Diagnosis of five years of activity

CAF President & CEO Enrique García began his second term as head of this financial institution, after completing his first five-year term (December 91 to December 96) and being unanimously reelected by the member countries for another period to end in 2001.

CAF is formed by the five nations of the Andean Community, and by four from the rest of the region (Brazil, Chile, Mexico Trinidad and Tobago), together with 22 private Andean banks.

In a press conference offered today, García – of Bolivian nationality – reported the highlights of 1996, which  were: 25% increase in authorized capital; upgrading of the investment-grade ratings granted by Moody’s, Standard & Poor's and IBCA; and the US$2.22 billion approved during the year in favor of the member countries which, combined with the cofinancing operations carried out by the institution and the contributions of local beneficiaries, resulted in mobilization of  US$4 billion for investments in the region.

During his first administration, García resized the institution operationally, financially and institutionally, with surprising results considering the crises which were affecting many countries of the region during the five-year period, and very encouraging even in normal or boom times.

The institution’s total assets increased almost 200% in the period (December 91-96), total portfolio grew even more (209%), while generation of funds and approval of long-term operations gained over 300%. Total operations approved in this five-year period exceeded US$10.50 billion and the Corporation became the main source of financing for Andean countries, with its contributions representing over 50% of the approvals of all multilateral organizations which operate in these countries.

Technical cooperation operations – granted mainly as non-reimbursable funds – exceeded US$36 million in the period and were mainly granted to support the structural reform processes which the countries are implementing, including environmental and social aspects. The CAF chief also mentioned the creation of the Fund for Human Development (FONDESHU) with funds from CAF income. Its objective is to finance preparation and execution of projects which promote sustainable human development in socioeconomically marginal sectors.

The Corporation is now the largest provider of long-term funds to the private sector, which received 55% of approvals during the period. This figure is based on the final beneficiaries of the funds which are channeled through other financial institutions to the different strata of the business sector, including small business.

With these results – combined with a healthy loan portfolio and satisfactory ratios of liquidity, management efficiency and return on investment –the institution was able to fully assume its mission of promoting sustainable development and regional integration, with an integrated approach to the economic, social and environmental aspects.

García also emphasized the permanent support of the presidents of the Andean Republics and the shareholders – formed by representatives of governments and financial institutions of the public and private sectors of shareholder countries. This backing took the form of an increase in authorized capital from US$2.00 to US$2.50 billion, expansion of the operating base into extraregional countries, and approval of a series of amendments to the Establishing Agreement related to governance and strengthening the financial and operating policies of the institution.

Given its rapid growth in this five-year period, with these agreements CAF can now continue operating on the basis of return on assets and competitiveness, as required by the globalization of economies and the active participation and leading role of private investment in regional development and integration.

Highlights: The financial strategy

Qualitatively, García said CAF had effectively mobilized competitive funds in the five-year period from the industrial countries into Latin America. Various multilateral organizations and international financial institutions granted freely usable loans to the Corporation, along with lines of credit to develop trade, although the most outstanding was generation of funds on international capital markets. CAF’s catalytic role of attracting capital into the region will be strengthened during the coming years.

In 1992, the Corporation began a dynamic financial strategy to diversify and reduce the costs of the funds generated for its operations in the shareholder countries. Today, over 95% originate from extraregional sources and include a wide range of financial instruments, terms, markets and currencies.

Most of these funds come from placements of bonds and other paper issued by CAF on the most world's most demanding financial markets (euro market, Japanese Samurai, Dragon of Southeast Asia and Yankee of the United States). Since April 1993, date of the first public bond issue, the institution has generated funds totaling over US$1.40 billion on the most competitive conditions achieved by a Latin American issuer.

CAF’s privileged position on these markets was facilitated by obtaining investment-grade ratings from the firms Moody's, Standard & Poor's and IBCA, becoming the first issuer in the region to receive the three ratings simultaneously. This year, all the ratings were upgraded, and in 1995 CAF received the Euromoney award for Best Latin American Issuer.

At the level of direct investments, each dollar contributed by the institution in its cofinancing operations attracted more than double the amount from a variety of sources.

Integrationist leadership One of the Corporation’s competitive advantages is that its members are exclusively Latin American and Caribbean countries, which gives it operational autonomy and the possibility of designing its own mechanisms fully in accord with region’s interests, and the use of the funds which the industrial world contributes with absolute independence.

Other highlights in the period were the growth of the CAF shareholder base with the entry of Mexico in 1990, Chile in 1992, Trinidad and Tobago 1994, and Brazil in 1995. The entry of Jamaica is planned for January, and conversations are well advanced with other countries of the region.

The sphere of CAF operations has been expanded with the membership of non-Andean partners, resulting in approval – in September 1996 – of the first long-term loan for a C series shareholder, reserved for extraregional countries (US$86 million from Brazil). Previously operations for these shareholders were limited to promoting trade or financing investment projects indirectly in favor of shareholders. Also this year, these shareholders gained representation on the CAF Board with a principal and alternate director, positions which are currently held by Mexico and Brazil, respectively.

Infrastructure for integration García emphasized the importance during the period of the finance granted for projects and activities aimed at the integration of shareholder countries, especially in the areas of road and transport infrastructure, energy and telecommunications, in which the private sector is taking on increasing responsibilities.

As a result, the present and future trend in CAF is to incorporate innovative financial instruments which facilitate private participation in development of physical infrastructure and increase investments, as is the case of the projects financed under limited recourse lending, in which the Corporation has been participating since 1991.

These facilities covers the BOT and BOO variants including concession contracts, which governments are granting to private companies so they can operate in areas traditionally reserved for the State, such as construction, maintenance, management and exploitation of productive infrastructure.

The first BOT (build, operate and transfer) approved by CAF was a project for construction of the second lane of the Buga/La Paila highway in Valle del Cauca department  in Colombia. The US$20 million loan was approved in 1994 for the private company PISA which will build and operate under the concession system.

At public level, CAF has cooperated with governments in diagnosing the existing situation by publishing three books on the infrastructure projects considered priority in each of these areas.

In general, the Corporation has financed during the period 50 physical infrastructure and border integration projects for US$1.80 billion, of which 15 (US$700 million) relate to the private area.

The largest loan granted by CAF to this sector (US$131 million) went to Ecuador in 1994 for the Integration Road Program, whose objective is to upgrade roads on the main internal systems and in the border regions with Colombia and Peru.

Two projects are of special importance because of their highly integrationist character:  the loan granted to Peru for the Ilo-Desaguadero highway, which will give Bolivia access to the Pacific Ocean through the port of Ilo; and the loan granted to Brazil for the BR-174 Highway, which connects the Brazilian cities of Manaos and Boa Vista with Santa Elena de Uairén in Venezuela, port of entry for the expansion of the Mercosur/Andean Community economic space. In addition, CAF participation in the construction of the Bolivia/Brazil gas pipeline is currently being evaluated.

The Corporation has also offered financial support for projects for generation, capture and distribution of electricity; cargo and passenger road transport; supplementary transport works, including docks; telecommunications; development of cellular telephony; collection, distribution and purification of water, and agricultural livestock services, including irrigation systems.

Another important aspect is CAF participation in the capital of investments funds – approximately US$80 million – to promote development of infrastructure or private productive activities in general. Examples are the Scudder Fund for Private Electricity in Latin America, the Peruvian Privatization Fund, the Business Fund for Latin America, the Profund International Investment Fund, the Infrastructure Fund for Latin America, and the Newbridge Fund for Investments in Private Companies in the Andean Region.

Future activities Apart from the mentioned strategic policies, which the current administration has adopted to strengthen its role in attracting competitive funds and investments into the region, and its leadership in favor of Latin American and Caribbean integration, García said activities to promote social development among the marginal sectors of shareholder countries, especially financial support for microenterprises would be expanded.

The CAF president added that CAF would promote and finance projects for environmental preservation and recovery, especially in relation to industrial eco-efficiency in order to guarantee the sustainability of development.

On technical cooperation operations, with clear qualitative value, he said they would continue being granted for activities related to integration, institutional strengthening of state companies to increase competitiveness, development of national capital markets, support for the structural reforms that governments are implementing, privatization processes and administrative decentralization.