Loans for US$477 million approved for Andean countries

Seven credit operations in favor of member countries for US$477 million were approved at the sixth meeting of the CAF Board held today in Caracas.

CAF - international financial institution whose purpose is to support regional integration and the sustainable development of its five member countries - is formed by Bolivia, Colombia, Ecuador, Peru and Venezuela, along with Mexico, Chile, Trinidad and Tobago and 22 private banks of the Andean region as shareholders. These will soon be joined by Brazil, according to an official announcement made last July.

The meeting was attended by representatives of CAF series A and B shares, including ministers of Industry, Commerce and Economic Development of the five member countries, together with high-level authorities from public and private financial and development institutions.

CAF President & CEO Enrique García said the highlights of the agenda approved by the Board included the large amount of the loans and the quality of operations. These include lines of credit to facilitate trade and develop small- and medium-sized enterprises in the private sector; long-term loans for important economic sectors, such as physical infrastructure, transport and energy; and a major project whose objective is to develop and expand the Bolivian financial system, first step to integrating the Andean capital markets.

Another operation is a credit to promote business eco-efficiency in Colombia by productive reconversion of industrial capacity, which is one of CAF’s priority policies, along with integration of the environmental component in all industry and infrastructure projects which are being financially supported. "The idea is that the countries clearly understand the concept of environmental sustainability and the need to preserve the region’s natural resources. With this type of program, we are reinforcing the institutional and technical capacity of governments and private enterprise, to make them better equipped to deal with this challenge," García said.

Lastly, he emphasized the importance of a loan granted to Peru to upgrade the Ilo-Desaguadero highway. Execution of this project will facilitate Bolivian access to the Pacific Ocean, and increase the competitiveness of Peru’s tourism and foreign trade sectors. In this respect, CAF is implementing a complete plan to modernize the physical infrastructure and border integration of its member countries, especially roads, energy and telecommunications.

Details of the operations approved are given below by country.

BOLIVIA: US$10 million to strengthen financial sector

Global Credit for Republic of Bolivia: With the objective of stimulating the strengthening, competitiveness and expansion of the financial system, the CAF Board approved a US$100 million loan for the Republic of Bolivia. The funds will be managed by the Fund for Development of the Financial System and Support for the Productive Sector.

The Program is part of a series of structural reforms set in motion by the Bolivian authorities and includes financing for qualified banking and financial institutions, which are willing to meet specific goals of administrative strengthening, capitalization, portfolio quality, liquidity and solvency, in response to an agreement between the financial intermediaries and the executing body.

The Bolivian Superintendency of Banks and Financial Entities (SBEF) will play a leading role in executing the program through its participation in the Superior Council of the Fund, the eligibility of the financial institutions and supervision of compliance with the agreed goals.

The Program is financed by the Inter-American Development Bank (IDB), the World Bank, the Republic of Bolivia, and CAF, the latter providing the highest percentage. As of July 1995, 22% of total funds generated by the Bolivian financial system on external markets came from CAF.

COLOMBIA: US$130 million for environmental reconversion and financing of private activity

Global Credit for the Environmental Reconversion Program: To promote sustainable development and business eco-efficiency in Colombia, a US$100 million global credit was approved for the Industrial Development Institute (IFI) to implement the industrial reconversion program.

By means of long-term financing, the Program supports the technological reconversion of the private sector with the aim of improving its efficiency and safety; stimulating the competitive positioning of the business sector in the framework of an economic opening process which integrates environmental variables; and overseeing compliance with the country’s environmental laws.

The CAF funds will be used to acquire fixed assets, domestic sale of capital goods, contracting of services and provision of working capital, as well as purchasing securities linked to the transfer of economic activities from the state to the private sector. The finance granted will also cover execution of local works, freight, insurance and other similar expenses which facilitate the objectives.

Line of credit for the private productive sector: The Board approved a US$13 million rotating line of credit in favor of the Industrial Development Institute (IFI), financial institution which will use the loan for processes of industrial restructuring, business development and improvement of the export capacity of Colombian industry.

By means of short-, medium- and long-term financing of private companies and projects to stimulate development of the sector, the CAF funds will be used to provide permanent or temporary working capital; purchase equipment, machinery and spare parts, and the domestic sale of capital goods, among other operations.

CAF loans granted to IFI make a decisive contribution to the structural change of the Colombian productive base and bring great benefit to the economy in general. To date, the Corporation has destined over US$120 million in lines of credit and global multi-sector credits to the private Colombian private business sector through IFI.

PERU: US$80 million for physical and integration infrastructure Integration loan: As part of the CAF policy of contributing to the regional integration process and to development of an adequate physical infrastructure for increasing the level of competitiveness of economies, a US$80 million loan was approved for the Republic of Peru for the rehabilitation and upgrading of the Ilo-Desaguadero highway, through the Ministry of Transport, Communications, Housing and Construction (MTCC).

The project will provide Bolivia with easy access to the Pacific Ocean through the Peruvian port of Ilo, opening possibilities of trade and closer relations among CAF member countries through physical integration. It will also increase traffic on the route, lower freight and travel costs, by connecting major areas of the Peruvian-Bolivian sierra and the Peruvian coast.

Other benefits include the facility granted for national and international tourism movements, which will stimulate medium- and long-distance traffic, and intra-regional trade and trade between the countries of the Andean area and Mercosur.

The 406 km highway connects the port of Ilo and the Desaguadero International Bridge. The rehabilitation works will be awarded through an international bidding process. Final designs and supervision of construction will be executed by consulting firms, taking environmental management into consideration, which is a CAF priority.

VENEZUELA: US$184 million for physical infrastructure and export finance

Loan for Electrificación del Caroní (EDELCA): To contribute to the final stage of construction of the Macagua II Hydroelectric Plant, the CAF Board approved a US$76 million loan for the utility Electrificación del Caroní (EDELCA), part of Corporación Venezolana de Guayana (CVG) which is Venezuelan state holding company.

The loan, with ten year term and two years of grace, will facilitate start up of the project, which will meet the increase in national electricity demand. Macagua II with 2,540 MW nominal power is a continuation of the Macagua I Plant and, due to the existence of a road and urban structure, becomes the first of the works executed in an ambitious development program: the Lower Caroní Hydroelectric Complex, formed also by the Caruachi and Tocoma energy projects.

In recent years, CAF has provided significant support for the Venezuelan electricity subsector. To date, the Corporation has financed the Macagua II and Caruachi hydroelectric projects, as well as the Yaracuy–Cuatricentenario transmission line, which -- including this operation -- total US$236 million in approvals.

Loan to CA Metro de Caracas: To finance the civil works and supply of equipment for the stations of the Plaza Venezuela-El Valle section of Line 3, a US$38 million loan was approved for CA Metro de Caracas, attached to the Ministry of Transport and Communications.

The line was opened in December 1994 according to plan. During the first half of this year, approximately 12,000,000 trips were made in that section of underground transport, figure which is expected to increase in the coming months.

In the next two years Line 3 will be operating with five-wagon trains -- unlike the four-wagon trains used at present -- as the 28 additional wagons, which are being financed by the US$59 million loan granted previously by CAF, come into service.

Line of credit for Central Bank of Venezuela: To support the important activity of Finexpo in providing export credit for Venezuelan goods and services, CAF approved a US$70 million revolving line of credit for the Central Bank of Venezuela (BCV).

Finexpo is an export finance organization managed by the Central Bank, which grants short-, medium- and long-term credits, through pre- and post-shipment facilities, among others. In recent years it has been operating as a wholesale bank. The CAF funds will be used to finance export of nontraditional goods and services, especially within the Andean region, and to meet the demand for export credit which has increased significantly in recent months.

SUMMARY OF OPERATIONS APPROVED 86TH CAF BOARD MEETING