates and U.S. stock market instability increased costs and made it more difficult for many Latin American countries to access international financing.

According to IDB calculations, the region closed the year with an average growth of more than 4 percent compared to 0.3 percent in 1999. This growth, albeit significant, is still below the 5.5 percent average posted during the three decades prior to the debt crisis. This rapid recovery was made possible by the fiscal and exchange adjustment measures begun in 1999, which further reduced rates of inflation and helped lower domestic interest rates. Worthy of note are the fiscal responsibility legislation adopted by several countries and the privatization and government modernization processes ongoing in most.

For 2001, the IDB predicts that, considering the macroeconomic and structural policies currently in place in Latin America and the Caribbean, growth could continue at 4.0 percent to 4.5 percent per annum. Nevertheless, the IDB warns that in order to achieve higher rates of growth most of the region's countries need to adopt further measures in the fiscal arena and in the fight against corruption.

The region's small and medium-size companies—with their considerable capacity to generate employment and foreign currency income—can help consolidate this promising outlook if they gain greater access to affordable financing, world-class technology, and managerial and technical know-how. The role of the IIC is to help them do so.

The IIC's Role in the Region
In sectors and areas where credit or capital is hard to obtain on reasonable terms, the Corporation will continue to provide small and medium-size companies with financing that will help them to grow and prepare themselves to access formal financial markets. Key to achieving this goal will be tools that enable the IIC to reach the greatest possible number of such companies; the financial intermediation program and IIC investments in private equity funds are good examples. The Corporation's equity investment activities will continue to focus primarily on such funds or similar vehicles that can provide needed growth capital while opening the ownership structure to other investors that can supply additional capital resources and provide managerial and technical know-how. In doing so, the Corporation also will strive to achieve its other goals: promote exports and technology and infrastructure modernization, and protect the environment. The IIC will also make direct equity investments in individual companies, including financial institutions in cases where this is the most effective means of meeting the investment needs of small and medium-size companies.

Investments in Private Equity Funds

Number of private equity funds in which IIC has invested	25
Total IIC investment	$140 million
Total capitalization of investee funds	$1.7 billion
End beneficiaries	142 companies in 18 countries

These companies need stable sources of funding such as the IIC to allow them to succeed in their efforts to contribute to sustainable economic growth. The economic transition of Latin America and the Caribbean is far from over, and the second generation of reforms has yet to be tackled. Despite the better long-term outlook, some serious issues need to be addressed—including continued high levels of debt, high unemployment, and uneven sectoral development.