When Enrique García decided to apply to be president of the Corporación Andina de Fomento, (CAF, the Andean Development Corporation), the multilateral bank organised, financed and run by Latin American governments, his friends laughed and tried to persuade him to use his common sense and set his sights higher. After all, he had spent 17 years at the Washington-based Inter-American Development Bank, where he ended up as treasurer. Before that he had done his time on the greasy pole of ministerial politics in his native Bolivia during the presidency of Jaime Paz Zamora. He also represented Bolivia at the International Monetary Fund and the World Bank.
Low profile
Mr García had worked in the commercial sector in La Paz at the Banco Industrial and elsewhere. Yet he persevered against the advice of the friends and in 1991 took up the presidency of CAF, a relatively small and low-profile bank very much tied to the Andean Pact integration process. The trouble was that the process did not produce much integration, and Chile, one of the full members, could never decide whether it was inside or outside the club (it is outside at the moment but has just pushed up its CAF capital subscription by $50m).
Mr García is on his fourth successive five-year term, which ends in 2011. He shows every sign of enjoying himself, travelling around his parish and beyond from his home in the Altamira district of Caracas, the Venezuelan capital where the greatly expanded CAF has its headquarters.
In these times of financial turbulence, he is certainly reaping the rewards of his own foresight. As guest speaker at a seminar at London’s Guildhall, inaugurated by the Lord Mayor at the end of January, he was able to gently and courteously echo some of the ideas uttered rather more stridently a few hours previously in Davos by the leaders of Russia and China on the shortcomings of developed countries’ banking practices.
Tables turned
For anyone who can recall the hyperinflation that sometimes constrained Bolivians to cart their cash in wheelbarrows, or who has heard diatribes against the shortcomings of public sector banking, it was a memorable spectacle: the president of a Bolivian public sector bank quietly lecturing a City audience on the virtues of his bank’s model.
The days of hyperinflation are over in La Paz and Bolivia, bolstered by its new revenues from natural gas and oil, enjoys a trade and budget surplus. With the help of foreign governments, in 2008 President Evo Morales was able to announce that the country had abolished illiteracy.
Role call of members
The CAF’s increasing importance in Latin America was illustrated by the 2007 decision to double the authorised capital to $10bn – $6.5bn paid in and the balance callable. Its full members are the governments of Bolivia, Colombia, Ecuador, Peru and Venezuela, who have subscribed 87% of the capital between them. Some 11 others in the region and Spain are responsible, with 15 private sector banks in the region, for the remaining 13%. Mr García recently signed an agreement with Paraguay’s new president, Fernando Lugo, and that country is on the brink of becoming a full member. The Italian, Portuguese and Guatemalan governments have signed letters of intent and are queuing to enter.
At the end of the third quarter of 2008, the CAF’s assets came to $13.5bn with a loan portfolio of $9.78bn – well ahead of the $7.19bn achieved in 2004. The CAF keeps a high level of liquidity with $3.28bn or 24% of assets deemed to be liquid. Three-quarters of the lending is to the public sector.
One-third of the CAF’s portfolio is advances for infrastructure, notably transport and communication projects, and almost as much for ‘social development’, which includes health, social services and education. The third biggest tranche is for financial intermediation for commercial and development banks (17%), followed by power, gas and water (15%).
Provision for loss accounts for 1.4% of the portfolio, down from 2.56% in 2004. Non-performing loans dropped from 0.28% of the portfolio in 2004 to 0.02% in 2005, and have since dropped to zero. There are unlikely to be many artfully concealed packages of toxic mortgages there, although the CAF did take a $9m hit from the troubles at Iceland’s Kaupthing Bank. Net profit in 2007 came to $401m and in the first three quarters of 2008, was about $262m.
The CAF’s ratings have been improving for the past 15 years, with Moody’s, Standard & Poor’s and Fitch giving it either A1 or A+ and JCR of Japan giving it AA-.
The CAF takes a particular interest in developing a nation’s infrastructure but Mr García takes pride in his claim that, more generally, the bank has never failed to come to the financial aid of a full member in difficulty. He recalls, for instance, that the CAF helped Peru during the testing days of president Alan García’s tumultuous first period in office.
Loyal partners
“We’re a bank put together by developing countries and that fact makes us stand out. Spain is certainly a member and other developed countries are becoming shareholders of the CAF but, whatever happens, the developed countries will never have more than 10% or 15% of the shares and that makes a lot of difference. Developing countries know we are loyal partners”, says Mr García.
“We have an umbrella up for members when it rains and we’re the taxi that is always at hand in the wet. More than that, as a member you can get into our taxi and say ‘I am an hour late. I am in a vast hurry and I have got to get there as fast as possible’. Well, we’ll get you there.”
The corporation has greatly diversified its list of borrowers. In 2000, 96% of its loans went to the CAF’s full members with only 4% going to others; in 2007, the others took 31%.
Although Mr García worries that US demand for foreign capital will eventually push Washington to suck up an over-large share of the world’s credit, the CAF has successfully tapped the markets for $2bn in the past two years, and in the next five years,$1.3bn is due to be subscribed in new capital from Argentina ($543m), Brazil ($467m), Panama ($170m) and Uruguay ($137m). In 2007, it committed to the five full CAF members countries 62% of the capital they raised from multilateral sources. This was almost double the 33% they got from the Inter-American Development Bank, and dwarfed the mere 5% that came from the World Bank.
Shortcomings remain
While he can be proud of the progress made by the CAF and of its growing importance, Mr García has no illusions about Latin America as a whole. In November, for example, he reminded an audience in Caracas that the region continued to stand out for the poor distribution of its income.
He added that Latin America was losing importance in the world. “Some 20 years ago,” he said, “per capita income in Latin America accounted for 35% of the per capita income of the Organisation for Economic Co-operation and Development countries. At present, it represents only 25%. And 20 years ago, Latin America accounted for 15% of total global trade; today it represents only 7%. On the contrary, in Asia the opposite has occurred,” he said.
Mr García says that the region’s politicians have not always served Latin Americans well. He agrees with much contained in an article by the sociologist Fernando Calderón, published in the December 2008’s journal of the UN Economic Commission for Latin America and the Caribbean. Mr Calderón argues that the region’s political problems can not be solved without solutions being found for the problems of income distribution and poverty.
But while Mr García insists on the need for political and social reform, he also insists that political parties are vital for progress and that harsh words are never very useful. “Being hostile and aggressive isn’t the way forward,” he says, quietly.
