Operations for US$358 million approved by CAF Board

(March 14, 1994).-- Nine credit and investment operations, totaling US$358 million, were approved by the 81st meeting of the CAF Board held in Caracas on March 14 and 15.

The Board also agreed to admit Trinidad and Tobago as a series "C" shareholder. The Caribbean nation joins Mexico and Chile as subscribers to this type of share which is reserved for extra-regional countries.

As one of its objectives CAF supports the sustainable growth and regional integration efforts of its members.

in this respect, CAF President & CEO Enrique García said the entry of Trinidad and Tobago was important for the region. "It is a step forward in the current process of continental integration, with which the Corporation is pragmatically cooperating by acting as a bridge between the various integration schemes, promoting trade and closer business ties between the Andean Group and the rest of Latin America and the Caribbean, especially with regard to its firm commitment to the private sector."

On the operations approved, the CAF chief said these included the first environmental improvement project to be financed by CAF (Lake Maracaibo, Venezuela); long-term loans for sectors in Peru, Bolivia and Ecuador; support programs for the structural reforms which member countries are implementing; two equity participation operations for a private pension fund in Peru, and development of the capital markets in Venezuela.

One of the credits - for US$131 million granted to Ecuador – was the highest CAF has granted in all its institutional history. This loan - he added - was very important because it was not only to optimize the operation of the national road network, but also made an effective contribution to transport, trade and integration.

He added that in this respect, the "Action plan for CAF participation in cross-border physical integration and infrastructure projects” was now being implemented, which is facilitating expansion of economic spaces, commercial flows and tourism, with emphasis on environmental preservation.

In line with this policy, over 60% of the total amount approved by the Board will go to the road sector.

The CAF Board meeting was attended by the directors of the "A" and "B" series shares, who appointed as chairman of the Board and Shareholders meetings for a one-year period, Alberto Poletto, Minister/President of the Venezuelan Foreign Trade Institute, which holds the "A" series shares of his country. The selection rotates in alphabetical order through the Andean countries.

Details of the operations approved by country are given below:

BOLIVIA Transport improvements A US$30 million long-term loan was approved for Bolivia to partially finance three road projects with high integrationist content and of great importance for increasing the country’s comparative advantages by reducing transport costs, improving access to markets and increasing trade.

These projects, co-financed by CAF and other multilateral organizations (World Bank, IDB and KFW), are the Second National Maintenance Program, the Beni/La Paz/ Peruvian Border Integration Corridor, and the Widening of the Cochabamba/ Quillacollo Highway. Some are already under execution and others in bidding processes.

The objective is to improve the condition of the roads and bridges on various routes in the country; complete the Bolivian section of the Pacific Corridor: Beni/La Paz/ Desaguadero/Puerto de Ilo, which will greatly benefit cross-border integration between Bolivia and Peru; and widen the 14 km cochabama/Quillacollo highway from 2 to 3 lanes in each direction.

The executing agency is the National Road Service, a decentralized body of the National Secretariat of Transport, Communications and Civil Aeronautics.

Signing of agreement with Central Bank During the Board meeting, a loan agreement for US$60 million granted to Bolivia in July last year was signed.

The funds from this loan go to a multi-sector credit program whose executing body is the Central Bank of Bolivia, which will channel the funds into the private banking sector through an auction mechanism.

The total cost of the program, to be executed in 1993-94, is US$86 million. Its objective is to finance investment and working capital projects aimed at increasing productive activities in the agriculture, livestock, agro-industry, industry, mining sectors, and small business in the tourism and services sectors.

The agreement was signed in CAF headquarters in Caracas by CAF President & CEO Enrique García and the Bolivian National Secretary of Finance, Fernando Cossio.

ECUADOR Record loan This country will receive the largest loan granted in the history of CAF: US$131 million for a road integration program to upgrade communication routes internally and in the border regions with Colombia and Peru.

The executing body is the Ministry of Public Works. The loan has a 12-year term, with a five-year grace period.

The program consists of construction or upgrading of selected sections of three priority highway systems: the Marginal Coast, South Panamerican and Esmeraldas/Tumaco/Pasto.

After completion, Ecuador will have a highway system which links its border areas in the northwest with Colombia and in the southwest with Peru, opening up commercial and tourism flows between the three countries.

The Ecuadorian road network is formed by approximately 43,000 km of roads and highways, which are partly paved and partly gravel or dirt surface.

This program – with a cost of US$164 million -- comprises six projects: Las Peñas/Borbón (northwest of Esmeraldas province); Borbón/ Maldonado/ Mataje and Bilsa/San Gregorio/ San José de Chamanga (southwest of Esmeraldas); Pedernales/San José de Chamanga (north of Manabí province); San Mateo/Puerto Cayo (Manabí), and Catatocha/Macará/Puente International (southwest of Loja province).

Some of these projects are part of the Marginal Coastal Highway which connects coastal towns and maritime and agricultural production areas. The highway begins in Mataje on the Colombian border and ends in Huaquillas on the border with Peru. This 1,200 km route is almost completed, except for some sections which will be partly financed by this program.

In relation to the 1,106 km Pan-American Highway, the program will complete the of 91.5 km Catacocha/Macará cross-border section with Peru, which will improve traffic flow on this important Latin American road artery.

These projects will not only contribute to border and regional integration, but also interconnect highly productive areas of agricultural, forest, livestock, agro-industrial, fisheries and tourism development.

PERU The operations approved by the Board in favor of Peru totaled over US$165 million and include two global multi-sector credits, a loan for the road sector and a US$350,000 contribution to increase CAF equity participation in AFP Horizonte, a pension fund manager.

Road maintenance One of the long-term loans, for US$50 million, will be used to cofinance the Highway Rehabilitation and Maintenance Program.

The borrower is the Republic of Peru and the executing body the Ministry Of Transport, Communications, Housing and Construction (MTCC).

The program, with IDB participation, consists of rehabilitation of 1,400 km and regular maintenance of another 2,000 km, part of the Pan-American and central Highways. Execution began in 1992 and completion is scheduled for next year.

With these activities, CAF is cooperating with the Peruvian government on revitalizing the national economy by restoring these two important communication links.

Multi-sector credit for COFIDE A US$90 million loan, with an eight-year term, was approved in favor of the Republic of Peru for a Global Multi-Sector Credit Program. The executing body is Corporación Financiera de Desarrollo SA (COFIDE) which will channel the funds to private banks through subloans, finance leasing and underwriting operations.

The objective of the program, whose total cost is US$150 million, is to stimulate development of various economic activities by granting credits to private micro-, small-, and medium-sized private industries.

With these activities, CAF is providing financial support for the private sector of the country in an effort to improve the efficiency, competitiveness and export capacity of its productive companies.

Support for the privatization process Another of the long-term loans for Peru, for US$25 million, is a global multi-sector credit for the privatization program.

The executing body is again Corporación Financiera de Desarrollo (COFIDE), which will channel these funds -- through the financial system -- to companies which have recently been privatized or are in process of privatization.

With this credit, the companies will have the funds they need to start the process of reconversion, modernization, raising quality levels and upgrading their productive lines, which will attract new private investors, resulting in growth of productive sectors and improved competitiveness.

CAF is providing ample support for the privatization processes of the Andean countries and in general for all initiatives which aim to increase the participation of the private sector in economic activity.

VENEZUELA First loan for environmental preservation A US$22 million loan was granted to the Ministry of the Environment and Renewable Natural Resources (MARNR) to contribute to the Lake Maracaibo Environmental Cleanup Project in Zulia state.

The CAF funds will be used to decontaminate this strategic lake by eliminating sewage discharge from neighboring localities which drain directly into it.

The project covers construction of four treatment plants in Maracaibo, Cabimas and Ciudad Ojeda, along with installation of a set of collectors to connect the sewage network to the treatment sites.

As the first loan that CAF has granted for environmental preservation, it is especially important because ecological issues are now an integral part of the Corporation’s priority fields of action.

Development of capital market The Board meeting also authorized CAF equity participation in the formation of the private company Sistema Electrónico de Transacciones (SET).

The objective of the SET project is to promote development of a new securities electronic trading system in Venezuela, which will channel trading of financial instruments through a network instead of the stock exchange.

The system will provide an electronic database with complete financial information on companies and securities traded, including their historical performance and trends.

With the new system, brokers around the country will be able to trade from their offices on the same terms as those located in Caracas, thus broadening geographical coverage.

CAF equity participation will be US$600,000, 10% of the capital of the company.

By these actions, the Corporation is collaborating with a project which will expand opportunities for business and facilitate access to the country's stock market.

REGIONAL PROGRAM The "Program for Retraining and Relocating Personnel Displaced from the Public Administration and Companies in process of Privatization in Andean Group countries" (RPDAP) was presented to the Board meeting. CAF designed this program to contribute to the modernization process of the public sector, which member countries are implementing and where the labor is a critical issue.

The basic objective of the program is to design viable projects in each country in order to facilitate the gradual relocation of public sector workers into the private sector and moderate the social costs.

In the first stage of the program, studies will be done at country level to obtain a profile of the education and working capacity of the surplus personnel, labor market, reconversion mechanisms and labor rehiring policies, among others.

Based on the studies, specific project will be executed with financial support from CAF and other financial organizations in the region, such as IDB, which have shown interest in the project.

The Board approved a US$690,000 grant for the program to finance the studies.