The IDB’s board of executive directors last week approved a senior loan of up to $75 million to help fund the facility, the multilateral lender said.

While not as developed as Brazil, Central American nations like Costa Rica, El Salvador and Nicaragua want to expand their sugar-based ethanol industries at a time of growing demand in the US and Europe, analysts said.

But the bottleneck in global credit markets has tightened Central America’s access to low-costing loans to fund new projects or proposed expansion.

For its part Mexico, which bans the use of corn to churn out the low-carbon fuel, may turn instead to cane fields to produce ethanol for domestic consumption.

Mexican biofuel law bans the use of corn to produce the fuel derivative additive until Mexico becomes self-sufficient with supplies of the culturally-important food.

The IDB said that Lacfin Holdings, a company owned by Reservoir Capital Group, will invest $75 million in the program.

Latin American Capital Management – which specializes in structuring and originating commodity financing – will manage the fund.

The IDB said that depending on future market conditions, the program may be expanded to $250 million.

The facility will offer a variety of loans to the industry, although it will place an emphasis on short-term pre-export and inventory financing for sugar and biofuels producers and exporters, the multilateral lender added.

The program will also provide loans for replanting sugarcane fields, building drip irrigation systems, upgrading sugar mills and ethanol distilleries and increasing their energy efficiency through bagasse-burning co-generation power plants.