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20/12/2008 - 06:35

El Salvador will increase lending to productive sector with IDB support

The $400 million loan will help cope with the global crisis.

El Salvador will increase the availability of credit to the private productive sector in order to ensure sustained economic growth amid an adverse global financial environment with a $400 million loan by the Inter-American Development Bank.

The IDB Board of Executive Directors approved the loan on December 17.

The Central Reserve Bank will use the funds to purchase short-term portfolio receivables for working capital and trade financing, and thereby provide local financial institutions with funding for new short-term loans for working capital and trade credits.

The loan is part of the Liquidity Program for Growth Sustainability (LPGS) set up by the IDB to help alleviate the effects of the international turmoil on Latin American and Caribbean nations' macroeconomic stability, growth, and employment.

Recent reforms and the entry into force of the Dominican Republic--Central America Free Trade Agreement with the United States (CAFTA-DR) have helped the Salvadoran economy grow 4.7% in 2007.

But as a result of the global crisis, economic expansion is likely to slow in 2008 and in 2009. In the medium term, reduced capital flows to the region may make it more difficult to achieve sustained growth if the crisis lingers on and the recession in the United States and Europe continues.

The loan if for a five-year period, including three years of grace, at an interest rate based on six-month LIBOR plus 400 basis points.

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