Costa Rica: World Bank approves US$65 million to reduce the impact of disasters on the poor

Source(s): World Bank, the

Press Release No:2008/079/LCR

Contacts:
In Washington: Alejandro Cedeño (202) 473-3477
acedeno@worldbank.org

WASHINGTON-The World Bank Board of Executive Directors today approved a US$65 million loan to Costa Rica for the first Catastrophe Deferred Drawdown Option (CAT DDO)aimed at providing a source of immediate financing in the aftermath of a major natural disaster.

The CAT DDO acts as a source of bridge financing that may be disbursed partially or in full if the country declares a state of emergency as a result of a natural disaster. This will allow the country to maintain its development programs while mobilizing other sources of funding to address the emergency.

"The poor are the most at risk from the impacts of natural disasters,” said Laura Frigenti, World Bank Director for Central America. “This operation, the first of its kind, will help ensure that affected populations receive assistance as soon as possible after a disaster, and will support the continuity of development programs directed to alleviate and reduce poverty.”

Due to its geographic location and geotectonic characteristics, Costa Rica is exposed to a large variety of natural hazards, including floods, hurricanes, earthquakes, volcano eruptions, and landslides. Costa Rica experienced 49 major natural disaster events between 1910 and 2008, which affected 1.4 million people.

Despite its high exposure to adverse natural events, the country has built an efficient disaster response system and has managed to limit vulnerabilities through the effective enforcement of building codes, environmental standards, and land use planning. Costa Rica has also made substantial progress in strengthening its institutional and legal framework and mainstreaming disaster risk management in its national development program.

“This is just one instrument as part of a World Bank effort to deliver customized financial solutions and help plan efficient responses to catastrophic events. The CAT DDO is most effective as part of a broader risk management strategy,” said Gloria Grandolini, World Bank Director of Banking and Debt Management.

“The CAT DDO was developed responding to requests by middle-income countries for innovative financial products to increase their resilience in case of catastrophic events,” said Armando Guzmán, World Bank Task Manager for this operation. “This instrument will help Costa Rica to better address its immediate funding needs in the aftermath of natural disasters.”

The CAT DDO can be disbursed over aperiod of three years and may be renewed up to four times for a total of 15 years. The US$65 million loan has a variable interest rate approximately equal to six-month LIBOR and is repayable in 29.5 years, including a five-year grace period.

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