CAF approved operations for a record US$3.30 billion

The CAF executive president, Enrique García, said today in a year-end press conference that 2002 was one of the most difficult years in the recent history of the region, with a fall of over 1% in Latin American gross domestic product, and 0.5% in the countries of the Andean Community, a plunge in net flows of external capital and difficult access to international financial markets, factors that have intensified problems of unemployment and poverty in the region.

On the positive side, García said inflation had been kept under control, prices of main export products had stabilized, and the leading international and regional economies were showing signs of recovery. In the Andean countries, with the exception of Venezuela where growth is expected to dip sharply, the other four countries will have positive growth, particularly Peru and Ecuador with over 4% and 3% respectively.

In the political area, García mentioned the successful holding of presidential elections in Brazil, Ecuador and Colombia and the national governance agreements reached in Bolivia. "Now the challenge for the region is to resume high sustained growth, improve competitiveness and achieve greater social equity and environmental sustainability, in an uncertain international environment, with important restrictions on financing."

Fulfilling its counter-cyclical and catalytic role, the CAF achieved record approvals of US$3.30 billion which confirm its position as the main source of multilateral financing for the Andean countries and as important link in the regional integration process. These approvals represent support for public and private sectors, with priority for economic and social infrastructure projects, development of capital markets, and backing for productive sectors directly and through a chain of financial intermediaries that reach small, medium and microenterprises, among others.

This achievement was made possible by CAF’s success in accessing international capital markets based on its financial strength and standing as the Latin American issuer with the best risk rating, according to Moody's, Standard and Poor's, and Fitch. The international lender raised a record amount of US$3.15 billion on the world’s leading markets, including US$1.15 billion in bond and US$2.00 million in commercial paper placements.

In the last 12 months the CAF has increased its authorized capital from US$3.00 billion to US$5.00 billion, which permitted an increase of US$450 million in capital subscribed by member countries, in addition to the current increase of US$600 million, which confirms the shareholders’ continuing support. During this year, the membership of Uruguay, Costa Rica, Spain and Argentina as new shareholders was finalized, forming a total of 16 member countries. With the strengthened equity and increased membership, the institution can deepen its financial and integration activity in favor of the region.

García emphasized the stimulus for the strategic programs sponsored by the CAF through loans and technical cooperation, including: the South American Regional Infrastructure Integration Initiative, IIRSA; prevention of natural disasters through the Andean Program for Prevention and Mitigation of Natural Disasters, Preandino; the Andean Competitiveness Program, PAC; the Latin American Carbon Program, PLAC; the Biodiversity Program; Social and Cultural Programs, particularly the Andean Youth Symphony Orchestra, the Andean Traveling Conservatory, CAI; and the First Andean Craft Encounter; as well as the Governance Program.

The need for a renewed agenda

Despite the difficult situation, García said he was optimistic about the region’s potential and backed the start of a renewed agenda aimed at achieving high sustained growth that is socially equitable, environmentally sustainable and globally competitive, in an effort to reduce poverty and strengthen democratic governance. The agenda should be based on the internal effort of countries and supported by public, private, labor, academic sectors and by civil society.

The international community should contribute to the consolidation of this new agenda with less protectionism and more understanding of the individual situation of each country, guaranteeing stability and access to commercial and financial markets, as well as meeting commitments in the areas of financing for development, environment, health and drug trafficking, among others, the CAF president said.

The role of the multinational organizations is to back regional integration processes to help countries integrate more fully into globalization reducing its impact on existing gaps, with emphasis on programs aimed at strengthening the institutional weaknesses that affect capital flows for investment and development.

CAF in figures

As mentioned above, in 2002 the CAF approved operations in favor of its shareholder countries for US$3.30 billion - the highest amount in its history; of this 68% were used to finance sustainable economic and social infrastructure projects in the public and private areas. These approvals covered resources for shareholder countries used for the following projects:

Bolivia

This year Bolivia received approvals for over US$500 million, basically for financing road integration and rural infrastructure projects, type A/B cofinancings, as well as trade and working capital programs, among others.

One of the most important operations provided finance for Bolivia’s Rural Infrastructure Sectoral Program, which received US$200 million for a set of works to generate new jobs through investment in the sectors of irrigation, rural electrification, local and provincial roads, among others.

In the area of physical integration, an operation was approved for a maximum of US$100 million to finance the Santa Cruz-Puerto Suárez Road Integration Corridor, a key link in the inter-oceanic hub being promoted through the IIRSA initiative, sponsored by the CAF to convert South America into a more integrated and competitive region.

The Santa Cruz-Puerto Suárez project forms part of Bolivia’s Fundamental Network No. 4, which is one of the most important road hubs in the IIRSA initiative because of its positive impact on five countries in the region: Bolivia, Brazil, Paraguay, Chile and Peru.

To support an investment program aimed at improving the quality of transport services for gas and associated hydrocarbon liquids, the CAF approved an A/B cofinancing for a maximum of US$88 million, with the participation of the Inter-American Development Bank (IDB). The executing agency is Transporte de Hidrocarburos (Transredes). The program will have a positive effect on the balance-of-payments profile, tax revenue and levels of social welfare by generating sources of direct and indirect jobs.

Colombia

Approvals for this year, which totaled a record US$748 million, provide finance for road infrastructure and regional development projects, as well as public investment and working capital programs.

These operations included approval of a Partial Credit Guarantee (PCG) for up to US$83 million to back a US$250-million loan of fresh money granted by a group of international commercial banks with favorable costs.

The Partial Credit Guarantee, which strengthens the sustainability of the government’s Economic Program, provides finance for investment projects in infrastructure, mainly road and regional development. The PCG is a new financial instrument developed by the CAF to help shareholder countries optimize the use of their resources, at the same time as maximizing the Corporation’s catalytic potential. Through the PCG, the multinational lender guarantees a specific sum, in this case US$83 million, for payment of principal and interest on a loan granted to the Republic by international and local commercial banks. The revolving guarantee is automatically renewed after payment of each installment of principal and interest.

The CAF also approved US$200 million for the Multi-Sectoral Public Investment Program 2002 which the government is executing to boost economic growth and expand space for private investment, as well as lower the Unsatisfied Basic Need Indexes (NBIs), generate jobs and improve the living conditions of the population. The finance is for priority projects in transport (60%); potable water and basic sanitation (10%); agricultural development (19%) and health (11%).

Ecuador

Resources for over US$400 million were approved for Ecuador basically to finance infrastructure projects, along with working capital and trade.

One of these operations for US$67 million was to finance the Guayaquil Public Transport Plan, as a contribution to the city government’s efforts to solve the problem of urban transport, which has a negative impact on the quality of life in the city.

With these funds, the CAF is backing the city’s plans to improve the level of service and availability of urban transport in favor of the 85% of its inhabitants who have no access to private vehicles and are permanent users of public transport.

Another operation approved for US$100 million will finance a set of infrastructure projects included in the Public Investment Plan 2002. This loan is intended to guarantee the success of the government’s Minimum Economic Agenda which aims to promote sustainable economic development as the pillar of social progress. The resources will be used for transport, urban development, potable water and sewerage, education, agricultural development and other infrastructure works to be executed by the municipalities.

In addition, US$ 50 million in loans were approved to partially finance the road program of the Quito Metropolitan District, conceived as a planning instrument for the future growth of public transport in the city, with emphasis on protecting public space, environmental protection and disaster prevention.

Another infrastructure operation receiving CAF financing is the Rafael Mendoza Avilés Bridge project on one of the main land communication routes that connects the cities of Guayaquil and Quito with the south and west of the country, for which US$56 million were approved. This project will ease traffic congestion between Guayaquil, La Puntilla and Durán, in the inter-oceanic South E-40 corridor that links Salinas on the Pacific with the ports of Guayaquil, Morona and the free trade zone on the Marañón River in Peru, and ends at the port of Belém do Pará in Brazil, integrating tourist, commercial, agricultural, industrial and mining areas in these three nations.

An infrastructure operation for US$22 million was also approved to finance the Puyo-Macas Highway project which has an integration component since the improved route will integrate the eastern region of Ecuador with the neighboring nations of Colombia to the north and Peru and Brazil to the southeast, forming a branch that will connect the country’s main oil production centers and the main cities of this region of Ecuador.

Finance was also approved for US$25 million to provide the cities of Salinas, La Libertad and Muey in the Santa Elena Peninsula, Guayas province, with a potable water storage system, sanitation services and sewage treatment facilities.

Peru

Operations were approved for a total of US$497 million to attract external resources into the country, and finance working capital and public investment programs.

The operations include US$250 million to finance part of the Public Investment Multi-Sectoral Program 2002, designed to strengthen economic stability and achieve growth with equity with a view to expanding the capacities of the population.

The development bank granted loans for a total of US$750 million for the Multi-Sectoral Programs 2000, 2001 and 2002, benefiting projects in the transport, agriculture, health, education, sanitation and energy sectors, among others. These projects increase production of goods and services, which has an impact on the living conditions of the population in general.

These social and productive projects are to be executed in the transport, health, agriculture and education sectors in an effort to improve the quality of life of low-income sectors.

A Partial Credit Guarantee was also approved for US$110 million to give Peru access to the capital market with the Corporation’s backing, which the country has not yet used.

In other operations, US$137 million was approved to finance trade and working capital operations for several clients.

Venezuela

This country will receive funds totaling US$ 705 million to finance road, energy, water and sanitation projects, among others.

One of the operations approved was for US$200 million to finance the Public Investment Multi-Sectoral Program 2002-2003 which aims to improve the quality of life of Venezuelans and stimulate sustainable human development with the ultimate objective of achieving social equilibrium. The program is based on infrastructure projects in four priority sectors: transport, education, health and environment.

In addition US$175 million was approved to finance the Modernization and Rehabilitation Program of the Potable Water and Sanitation Sector, whose general objective is to support the process of institutional modernization of the sector, as well as rehabilitation of infrastructure.

Another operation for US$31 million was approved for the Yacambú-Quibor Water System Project, to exploit the Yacambú River in order to develop agriculture through irrigation of the Quibor valley, and to supply water to the city of Barquisimeto and nearby localities, benefiting a population of around one million.

The CAF also approved US$20 million to partially finance the Metro de Maracaibo, an infrastructure project that forms part of the urban development plan of this city in the west of Venezuela. The project will provide a safe, efficient and economic public transport system, which is less polluting than traditional surface transport.

Other shareholder countries

Brazil

The CAF approved the first A/B cofinancing operation with this non-Andean partner for US$110 million to attract external funds. The loan provides the Eletrobrás utility with the means to finance investment plans to combat the power crisis that is afflicting the nation.

The operation is structured in the form of a contribution of US$27.5 million from the CAF for Section A, and US$82.5 million from a bank syndicate led by Banco Bilbao Vizcaya Argentaria Securities for Section B.

Uruguay

Uruguay was the beneficiary of an approval of US$25 million for partial financing of the rehabilitation program for the country’s primary road network, known as "Mega-concession of National Routes" which the government is executing at a total cost of US$136 million for the first four years.

In addition to backing the Economic Reactivation Program, this operation follows the mandate of the South American presidents who approved the South American Regional Integration Initiative to provide the region with a sustainable physical infrastructure network.