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CAF, the Andean Paradox

Jun 1, 2003

CAF, the regional development bank, addresses analysts' concerns over the stability of its borrowers. CAF's management says its preferred-creditor status is strong and sufficient to prevent a default on its loan portfolio.

The Andean Development Corp. (CAF) is an unusual organization. It is a development bank with a coveted investment grade, even though it is majority-owned by five poorly rated Andean governments, which are also its principal clients. CAF lends more money to the Andean region, the most turbulent in Latin America, than any other international agency. But, although CAF has almost $7 billion in loans outstanding to these countries, it has never suffered a sovereign default in its 37-year history. Since its member countries - Bolivia, Colombia, Ecuador, Peru and Venezuela - have all experienced severe economic and political stress in the last two years, one might expect CAF be in relatively poor shape. Indeed, to the alarm of its investors, in February Standard & Poor's changed its outlook on CAF, which it still rates A, to negative from stable, warning that at the end of last year, "more than 53%...

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