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Colombia Disburses US$150 Million Cat DDO

 

 

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Catastrophe Risk Financing from World Bank
to Help with Humanitarian Aid and Reconstruction

On December 28, 2010, Colombian authorities disbursed the full balance of the Cat DDO to address the crisis caused by floods and landslides in the country’s worst rainy season in decades. The country's authorities declared a national emergency on Dec. 7, 2010 to address the crisis. Colombia had prepared for this kind of natural disaster in advance by signing a US$150 million Development Policy Loan with a Catastrophe Risk Deferred Drawdown Option (Cat DDO) with the Bank on June 11, 2009.

The Cat DDO is a form of contingent financing offered by IBRD, which gives countries access to funds immediately after a natural disaster, allowing governments to respond quickly to emergency needs without diverting resources from important long-term development projects. The Cat DDO is typically used to finance recurrent losses in countries highly exposed to natural disasters and is very effective as part of a broader strategy that complements the Cat DDO with disaster risk transfer instruments like catastrophe risk insurance or catastrophe bonds for high risk layers. In June 2010, the government of Guatemala was able to secure access to US$85 million under the Cat DDO after a major volcanic eruption and tropical storm. Costa Rica also drew down US$24 million under a Cat DDO to rebuild damaged infrastructure after a 6.2 magnitude earthquake in January 2009. These disbursements demonstrate the benefits of this financial product.

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