New CAF president & CEO takes office

(Caracas, December 10, 1991).- The 72nd meeting of the Board ended with economist Enrique Garcia taking office as CAF President & CEO. The meeting was held in Caracas on December 9 and 10.

As Bolivian Minister of Planning and Coordination and chief of the economic and social cabinet – together with other important posts he has held in the public and private sector in his country – Enrique García has gained extensive professional experience in the world of international finance, including as treasurer of the Inter-American Development Bank (IBD). He will head CAF for the 1991-1996 five-year period, replacing Ecuadorian Galo Montaño in the post.

Garcia was appointed with the unanimous support of the five countries which form the Andean Group: Bolivia, Colombia, Ecuador, Peru and Venezuela.

Agreements The Board meeting – chaired by Colombian Economic Development Minister Jorge Ospina - approved loans for Ecuador and Peru for almost US$50 million, and the entry of two new financial institutions into CAF share capital: Banco del Austro of Ecuador, and Corporación Financiera del Norte of Colombia.

One of the loans for US$25 million was granted to National Financial Corporation (CFN) of Ecuador for a multisectoral global credit program for a total cost of US$225 million. In addition to CAF, World Bank and IBD will participate in its financing.

CFN will channel these funds to final borrowers through intermediate financial institutions which will use the funds to finance projects in the Ecuadorian private sector. As a result, the program is supporting private sector activities which are compatible with the country’s policy of competitive participation in international markets, and modernization of the Ecuadorian financial system by means of efficient allocation of resources.

The borrower of the second loan approved at the meeting is the Republic of Peru. This loan for US$24,800,000 will be used for the project to develop the Chambira oilfield in the Amazon region.

The executing body is PETROPERU, company responsible for production and storage of hydrocarbons at national level. The loan covers drilling two additional wells in the Chambira field and construction of a pipeline, diesel pipeline and an aqueduct for salt water, which will be used to recover production of at least 6.5 million barrels of oil.

New president takes office In his remarks on taking office, García praised the successful work of his predecessor, Galo Montaño, who "with vision and imagination succeeded in stimulating the growth of CAF at times when the Andean subregion was going through one of its most dramatic crises of the century." He spoke of the "undeniable merit" of having achieved such positive operational, financial and institutional results under such adverse international conditions.

The CAF president then presented the guidelines for the long-term strategy. "CAF has to be capable of permanently adapting and responding to world political and economic trends and the priorities of its member countries."

He said developing countries needed to initiating economic growth which is sustainable over the long term. All countries of the subregion are committed to a process of reducing or eliminating fiscal deficits and the distortions which prevent the efficient operation of markets, removing non-tariff barriers and reducing tariff protection to the minimum. In addition, the role of the State has to be redefined, "which should direct its activity to execution of projects which by their nature are not covered by private initiative," such as basic infrastructure, education and health, environmental conservation and poverty reduction.

García spoke of the need to establish clear ground rules for the private sector, moving toward democratization of capital, strengthening of small business and free movement of capital. To this must be added, the permanent task of attracting foreign investment, developing human resources, working to eliminate poverty and conserving the environment.

In his remarks the CAF chief underscored the new orientation and revitalization of integration processes, especially the Andean Group. "During the recent presidential summit in Cartagena last week, I had the fortune to be present at the historic event of the practical strengthening of the Andean Pact. The Act of Barahona means, in essence, that over 20 years of illusions were transformed at last into concrete acts. The adoption of the free trade area from 1992, formation of a customs union in 1993, the agreement to dismantle lists of exception, subsidies and other distortions, willingness to unify macroeconomic policies in the short term, and the decision to initiate trade negotiations with Chile, Mexico and Mercosur, are real proof that the Andean Pact is the leader in integration. These achievements give hope that substantial progress can be made on Latin American integration in the rest of this century."

Short term Referring to the guidelines which can be implemented in the short term in CAF, García mentioned the role CAF should play in financing investment, perhaps its most important role in the future.

On this aspect, he added that a clear scale of priorities had to be defined with respect to the fields of action that CAF should cover in general and by country, which means integrating the mechanisms of project identification and promotion more completely, along with adequate evaluation and follow-up systems.

“In its function as investment bank – he said – the institution must be capable of acting as leader in international promotion of investment projects and in generating funds on capital markets, both public and private."

Finally, in this respect, he underscored CAF’s collaboration with international financial institutions such as the World Bank, Inter-American Development Bank, and its support for small business, either directly or through financial intermediaries in the subregion.

Funds In relation to funds, the new president said CAF’s own capital base has now reached a significant size.

However, he was in favor of increasing the spectrum of shareholders, especially through subscription to series "C" shares, reserved for extra-subregional countries interested in collaborating with the Andean integration process through investments and joint ventures. Mexico was the first country to enter the CAF share capital and Chile will do so in the near future.

García said he was also in favor of bringing in the industrialized countries which "would facilitate access by CAF to international capital markets and to all the multilateral and bilateral finance organizations." In this respect, the Corporation’s participation in world markets on a permanent and continuous basis was very important.

He also mentioned the need to strengthen the trade finance and working capital functions - which CAF has successfully developed in recent years – which can be an additional factor for catalyzing external funds from private international banks.

Lastly he spoke of the need for CAF to maintain a high degree of professionalism and specialization in order to assist member countries creatively and responsively, and fulfill its important role in the competitive world context.