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In their own words. (Enrique Garcia)

Jul 1, 1998

Enrique Garcia, Corporacion Andina de Fomento
Enrique Garcia is serving his second term as president of Corporacion Andina de Fomento, having been named to the post in 1991. Garcia has also served as treasurer at the Inter-American Development Bank as well as planning minister of his native country, Bolivia. In the last seven years, he has transformed CAF into a leading lender in the Andean region, in large part through his strategy of accessing the international capital markets.
On changes in policy and outlook by Latin American governments...
One element which is very, very important is the acceleration of economic stabilization and reform in Latin America. In the last 10 years, almost every country has advocated market economies, free markets, privatization and lowering of tariffs and all other barriers to trade, and advocating foreign investment as a main source of the future development of the country-this is a common denominator.Also, all countries are very conscious of the importance of sound macroeconomic management, which implies that without internal and external equilibrium-macroeconomic stability-there is no chance to think in terms of growth and social development. That's a common denominator that has given signals to the external agents of the region that it is capable of doing things in the right direction.You've seen the results of that type of approach when crises develop. When the Mexican crisis developed in 1994, the Mexican authorities were very quick to respond, and in less than a year, they put the economy back on track and moved ahead. In the 1980s, it took Mexico and Latin America almost seven years to come to that point. And that's a clear result of the type of policies and the mentality that has developed.The other thing, which I think is very important in developing the market, is the fact that the countries started to be very conscious of the importance of having the recognition of rating agencies, and going one by one to try to get ratings.On a more personal basis, as minister of planning and coordination in Bolivia in the late 1980s and early 1990s, I was in a position to move in the direction of these reforms. And in coming to CAF, the policy of CAF has been to support debt policy reform in all the countries, not only through policy advice, but also through the type of things we have been financing.More specifically, on the market side, when I came to CAF about six years ago, it was to try to place CAF in the international capital markets. For that, it was very important to be the first issuer in Latin America to get an investment grade rating from Standard&Poor's-that was in 1993-which opened the door for other countries to move in the same direction. The spillover effect of that was first, in our case, to have access to the market at very competitive terms and to facilitate resources to the countries, and also the demonstration effect, so that we have talked countries into the rating process, which I think is important.
On CAF's quest to obtain an investment grade rating...
It was quite a challenge, because we had to show the rating agencies that an institution which had stockholders in non-investment rated countries had the strength to be an investment grade rated institution. We had to build the story that, at that time, CAF had more than 20 years of history as an institution, and explain the track record of behavior of the countries, the preferred status of the institution, and most important to show the type of policies that CAF had. We're conservative enough to give assurances to the bondholders and to the market that it was a very seriously run institution. But it was a challenge to show that an institution that only had a few countries as members was run professionally and that there were no political influences in the management of the institution, and also to present the figures that we had. When I joined CAF, particularly because of my experience with the IDB, I saw the future of CAF as an institution relying essentially on CAF's ability in the future to tap the international capital market. Because if it was only relying on the old capital or short term lines of credit or even loans from the IDB, the institution really had no chance to grow. So the challenge was to get to the capital markets, but to do that it was a must to have an investment grade rating.The first thing I did, in fact two months after I became president, was I went to New York to see S&P and Moody's. I told them the story about CAF and the desire to get the rating. In the beginning, the reaction was, "Well, it's an interesting story, but you see, it's Latin America." So I had to meet with them and present the case in a very professional way, and it was a process.After a few months, S&P (recognized) that we were different, that we had a very good track record, and they had some confidence in the type of management we were bringing to the institution, and the track record, personally, I had from previous positions at the IDB and the Bolivian government and so forth. On the basis of all these elements, they gave us the first investment grade rating in 1993. Moody's, when they saw that we had the rating and that we went to the international capital market with our first issue-it was a eurobond issue in 1993-immediately there were investors checking on that. And Moody's called us and said, "Well, we are going to rate you." So we said, "Okay, go ahead."We started the strategy: investment grade, euro market first, then we concentrated for a year or two on tapping the Japanese market. We had roadshows and were talking to them and doing samurai issues and eurobond issues, and then we moved to the yankee market. Since last year, especially in the last few months, we are concentrating a lot on building up our investor base in Europe so that we have a broad range of investors.
On reopening international markets for Latin issuers after crises...
After the Mexican peso crisis, Latin America was closed. I decided it was a good opportunity to test the market for CAF, and not only test it for CAF but to perhaps be a good example to reopen the market for Latin America. Because we saw some signs that CAF was differentiated. We went to the market with a euro yen operation at the end of January-we were the first issuers to reopen the market, and the spreads for CAF widened very little. And secondly, we were the first ones to go to the yankee market about two months later.The other issue that I think was very interesting was the issue that we made this January, after the Asian crisis. The deutschemark issue was the first one for an emerging market borrower (post-Asian crisis), and, again, I think it was a good signal. In terms of pricing, the spreads widened not significantly for CAF and also reopening the market, and also we went to the yankee market immediately.
On important transactions that CAF has spearheaded in the region...
I would highlight the role that CAF has played in the gas pipeline between Bolivia and Brazil. It's a big transaction, more than a $2 billion project, and CAF was the first multilateral institution to really get committed to this project. In fact, we were the first ones to formally approve the financing to Brazil for both the Bolivian side portion and in the Brazilian side. And the fact that CAF was helping in the negotiations and was the first one to move was a very important element in building up the transaction, which now has, just in the last few months, the World Bank and the IDB and others. That's a crucial project for the region.We visualized that project as a key element in the integration of Latin America. Why? You have gas reserves in Bolivia which are important for Brazil, because Brazil needs energy. There are possibilities of using additional gas reserves not only from Bolivia, but eventually from Peru, and building gas pipelines in South America can contribute a lot to the development of that region. We felt that the project, from the standpoint of CAF's members, was very important. For Bolivia, it is a crucial project, because they have exports that are very important for the whole stability of the country. For Brazil, it is very important because it provides a source of clean energy and, in addition to that, it has opened new opportunity for further integration in the energy sector. So that was the reason we had confidence.

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