Enrique Garcia, president of Corporacion Andina de Fomenta (CAF, the Andean Development Corporation), wants to transform his bank into Latin America’s first home-grown continent-wide development bank.
He is already credited with turning the Caracas-based multilateral from a sleepy Andean-focused institution into a dynamic, efficient financer of infrastructure and technical projects across the continent; CAF has been posting record earnings and looks set to keep doing so.
Buoyed by the bank’s robust performance, Garcia now wants to take the institution “beyond the Andean region to become a Latin American institution”, and to leverage the strong macroeconomic performance of big players like Brazil.
His initiative comes as calls for enhanced regional cooperation are gaining force across the continent: Venezuela’s president, Hugo Chavez, has called on Latin America’s central banks to form a development bank for the region. While Garcia, who missed out on the IDB presidency last year, dismisses speculation that CAF will be that bank, he is clear about the need for an integrated all-Latin American bank.
CAF was established in 1968 through a treaty between the five Andean Community countries: Colombia, Venezuela, Peru, Ecuador and Bolivia. In 1991, shareholders elected Garcia, a former finance minister of Bolivia, as its fifth president. Brazil is the largest of several non-Andean countries to have joined in the last two years as CAF has expanded the range of its activities and posted exceptionally strong profits.
Wider remit
“We need to provide paper in the local currency for locally-oriented projects rather than export-oriented projects,” he tells Emerging Markets. “We have to move savings in the right direction.” However, for Garcia, the roads, energy and telecommunications projects in which CAF has specialized are not enough to lift the region’s growth from 4% to 7%: the solution lies in regional cooperation and integration, as well as a broader remit for CAF.
Projects that CAF has agreed to fund this year include a $60 million loan to construct a northern Amazon highway in Peru, $22 million for another highway in Paraguay, and a $15 million loan to build a drinking water system in Portoviejo, Ecuador. When CAF agreed in February to finance the Riberalta-Guayaramerin highway, Bolivian president Evo Morales dubbed Garcia “Bolivia’s cashier”.
CAF does provide more than half the multilateral funding for the Andean countries, but its programmes reach well beyond, e.g. the Latin American carbon programme, which helps shareholder countries participate in emerging carbon markets. Nicaragua and Jamaica are the latest to join its initiative to integrate all South America’s infrastructure, and its research programme on development issues.
“Education is a crucial component of growth,”according to Garcia, who adds that Latin America has a “competitive advantage where its environment and natural resources are concerned. But we need more social capital – how do you create trust between members of society?”
Shareholder strength
One reason for CAF’s efficiency is that its shareholders, with the exception of Spain, come exclusively from the region. The five Andean countries control 90% of the shares, with the rest divided between Spain, Brazil, Mexico, Argentina, Costa Rica, Uruguay, Panama, Paraguay, Chile, Trinidad & Tobago and Jamaica, plus 16 private Latin American banks. This means CAF is subject to less disclosure requirements than institutions like the World Bank and IDB, faces fewer committees with which to negotiate, and can act more like a private institution than other multilaterals, with Garcia able to take decisions like a CEO.
And, although five poor countries fund it, CAF has remained investment-grade. In its latest credit opinion, Moody’s rates it A1, and cites its preferred creditor status with its sovereign borrowers as a key credit strength. Borrowers have “met
all obligations in a timely manner even during times of economic, social and
political uncertainty”. Net income nearly doubled between 2000 and 2004, from $107 million to a record $208 million.
Competition?
CAF’s success also raises the question of whether it is in contest with other multilaterals, such as the IDB and IFC. Officials at all three multilaterals reject the idea, and there is wider consensus that there is room for all three in Latin America, where so much development work remains. The IDB has provided credit lines to some of CAF’s projects, and both banks are funding the Camisea natural gas project in Peru, which was abandoned by Citigroup and Export-Import Bank on environmental grounds.
CAF is headquartered in the same town as another keen Latin American integrationist, Hugo Chavez. Along with buying Argentine and Ecuadorean bonds, and offering cheap oil to Cuba and the Caribbean, Chavez has spoken of his ambition for an indigenous Latin American development bank to coordinate investment and monetary policy. Garcia is laid back about Chavez’s statements: “We do not promote one way of development. We respect different approaches ... as long as the types of projects they want to finance are coherent.”
“Our experience of Venezuela has been very positive,” he adds. “We respect their differences, and expect them to respect us.”
“He [Garcia] is a master at avoiding politicization,” says Peter Hakim, director of the Washington-based Inter-American Dialogue. This, according to Hakim, is the key to how the bank has distanced itself from country politics and maintained its credit rating and access to international capital markets.
“To be successful we will depend on ourselves,” says Garcia.