CAF celebrates its 20th anniversary with a new dimension

June 16, 1990

(no date).- CAF celebrates its 20 years of existence with a new dimension in relation to volume of funds managed and the quality of its activity. This is the opinion of CAF President & CEO Galo Montaño given in an interview on the occasion of the Corporation’s XX anniversary.

What importance do you give to CAF as subregional financial institution after 20 years of existence?

First, from the point of view of its overall accomplishments, CAF has demonstrated with concrete actions the viability of the solidarity of the effort of the five Andean countries. The Corporation came into being legally even before the Cartagena Agreement, the basic international treaty of the Andean Pact and began its activities on June 8, 1970 after the signing in May 1969. With a small initial capital, the Corporation succeeded in becoming a solvent and credible institution. It survived unfortunate crises, such as the withdrawal of Chile and the later interruption of the integration process due to the world depression which, in our countries, became dramatically evident with the external debt problem. However, CAF managed to maintain an adequate level of operations and increase its authorized capital in 1986 from US$400 million to US$1 billion. This first stage of formation and consolidation was fundamental and very successful given the external conditions in which it took place.

Since 1987, the Corporation has clearly entered a new dimension. Loan operations for projects, trade finance and special programs have reached very high figures, significantly higher than in previous years. Funding from international banks and the Andean countries themselves also reached very high levels. Authorized capital was increased to US$2.05 billion by mandate of the presidents and a decision which has to be approved by the Shareholders Meeting.

At the same time, in the present stage, the Corporation has begun to initiate activities to broaden its field of action. We are investing non-reimbursable funds to develop and apply the most advanced experiences in biotechnology to the productive process, especially in fisheries, agriculture, agro-industry and health. A program has been started to improve the productivity of existing and future industries. We are promoting the creation of Andean multinational enterprises, and we collaborate with the development and improvement of small and medium-sized enterprises. We are actively promoting Andean exports and external investments in the subregion. In short, we have been making an effort to give CAF a new quantitative and qualitative dimension. In the light of the results obtained, I think we are achieving our aim.

We have created a very positive image in the international financial community which, in some cases, is only prepared to operate in the countries through CAF. As a result, the number of banks which wish to operate through us increases every day. The recent placement of US$15 million in CAF bonds in Japan is the most recent and convincing evidence of our international prestige. For the first time in 20 years of existence, the Corporation has placed bonds on the international market. This opens a high probability of placing bonds and other papers in that market.

According to short- and medium-term projections, our third stage looks set to be very auspicious. Based on an authorized capital of US$2.05 billion, we have prepared studies to plan possible actions over the next ten years. CAF will be able to finance loans for projects, trade finance, pre-investments and seed capital contributions for over US$15 billion. In the next decade financial capacity will be several times greater than the total available to the Corporation in the last 20 years. Funding will also grow to figures which are much greater than in the past. With this financial dimension, CAF will play a more decisive role in the economic development of the five Andean countries.

You have said CAF has overcome the crisis points of the Andean Group. There are sectors of public opinion which openly say that the crisis has not been overcome and the outlook for the subregional integration process is not good. What is your opinion?

According to what you say, there are some who believe that the Andean Group is still in crisis. I disagree absolutely with this thinking based on concrete facts. First, in May 1987 the five countries successfully concluded long negotiations and signed the Quito Protocol. This instrument is concrete proof of the complete effectiveness of the political will of our governments to maintain their integrationist ideals intact. Although the Quito Protocol was a profound revision of the solidarity-based mechanisms, it did not change the fundamental thesis: continue moving forward and deepening the economic, social and political union of the Andean countries. Second, the private sector will now play the role it should have always played: main figure and beneficiary of integration. The participation of this sector is fundamental, so CAF is increasingly aiming its financial actions in that direction. In addition, CAF has also taken the institutional measures needed to allow subregional commercial banks to become shareholders and have a seat on the CAF Board.

The presidents of Bolivia, Colombia, Ecuador, Peru and Venezuela have taken the highest level leadership of the Andean process directly into their hands. They have held three biannual meetings, all of which have led to the adoption of specific measures to speed up and deepen integration.

In the initial scheme of the Andean Group mechanisms were adopted which were very difficult to apply in practice. All this has been corrected. Originally the industrial programming, for example, had necessarily to apply to all five countries; now, after the Quito Protocol, complementation agreements can be between two countries.

The liberalization of intra-subregional trade is taking place by means of rapid elimination of existing barriers. In short, the Andean Group is maintaining its initial spirit but with mechanisms adapted to the new situation.

There are facts, realities, specific actions designed to strengthen and give a new stimulus to the Andean Group. The world today is characterized by the formation of powerful economic blocs. In this situation, the economic, social and political solidarity of Latin America was never more necessary. The Andean Group was conceived and continues to be only one step toward continental union, but a very important step in my opinion.

The combined financial requirements of the Andean countries total billions of dollars, for the present and much more for the future is CAF capable of meeting the need for funds?

"The Corporation’s financial capacity is, without doubt, limited. We do not have all the funds the subregion needs to invest in its development. That limitation, however, does not detract from our actions. On the contrary, it makes them even more important since CAF is a development bank owned by the five countries and, therefore, acts solely and exclusively for their benefit. CAF does not impose conditions different from normal banking conditions for approving its loans. The Corporation pays more attention to operations which benefit partner countries which are experiencing short-term or structural difficulties. Consider, for example, that the two relatively less economically developed countries - Bolivia and Ecuador - subscribe shares for a much lower value than the other three partners. However, they not only receive the same treatment but they are even given preferential treatment as established in the Andean Pact and the CAF Establishing Agreement.

Another qualitative merit of CAF is its opening toward the rest of Latin America. Not long ago, Mexico agreed to acquire series "C" shares. This is the first step for other countries in the region to become shareholders, which will gradually give CAF a regional character. The Corporation also wants to be a bridge between the Andean countries and the major economic blocs which is why we are inviting Japan, the United States, the European Economic Community countries, and Korea etc to subscribe to "C" shares.

The doubling of the capital and the growth of operations gives a new quantitative dimension to CAF. All the other activities, which we have only touched on in this conversation, bring a different quality to the institution. Both quantitative and qualitative advances are giving CAF a new dimension after its first 20 years.

Reviewing these two decades, it is only right to recall and recognize the people who made our institutional existence possible. The presidents of the republics at that time and their representatives in the negotiations which set up the Andean Group and CAF were pioneers who conceived integration as a global phenomenon, going beyond the merely economic. The Andean countries agreed to promote the "harmonious and balanced development" of all partners, meaning that those with the greatest problems would receive greater benefits. CAF was conceived as a multiple bank with a very broad latitude for the use of its financial resources, and an open horizon for promoting and supporting actions which range from the incorporation of scientific and technological advances to the productive base and health, to dissemination of integrationist thinking.

A great work and a great challenge. But we can rely on the decisive support of our governments, the backing of 20 years of efficient work and a good image in the rest of the world. But, most importantly, participation by citizens at all levels in our work is growing, in favor of gains and benefits for business and for workers. For this reason, the Andean Group and CAF were created: “to bring about a persistent improvement in the standard of living of the inhabitants of the subregion."

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