Mortgage mess sinks Interamerican Development Bank

Published on IFIwatchnet, by Toby Sterling / Matt Apuzzo (Associated Press Writers), not dated.

WASHINGTON – The Inter-American Development Bank, the largest lender for projects including roads and power plants in Latin America, lost $1.9 billion on mortgages and other securities as part of an unusually aggressive investment strategy, according to internal bank documents obtained by The Associated Press.

The bank is funded by donations from wealthy countries such as the United States. It downplayed the losses even as an independent auditor blamed bank managers and called for a review of the investment strategy.

A decade ago, the bank kept its money almost exclusively in goverment bonds and bank accounts. By 2006, investments in asset-backed securities such as mortgages, credit card debt and home equity credit lines represented 60 percent of the bank’s portfolio, according to the audit.

Auditors determined the bank got in over its head …

… Congress, which likely will be asked this year to approve more money for the bank, has questions. Sen. Richard Lugar, R-Ind., challenged the bank’s Colombian president, Luis Alberto Moreno, to explain what went wrong.

“The reported scale of the IDB’s investment portfolio losses of $1.9 billion — 10 to 100 times higher than the losses of the other development banks — is of grave concern,” Lugar wrote in a letter last week.

Batholomew sought to ease those concerns. He said discussions about whether to commit more money to the bank should be separate from discussions about its investment woes. (full text).

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