CAF consolidates its position in Latin America

(Caracas, December 20, 2007).- A year of consolidation of the institution was how Enrique Garcia, president & CEO of the Andean Development Corporation, described 2007 following approval of operations in the 17 shareholder countries for a total of approximately US$6.60 billion, along with the substantial increase in the capital of the Corporation subscribed by Argentina, Brazil, Uruguay and Chile.

On the regional situation, Garcia described the year as excellent for Latin America. "The region will grow at an average 5.6% in 2007, which is the fifth year running of growth, all in conditions of stability and sustainability, after robustly resisting the crisis in the sub-prime mortgage market in the United States. Most Latin American countries now enjoy sound economic fundamentals and improved defense mechanisms for resisting this type of vulnerability."

Despite macroeconomic expansion, the CAF president said, "We cannot lose sight of the presence of structural problems in the microeconomic area which adversely affect competitiveness, the business climate, labor markets and the functioning of institutions." Despite the progress in reducing property, problems of inequality and social exclusion persist and their solution is an urgent challenge.

Record CAF approvals In 2007, the Corporation approved a record figure of some US$6.60 billion, a 20% increase over the previous period. Of this total, US$3.50 billion went to the productive sector with the objective of creating an entrepreneurial base which is capable of accepting the challenges of increased trade integration. These funds are used to finance investment plans, trade, working capital and provide support for the MSME sector.

The Corporation’s decisive role in the regional integration process takes place through active participation in the Andean Community and Mercosur, together with permanent support for initiatives which strengthen physical infrastructure, such as the South American Regional Infrastructure Initiative (IIRSA) and the Puebla-Panama Plan. This area of development received US$1.61 billion during the year. “CAF’s integrationist work is reflected in the operations in this area which are aimed at improving communication, transport and energy systems, favoring integration of territories and developing production and trade, as well as improving access by domestic production to external markets on competitive conditions," the CAF chief said.

The social and environmental development area received US$1.22 billion to improve the quality of life and health conditions of the most disfavored sectors of the population, and strengthen social policies, promoting access by the most vulnerable population to the education and health sectors.

Of the global amount, non-reimbursable funds accounted for approximately US$30 million destined for CAF strategic programs, such as the IIRSA initiative, the Competitiveness Support Program (PAC), the Governance Program, Environment and Social Responsibility, among others. Of this allocation, over 33% went to social development and strengthening the microfinance and SME sector, in the framework of the Human Development Fund (Fondeshu).

Expanding our frontiers "The year witnessed a deepening of the institution’s Latin American character and expansion of our frontiers to Europe and Asia," García said. During this period, the paid-in capital of the Corporation was increased by subscriptions totaling over US$1.10 billion from Argentina, Brazil and Uruguay, which opens the way for these countries to become full CAF members on conditions similar to Bolivia, Colombia, Ecuador, Peru and Venezuela. Chile also increased its capital by US$50 million and progress was made toward the early entry of Guatemala and Italy as shareholders.

"These subscriptions strengthen CAF as a Latin American institution par excellence, which in the last decade has become an important multilateral source of funds for the countries of the region, in favor of sustainable development and regional integration, and - above all – achieving the highest level of welfare for Latin Americans," García explained.

With the objective of forging closer relations between Europe and the Corporation’s 17 shareholders, a new office was opened in Madrid as a platform for strengthening relations between the two continents. CAF also plans to open offices in Argentina and Uruguay in the near future.

Agreements were signed with China and India, which reflect the Corporation's interest in forming strategic alliances to strengthen capacities and opportunities in favor of member countries. Closer relations with these countries will enable CAF to play an important catalytic role by bringing funds, products and experience from other regions of the world into Latin America.

Active participation in financial markets García said that the Corporation had intensified its presence on international markets. Between 1993 and 2007, a total of US$8.60 billion was placed in CAF paper. In 2007 this increased presence was not only in traditional markets but also in local markets in Mexico and Venezuela. "These bond issues are part of the Corporation’s activities to raise funds which are then used to concentrate its strategy of action on the socioeconomic development of its shareholder countries."

"Without its high credit ratings - García explained - CAF’s successful presence on international capital markets would not be possible." In 2007 Standard & Poor's upgraded CAF long-term debt from A to A+, Japan Credit Rating (JCR) raised its rating from stable to positive, while Fitch moved the long-term rating up from A to A+. These high ratings are based on excellent financial indicators, a solid legal structure, and the permanent commitment of the 17 shareholder countries of the Andean Development Corporation.