Growth and strengthening characterize performance during the year

(Caracas, December 16, 1998).– CAF ended 1998 with a total of US$2.728 billion in operations approved in favor of the public and private sectors of its shareholder countries. This figure doubles after including cofinancing by the institution and contributions from the beneficiaries themselves. Sixty percent of these funds went to finance long-term investment projects, mainly in the sectors of physical infrastructure and integration, with a sustainable development approach which took social and environmental aspects into consideration at all times.

This activity was accompanied by the shareholder countries’ decision to increase CAF share capital and the strengthening of the institution’s regional leadership with respect to the effective generation of funds from the industrialized countries into Latin America, which are examples of shareholder and investor backing for the operational-financial performance of the institution.

In a year considered very difficult at world level, the Corporation’s permanent presence in its shareholder countries, the backing provided for their financial systems, the funds successfully generated on international capital markets and from cofinancing operations, and its activities in support of the integration process, all position CAF as the main source of multilateral financing for the Andean countries, and as one of the institutions which contributed most to restoring investor confidence at a critical time for the region.

Capital increase CAF President & CEO Enrique García – of Bolivian nationality – said today – in a press conference in Caracas – that the shareholders had decided this year to subscribe to additional shares for a total of US$600 million, in line with the institution’s current financial strategies stemming from its rapid growth in recent years at operating-financial level and expansion of the shareholder base.

The significant expansion of the CAF operating base into its non-Andean partners resulted in one member – Brazil – doubling its equity contribution in the capital of the institution (from US$25 to US$50 million), he added.

Generation of funds García said that in 1998 – despite the difficult situation facing emerging issuers due to the international financial crisis – CAF succeeded in maintaining a permanent presence on international capital markets, and was even the first regional issuer to access these markets after the Asia/Russian crises.

The Corporation placed issues on six occasions during the year, generating a total of US$810 million, which raised the cumulative amount for the last five years to US$2.471 billion. On the euromarket, the Corporation participated four times – twice in local currencies (German marks and Italian lira), which shows the institution’s versatility in issuing bonds in any currency. In the United States, an issue was placed on the Yankee market and another on the commercial paper market.

The strategy of generating more competitive funds and channeling them into the region on better conditions with respect to rates and terms was facilitated by the fact that CAF continues to be the Latin American institution with the best risk ratings.

As a way of diversifying its sources of funds – the Corporation also obtained financing from loans and lines of credit from international and development banks, notably long-term lines contracted with the Canadian Export Development Bank (EFC), the Spanish Official Credit Institute (ICO), and the European Investment Bank (EIB) based in Luxembourg, for over US$180 million.

Regional integration In the area of regional integration, García said CAF was pleased with the signing – last October – of the Act of Brasilia which sealed the final peace agreement between two of its member countries: Peru and Ecuador. He confirmed that CAF would contribute US$500 million to finance binational projects.

The CAF chief also announced an important contribution by CAF to promote South American river interconnections with publication of the book "The rivers that unite us," a useful support tool for governments in the execution of specific actions, including design of multimodal corridors, based on an integrated approach. This publication joins three others on roads, energy and telecommunications, published in previous years.

He added that during the year CAF continued expanding its operating base to all Latin America with long-term loans for two non-Andean shareholder countries: Panama and Paraguay (US$60 million each), especially the loan granted to the latter country because of its high integration content: the Trans-Chaco Highway Integration Corridor, which will facilitate connection of the Atlantic and Pacific oceans.

This activity was accompanied in 1998 by the opening of the BR-174 highway on the Brazilian-Venezuelan border, with CAF financing of US$86 million, in addition to signing three loan agreements with Brazil: two for construction of the Bolivia/Brazil gas pipeline (for US$165 million), which is a strategic project for continental energy integration now nearing completion; and another for the Venezuela/Brazil electricity interconnection (US$55 million).

Private sector García said CAF was continuing to successfully apply cofinancing programs to attract external funds into its shareholder countries, especially for financing private investment.

The A/B loans are a case in point; the Corporation used this instrument to mobilize funds from prestigious financial institutions in Germany, United States, Spain and Holland for projects which it financed for an amount three times more than its own contributions. Of the total transactions under this facility (US$499.2 million), CAF contributed US$106 million, while foreign banks participated with US$393.2 million.

To support the new focus on private investment, CAF financed projects in which the business sector obtained concessions from the State to develop and manage infrastructure works; notably the loans granted to Concesionaria DHM, a Spanish-Ecuadorian consortium, which will execute various road infrastructure works in Ecuador ; and to the Bolivian company Aguas del Illimani to finance a concession project for drinking water and sanitation service in the cities of La Paz and El Alto.

Sustainable development In the social area, García said the Corporation would continue to channel funds to back the capital and institutional strengthening of the financial system which serves microenterprise, through a range of facilities including credits, equity participation and technical cooperation. He added that CAF was currently backing 18 specialized institutions, with a combined portfolio of US$568 million and 328,000 active customers.

CAF also destined funds to innovative and productive projects targeted at low-income communities, including fund management and grants for projects which favor the rural poor and indigenous communities.

In the area of technical cooperation, during the year funds were granted – mainly non-reimbursable – for over US$9 million, of which 53% went to finance projects and programs which promote integration, develop capital markets and financial systems, and back the reform processes of the State in line with the principles of sustainability. The rest went to activities related to trade, disaster prevention and mitigation, environment and culture.

Financial systems The CAF president mentioned the contributions to strengthen the financial systems of the region, as is the case of the loan to the Colombian Financial Institutions Guarantee Fund (FOGAFIN) for US$100 million.

In addition, to back the strengthening of the region’s financial regulation and supervision systems, the Kemmerer Inter-Institutional Technical Cooperation Program was launched this year. This program carried out important activities, including the first meeting of Andean Community Stock Market Regulatory Authorities whose objective was to harmonize criteria, standards and procedures among the various regulatory bodies.

El Niño: support and prevention In 1998, the Corporation began the second phase of its regional program to evaluate the impact of the El Niño meteorological phenomena on the infrastructure of the Andean countries, cooperate with the financial effort of reconstruction, and create cooperation and information mechanisms to manage this type of catastrophe.

Operations by country: Bolivia In 1998 operations funds for US$261 million were approved in favor of Bolivia, while disbursements totaled approximately US$204 million.

The public sector benefited from major operations, including a loan with high integrationist content: rehabilitation of the Oruro-Toledo highway, an important transport corridor because of its impact on Bolivia international trade.

The funds approved for US$12 million will finance paving of a section of this road artery in western Bolivia, which connects with the Oruro-Pisiga highway on the border with Chile, which then continues to the Pacific port of Iquique, forming a new integration link between the two countries.

This project has been declared high priority by the Bolivian government because, apart from its impact on integration, it is important for the regional development of western Bolivia. The road will improve travel conditions with the rest of the country and between Oruro and Toledo, at the same as raising the quality of the service and cutting the cost of passenger transport along the Bolivia-Chile-Pacific Ocean integration corridor to the Iquique free zone.

Other major integrationist operations relate to construction of the main line of the Bolivia-Brazil gas pipeline, in which CAF participated with two loans granted this year to Brazil for a total of US$165 million for the sections on Brazilian and Bolivian territory. Completion of the gas pipeline, planned for early next year, will have an enormous positive impact on Bolivian economic activity and trade balance, as well as on continental energy integration.

An integration loan was approved for US$5.5 million to upgrade the Campanario-La Mamora road, part of the Tarija-Bermejo highway, linked to the export corridor which connects Bolivia with Argentina.

As part of the process of backing modernization of the state, CAF cooperated with preparation of the new Concessions Law and Regulations to attract more private investment into construction and maintenance of the country’s road infrastructure.

During the year, an agreement was signed with the Bolivian Finance Ministry to reduce the balance of the country’s public external debt with the Corporation by US$39.1 million.

This operation was part of the Heavily Indebted Poor Countries Debt Reduction Initiative (HIPC) led by the World Bank and the International Monetary Fund to reduce the net present value of sovereign debts with bilateral and multilateral organizations.

CAF also approved a long-term A/B loan for Empresa Eléctrica Guaracachi SA (EGSA) to finance the company’s expansion project which involves assembly and start up of two natural gas turbines to generate electricity in the Santa Cruz de la Sierra plant to meet the city’s electricity needs.

The US$25 million loan is divided into two tranches of US$12.5 million each, financed by CAF and Citicorp NY.

Operations approved for the private sector include a US$10 million loan for Aguas del Illimani, SA, to finance the expansion plan for the company’s first five years which includes providing drinking water and drainage services in the cities of La Paz and El Alto and surrounding areas. The company is formed by the French group Suez-Lyonnaise des Eaux; Bolivian Investment Corporation; Sociedad Comercial del Plata, of Argentina; and the Bolivian companies Meller, Arousa and Connal. Other participants in the financing of this project are the Inter-American Development Bank and International Financial Corporation.

A US$4 million long-term loan benefitted Illimani de Comunicaciones SA (ICSA) for an investment plan which includes equipment replacement and building of a new head office.

To back the expansion and diversification of trade, CAF approved several lines of credit in 1998. Compañía Minera del Sur (COMSUR) obtained US$8 million to finance mineral exports and acquisition of inputs and equipment.

In the agricultural area, Tahuamanu SRL, a company dedicated to export of chestnuts, received a US$3.2 million loan for collection of this fruit which is in heavy demand on European and US markets. Also a US$6 million loan was granted to Gravetal Bolivia, agroindustrial company owned by the Colombian Osorno group, to finance collection of soy grains of Bolivian or Brazilian origin.

A US$2 million line of credit was approved In favor of Bisa Leasing for acquisition goods for use in finance leasing.

In line with its support for projects which favor sustainable human development and strengthening the microenterprise sector, CAF executed three equity participation operations in Los Andes Savings and Loan (US$500,000); FIE SA (US$350,000), and Ecofuture (US$500,000).

The Corporation contributed US$650,000 to the NGO Association for Cultural and Social Promotion (APROCS) for irrigation and trout cultivation as a contribution to the socioeconomic development of the population located around Lake Titicaca.

Technical cooperation operations, which totaled US$1.7 million, backed, among other activities, sovereign risk rating by Standard & Poor's agency, cultural projects, humanitarian assistance and disaster management, along with trade and development activities.

Operations by country: Colombia

In 1998 operations were approved in favor of Colombia for a total of US$332 million, while disbursements were approximately US$314 million.

Based on the special importance of the country’s economic and social development plans, a US$200 million loan was approved for partial financing of the Public Investment Multi-Sector Program, which covers execution of infrastructure projects in the areas of transport, agriculture, social and environment. The executing agency is the Ministry of Finance and Public Credit.

This loan is part of a national plan developed by the Colombian government to boost economic growth in an effort to meet the demands of international markets.

The operation is part of CAF policies to back the sustainable development of its shareholder countries by financing physical infrastructure works which facilitate access to production and marketing activities and stimulate competitiveness.

Always in line the CAF priority fields of action, a US$100 million loan was approved to strengthen the country’s financial system. The beneficiary is the Financial Institutions Guarantee Fund (FOGAFIN). The objective of the operation is to strengthen the financial capacity of this institution so that it can effectively perform its function of supporting institutions in need.

To reinforce the financial regulation and supervision systems, in the framework of the Kemmerrer Program, CAF sponsored a seminar on market risks jointly with the Banking Superintendency, the Basle Committee, and the US Federal Reserve.

A US$3.4 million loan was approved for the Carvajal Group company, TECAR SA, to finance expansion of the production capacity of its printing and plastic packaging plant.

To support expansion and diversification of commercial activities, CAF approved extensions for lines of credit granted to the companies Plegacol and Comolsa.

A US$2 million equity participation was approved for the infrastructure leasing company Suinternational, which is part of the Corfinsura group and whose other shareholders are IFC and Mitsubishi company.

The company will offer finance leasing of capital goods to companies which execute infrastructure projects, especially in the energy, communications, transport and basic sanitation areas.

As backing for the microenterprise sector, CAF participated in the formation of the share capital of two institutions – Emprendamos and Emprender – which will channel funds into projects to strengthen microenterprise sector in the country’s productive process.

In relation to technical cooperation operations, non-reimbursable funds were approved for US$814,000 to back programs related to drinking water supply and environmental health, sectoral agreements on competitiveness, land reorganization projects, financial diagnoses, and events related to the financial system in Latin America under the Kemmerer Program, as well as forums on Colombia's role in the regional integration process.

Operations by country: Ecuador In 1998 operations were approved in favor of Ecuador for approximately US$382 million, while total disbursements were approximately US$357 million.

A large percentage of the funds approved went to road infrastructure projects, notably two loans, at ten years, for a total of US$156 million.

One of the loans – for US$100 million – was for the Global Program for Rehabilitation and Maintenance of the National Road Network, executed by the Ministry of Transport and Public Works, which will partially finance repairs to critical sections of roads and bridges, and regular maintenance to extend their useful life.

The loan will help raise the quality of the transport service and improve management of the national road network which will reduce the costs of production and marketing and in the end prices of merchandise.

The other loan – for US$56 million – will be used to develop the Guayaquil Road Program with execution by the city government. The project involves construction of two strategic infrastructure works on the trunk network, which will connect the historical-commercial center with the northern area of the city. These works will have a positive impact on traffic congestion between the two areas.

In the same context of backing for physical infrastructure programs, a US$12 million loan was approved to finance works for the project for Flood Control and Drainage Improvements in the Lower Guayas Basin, whose executing agency is the River Guayas Development Studies Commission (CEDEGE).

A US$30 million loan was approved to finance supplementary works for the Daule River-Santa Elena Water Transfer project, which includes components for the institutional strengthening of CEDEGE and environmental programs.

To assist the transfer of productive activity from the public to the private sector, CAF approved a US$12.6 million loan for a project structured as a concession for the Spanish-Ecuadorian consortium Concesionaria DHM. The funds will be used to rehabilitate and manage a group of highways on the Ecuadorian coast.

Concesionaria DHM is formed by the Spanish company Dragados y Construcciones and the Ecuadorian Herán de Construcciones. The rehabilitation works will be executed in the Santo Domingo/ Quevedo/ Babahoyo/ Juján corridor in Pichincha and Los Rios provinces; and the Naranjal/ Peaje de El Guabo corridor in Guayas and El Oro provinces.

The total cost of the project is US$53 million; in addition to CAF, the International Financial Corporation (IFC) and the Spanish Official Credit Institute (ICO) are also participating.

To promote tourism, CAF approved this year a second loan, for US$2 million, for the company AmazonasHot for activities supplementary to construction and equipping of Hotel Marriott in Quito, a five-star hotel whose opening is planned for 1999. Previously, US$14.2 million was granted for this project.

The Corporation also approved several lines of credit for a total of US$40 million to finance working capital and promote trade.

With respect to technical cooperation operations, non-reimbursable funds granted in the year totaled US$1 million. The funds were used for activities to promote integration between the Andean Community and Mercosur, education programs, sponsorship of business events and cultural development.

Operations by country: Peru In 1998 operations were approved in favor of Peru for US$968 million, while disbursements totaled approximately US$874 million.

One of the facilities which CAF developed with most success this year was the A/B loans which are designed to attract external funds in the shareholder countries mostly to finance private-sector projects.

Telefónica del Peru accessed this cofinancing mechanism with a US$250 million loan to partially finance the company's investment program. CAF contributed US$25 million while the remaining US$225 million will be financed by a group of banks formed by ABN AMRO Bank, Argentaria, Banco Central Hispano, Bank of Boston, Citicorp and Banco Santander.

For the financial sector, CAF approved two medium-term operations for Wiese Leasing (US$10 million), and Lima Leasing (US$5 million) for acquisition of assets for leasing.

An operation was approved to increase to US$100 million the revolving line of credit for Corporación Financiera de Desarrollo del Peru (COFIDE). This credit facility establishes a risk quota for COFIDE which will be used for various activities of this institution, especially finance for trade and working capital operations at short-, medium- and long-term making use of more competitive funds.

In response to the damage caused by the El Niño phenomenon, CAF approved a US$70 million loan for the Republic of Peru with the specific objective of rehabilitating the damage caused to the infrastructure of the Chavimochic hydroelectric dam project.

The strong impact of El Niño has jeopardized agricultural production on improved land and land incorporated in recent years, as well as drinking water supplies for the city of Trujillo and generation of electric power.

CAF also backed the Transport Sector Pre-Investment Program in the north and center of the country, through an approval for US$5.2 million. The executing agency is the Ministry of Transport, Communications, Housing and Construction (MTCC).

Additionally, during the year the Corporation executed operations to back trade expansion and diversification, in favor of companies such as Cemento Andino, Grupo Gloria, Alicorp, Pesquera Austral and SIDERPERU.

Through the Fund for Human Development (Fondeshu), CAF channeled US$517,000 for the NGO Ecological Service (SER-ECO) which is implementing a project for a system of agricultural production in basic greenhouses with the aim of counteracting adverse weather phenomena which damage family production.

Non-reimbursable funds were channeled through technical cooperation operations for a total of US$1.7 million to finance programs related to institutional training, rating of sovereign risk, promotion of scientific-cultural research projects, modernization of tourism industry statistics, and trade and development matters in general.

Operations by country: Venezuela In 1989 operations were approved in favor of Venezuela for US$579 million, while disbursements totaled approximately US$479 million.

Of this set of operations, two loans were approved under the A/B facility: one for the company Redes de Información CA (INFONET) which received a US$34 million loan, in which CAF participated with US$13 million and KFW of Germany with US$21 million. The loan finances a rural fixed and mobile telephone project with wireless technology in Zulia state and surrounding areas.

Banco Mercantil benefited with another A/B loan for US$20 million to finance the bank’s foreign trade and working capital operations, to which CAF contributed US$5 million and Dresdner Bank jointly with Banco Central Hispano US$15 million.

The National Telecommunications Commission (CONATEL) received US$21 million for acquisition and installation of broad scope equipment to extend the operating capacity of this public sector company.

For Hidrocapital, executing agency of the Caracas Metropolitan Water Works Rehabilitation Program, a US$50 million credit was approved to partially finance works to supply the city with a quality, continuous and self-financing water service, with private sector participation.

A second loan was approved for the Yacambú -Quíbor Water System Project (US$20 million), whose objective is to exploit the waters of the Yacambú River for the agricultural development of the Valley of Quíbor and supply water to the city of Barquisimeto and other nearby population centers.

Another infrastructure project which received a loan was the Los Andes Water Works Rehabilitation (US$25 million), whose executing agency is the Ministry of Environment and Renewable Natural Resources (MARNR), through the companies Hidroven and HidroAndes. The objective of the project is to recondition the capture, water potabilization, distribution and measurement systems of the waterworks, which transports water to the cities of Mérida, Barinas, Barinitas and El Vigia in the Venezuelan Andes.

Based on its social content and backing for the decentralization process, US$60 million was approved for the Social Investment and Development Program (Proindes), executed by the Venezuelan Social Investment Fund (Fonvis). Proindes will transfer funds to projects executed by state and municipal governments and civil society organizations, which address the needs of neglected localities in the areas of education, health, drinking water, sewage systems, rain and river drainage, urban roads systems, electricity and community centers.

In the area of disaster and catastrophe prevention, US$55 million was granted to the project for modernization of the Venezuelan Metrological Measurement In Forecasting System (VENEHMET). The objective is to provide the country with a system capable of supplying reliable information to warn of possible natural disasters, facilitate planning of productive activities, and contribute to environmental preservation and the rational use of renewable natural resources.

During the year, CAF granted lines of credit to various local companies, including Electricidad de Caracas, Siderúrgica Venezolana (Sivensa), and Telcel Celular CA.

The Corporation also contributed to the creation of the first Venezuelan bank to serve exclusively the financial requirements of micro-entrepreneurs: Banco de la Gente Emprendedora, CA (BANGENTE). The other participants in the share capital were the Inter-American Development Bank (IDB), Action International Gateway Investment Fund; Profund International; Banco del Caribe; Eugenio Mendoza Foundation; CESAP Social Group, and the Popular Housing Foundation.

Technical cooperation operations received US$842,000 in non-reimbursable funds for activities involving engineering, popular participation, institutional strengthening, educational programs, the election process of December 1988, and studies on integration project.

Other shareholder countries and multinational operations In 1998 various operations were approved for approximately US$206 million for CAF shareholder non-member countries of the Andean Community of Nations (CAN), which were mainly for road infrastructure projects with a high integrationist content. Disbursements totaled US$208 million.

Panama – country which entered the Corporation’s share capital in December 1997 – obtained its first long-term loan for US$60 million to finance the Road Infrastructure Program in the Inter-Oceanic Corridor.

The objective of the program is to create and upgrade existing infrastructure in order to connect the corridor with ports and airports on the coasts of Panama, centers of port services and ship maintenance, as well as with industrial assembly zones, urban service centers and Panama City.

The Republic of Paraguay received its first loan, for US$60 million, for a project with high integrationist content: the Paraguay-Bolivia Integration Corridor, Trans-Chaco Highway, which will link the economic spaces of CAN with Mercosur, and facilitate connection of the Atlantic and Pacific oceans.

In Paraguay, CAF also executed an activity to strengthen the systems of financial regulation and supervision using the Kemmerer methodology, which consists of providing advice on design of the organizational structure of the Banking Superintendency.

In Brazil, the BR-174 highway was opened during the year to connect the Brazilian-Venezuelan border. The road project was partially financed by a CAF loan for US$86 million. Three other loans were signed with this country: two for construction of the Brazilian and Bolivian sections of the Bolivia-Brazil gas pipeline (US$80 and US$85 million, respectively), which will transport gas from Santa Cruz to Porto Alegre, and a third for the Brazil-Venezuela electricity interconnection project, which will supply power to the localities between Santa Elena de Uairén and Boa Vista.

Mexico was beneficiary of a US$10 million loan to finance construction, equipping and launch of an international exhibition center in Mexico City.

With respect to Chile, CAF approved a US$3 million equity participation in the Technology and Risk Capital Fund (FONDO CHILE TECH), which will make risk capital investments in the acquisition of small private companies in the Chilean IT sector.

The Corporation also approved extension of a line of credit for the company Altos Hornos de Mexico (AHMSA) to US$5 million for foreign trade.

Lastly, in relation to multinational organizations, in 1998 technical cooperation operations were approved for US$2.7 million; notably support for the X Andean Presidential Council; dissemination of the Kemmerer Program of Inter-Institutional Technical Cooperation for Financial Regulatory and Supervisory Bodies; promotion of border integration of the ALADI countries; backing for integrationist initiatives between CAN countries, and between them and Mercosur; along with sponsorship of business, cultural and environmental events.