Multilateral Development Banks: Profiles of Selected Multilateral
Development Banks (18-MAY-01, GAO-01-665).
This report discusses Multilateral Development Banks (MDB), which
were established to provide financial support for projects and
programs designed to promote social and economic progress in
developing countries. In this report, GAO examines (1) summaries
of each bank's mission, function, and operations, (2) key bank
financial data covering the last three fiscal years, and (3) the
U.S. investment in capital and voting percentages in each MDB.
GAO found that MDBs are autonomous international financial
entities that finance economic and social development projects
and programs in developing countries. The MDBs primarily fund
these projects and programs using money borrowed from world
capital markets or money provided by the governments of member
countries. MDBs enable developing countries to access foreign
currency resources on more advantageous terms than would be
available to them on the basis of their own international credit
standing. The MDBs provide assistance in the form of loans,
equity investments, loan and equity guarantees, and technical
assistance. The primary vehicle of development assistance is
direct lending. The United States is the largest member in most
of the MDBs discussed in this report, contributing significant
amounts to support the missions of the MDBs and subscribing a
significant amount to MDBs' callable capital.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-665
ACCNO: A01042
TITLE: Multilateral Development Banks: Profiles of Selected
Multilateral Development Banks
DATE: 05/18/2001
SUBJECT: Developing countries
Economic growth
Foreign economic assistance
International organizations
Financial institutions
Asian Development Fund
African Development Fund
Heavily Indebted Poor Countries Debt
Initiative
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GAO-01-665
Report to Congressional Committees
United States General Accounting Office
GAO
May 2001 MULTILATERAL DEVELOPMENT BANKS
Profiles of Selected Multilateral Development Banks
GAO- 01- 665
Page i GAO- 01- 665 Multilateral Development Banks Letter 1
Tables
Table 1: MDB Groups and Related Entities? Dates of Establishment 7 Table 2:
Development Assistance Available at Each Multilateral
Development Bank 10 Table 3: Standard & Poor?s Long- Term Credit Rating
Definitions 19 Table 4: Standard & Poor?s Credit Ratings of Multilateral
Development Banks as of September 2000 20 Table 5: Resources Provided to the
Multilateral Development
Banks From the United States 21 Table 6: U. S. Appropriations for
Contributions to the Multilateral
Development Banks for Fiscal Years 1996 through 2001 22 Table 7: U. S.
Approved Callable Capital Subscriptions to the
Multilateral Development Banks for Fiscal Years 1996 through 2001 23 Table
8: U. S. Voting Percentage at the Multilateral Development
Banks 24 Table 9: Concentration of Loans Outstanding to IBRD?s Five
Largest Borrowers as of June 30, 2000 26 Table 10: Key Financial Data for
IBRD for Fiscal Years 1998
through 2000 28 Table 11: Concentration of Credits Outstanding to IDA?s Five
Largest Borrowers as of June 30, 2000 29 Table 12: Key Financial Data for
IDA for Fiscal Years 1998 through
2000 31 Table 13: IFC?s Five Largest Countries of Operations Based on
Cumulative Lending and Investments as of June 30, 2000 32 Table 14: Key
Financial Data for IFC for Fiscal Year 1998 through
2000 33 Table 15: Five Largest Country Exposures in MIGA?s Guarantee
Portfolio as of June 30, 2000 35 Table 16: Key Financial Data for MIGA for
Fiscal Year 1998
through 2000 36 Table 17: Concentration of Loans Outstanding to AfDB?s Five
Largest Borrowers as of December 31, 1999 38 Table 18: Key Financial Data
for AfDB for 1997 through 1999 40 Table 19: Concentration of Loans
Outstanding to AfDF?s Five
Largest Borrowers as of December 31, 1999 41 Table 20: Key Financial Data
for AfDF for 1997 through 1999 42 Contents
Page ii GAO- 01- 665 Multilateral Development Banks
Table 21: Concentration of Loans Outstanding to AsDB?s OCR Five Largest
Borrowers as of December 31, 1999 44 Table 22: Key Financial Data for AsDB?s
OCR for 1997 through
1999 46 Table 23: Concentration of Loans Outstanding to AsDF?s Five
Largest Borrowers as of December 31, 1999 47 Table 24: Key Financial Data
for AsDF for 1997 through 1999 48 Table 25: Concentration of Loans
Outstanding to IDB?s OC Five
Largest Borrowers as of December 31, 1999 50 Table 26: Key Financial Data
for IDB?s OC for 1997 through 1999 52 Table 27: Concentration of Loans
Outstanding to IDB?s FSO Five
Largest Borrowers as of December 31, 1999 53 Table 28: Key Financial Data
for IDB?s FSO for 1997 through 1999 54 Table 29: Concentration of Loans
Outstanding to IIC?s Largest Five
Areas of Operations as of December 31, 1999 55 Table 30: Key Financial Data
for IIC for 1997 through 1999 56 Table 31: EBRD?s Five Largest Countries of
Operations Based on
Loans Outstanding as of December 31, 1999 57 Table 32: Key Financial Data
for EBRD for 1997 through 1999 59
AfDB African Development Bank AfDF African Development Fund AsDB Asian
Development Bank AsDF Asian Development Fund EBRD European Bank for
Reconstruction and Development FSO Fund for Special Operations GAAP
Generally Accepted Accounting Principles HIPC Heavily Indebted Poor
Countries IDB Inter- American Development Bank IIC Inter- American
Investment Corporation IBRD International Bank for Reconstruction and
Development IDA International Development Association IFC International
Finance Corporation LIBOR London Interbank Offer Rates MDB Multilateral
Development Bank MIGA Multilateral Investment Guaranty Agency OC Ordinary
Capital (Inter- American Development Bank) OCR Ordinary Capital Resources
(Asian Development Bank)
Abbreviations
Page 1 GAO- 01- 665 Multilateral Development Banks
May 18, 2001 Congressional Committees Multilateral Development Banks (MDB)
were established to provide financial support for projects and programs
designed to promote social and economic progress in developing countries.
Under the Fiscal Year 2001 Foreign Operations, Export Financing, and Related
Programs Appropriations Act (Public Law 106- 429) (the Act), the United
States is providing approximately $1.3 billion to support the missions of
the MDBs discussed in this report. Section 803 of the Act provides that GAO
report on the audits of certain MDBs? financial operations conducted by
persons or entities outside the MDBs. We will be issuing a series of reports
in response to these reporting requirements. As agreed with your offices, we
will first provide a financial overview of the MDBs, including (1) summaries
of each bank?s mission, function, and operations, (2) key bank financial
data covering the last 3 fiscal years, 1 and (3) the U. S. investment in
capital and voting percentages in each MDB. The information contained in
this report was compiled from a variety of publicly available sources,
including the MDBs? audited financial statements and annual reports. Other
publicly available data was obtained from the MDBs, the Congressional
Research Service, and Standard & Poor?s. We have begun work to assess the
audit process at some of the regional MDBs and will report on that work at a
later date. We plan to continue similar work with the remaining MDBs.
MDBs are autonomous international financial entities that finance economic
and social development projects and programs in developing countries. All
members participate in oversight and the setting of operating policies of
the MDBs through their participation on the boards of governors. The MDBs
primarily fund these projects and programs using money borrowed from world
capital markets or money provided by governments of member countries.
Because of the MDBs? favorable credit ratings, those MDBs that borrow funds
from world capital markets are able to obtain more favorable loan terms than
their borrowers could
1 The last three fiscal years of data for banks affiliated with the World
Bank Group are as of June 30, 1998 through 2000, and December 31, 1997
through 1999, for the regional development banks.
United States General Accounting Office Washington, DC 20548
Overview
Page 2 GAO- 01- 665 Multilateral Development Banks
otherwise negotiate. Thus, MDBs enable developing countries to access
foreign currency resources on more advantageous terms than would be
available to them solely on the basis of their own international credit
standing. MDBs are not commercial ?banks? in the traditional sense of the
term because they do not seek to maximize profits and they do not take
customer deposits to fund their operations.
The MDBs provide assistance in the form of loans, equity investments, loan
and equity guarantees, and technical assistance. The primary vehicle of
development assistance is direct lending. Most loans are issued with market-
based interest rates; however, some MDBs offer loans at concessional (less
than current market) rates to the poorest of the developing countries. MDB
loans are available in various currencies to their member countries or, in
some cases, to private enterprises, for development projects in a borrowing
member country. In some cases, a member country guarantees loans made to
private sector enterprises within the member country and, as a result, may
be held liable for any defaulted loans.
The United States is the largest member in most of the MDBs discussed in
this report, contributing significant amounts to support the missions of the
MDBs and subscribing a significant amount of the MDBs? callable capital. 2
The Congress appropriates funds for the United States? contributions to the
MDBs. In fiscal year 2001, the Congress appropriated about $1.0 billion for
the MDBs, with the largest contribution, $775 million, going to the World
Bank Group?s International Development Association. During fiscal year 2001,
the Congress also authorized up to $271 million of new subscriptions to the
MDBs? callable capital. The Department of the Treasury oversees the United
States? interests in the MDBs. The United States is a member of the
following MDB groups, which are included in this report: (1) the World Bank
Group, (2) the African Development Bank Group, (3) the Asian Development
Bank, (4) the Inter- American Development Bank, and (5) the European Bank
for Reconstruction and Development.
In their most recent fiscal year of operations for which information was
available, the MDBs we reviewed approved about $40.1 billion of
2 Callable capital is a form of capital that is subscribed by members and
resembles promissory notes from members to honor MDB debts if the MDB cannot
otherwise meet its obligations through its other available resources. In the
history of the MDBs, there has never been a call on this capital.
Page 3 GAO- 01- 665 Multilateral Development Banks
development assistance 3 consisting of loans, loan guarantees, and equity
investments for economic and social development. 4 The Latin American and
Caribbean region received the largest portion of this development
assistance, approximately $15.8 billion, while the Asian and Pacific region
received $11.9 billion, Europe and Central Asia received $6.3 billion, and
Africa received $6.1 billion. The World Bank Group accounted for about 53
percent of the MDBs? total development assistance provided during this
period, while the regional MDBs, which focus their development activities on
a particular region, provided the remaining 47 percent. Loans with market-
based interest rates, equity investments, and loan guarantees accounted for
about $33.5 billion of the total financial support provided by these MDBs
during the most recent fiscal years of operations, while concessional
lending amounted to about $6.6 billion.
We received comments of a technical nature from Treasury officials, and
these comments have been incorporated in the report where appropriate.
Public Law 106- 429, Appendix A, Title VIII, identifies 10 MDBs to be
included in the scope of our work. However, in order to present consistent
information across the MDB groups, we also included information on two of
the regional MDBs? concessional lending arms. 5 For purposes of this report,
each of the five MDBs, along with any related entities, is referred to as a
?group.? The MDBs and their related entities included in our report are the
3 These amounts were determined based on the MDBs' annual reports and
reported approvals during the applicable period. Since the International
Finance Corporation did not provide approvals by region, its amounts were
determined based on the distribution of its outstanding portfolio. Further,
to avoid any double counting, the total amount of MDB financing for the last
fiscal year does not include guarantees approved by the World Bank Group?s
Multilateral Investment Guaranty Agency (MIGA) because data were not
available to determine the amount of MIGA guarantees that insured other MDB
financial assistance.
4 The most recent fiscal year of operation for which information was
available was June 30, 2000, for the MDBs affiliated with the World Bank
Group and December 31, 1999, for the regional development banks.
5 The concessional lending arms that we have added to our scope include the
Asian Development Bank?s Asian Development Fund and the Inter- American
Development Bank?s Fund for Special Operations. Both of these concessional
lending arms are integral parts of their affiliated bank and are not
separate legal entities. Scope and
Methodology
Page 4 GAO- 01- 665 Multilateral Development Banks
World Bank Group
International Bank for Reconstruction and Development
International Development Association
International Finance Corporation
Multilateral Investment Guaranty Agency
African Development Bank Group
African Development Bank
African Development Fund
Asian Development Bank
Ordinary Capital Resources
Asian Development Fund
Inter- American Development Bank
Ordinary Capital
Fund for Special Operations
Inter- American Investment Corporation
European Bank for Reconstruction and Development For our report, we
analyzed and compiled information from the MDBs? annual reports and their
audited financial statements for the most recent 3 fiscal years for which
information was available as of January 1, 2001. We also reviewed the MDBs?
Articles of Agreement. Other data sources included the Congressional
Research Service and Standard & Poor?s. The Standard & Poor?s information we
used relates to the credit ratings of several MDBs as of September 2000,
criteria used to assess several of the MDBs, credit ratings of various
borrowing members, and credit rating definitions. 6 This information was
used with the permission of Standard & Poor?s.
The most recent fiscal years of operations for which data were available
from the annual reports and audited financial statements of the regional
MDBs and the related entities of the World Bank Group were for the years
ending December 31, 1999, and June 30, 2000, respectively. Our work
6 The MDBs receive credit ratings from other rating agencies. However, we
used Standard & Poor?s data for our analysis because of its completeness,
its coverage of several MDBs, and its timing. The Standard & Poor?s
information used for our report included Counterparty Rating Guide, First
Quarter 2000; Sovereign Rating History Since 1975, and
Supranationals Special Edition 2000, September 2000.
Page 5 GAO- 01- 665 Multilateral Development Banks
focused on the MDBs and the related entities listed above; our work did not
cover the other special funds operated by the MDBs. To the extent possible,
we used data audited by the MDBs? external auditors.
For comparability, we converted financial data from the African Development
Bank Group and the European Bank for Reconstruction and Development to the
U. S. dollar equivalent. 7 When calculating the financial information
provided for the MDBs, we made the following adjustments to data items:
Loans outstanding include disbursed loans and equity investments, except
where noted.
Net disbursed loans represent loans outstanding less the estimated loan loss
allowance.
Nonaccrual loans include the principal portion only.
Undisbursed loans include loans that are committed but not yet disbursed.
Paid- in capital excludes amounts not yet due and receivables from members
related to subscribed capital.
Because MDBs follow different accounting standards to prepare financial
data, use different methodologies to estimate loan losses, and have
different policies relating to nonaccrual loans, caution must be taken when
comparing financial results. Further, MDBs serve different purposes and
borrowers, which also affects the comparability of financial data.
We conducted our work in Washington, D. C., from January 2001 through April
2001 in accordance with generally accepted government auditing standards. On
May 11, 2001, we received comments from cognizant Treasury officials and
have incorporated those views and other technical suggestions into our
report, where appropriate.
7 Financial data from the African Development Bank Group?s financial
statements and annual reports were converted based on exchange rates
included in the notes of the audited financial statements. Financial data
for the European Bank for Reconstruction and Development were converted
based on end- of- period exchange rates for 1997 through 1999 published in
the International Monetary Fund?s International Financial Statistics.
Page 6 GAO- 01- 665 Multilateral Development Banks
Multilateral Development Banks (MDB) are autonomous international financial
entities that finance economic and social development projects and programs
and provide technical assistance in developing countries primarily using
money borrowed from world capital markets or contributed by governments of
developed countries. Governments are the shareholders- referred to as
members- of the MDBs. 8 MDB members include developing countries that borrow
from the MDB as well as industrialized member countries. 9 Through their
participation on the boards of governors all members, including borrowing
members, contribute to the capital of the MDBs and participate in oversight
and in the setting of operating policies. The ability of the MDBs to borrow
funds at more favorable loan terms than the loan recipients could otherwise
negotiate gives developing countries access to foreign currency resources on
more advantageous terms than would be available to them solely on the basis
of their own international credit standing.
Several of the MDBs have created separate entities or funds to carry out
specific types of development assistance, such as market- based lending or
private sector investments. Table 1 shows each MDB group and its related
entities.
8 The European Bank for Reconstruction and Development has two members that
are not country governments. These two members are the European Investment
Bank and the European Community.
9 Member countries that borrow from MDBs are generally low- and middle-
income countries in need of social or economic development. Multilateral
Development Banks: Their Missions, Functions, and Organization
Page 7 GAO- 01- 665 Multilateral Development Banks
Table 1: MDB Groups and Related Entities? Dates of Establishment
Multilateral Development Bank Date Established
World Bank Group International Bank for Reconstruction and Development 1945
International Development Association 1960 International Finance Corporation
1956 Multilateral Investment Guarantee Agency 1988 African Development Bank
Group
African Development Bank 1964 African Development Fund 1973 Asian
Development Bank
Ordinary Capital Resources 1966 Asian Development Fund 1974 Inter- American
Development Bank
Ordinary Capital 1959 Fund for Special Operations 1959 Inter- American
Investment Corporation 1986 European Bank for Reconstruction and Development
1990
Source: Multilateral Development Bank annual reports.
The World Bank Group draws its membership from developing and industrialized
countries around the world. It includes four institutions, each providing a
different function in carrying out the World Bank Group?s mission of
fighting poverty and improving the standard of living in developing
countries throughout the world.
The International Bank for Reconstruction and Development (IBRD)- the
oldest and, based on total assets, largest MDB- is the World Bank entity
that provides market- based loans, guarantees, and technical assistance to
middle- income member countries and more creditworthy poorer member
countries.
The International Development Association is the World Bank?s concessional
lending arm that provides key support for the bank?s poorer members.
The International Finance Corporation provides loans, equity investments,
and technical assistance for private sector enterprises.
The Multilateral Investment Guaranty Agency provides guarantees to foreign
investors against loss caused by noncommercial risks, as well as technical
assistance to host governments.
Page 8 GAO- 01- 665 Multilateral Development Banks
The remaining four MDB groups are referred to as regional development banks
because they focus their development activities on a particular region. The
regional development banks? membership consists of developing or borrowing
countries within a particular region of the world plus industrialized member
countries located throughout the world. Four regional MDBs- and their
lending arms that provide concessional lending or equity investments 10
-included in this report are described below.
The African Development Bank Group includes the following two entities,
which serve the development needs of Africa.
The African Development Bank provides market- based loans, equity
investments, loan guarantees, and technical assistance to the public and
private sector.
The African Development Fund is the concessional lending arm that provides
technical assistance and key support for the bank?s poorer members.
The Asian Development Bank includes the following two operational lending
arms, which serve the development needs of the Asian and Pacific regions.
The Asian Development Bank?s Ordinary Capital Resources provides market-
based loans, equity investments, and loan guarantees, and it indirectly
provides technical assistance to middle- income countries and creditworthy
poorer countries.
The Asian Development Fund is the concessional lending arm that provides
technical assistance and key support for the bank?s poorer members.
The Inter- American Development Bank group includes the following three
lending arms, which serve the development needs of Latin America and the
Caribbean.
10 These MDBs also operate many other smaller funds that are not covered in
our report.
Page 9 GAO- 01- 665 Multilateral Development Banks
The Inter- American Development Bank?s Ordinary Capital provides market-
based loans, guarantees, and technical assistance to the public and private
sectors.
The Inter- American Development Bank?s Fund for Special Operations is the
concessional lending arm that provides technical assistance and key support
for the bank?s poorer members.
The Inter- American Investment Corporation is the Inter- American
Development Bank group?s entity that provides loans, equity, and technical
assistance to small and midsize private enterprises.
The European Bank for Reconstruction and Development serves central and
eastern Europe and the Commonwealth of Independent States. It provides
development assistance through market- based loans, cofinancing, loan
guarantees, equity investments, and technical assistance to the public and
private sector.
The MDBs included in our analysis approved about $40.1 billion of financial
assistance 11 to developing countries during the most recent fiscal year of
operations for which data were available at January 1, 2001. The Latin
American and Caribbean region received the largest portion of this
development assistance with approximately $15.8 billion, while the Asian and
Pacific region received $11.9 billion, Europe and Central Asia received $6.3
billion, and Africa received $6.1 billion. The World Bank Group accounted
for about 53 percent of the development assistance during this period, while
the regional MDBs provided the remaining 47 percent. Loans with market-
based interest rates, equity investments, and loan guarantees accounted for
about $33.5 billion of the MDBs? total financial support provided during the
most recent fiscal years of operations, while concessional lending amounted
to about $6.6 billion.
11 These amounts were determined based on the MDB? s annual reports and
reported approvals during the applicable period. Since the International
Finance Corporation did not provide approvals by region, amounts were
determined based on the distribution of its outstanding portfolio. Further,
to avoid any double counting, the total amount of MDB financing for the last
fiscal year does not include guarantees approved by the World Bank Group?s
MIGA because data were not available to determine the amount of MIGA
guarantees that insured other MDB financial assistance. Lending and
Financing
Activities
Page 10 GAO- 01- 665 Multilateral Development Banks
The MDBs provide assistance in the form of loans, loan and investment
guarantees, equity investments, and technical assistance. The primary
vehicle for development assistance is market- based lending to member
countries. Most loans are issued with market- based interest rates. However,
as indicated in table 2, four of the five MDB groups offer loans at
concessional rates, which are generally between zero and 4 percent.
Concessional lending is provided to the poorest of the developing countries.
Table 2 summarizes the type of development assistance provided by each of
the MDB groups and their related entities.
Table 2: Development Assistance Available at Each Multilateral Development
Bank Multilateral development bank Market- based
loans Concessional loans Equity
investments Loan and
investment guarantees Technical
assistance
World Bank Group International Bank for Reconstruction and Development ! !!
International Development Association ! !!
International Finance Corporation ! ! ! !
Multilateral Investment Guaranty Agency ! !
African Development Bank Group African Development Bank ! ! ! !
African Development Fund ! !
Asian Development Bank Ordinary Capital Resources ! ! ! !
Asian Development Fund !
Inter- American Development Bank Ordinary Capital ! !!
Fund for Special Operations ! !
Inter- American Investment Corporation ! !!
European Bank for Reconstruction and Development ! ! ! !
Source: Multilateral Development Bank annual reports and audited financial
statements.
MDBs issue loans, in various currencies, to the sovereign member countries
and private sector enterprises for development projects within borrowing
member countries. In some cases, a member country guarantees loans made to
private sector enterprises for projects within the member?s country, and as
a result, the member itself may be held liable for defaulted loans.
Page 11 GAO- 01- 665 Multilateral Development Banks
MDBs have lending policies that state that no further loan disbursements
will be granted to borrowing members if any of the MDB loans to or
guaranteed by the member country are in default. This gives the borrowing or
guaranteeing member strong incentives to maintain timely loan repayments to
the MDBs. Member countries must ensure that loans they have guaranteed also
remain current. Therefore, the MDB is given preferred creditor status 12 by
member governments. Generally, this preferential status does not affect the
MDBs? loans to the private sector when there is no guarantee by a member
country.
Operations of MDBs that provide loans with market- based rates are financed
primarily through borrowings from world capital markets, members? paid- in
capital, and retained earnings. Members also provide capital through
subscriptions to callable capital, which resemble promissory notes from
member countries to honor MDB debts if the MDB cannot otherwise meet its
obligations through its other available resources. Calls on this type of
capital are uniform based on all callable capital shares outstanding. Since
member countries make payments independent of each other, if the amount
received on a call were insufficient to meet the obligations for which the
call was made, the MDB would make further calls until the amounts received
were sufficient to meet its obligations. However, no member may be required
to pay more than the unpaid balance of its total callable capital
subscribed. To date, there has never been a call on this capital for any of
the MDBs included in our report.
Callable capital may only be used when necessary to pay obligations of the
MDB; it may not be used to fund new loans. Because of the significant
proportion of callable capital that is subscribed by members with strong
credit ratings, including the United States, MDBs are able to use callable
capital as backing to obtain very favorable financing terms when borrowing
from world capital markets. This allows the MDBs to lend much more than the
amount of capital paid in by members and at more advantageous terms than
would be available to borrowers solely on the basis of their own credit
standings. MDBs that have callable capital from members include the
International Bank for Reconstruction and Development, the Multilateral
Investment Guaranty Agency, the African
12 The preferred creditor status derives from the borrowers? traditional
practice of servicing debt owed to the MDBs before servicing debt owed to
other lenders. The articles of agreement of the MDBs do not address
preferred creditor status. Market- Based Lending and
Related Financing
Page 12 GAO- 01- 665 Multilateral Development Banks
Development Bank, the Asian Development Bank?s Ordinary Capital Resources,
the Inter- American Development Bank?s Ordinary Capital, and the European
Bank for Reconstruction and Development.
Dealing in various currencies and borrowing funds to finance lending
operations exposes these MDBs to market risk, which is comprised of interest
rate risk 13 and exchange rate risk. 14 To minimize these risks, MDBs (1)
match the maturities of their assets and liabilities, (2) often set and
semiannually adjust interest rates on loans based on their cost of borrowing
funds, and (3) attempt to match the currency composition of their lending
and borrowing portfolios. In addition, because of the developmental nature
of their operations, the MDBs are exposed to credit risk 15 from lending to
low- and middle- income countries, which generally have lower credit
quality. Each of the MDBs has established lending policies that attempt to
minimize credit risk, including the suspension of further disbursements to
members that have outstanding loans that are nonperforming or in a
nonaccrual 16 status.
The lending arms of the MDBs that provide concessional rate loans to the
poorest of the developing countries- those meeting certain eligibility
requirements- are financed through capital contributions from member
countries and borrower repayments of outstanding loans. Due to the nature of
concessional lending, these entities do not have callable capital
subscriptions and do not borrow from world capital markets to finance their
operations.
Unlike the market- based lending arms of the MDBs, which borrow from world
capital markets to fund lending, concessional lending arms rely on
13 ?Interest rate risk? refers to the changes in interest rates that affect
the spread differences between the rate at which money is earned on lending
activities and the rate paid for money borrowed to fund lending.
14 ?Exchange rate risk? refers to the possibility of gains or losses that
arise when an entity has assets and liabilities and/ or conducts
transactions that are denominated in currencies other than the currency in
which it maintains its accounts.
15 ?Credit risk? refers to the risk of default by a borrower or guarantor
that may result from nonperformance under the terms of lending agreements.
16 A loan is considered to be in a nonaccrual status when loan payments are
delinquent over an extended period of time, generally 6 months for most of
the MDBs discussed in this report. Concessional Lending and
Related Financing
Page 13 GAO- 01- 665 Multilateral Development Banks
capital replenishments 17 or periodic contributions by members in order to
continue lending operations. As a result, these entities do not have the
same interest rate risks associated with borrowing in the marketplace to
fund lending as do the MDBs that provide market- based lending through
leveraging high- quality callable capital. However, due to the nature of
concessional lending to the poorest of the developing countries, these
entities are exposed to considerable credit risks. Because of the credit
risk of their borrowers and the extended maturity structure of this type of
lending, the concessional lending arms discussed in this report, except for
the Asian Development Fund, do not estimate allowances for possible losses
related to their loan portfolios.
The private sector MDB affiliates that provide equity investments rely on
members? paid- in capital contributions, as opposed to callable capital, to
finance equity investment activities. However, these entities also borrow
from world capital markets to finance lending operations. These affiliates
include the International Finance Corporation of the World Bank Group and
the Inter- American Investment Corporation.
The Heavily Indebted Poor Countries (HIPC) Initiative is a debt relief
program aimed at the world?s poorest nations. The World Bank Group and the
International Monetary Fund proposed the HIPC Initiative in 1996 in response
to a call from leaders of major industrial nations for a comprehensive
approach to the debt problems of the poorest countries. Enhancements to the
HIPC Initiative were implemented in 1999. The initiative was designed as a
coordinated approach to reduce to sustainable levels the external debt
burden of the most heavily indebted countries. 18 The goal of the initiative
is expected to provide $29.3 billion 19 in debt relief to 32 eligible
countries. Debt relief is linked to the support of economic and social
programs designed to reduce poverty. The initiative calls for countries to
prepare a comprehensive ?country owned? poverty reduction strategy before
completing the program. The MDBs that participate in the HIPC Initiative
include the International Bank for Reconstruction and
17 Capital replenishments refer to periodic contributions by member
countries that are agreed upon by the institution?s board of governors.
These replenishments depend on members to make agreed- upon contributions in
order to fund concessional lending operations over a specified period of
time.
18 GAO reported in June 2000 that the initiative is unlikely to achieve this
goal unless optimistic economic assumptions are satisfied (GAO/ NSIAD- 00-
161, June 29, 2000). 19 This amount is based on 1999 net present value
dollars. Heavily Indebted Poor
Countries Initiative
Page 14 GAO- 01- 665 Multilateral Development Banks
Development, the International Development Association, the African
Development Bank Group, and the Inter- American Development Bank. 20
The participation of some multilateral institutions is financed through a
trust fund administered by the International Development Association of the
World Bank Group. The HIPC Trust Fund receives contributions from
participating countries. The HIPC Trust Fund?s operations and assets are
completely separate from those of the International Development Association.
The fund can prepay or purchase a portion of debt owed to participating MDBs
and cancel such debt, or it can pay debt service as it comes due. In fiscal
year 2001, the Congress authorized to be appropriated during the period of
October 1, 2000, through September 30, 2003, $435 million for U. S.
contributions to the HIPC Trust Fund.
An MDB?s activities are overseen through a board of governors, with a
governor from each member. In general, a board of governors is responsible
for admitting new members, increasing or decreasing capital, suspending
members, authorizing agreements for cooperation with other international
organizations, making decisions about the board of executive directors,
approving the bank?s financial statements, determining the reserves and the
distribution of profits, and making decisions about the scope of the MDB?s
operations. Each of the MDBs also has a board of executive directors to whom
the board of governors has delegated oversight of day- to- day operations.
In general, each board of executive directors is responsible for ensuring
the implementation of the decisions of the board of governors; making
decisions concerning loans, guarantees, investments, technical assistance,
and borrowing funds; submitting accounts to the board of governors; and
approving the budget of the bank. The MDB?s daily operations are carried out
by its own management and staff of international civil servants.
Generally, MDBs were established pursuant to articles of agreement that
specify the MDB?s purpose, operations, capital structure, and organizational
policies. The articles
outline the bank?s conditions for borrowing and lending activities,
including the loan approval process;
20 According to the Asian Development Bank (AsDB), members have concluded
that there currently is minimal or no need for AsDB to finance debt relief
under the HIPC Initiative. Governance Structure
Page 15 GAO- 01- 665 Multilateral Development Banks
determine how voting shares 21 are allocated to members (such allocations
are generally based on a member?s subscribed capital or total
contributions);
establish the status, immunity, and privileges of the MDB; and
provide for the disposition of currencies available to the bank, the
withdrawal and suspension of members, and the suspension and termination of
the bank?s operations.
As international financial entities, MDBs are not subject to supervision or
oversight by national financial regulators. The MDBs? own boards of
executive directors are responsible for setting rules to be observed by the
MDBs in their operations.
The MDBs included in our report received unqualified or ?clean? audit
opinions on their financial statements from large, international public
accounting firms for the 3 most recent fiscal years. MDBs prepare their
financial statements to comply with different bases of accounting. Some MDBs
present their financial statements using U. S. generally accepted accounting
principles (GAAP), while others use International Accounting Standards or a
combination of the two. Due to the special nature and organization of the
concessional lending arms of the MDBs, some of these entities prepare
special- purpose financial statements that are meant to show the sources and
uses of resources and to comply with accounting standards specific to the
affiliate?s operations. The concessional lending arms that prepare special-
purpose financial statements include the International Development
Association, the African Development Fund, and the Inter- American
Development Bank?s Fund for Special Operations.
Later sections of this report present ratios for each MDB that can be used
to interpret financial information related to MDB operations. Where
applicable, the financial ratios are presented for each MDB. Standard &
Poor?s used many of these same ratios in its evaluation of several of these
MDBs. 22
21 Generally, decisions by the boards of governors and executive directors
regarding the banks? operations are made by voting. 22 The MDBs receive
credit ratings from other rating agencies. However, we used Standard &
Poor?s data for our analysis because of its completeness, its coverage of
several of the MDBs, and its timing. Financial Statement Audits
Financial Data and Ratio Analysis
Page 16 GAO- 01- 665 Multilateral Development Banks Asset quality as it
relates to the MDBs generally refers to the
composition of the loan portfolio and is ultimately evidenced in the record
of loan payments to the MDB. Asset quality reflects the creditworthiness of
borrowers and is important for assessing credit risk. Asset quality also
reflects the degree of concentration of risk, which considers the impact on
the loan portfolio of potential default by the largest borrowers. The
preferred creditor status attributed to MDBs generally improves the quality
of the MDBs? assets. Where applicable, the following financial information
is presented to assess asset quality of the MDBs.
Concentration of loans to the MDBs? five largest borrowers or countries of
operation indicates the impact that an economic downturn in a specific
region or country could have on the loan portfolio.
Nonaccrual loans as a percentage of total loans outstanding indicates the
percentage of the MDB?s loan portfolio that is currently nonperforming.
Loan loss allowance as a percentage of total loans outstanding
indicates how much the MDB estimates it will lose due to nonperformance or
default as a result of credit risk related to its loan portfolio.
Loan loss allowance as a percentage of total nonaccrual loans
indicates the sufficiency of the MDB?s allowances for estimated losses
compared to its currently nonperforming portfolio.
Capital quality as it relates to the MDBs refers to the composition of
capital as well as the portion of callable capital from the more
creditworthy members. Where applicable, the following financial information
is presented to assess the capital quality of the MDBs.
Paid- in capital as a percentage of total subscribed capital indicates the
portion of subscribed capital that has been actually paid by members.
AAA rated 23 callable capital as a percent of total callable capital
indicates the quality of capital that has been subscribed but not paid- in
23 See table 3 for definitions of credit ratings.
Page 17 GAO- 01- 665 Multilateral Development Banks
by members. The quality of callable capital is important as a gauge of the
ability of members to meet a capital call in the unlikely event that an MDB
cannot service its debt.
Gearing ratios, as they relate to the MDBs, are measures of loans
outstanding compared to the different types of capital available to the MDB.
MDBs establish policies on gearing, which limit the ratio of outstanding
loans to capital and reserves, to address the inherent risks of their
lending activities. Where applicable, the following financial information is
presented for the MDBs to use in assessing gearing.
Net disbursed loans as a percentage of paid- in capital plus reserves
indicates the ability to absorb borrower defaults without resorting to
capital calls. Paid- in capital plus reserves is a measure of funds actually
available to the MDB.
Net disbursed loans as a percent of AAA callable capital plus paid- in
capital and reserves indicates the ability of the MDB to absorb defaults.
Leverage is a measure of the MDB?s outstanding debt compared to the
different types of its capital. Similar to gearing ratios, leverage
limitations are established by some of the MDBs to address the inherent
risks of their activities. Where applicable, the following financial
information is presented for the MDBs to use in assessing leverage.
Outstanding debt as a percentage of paid- in capital plus reserves
provides a comparison of an MDB?s outstanding debt with its paid- in capital
plus reserves for funding its operations.
Outstanding debt as a percentage of AAA callable capital plus paidin capital
and reserves indicates the MDB?s ability to meet its outstanding debts with
the support of the most creditworthy countries.
Liquidity is a measure of an MDB?s ability to pay its current debt service
and to fund its lending operations on a timely basis. The MDBs? assets from
their lending operations are relatively illiquid. Therefore, MDBs must rely
on sufficient liquid assets, such as investments in marketable securities,
to ensure timely payment of debt service and disbursement of new loans.
Where applicable, the following financial information is presented for the
MDBs to use in assessing liquidity.
Page 18 GAO- 01- 665 Multilateral Development Banks
Liquid assets as a percentage of undisbursed loans plus 1 year of debt
service indicates how well MDBs are able to meet their current obligations.
Administrative expenses ratio is a measure of administrative expenses
compared to total expenses.
Administrative expenses as a percentage of total expenses indicates the
portion of total expenses attributable to administrative activities of the
MDBs.
Profitability ratio measures how well an entity performed during a given
time period, usually a year. Although MDBs? primary objective is to promote
economic and social development and not to maximize profits, MDBs do seek to
earn adequate income to cover their operational costs and to build adequate
reserves.
Net operating income as a percent of average assets is the rate of return on
an MDB?s assets for the year and is a key measure of the MDB?s
profitability.
Because MDBs follow different accounting standards to prepare financial
data, use different methodologies to estimate loan losses, and have
different policies relating to nonaccrual loans, caution must be taken when
comparing financial results. Further, MDBs serve different purposes and
borrowers, which also affects the comparability of financial data.
Credit ratings are useful for assessing the MDB itself as well as its
borrowers and members. Credit ratings apply to the MDBs insofar as they
borrow in the market place to finance their lending activities. The credit
ratings of borrowing countries also apply to MDBs insofar as the
creditworthiness of an MDB?s borrowers affects the MDB?s loan portfolios. A
credit rating is intended to convey a current evaluation of a borrower?s
overall creditworthiness to pay its financial obligations. The borrower?s
capacity and willingness to pay its obligations are taken into account in
establishing a rating. Table 3 summarizes Standard & Poor?s long- term
credit ratings. Borrowers rated AAA and AA are considered to have a very
strong capacity for meeting financial commitments. Borrowers rated A and BBB
have a strong- to- adequate capacity to meet financial commitments but with
some susceptibility to adverse changes in circumstances. Borrowers rated BB,
B, CCC, and CC have uncertainties and vulnerabilities in their abilities to
meet their financial obligations, with BB indicating the least degree of
uncertainty and vulnerability within that Credit Ratings
Page 19 GAO- 01- 665 Multilateral Development Banks
range and CC, the highest. BB through CC borrowers will likely have some
mitigating quality and protective characteristics; however, these may be
outweighed by great uncertainties or major exposures to adverse conditions.
Ratings from AA to CCC may be modified with a plus (+) or minus (-) sign to
show the relative standing within the major rating categories.
Table 3: Standard & Poor?s Long- Term Credit Rating Definitions Category
Credit rating definition
AAA Extremely strong capacity to meet its financial commitments. This is the
highest rating available. AA Very strong capacity to meet its financial
commitments. A Strong capacity to meet its financial commitments but is
somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than higher rated categories. BBB Adequate capacity to meet
financial commitments. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet financial commitments. BB Less vulnerable in the
near future than the lower- rated borrowers. However,
it faces major ongoing uncertainties and exposure to adverse business,
financial, or economic conditions, which could lead to the borrower?s
inadequate capacity to meet financial commitments. B More vulnerable than
the borrower rated BB, but currently has the capacity
to meet its financial commitments. Adverse business, financial, or economic
conditions will likely impair the borrower?s capacity or willingness to meet
its financial commitments. CCC Currently vulnerable and is dependent upon
favorable business, financial,
and economic conditions to meet its financial commitments. CC Currently
highly vulnerable. Selective Default Borrower has failed to pay one or more
of its financial obligations when due.
This rating is given when it is believed that the borrower has selectively
defaulted on a specific obligation but will continue to meet its payment
obligations on other obligations in a timely manner.
Source: Standard & Poor?s, Counterparty Ratings Guide.
Despite the risks associated with the MDBs? operations, many factors
contribute to the generally high credit ratings several of the MDBs received
from Standard & Poor?s. These factors include capital contributions and
subscriptions from highly rated members, preferred creditor status
attributed to obligations to the MDBs by borrowing members, and the MDBs?
overall conservative financial policies. Table 4 shows the credit ratings
for six MDBs that primarily borrow from world capital markets to finance
their lending activities.
Page 20 GAO- 01- 665 Multilateral Development Banks
Table 4: Standard & Poor?s Credit Ratings of Multilateral Development Banks
as of September 2000
Multilateral Development Bank Credit rating and outlook
International Bank for Reconstruction and Development AAA with a stable
outlook for the future International Finance Corporation AAA with a stable
outlook for the future African Development Bank AA+ with a negative outlook
for the future Asian Development Bank - Ordinary Capital Resources AAA with
a stable outlook for the future Inter- American Development Bank - Ordinary
Capital AAA with a stable outlook for the future European Bank for
Reconstruction and Development AAA with a stable outlook for the future
Source: Standard & Poor?s, Supranationals Special Edition 2000, September
2000.
The Congress appropriates funds for U. S. contributions to the MDBs. The
United States has provided a total of $40 billion to the MDBs included in
this report. The largest cumulative U. S. contribution, $25.8 billion, has
been made to the International Development Association. The United States
has also subscribed to callable capital of $68.8 billion to the MDBs
included in this report. The largest subscriptions of callable capital have
been to the International Bank for Reconstruction and Development and the
Inter- American Development Bank?s Ordinary Capital for $29.9 billion and
$29 billion, respectively. For each of the MDBs included in our report,
table 5 summarizes resources the United States has provided to the MDBs from
inception through December 31, 1999, except for the MDBs affiliated with the
World Bank Group, whose data are as of June 30, 2000. The United States is
the largest member in most of these MDBs. U. S. Involvement in
the Multilateral Development Banks
Page 21 GAO- 01- 665 Multilateral Development Banks
Table 5: Resources Provided to the Multilateral Development Banks From the
United States (Dollars in millions) Multilateral Development Bank
U. S. paid- in capital or contributions U. S. callable
capital Total U. S. subscriptions a
U. S. percent of total subscriptions within each MDB
World Bank Group International Bank for Reconstruction and Development
$1,998.4 $29,966.2 $31,964.5 16.95 International Development Association
25,841.8 Not applicable b 25,841.8 24.28 International Finance Corporation
569.4 Not applicable b 569.4 24.16 Multilateral Investment Guaranty Agency
45.2 181.3 226.5 17.79 African Development Bank Group
African Development Bank 153.3 1, 073.0 1, 226.3 5. 34 African Development
Fund 1,560.6 Not applicable b 1,585.2 c 11.03 Asian Development Bank
Ordinary Capital Resources 531.1 7, 052.8 7, 583.9 15.93 Asian Development
Fund 2,647.9 Not applicable b 2,647.9 12.95 Inter- American Development Bank
Ordinary Capital 1, 303.0 29,006.7 30,309.7 30.04 Fund for Special
Operations 4,798.2 Not applicable b 4,798.2 49.75 Inter- American Investment
Corporation
51.0 Not applicable b 51.0 25.04 European Bank for Reconstruction and
Development 527.4 1, 481.8 2, 009.2 10.18
Total $40,027.3 $68,761.8 $108,813.6
Note: Data are as of December 31, 1999, except for the banks affiliated with
the World Bank Group, for which the data are as of the June 30, 2000, fiscal
year- end. These were the most recent data available from the MDBs? audited
financial statements. a There are some differences between the amounts
reported in the MDBs? audited financial statements
and Treasury data. b This MDB does not finance development activities with
borrowing from world capital markets and, therefore, does not rely on
callable capital. Operations are financed primarily through industrialized
member country contributions. c The difference of $24.6 million between the
amount of paid- in and total subscriptions represents an
installment due from the United States for payment under the eighth
replenishment agreement to the African Development Fund as of December 31,
1999.
Source: Multilateral Development Banks? audited financial statements.
Tables 6 and 7 provide a summary of U. S. appropriations for contributions
and approved callable capital subscriptions to the MDBs for fiscal years
1996 through 2001.
Page 22 GAO- 01- 665 Multilateral Development Banks
Table 6: U. S. Appropriations for Contributions to the Multilateral
Development Banks for Fiscal Years 1996 through 2001 (Dollars in millions)
Multilateral Development Bank FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY
2001
World Bank Group International Bank for Reconstruction and Development
$28.2 $0.0 $0.0 $0.0 $0.0 $0.0 a International Development Association
700.0 700.0 1, 034.5 800.0 775.0 775.0 International Finance Corporation
60.9 6. 7 0.0 0. 0 0.0 0. 0 Multilateral Investment Guaranty Agency
0.0 0. 0 0.0 0. 0 4.0 10.0 African Development Bank Group
African Development Bank 0.0 0. 0 0.0 0. 0 4.1 6. 1 African Development Fund
0.0 0. 0 45.0 128.0 128.0 100.0 Asian Development Bank Ordinary Capital
Resources 13.2 13.2 13.2 13.2 13.7 0. 0 Asian Development Fund 0.0 100.0
150.0 210.0 77.0 72.0 Inter- American Development Bank Ordinary Capital 26.0
25.6 25.6 25.6 25.6 0. 0 Fund for Special Operations 10.0 10.0 20.8 21.2 0.
0 0.0 Inter- American Investment Corporation
0.0 0. 0 0.0 0. 0 16.0 25.0 European Bank for Reconstruction and Development
70.0 11.9 35.8 35.8 35.8 35.8
Total $908.3 $867.4 $1,324.9 $1,233.8 $1,079.2 $1,023.9
Note: Not all MDBs received appropriations for contributions in each fiscal
year. a The International Bank for Reconstruction and Development is the
trustee for the Global
Environment Facility, which was appropriated $108 million during fiscal year
2001. Source: Congressional Research Service, Multilateral Development
Banks: U. S. Contributions FY 1989- 2000, February 10, 2000, Jonathan E.
Stanford and P. L. 106- 429.
Page 23 GAO- 01- 665 Multilateral Development Banks
Table 7: U. S. Approved Callable Capital Subscriptions to the Multilateral
Development Banks for Fiscal Years 1996 through 2001 (Dollars in millions)
Multilateral Development Bank FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY
2001
World Bank Group International Bank for Reconstruction and Development
$911.4 $0.0 $0.0 $0.0 $0.0 $0.0 Multilateral Investment Guaranty Agency 0. 0
0.0 0. 0 0.0 20.0 50.0 African Development Bank Group African Development
Bank 0.0 0. 0 0.0 0. 0 64.0 97.5 Asian Development Bank Ordinary Capital
Resources 647.9 647.9 647.9 647.9 672.2 0. 0 Inter- American Development
Bank Ordinary Capital 1, 523.8 1, 503.7 1, 503.7 1, 503.7 1, 503.7 0. 0
European Bank for Reconstruction and Development 163.3 27.8 123.2 123.2
123.3 123.2
Total $3,246.4 $2,179.4 $2,274.8 $2,274.8 $2,383.2 $270.7 a
a The amount of U. S. approved callable capital subscriptions significantly
decreased in fiscal year 2001 because only three of these MDBs were in a
replenishment period. The amount needed for subscriptions to callable
capital should be expected to increase as members agree to further capital
replenishments for the MDBs.
Source: Congressional Research Service, Multilateral Development Banks: U.
S. Contributions FY 1989- 2000, February 10, 2000, Jonathan E. Stanford and
P. L. 106- 429.
The Department of the Treasury oversees U. S. interests in the MDBs. The
Secretary of the Treasury currently serves as the U. S. governor on each MDB
board of governors. The United States has executive directors that are
presidentially approved and confirmed by the U. S. Senate and that serve
full- time on each MDB board of executive directors. Over time, the Congress
has enacted many legislative policy mandates with respect to the MDBs. Many
of the mandates direct the Secretary of the Treasury to instruct the U. S.
executive directors to use their ?voice? and ?vote? to pursue certain U. S.
policies. These mandates, addressing a variety of issues, specify what U. S.
policy shall be in particular situations or how the U. S. executive
directors shall vote on particular issues. Voting shares of the MDBs are
allocated to member countries based primarily on capital subscriptions or
contributions but may also be affected by requirements established in some
of the regional MDBs? articles that allow regional member countries to
maintain a certain level of control over operations. Table 8 summarizes the
U. S. voting percentages at each MDB.
Page 24 GAO- 01- 665 Multilateral Development Banks
Table 8: U. S. Voting Percentage at the Multilateral Development Banks
Multilateral Development Bank U. S. voting
percentage U. S. share compared to other member countries
World Bank Group International Bank for Reconstruction and Development
16.49 The U. S. has the largest voting share of any member country.
International Development Association 14.83 The U. S. has the largest voting
share of any member country. International Finance Corporation 23.73 The U.
S. has the largest voting share of any member country. Multilateral
Investment Guaranty Agency 14.60 The U. S. has the largest voting share of
any member country. African Development Bank Group African Development Bank
5.32 The U. S. has the largest voting share of any nonregional member
country; however, combined regional members maintain 62. 5 percent of the
total voting shares. African Development Fund 6.20 The U. S. has the second
largest voting share of a member country;
the African Development Bank maintains 50 percent of the total voting
shares. Asian Development Bank
Ordinary Capital Resources 13.09 The U. S. and Japan, a regional member,
have the largest and equal voting shares. Asian Development Fund 13.09 a
Voting shares are the same as the Asian Development Bank?s
Ordinary Capital Resources. Inter- American Development Bank
Ordinary Capital 30.03 The U. S. has the largest voting share of any member
country; however, regional members combined maintain 50.1percent of the
total voting shares. Fund for Special Operations 30.03 b Voting shares are
the same as Inter- American Development Bank?s
Ordinary Capital. Inter- American Investment Corporation 25.04 The U. S. has
the largest voting share of any member country. European Bank for
Reconstruction and Development 10.28 The U. S. has the largest voting share
of any member country.
Note: Data are as of December 31, 1999, except at the banks affiliated with
the World Bank Group, which have a different fiscal year- end and the data
are as of June 30, 2000. These were the most recent data available. a The
1999 annual report of the Asian Development Bank did not indicate how the
voting shares of the Asian Development Fund are allocated among its members.
However, the Congressional Research Service has reported that the Fund?s
voting shares are the same as the Ordinary Capital Resources. b The 1999
annual report of the Inter- American Development Bank did not specifically
indicate how the
voting shares of the Fund for Special Operations are allocated among its
members. However, the articles of agreement establishing the Inter- American
Development Bank indicate that the voting shares of the Fund are determined
in the same manner as the voting shares of the Bank. These provisions
indicate that the U. S. voting share shall not be below 30 percent.
Source: Multilateral Development Banks? audited financial statements, except
where noted.
The following sections present more details on the MDBs and their related
entities in which the United States has provided resources. These sections
include summary information on the MDB background and mission,
Page 25 GAO- 01- 665 Multilateral Development Banks
development activities, financing, and key financial data from the last 3
fiscal years.
The World Bank Group?s members include developing and industrialized
countries around the world. The group includes four institutions, or lending
arms, which provide different functions in carrying out the its mission of
fighting poverty and improving the standard of living in developing
countries throughout the world. These four institutions, discussed in more
detail in the remainder of this section, are as follows:
The International Bank for Reconstruction and Development (IBRD)- the
oldest and, based on total assets, the largest MDB- is the World Bank entity
that provides market- based loans, guarantees, and technical assistance to
middle- income countries and more creditworthy poorer countries.
The International Development Association is the World Bank?s concessional
lending arm and provides support for the bank?s poorer member countries.
The International Finance Corporation provides loans, equity investments,
and technical assistance for private sector enterprises.
The Multilateral Investment Guaranty Agency provides guarantees to foreign
investors against loss caused by noncommercial risks, as well as technical
assistance to host governments.
IBRD is a member of the World Bank Group and was established in 1945. The
principal stated purpose of IBRD is to reduce poverty by promoting
sustainable economic development. IBRD seeks to achieve this goal by
providing loans, guarantees, and technical assistance for projects and
programs of economic reform to its developing member countries, which are
primarily middle- income and creditworthy poorer countries not limited to a
specific region of the world. As reported in its fiscal year 2000 financial
statements, IBRD had 181 members, of which 98 were borrowing countries. IBRD
does not operate to maximize profits but seeks to earn adequate net income
to ensure its financial strength and to support its development activities.
The primary vehicle of IBRD development assistance is direct lending. All of
IBRD?s loans are made to or guaranteed by members, except for loans to the
World Bank Group?s International Finance Corporation. IBRD offers The World
Bank
Group International Bank for Reconstruction and Development
Development Activities
Page 26 GAO- 01- 665 Multilateral Development Banks
several different loan products in a variety of currencies to meet the needs
of its borrowers. In general, IBRD charges interest rates that are based on
either IBRD?s average cost of borrowing plus a spread or the London
Interbank Offer Rates (LIBOR) 24 plus a spread. Repayment periods and grace
periods depend on the type of loan or the borrower?s repayment abilities.
The choice in financial terms is intended to provide borrowers with the
flexibility to select terms that are both compatible with their debt
management strategy and suited to their debt servicing capability. As of
June 30, 2000, IBRD?s loans outstanding totaled approximately $120 billion,
including $2.0 billion in nonaccrual status. As shown in table 9, nearly 42
percent of this outstanding balance is from IBRD?s five largest borrowing
countries.
Table 9: Concentration of Loans Outstanding to IBRD?s Five Largest Borrowers
as of June 30, 2000
Five largest borrowers
Loans outstanding (in millions) Percentage of total
loans outstanding Standard & Poor?s credit rating a
Indonesia $11,755 9. 79 BMexico 11,111 9. 25 BB+ China 10,719 8. 93 BBB
Argentina 8, 292 6.90 BBRepublic of Korea 8, 160 6.79 BBB
Total $50,037 41.66
a Credit rating is based on the most recent rating prior to January 1, 2001,
for the borrowing country. Sources: IBRD?s fiscal year 2000 audited
financial statements and Standard & Poor?s, Sovereign Ratings History Since
1975.
In fiscal year 2000, IBRD approved loans of about $10.9 billion to
developing countries for projects and programs in various sectors. During
fiscal year 2000, human development projects and programs were among IBRD?s
lending priorities. These efforts are aimed at education, health, nutrition,
and social protection. Strengthening the financial sector and improving
public sector management and infrastructure needs, including transportation,
telecommunications, and water supplies, were also a focus
24 LIBOR, a commonly used index for international lending, represents key
interest rates at which the major banks in the London interbank market are
willing to lend funds to each other at various maturities and for different
currencies. LIBOR is a key floating rate pricing benchmark for loans and
debt instruments in the global financial markets. These rates are published
daily by the Bank of England and are based on sampling from a group of
reference banks that are active in the Eurocurrency market, but agreements
that use LIBOR do not necessarily rely on quotes published by the Bank of
England.
Page 27 GAO- 01- 665 Multilateral Development Banks
of fiscal year 2000 approvals. Development efforts in these areas are aimed
at attracting private sector investment and poverty reduction in developing
countries. In fiscal year 2000, Turkey received the greatest amount of new
IBRD commitments, with approximately $1.8 billion in support of structural
and social reforms, including over $750 million in response to a severe
earthquake in the region.
IBRD?s operations are financed through retained earnings, paid- in capital,
and borrowings obtained from world capital markets using callable capital as
backing. As of June 30, 2000, AAA- rated countries accounted for 44 percent
of IBRD?s total callable capital. Based on its strong membership support and
preferred creditor status, among other factors, IBRD received a AAA credit
rating with a stable outlook for the future from Standard & Poor?s during
September 2000. The quality of IBRD?s callable capital and its AAA credit
rating allow the bank to borrow funds from world capital markets at
favorable interest rates for long loan terms. This results in IBRD?s ability
to pass on more favorable lending terms to borrowers than would normally be
available to them based on their own credit standing.
IBRD?s financial statements are prepared in accordance with U. S. GAAP and
International Accounting Standards. IBRD received an unqualified audit
opinion on its financial statements from Deloitte Touche Tohmatsu for fiscal
years 1998 through 2000. Table 10 summarizes key financial data related to
IBRD?s results of operations over the past 3 fiscal years. Financing
Activities
Key Financial Data
Page 28 GAO- 01- 665 Multilateral Development Banks
Table 10: Key Financial Data for IBRD for Fiscal Years 1998 through 2000
Financial data 2000 1999 1998
(Dollars in millions) Total assets $227,810 $230,808 204,971 Loans
outstanding 120,104 117,228 106,576 Undisbursed loans 44,754 51,372 51,065
Debt outstanding 110,379 115,739 103,589 Retained earnings 19,027 17,709
16,733 Paid- in capital 9, 748 9,549 9,398 Total subscribed capital 188,606
188,220 186,436 Revenues 10,045 9, 513 8,561 Expenses 8, 054 7,995 7,318 Net
operating income 1,991 1,518 1,243
Financial ratios 2000 1999 1998
(Percentages)
Asset quality
Nonaccrual loans / loans outstanding 1. 7 1.8 1. 9 Loan loss allowance /
loans outstanding 2. 8 3.0 3. 0 Loan loss allowance / nonaccrual loans 167.4
173.4 158.5
Capital quality
Paid- in capital / total subscribed capital 5. 2 5.1 5. 0 AAA callable
capital / total callable capital 43.9 44.0 44.5
Gearing
Net disbursed loans / (paid- in capital + reserves) 405.6 417.0 395.5 Net
disbursed loans / (AAA callable capital + paid- in capital + reserves) 109.4
108.1 99.4
Leverage
Debt outstanding / (paid- in capital + reserves) 383.6 424.6 396.4 Debt
outstanding / (AAA callable capital + paid- in capital + reserves) 103.5
110.1 99.6
Liquidity
Liquid assets / (undisbursed loans + 1- year debt service) a 35.4 37.2 33.6
Administrative expenses and profitability
Administrative expenses / total expenses 11.6 10.6 10.4 Net operating income
/ average assets 0.9 0. 7 0.7
Note: Data are as of June 30 of the applicable fiscal year. a Liquidity
ratio was taken from Standard & Poor?s Supranationals Special Edition 2000,
September
2000. Source: Data used in calculating these ratios were taken from IBRD?s
audited financial statements for fiscal years 1998 through 2000, except
where noted.
Page 29 GAO- 01- 665 Multilateral Development Banks
The International Development Association (IDA) was established in 1960 and
is the concessional lending arm of the World Bank Group. IDA primarily
supports poverty reduction by providing interest- free loans, called
?credits,? to the poorest developing countries throughout the world. IDA
also provides loan guarantees and technical assistance. In order to qualify
for IDA lending, a country?s per capita income in 1999 had to be equivalent
to less than U. S. $885, and the country had to have only limited or no
creditworthiness for IBRD lending. IDA?s concessional lending is targeted to
building the human capital, policies, institutions, and physical
infrastructure needed to bring about equitable and sustainable growth.
Specifically, many development projects address basic human needs, such as
primary education, health services, clean water, and sanitation. IDA also
funds projects that protect the environment, improve conditions for private
business, build infrastructure, and support reforms that are aimed at
liberalizing countries? economies.
IDA credits generally have maturities of 35 or 40 years and offer 10- year
grace periods on repayment of principal. There is no interest charge, but
credits do carry a small service charge, currently 75 basis points of
disbursed balances. As of June 30, 2000, IDA?s outstanding credits totaled
approximately $86 billion, including $4.2 billion of credits in nonaccrual
status. As shown in table 11, nearly 48 percent of IDA?s total credits
outstanding were due from IDA?s five largest borrowing countries.
Table 11: Concentration of Credits Outstanding to IDA?s Five Largest
Borrowers as of June 30, 2000
Five largest borrowers
Credits outstanding (in millions) Percentage of total
credits outstanding Standard & Poor?s credit rating a
India b $18,853 21.96 BB China c 8,695 10.13 BBB Bangladesh 6,402 7.46 Not
rated d Pakistan b 3,857 4.49 BGhana 3,037 3.54 Not rated d
Total $40,844 47.58
a Credit rating is based on the most recent rating prior to January 1, 2001,
for the borrowing country. b India and Pakistan are classified as ?blend
borrowers? that are eligible for IDA and IBRD lending. As the
creditworthiness of these countries improves, their use of IDA lending
should be expected to decline. c As of June 30, 1999, China is no longer
eligible for IDA credits.
d Standard & Poor?s has not issued a credit rating for this country. Source:
IDA?s fiscal year 2000 audited financial statements and Standard & Poor?s,
Sovereign Ratings History Since 1975.
International Development Association
Development Activities
Page 30 GAO- 01- 665 Multilateral Development Banks
During fiscal year 2000, IDA approved approximately $4.4 billion in new
credits to 52 countries. Nearly half of this new lending went to countries
in Africa. The human development sector- which includes education, health
and nutrition, and social protection- received approximately 38 percent of
IDA?s lending during this period. India was the largest recipient of IDA
credit approvals during fiscal year 2000, with IDA providing nearly $867
million in support of various projects. The next largest borrowers, Tanzania
and Vietnam, received approximately $330 million and $286 million,
respectively, in support of structural and social reform.
IDA?s concessional lending is financed primarily through developed member
country contributions, repayments of outstanding credits by borrowers,
services charges, and investment income. Since IDA does not charge interest
to its borrowers, periodic contributions called replenishments are needed
for IDA to continue its lending operations. These replenishments generally
cover a 3- year period. In 1998, member countries agreed to the twelfth
replenishment, which would allow lending of approximately $20.5 billion for
fiscal years 2000 through fiscal year 2002. This replenishment included
$11.6 billion of member country contributions, a $0.9 billion contribution
from IBRD?s net income, and $8.0 billion from IDA?s own funds, consisting of
borrower repayments and investment income.
Due to the special nature and organization of IDA, financial statements are
prepared for the specific purpose of reflecting the sources and uses of
member contributions and other development resources. IDA?s specialpurpose
financial statements are prepared to comply with procedures set forth in its
Articles of Agreement and agreed upon by members. Under IDA?s special
accounting procedures, management has elected to present loans at the full
face value and does not estimate a loan loss allowance related to its loan
portfolio. The financial statements are not meant to comply with U. S. GAAP
or International Accounting Standards. IDA received an unqualified audit
opinion on its financial statements from Deloitte Touche Tohmatsu for fiscal
years 1998 through 2000. Table 12 summarizes some of the key financial data
concerning IDA?s financial position over the past 3 fiscal years. Financing
Key Financial Data
Page 31 GAO- 01- 665 Multilateral Development Banks
Table 12: Key Financial Data for IDA for Fiscal Years 1998 through 2000
(Dollars in millions)
Financial data 2000 1999 1998
Resources available for development activities $22,209 $20,947 $21,542
Undisbursed credits 18,944 20,104 19,892 Credits outstanding 85,852 83,158
78,016 Nonaccrual credits 4,190 4,213 3,723 Cumulative member contributions
99,300 95,584 92,043
Note: Data are as of June 30 of the applicable fiscal year. Source: IDA?s
audited financial statements for fiscal years 1998 through 2000.
The International Finance Corporation (IFC) is a member of the World Bank
Group and was established in 1956 to further economic growth in its
developing member countries by promoting private sector development. IFC?s
primary objective is to provide loans and equity investments to private
sector enterprises where sufficient private capital is not otherwise
available on reasonable terms. Unlike most MDBs, IFC loans are not
guaranteed by benefiting countries. In addition, IFC provides technical
assistance and financial advice to businesses and governments. Membership in
IFC is open only to those countries that are members of the World Bank. IFC
had 174 members at the end of fiscal year 2000.
According to IFC?s Articles of Agreement, investments are to be made in
productive private enterprises. To be eligible for IFC financing, projects
must meet profitability and project viability criteria, benefit the economy
of the host country, and comply with stringent developmental impact
requirements. IFC?s main investment activity is making loans for private
entrepreneurial projects, which may involve expansions and modernization
efforts. Its lending activities include cofinancing, loan syndication,
underwriting, and guarantees, which act as a catalyst for additional project
funding from other lenders and investors. IFC also makes equity investments,
typically through the purchase of common or preferred stock.
As of June 30, 2000, IFC?s outstanding loan and equity investment portfolio
was $10.9 billion, an increase of 9 percent over the previous year?s
portfolio of $10 billion. Loans account for the major part of the financing
provided by IFC, representing $8.3 billion or about 76 percent of the
outstanding portfolio, while equity investments of $2.6 billion or about 24
percent of its outstanding portfolio were held by IFC as of June 30, 2000.
International Finance
Corporation Development Activities
Page 32 GAO- 01- 665 Multilateral Development Banks
IFC provides loans and equity investments for a wide range of sectors to
promote development in its member countries located throughout the world.
The two largest sectors are financial services and infrastructure, which
accounted for $4.7 billion or 43 percent of its $10.9 billion loan and
equity investment portfolio. Other sectors include mining, agribusiness,
manufacturing, chemicals, timber, textile, and tourism. As of June 30, 2000,
approximately $4. 3 billion or 39 percent of IFC?s outstanding loan and
equity investment portfolio related to development in the Latin America and
Caribbean region. This region has received $4.3 billion of $10.9 billion or
39 percent of IFC?s loan and equity investment portfolio.
As shown in table 13, 40 percent of IFC?s cumulative financing has been
provided to five countries. Since IFC loans are made to the private sector
and are not guaranteed by a member, the risk related to individual projects
is more meaningful than the credit rating of the member country in which the
project is located.
Table 13: IFC?s Five Largest Countries of Operations Based on Cumulative
Lending and Investments as of June 30, 2000
Five largest countries of operations
Cumulative lending and investments
(in millions) Percentage of total lending
and investment
Brazil $4,948 10.24 Argentina 4, 882 10.11 Mexico 4,054 8.39 Turkey 2,892
5.99 Thailand 2,664 5.51 Total $19,940 40.24
Source: IFC?s fiscal year 2000 audited financial statements.
IFC raises most of the funds for its lending and equity investment
activities by issuing notes, bonds, and debt securities in the international
capital markets. IFC may borrow in the public markets of a member country
only with approvals from that member. In fiscal year 2000, IFC borrowed $4.
4 billion. As of June 30, 2000, IFC?s total outstanding debt was $14.9
billion. Also, IFC finances its operations through borrowing from the World
Bank?s IBRD, paid- in capital, and retained earnings. As of fiscal year
2000, IFC had $2.4 billion of subscribed paid- in capital from its member
countries.
IFC?s financial statements are prepared in accordance with U. S. GAAP and
with International Accounting Standards. IFC received an unqualified
Financing
Key Financial Data
Page 33 GAO- 01- 665 Multilateral Development Banks
audit opinion on its financial statements from Deloitte Touche Tohmatsu for
fiscal years 1998, 1999, and 2000. Table 14 summarizes key financial data
related to IFC?s results of operations over the past 3 fiscal years.
Table 14: Key Financial Data for IFC for Fiscal Years 1998 through 2000
Financial data 2000 1999 1998
(Dollars in millions) Total assets $38,719 $33,456 $31,621 Loans outstanding
8,340 7,733 6,874 Equity investments outstanding 2,636 2,306 2,102 Debt
outstanding 14,919 12,430 11,162 Reserves 3,373 2,993 2,746 Paid- in capital
2, 360 2,352 2,338 Total subscribed capital 2, 372 2,374 2,364 Revenues
1,682 1,517 1,573 Expenses 1, 302 1,268 1,361 Net operating income 380 249
212
Financial ratios 2000 1999 1998
(Percentages)
Asset quality
Nonaccrual loans / loans outstanding 11.1 11.1 9. 2 Loan loss allowance /
loans outstanding 14.7 14.5 14.2 Loan loss allowance / nonaccrual loans
133.2 130.5 154.3
Gearing
Net disbursed loans / (paid- in capital + reserves) 156.4 153.7 146.6
Leverage
Debt outstanding / (paid- in capital + reserves) 260.2 232.6 219.6
Liquidity
Liquid assets / (undisbursed loans + one year debt service) a 322.5 286.8
207.0
Administrative expenses and profitability
Administrative expenses / total expenses 20.5 20.3 16.0 Net operating income
/ average assets 1.1 0. 8 0.7
Note: Data are as of June 30 of the applicable fiscal year. a Liquidity
ratio was taken from Standard & Poor?s, Supranationals Special Edition 2000,
September
2000. Source: Data used in calculating these ratios were taken from IFC?s
audited financial statements for fiscal years 1998 through 2000, except
where noted.
The Multilateral Investment Guaranty Agency (MIGA) is a member of the World
Bank Group and was established in 1988. Unlike the other entities of the
World Bank, MIGA does not provide loans to member governments Multilateral
Investment
Guaranty Agency
Page 34 GAO- 01- 665 Multilateral Development Banks
or private enterprises. Instead, MIGA provides investment guarantees and
insurance to foreign investors. The guarantees and insurance are intended to
stimulate foreign investment in developing countries by private investors
and commercially operated public sector companies. MIGA also provides
technical assistance to host governments advising on ways to enhance their
ability to attract foreign direct investment. MIGA?s operations are
structured to supplement the activities of the other institutions of the
World Bank Group. MIGA had 152 member countries at June 30, 2000.
To meet its objectives of promoting economic growth and development, MIGA
provides investment guarantees for up to 20 years against the political
risks of: (1) transfer restrictions, 25 (2) expropriation, 26 (3) breach of
contract, and (4) war and civil disturbances in the host country.
Investments eligible for MIGA guarantees include equity, loans, and loan
guarantees, provided that contractual commitments have terms of at least 3
years. Generally, guarantees can be made for up to 90 percent of the
investment contribution, plus additional amounts to cover earnings or
interest. MIGA seeks to guarantee those investment projects that contribute
to the host country?s needs and are also financially, economically, and
environmentally sound.
MIGA obtains reinsurance 27 to augment its underwriting capacity and to
protect portions of its insurance portfolio. The difference between MIGA?s
total guarantees outstanding and the portion of its portfolio covered by
reinsurance is MIGA?s net exposure. Although MIGA remains liable for the
entire guaranteed amount, the reinsurance provides MIGA with a source of
recovery in the event that it must cover an insured incident.
MIGA?s outstanding investment guarantees at the end of fiscal year 2000 were
$4.4 billion. During fiscal year 2000, outstanding guarantees increased by
19 percent from $3.7 billion to $4. 4 billion. MIGA?s guarantee
25 Transfer restrictions refer to difficulty or inability in converting
local currency into nonlocal currency. This condition can arise from
deterioration of conditions governing currency conversion, changes in
currency exchange laws, and government action that creates delays in
acquiring foreign exchange. Currency devaluation is not considered a
transfer restriction.
26 Expropriation refers to acts by a host government that reduce or
eliminate ownership, control, or rights to private investment. 27
Reinsurance is the transfer of the guarantee risk and premiums to another
insurance entity. Investment Guarantees
Page 35 GAO- 01- 665 Multilateral Development Banks
investment portfolio is diversified across several sectors. The financial
sector accounts for $1.5 billion, or 34 percent, followed by the
infrastructure sector, which accounts for $1.3 billion, or 29 percent of the
portfolio. Investment guarantees are made throughout the developing regions
in the world. The Latin America and Caribbean region accounts for a
significant portion of the outstanding portfolio with $2. 2 billion of
investment guarantees, or 51 percent of the portfolio. The majority of the
guarantees were granted to investors from the Netherlands, the United
States, and the United Kingdom, and they account for 20.5 percent, 19.7
percent, and 15.6 percent, respectively.
Table 15: Five Largest Country Exposures in MIGA?s Guarantee Portfolio as of
June 30, 2000 (Dollars in millions)
Five largest country exposures Guarantees
outstanding Net exposure
(guarantees less reinsurance)
Percentage of total guarantees outstanding
Brazil $631.4 $284.8 14.1 Argentina 431.3 203.7 9. 6 Peru 329.9 186.4 7. 4
Russia 269.1 127.0 6. 0 Turkey 225.6 132.8 5. 0
Total $1,887.3 $934.7 42.1
Note: Since MIGA?s guarantees insure the private sector, the credit rating
of the developing member country is not applicable.
Source: MIGA?s fiscal year 2000 audited financial statements.
MIGA finances its operations through member country subscriptions, which
initially were 20 percent to paid- in capital and the remaining 80 percent
to callable capital. In March 1999, MIGA?s board of governors 28 approved an
increase in capital resources to $2 billion, with the subscription period
ending March 28, 2002. As of June 30, 2000, member countries have provided
subscriptions totaling $1.27 billion, including $1 billion in callable
capital. In addition to member subscriptions, MIGA earns income from
premiums and fees for its guarantees and from its investments. In fiscal
year 2000, MIGA had income from its guarantees of $29.5 million and
investment income of $23.5 million.
MIGA?s financial statements are prepared in accordance with U. S. GAAP and
International Accounting Standards. MIGA received an unqualified
28 MIGA refers to its board of governors as its Council of Governors.
Financing
Key Financial Data
Page 36 GAO- 01- 665 Multilateral Development Banks
audit opinion on its financial statements from Deloitte Touche Tohmatsu for
fiscal years 1998, 1999, and 2000. Table 16 summarizes key financial data
related to MIGA?s results of operations over the past 3 fiscal years.
Table 16: Key Financial Data for MIGA for Fiscal Years 1998 through 2000
Financial data 2000 1999 1998
(Dollars in millions) Total assets $723 $632 $519 Gross guarantees
outstanding 4, 365 3,675 2,862 Reinsurance on guarantees 1,549 1,068 636 Net
exposure on guarantees 2,816 2,608 2,225 Reserves for claims 376 340 255
Retained earnings 55 44 34 Paid- in capital 148 121 115 Total subscribed
capital 1, 273 1,122 1,079 Revenues 56 49 192 Expenses 45 39 178 Net
operating income 11 10 15
Financial ratios 2000 1999 1998
(Percentages) Guarantee quality Net exposure on guarantees / total
guarantees outstanding 64.5 70.9 77.8 Reinsurance / total guarantees
outstanding 35.5 29.1 22.2 Reserve for claims / total guarantees outstanding
8.6 9. 3 8.9 Reserve for claims / net exposure on guarantees 13.3 13.0 11.5
Capital quality Paid- in capital / total subscribed capital 11.6 10.8 10.7
AAA callable capital / total callable capital 45.6 46.1 46.0
Administrative expenses and profitability Administrative expenses / total
expenses 40.3 39.4 6. 9 Net operating income / average assets 1.6 1. 8 3.8
Note: Data are as of June 30 of the applicable fiscal year. Source: Data
used in calculating these ratios were taken from MIGA?s audited financial
statements for fiscal years 1998 through 2000.
Page 37 GAO- 01- 665 Multilateral Development Banks
The African Development Bank Group includes the African Development Bank
(AfDB) and the African Development Fund (AfDF) 29 which serve the
development needs of Africa. AfDB provides market- based loans and other
development assistance to the public and private sector. As of December 31,
1999, AfDB had outstanding loans of $9.3 billion. AfDF provides concessional
loans, which provide key support to the bank?s poorest members. As of
December 31, 1999, AfDF had outstanding loans of $7.7 billion.
AfDB is a regional MDB established in 1964. The principal stated purpose of
AfDB is to promote sustainable economic growth and reduce poverty in Africa.
In this effort, AfDB targets agriculture, rural development, human resources
development, and private sector development. AfDB has 77 member countries,
including 53 regional members, which account for approximately 63 percent of
the bank?s total subscribed capital. In its 1999 annual report, AfDB
reported that only 13 of its borrowing member countries were eligible for
AfDB resources, while 39 borrowing member countries were eligible solely for
concessional assistance through AfDF. 30
AfDB provides development assistance through market- based loans, loan
guarantees, equity investments, cofinancing, and technical assistance.
Except for private sector development loans, all of the bank?s loans are
made to or guaranteed by member countries. AfDB currently offers several
types of loan products available in a variety of currencies to meet the
needs of its borrowers. Interest rates are primarily based on the bank?s
cost of borrowing plus a spread. Loan repayment periods and grace periods
vary according to the borrowers. As of December 31, 1999, AfDB had
approximately $9.3 billion of outstanding loans, including $1.3 billion that
were in nonaccrual status. As shown in table 17, approximately 60 percent of
the bank?s total loans outstanding are to its five largest borrowers.
29 AfDB operates other special funds whose funds are maintained and
accounted for separately from those of the bank. 30 Private sector entities
and distinct territories, or enclaves, within the member countries solely
eligible for concessional lending may be eligible for AfDB lending. African
Development
Bank Group African Development Bank
Development Activities
Page 38 GAO- 01- 665 Multilateral Development Banks
Table 17: Concentration of Loans Outstanding to AfDB?s Five Largest
Borrowers as of December 31, 1999
Five largest borrowers
Loans outstanding (in millions) Percentage of total
loans outstanding Standard & Poor?s credit rating a
Morocco $1,488 15.98 BB Tunisia 1, 410 15.15 BBB Nigeria 1,042 11.20 Not
rated b Algeria 951 10.22 Not rated b Cote d?Ivoire c 664 7.13 Not rated b
Total $5,555 59.68
a Credit rating is based on the most recent rating prior to January 1, 2001,
for the borrowing country. b Standard & Poor?s has not issued a credit
rating for this country. c According to AfDB?s 1999 Annual Report, Cote
d?Ivoire is no longer eligible for market- based lending through the bank.
Source: AfDB?s 1999 audited financial statements and Standard & Poor?s,
Sovereign Ratings History Since 1975.
As AfDB reported in its annual report, during 1999, it approved about $1.1
billion of new lending and equity investments, of which approximately $920
million, or 86 percent were loans to or guaranteed by member countries. The
remaining approvals were for private sector loans, HIPC debt relief, equity
investments, and emergency operations. The majority of the new loans to or
guaranteed by member countries related to the agriculture sector and to
policy and structural reforms to encourage an environment conducive to
sustainable growth. For example, about $141 million was approved for Tunisia
to improve efficiency in resource allocation for a competitive economy, and
Zimbabwe received about $130 million to support government reform efforts to
reallocate public expenditures to education, health, and poverty reduction
activities.
Also during 1999, AfDB contributed about $376 million for cofinancing
operations with official agencies and private financial institutions to
promote the flow of resources to its borrowing member countries. AfDF
provided an additional $120 million toward these cofinancing operations.
External sources provided an additional $1.8 billion to member country
borrowers as a result of the bank group?s cofinancing activities during
1999. These ventures related primarily to policy based programs, debt
relief, poverty reduction, and the transportation sector. The World Bank was
the largest cofinancing partner during 1999.
AfDB?s operations are financed through retained earnings, paid- in capital
from members, and funds borrowed from world capital markets using Financing
Activities
Page 39 GAO- 01- 665 Multilateral Development Banks
callable capital as backing. As of December 31, 1999, AAA rated countries
accounted for approximately 25.5 percent of AfDB?s total callable capital.
The major goal of AfDB?s borrowing strategy is to minimize the cost of its
funding, which is passed on to its borrowers, and to maximize the
development impact of its operations. In 1999, the fifth capital increase
intended to provide 35 percent more capital to AfDB became effective. As of
December 31, 1999, 26 of AfDB?s 77 member countries had deposited their
subscriptions. In September 2000, based on conservative borrowing policies
and an increased capital base, AfDB received a AA+ credit rating with a
negative outlook for the future from Standard & Poor?s because of the
continual deterioration in the asset quality of its loan portfolio.
AfDB?s financial statements are prepared in accordance with International
Accounting Standards. AfDB received unqualified audit opinions on its
financial statements from Deloitte & Touche LLP for 1997, 1998, and 1999.
Table 18 summarizes key financial data related to AfDB?s results of
operations over the past 3 years. Key Financial Data
Page 40 GAO- 01- 665 Multilateral Development Banks
Table 18: Key Financial Data for AfDB for 1997 through 1999 Financial data
1999 1998 1997
(Dollars in millions) Total assets $12,587 $12,864 $12,044 Loans outstanding
9,309 9,520 9,256 Undisbursed loans 4,046 3,581 3,496 Debt outstanding 7,168
7,582 7,385 Reserves 1,668 1,572 1,372 Paid- in capital 2,121 2,134 2,046
Total subscribed capital 22,976 22,375 21,529 Revenues 811 837 891 Expenses
642 679 733 Net operating income 169 158 158
Financial ratios 1999 1998 1997
(Percentages)
Asset quality
Nonaccrual loans / loans outstanding 14.5 14.1 9. 4 Loan loss allowance /
loans outstanding 5. 7 5.2 4. 6 Loan loss allowance / nonaccrual loans 39.5
36.7 49.0
Capital quality
Paid- in capital / total subscribed capital 9. 2 9.5 9. 5 AAA callable
capital / total callable capital 25.5 21.5 21.4
Gearing
Net disbursed loans / (paid- in capital + reserves) 231.7 243.6 258.3 Net
disbursed loans / (AAA callable capital + paid- in capital + reserves) 98.0
113.8 118.3
Leverage
Debt outstanding / (paid- in capital + reserves) 189.2 204.6 216.1 Debt
outstanding / (AAA callable capital + paid- in capital + reserves) 80.1 95.6
98.9
Liquidity
Liquid assets / (undisbursed loans + 1- year debt service) a 33.9 50.9 37.9
Administrative expenses and profitability
Administrative expenses / total expenses 19.2 17.1 14.1 Net operating income
/ average assets 1.4 1. 2 1.3
Note: Data are as of December 31 of the applicable year. a Liquidity ratio
was taken from Standard & Poor?s Supranationals Special Edition 2000,
September
2000. Source: Data used in calculating these ratios were taken from AfDB?s
audited financial statements for 1997 through 1999, except where noted.
AfDF is the concessional lending arm of the AfDB Group and was established
in 1973. AfDF provides loans on concessional terms for African Development
Fund
Page 41 GAO- 01- 665 Multilateral Development Banks
projects and programs, as well as technical assistance to the bank group?s
low- income regional borrowing member countries that do not qualify for
lending from AfDB. As of December 1999, 75 percent of the bank group?s
regional member countries were solely eligible for the Fund?s concessional
lending due to their credit standing, except for limited AfDB lending
available for projects with the private sector and distinct territories
within these member countries.
AfDF offers loans with very favorable loan terms, including no interest
charges and extended repayment and grace periods. The fund does charge
minimal service charges on outstanding loan balances and undisbursed
commitments. As of December 31, 1999, AfDF?s outstanding loans were
approximately $7.7 billion, including $892 million in nonaccrual status. As
shown in table 19, nearly 28 percent of the Fund?s total loans outstanding
were to AfDF?s five largest borrowers.
Table 19: Concentration of Loans Outstanding to AfDF?s Five Largest
Borrowers as of December 31, 1999
Five largest borrowers
Loans outstanding (in millions) Percentage of total
loans outstanding Standard & Poor?s credit rating
Ethiopia $653 8.50 Not rated a Tanzania 484 6.29 Not rated a Mali 377 4.91
Not rated a Uganda 333 4.33 Not rated a Malawi 301 3.92 Not rated a
Total $2,148 27.95
a Standard & Poor?s has not issued a credit rating for this country. Source:
AfDF?s 1999 audited financial statements and Standard & Poor?s, Sovereign
Ratings History Since 1975.
During 1999, AfDF approved about $630 million of new financing to the bank
group?s borrowing member countries. Approximately $518 million or 82 percent
related to loans or lines of credit. The remainder related to technical
assistance grants, HIPC debt relief, and other debt alleviation. The
majority of the new loan approvals related to the agriculture sector, social
sector, and multisector. Agriculture- related lending focused on improving
output and food security, enhancing rural incomes, and reducing poverty.
Social sector lending focused on improving access and quality of education
and health services. Multisector lending included improving access to
financial services, especially for women, and building the institutional and
income- generating capabilities of target populations. Development
Activities
Page 42 GAO- 01- 665 Multilateral Development Banks
To continue lending operations, AfDF relies on net income, borrower
repayments, and contributions from 27 members, including AfDB, which has
contributed nearly 12 percent of AfDF?s total contributions and maintains 50
percent of the voting shares. The eighth replenishment of the Fund was
approved by the Board of Governors and became effective in December 1999.
This replenishment authorized subscriptions for contributions of
approximately $3.0 billion, which would enable AfDF to continue concessional
lending from 1999 through 2001. As of December 31, 1999, $1.6 billion of the
total contribution subscriptions authorized in the eighth replenishment were
contributed.
Because of the special nature and organization of AfDF, financial statements
are currently prepared for the specific purpose of reflecting the net
development resources of the Fund. Under AfDF?s special accounting basis,
outstanding loans are not included in development resources available, and,
accordingly, no allowance for possible loan losses is recorded. AfDF?s
special- purpose financial statements are prepared to comply with procedures
set forth in its Articles of Agreement establishing the Fund and agreed upon
by members. The financial statements are not meant to comply with
International Accounting Standards. AfDF received an unqualified audit
opinion on its financial statements from Deloitte & Touche LLP for 1997
through 1999. Table 20 summarizes some of the key financial data of AfDF?s
financial position over the past 3 years.
Table 20: Key Financial Data for AfDF for 1997 through 1999 (Dollars in
millions) Financial data 1999 1998 1997
Resources available for development activities $3,773 $4,034 $3,698
Undisbursed loans 3,069 3,310 3,101 Loans outstanding 7,685 7,623 6,804
Nonaccrual loans 892 915 880 Cumulative member contributions 12,829 12,840 a
11,512
Note: Data are as of December 31 of the applicable year. a Member
contributions for 1998 were greater than for 1999 due to a higher exchange
rate for converting the monetary basis of AfDF?s financial statements into
the U. S. dollar equivalent applicable for 1998.
Source: AfDF?s audited financial statements for 1997, 1998, and 1999.
The Asian Development Bank (AsDB) group includes Ordinary Capital Resources
(OCR) and the Asian Development Fund (AsDF), which serve the development
needs of the Asian and Pacific regions. OCR provides market- based loans,
equity investment, guarantees, and indirectly provides Financing
Key Financial Data Asian Development Bank
Page 43 GAO- 01- 665 Multilateral Development Banks
technical assistance 31 to middle- income countries and creditworthy poorer
countries. As of December 31, 1999, OCR had outstanding loans of $28.3
billion. AsDF provides concessional loans and is key to supporting the
bank?s poverty reduction mission. As of December 31, 1999, AsDF had
outstanding loans of $16.0 billion.
AsDB is a regional bank established in 1966. As reported in its 1999 annual
report, AsDB had 58 member countries, including 42 regional members, which
had contributed approximately 64 percent of OCR?s total subscribed capital.
OCR?s principal stated purpose is to reduce poverty in its Asian and Pacific
region borrowing member countries through (1) economic growth projects and
programs to facilitate employment and income generation for the poor, (2)
social development programs to improve the standard of living for the poor,
and (3) good governance to ensure that the poor have access to basic
services. OCR also pursues activities to foster economic growth, support
human development, improve the status of women, protect the environment, and
encourage private sector development activities, which also serve the
overall goal of reducing poverty.
OCR provides development assistance through market- based loans, loan
guarantees, and cofinancing with the public and private sectors. OCR also
finances equity investments in private enterprises and indirectly provides
technical assistance, which is provided primarily through special funds
operated by AsDB. 32 Except for private sector loans, all of the bank?s
loans are made to or guaranteed by borrowing member countries. AsDB offers
several types of loan products available in a variety of currencies to meet
the needs of its borrowers through its OCR. Interest rates are primarily
based on the bank?s cost of borrowing plus a spread, and repayment terms
range from 4 to 30 years. As of December 31, 1999, OCR had $28.3 billion in
outstanding loans, of which nearly 99 percent was loaned to or guaranteed by
borrowing members and less than $73 million was in a nonaccrual status. As
shown in table 21, approximately 79 percent of the total loans outstanding
balance were due from the bank?s five largest borrowers.
31 This technical assistance is provided through special funds operated by
AsDB. 32 AsDB administers several special funds, including the concessional
lending Asian Development Fund (discussed later in this report) whose funds
and operations are separate from those of AsDB. Asian Development Bank?s
Ordinary Capital Resources
Development Activities
Page 44 GAO- 01- 665 Multilateral Development Banks
Table 21: Concentration of Loans Outstanding to AsDB?s OCR Five Largest
Borrowers as of December 31, 1999
Five largest borrowers
Loans outstanding (in millions) Percentage of total
loans outstanding Standard & Poor?s credit rating a
Indonesia $6,926 24.43 BPeople?s Republic of China 4,531 15.99 BBB India 4,
280 15.10 BB Republic of Korea 4, 076 14.38 BBB Philippines 2,697 9.52 BB+
Total $22,510 79.42
a Credit rating is based on the most recent rating prior to January 1, 2001,
for the borrowing country. Source: AsDB?s 1999 audited financial statements
and Standard & Poor?s, Sovereign Ratings History Since 1975.
During 1999, OCR approved about $3.9 billion in loans to private and public
borrowers, including $2.5 billion related to cofinancing activities. The
bank?s concessional lending Asian Development Fund provided an additional
$699 million in cofinancing activities. Combined, these cofinancing
activities attracted an additional $3.0 billion from external sources to the
bank?s borrowing member countries. A significant portion of the bank?s loans
served the social infrastructure sector with projects relating to water
supply and sanitation, education, health, housing, and other urban
infrastructure facilities. The other sectors that received significant
assistance related to energy, transportation, and communication. During
1999, the People?s Republic of China was the largest borrower with about
$1.2 billion in approved loans in the energy, social infrastructure, and
transportation and communication sectors. Indonesia was the second largest
borrower with loan approvals of about $1.0 billion related primarily to
energy and health. Combined, these two countries accounted for approximately
58 percent of OCR?s loan approvals during 1999.
OCR?s operations are financed through retained earnings, paid- in capital,
and funds borrowed from world capital markets using callable capital as
backing. As of December 31, 1999, AAA rated countries accounted for about 43
percent of OCR?s total callable capital. AsDB?s last general capital
increase became effective in 1994. Based on AsDB?s strong financial profile,
conservative financial policies, and strong member support, AsDB received a
AAA credit rating with a stable outlook for the future from Standard &
Poor?s in September 2000. The quality of OCR?s callable capital Financing
Activities
Page 45 GAO- 01- 665 Multilateral Development Banks
and its AAA credit rating allow the bank to borrow funds from world capital
markets at favorable interest rates and loan terms. This results in the
bank?s ability to pass on to borrowers more favorable lending terms than
would normally be available based on their own credit standing.
AsDB?s OCR financial statements are prepared in accordance with U. S. GAAP.
OCR received unqualified audit opinions on its financial statements from
PricewaterhouseCoopers for 1997 through 1999. Table 22 summarizes key
financial data related to the results of operations for AsDB?s OCR over the
past 3 years. Key Financial Data
Page 46 GAO- 01- 665 Multilateral Development Banks
Table 22: Key Financial Data for AsDB?s OCR for 1997 through 1999 a
Financial data 1999 1998 1997
(Dollars in millions) Total assets $45,295 $41,653 $32,820 Loans outstanding
28,344 24,760 18,839 Undisbursed loans 13,594 14,260 16,432 Debt outstanding
26,286 23,744 17,494 Reserves 7,441 6,961 6,409 Paid- in capital 2, 733
2,733 2,559 Total subscribed capital 47,597 48,456 46,411 Revenues 2,028
1,833 1,450 Expenses 1, 578 1,366 982 Net operating income 450 467 468
Financial ratios 1999 1998 1997
(Percentages)
Asset quality
Nonaccrual loans / loans outstanding 0. 3 0.2 0. 2 Loan loss allowance /
loans outstanding 0. 3 0.2 0. 3 Loan loss allowance / nonaccrual loans 100.0
117.1 122.9
Capital quality
Paid- in capital / total subscribed capital 5. 7 5.6 5. 5 AAA callable
capital / total callable capital 43.4 43.8 43.8
Gearing
Net disbursed loans / (paid- in capital + reserves) 277.9 254.8 209.5 Net
disbursed loans / (AAA callable capital + paid- in capital + reserves) 96.2
84.0 67.5
Leverage
Debt outstanding / (paid- in capital + reserves) 258.4 244.9 195.1 Debt
outstanding / (AAA callable capital + paid- in capital + reserves) 89.4 80.8
62.8
Liquidity
Liquid assets / (undisbursed loans + 1- year debt service) a 44.4 39.2 48.1
Administrative expenses and profitability
Administrative expenses / total expenses 6.7 8. 9 9.7 Net operating income /
average assets 1.0 1. 3 1.5
Note: Data are as of December 31 of the applicable year. a Liquidity ratio
was taken from Standard & Poor?s, Supranationals Special Edition 2000,
September
2000. Source: Data used in calculating these ratios were taken from AsDB?s
audited financial statements for 1997 through 1999.
AsDF was established in 1974 and is the concessional lending arm of AsDB
that provides loans to the bank?s least developed borrowing member Asian
Development Fund
Page 47 GAO- 01- 665 Multilateral Development Banks
countries in the Asian and Pacific region. These are members which have low
per capita gross national product and limited debt repayment capacity. AsDF
supports activities that promote poverty reduction and improve the quality
of life for the poor.
AsDF provides concessional loans to the bank?s members at favorable interest
rates and loan terms. Interest rates are 1.5 percent and repayment periods
range from 24 to 32 years, including an 8- year grace period. The Fund
requires borrowers to absorb exchange risks attributable to fluctuations in
the value of the currencies disbursed. As of December 31, 1999, AsDF had
approximately $16.0 billion of outstanding loans, including $536 million in
nonaccrual status. Approximately 76 percent of the Fund?s balance of
outstanding loans was due from its five largest borrowers.
Table 23: Concentration of Loans Outstanding to AsDF?s Five Largest
Borrowers as of December 31, 1999
Five largest borrowers
Loans outstanding (in millions) Percentage of total
loans outstanding Standard & Poor?s credit rating a
Bangladesh $4,371 27.39 Not rated b Pakistan 4,102 25.70 BSri Lanka 1,615
10.12 Not rated b Nepal 1,114 6.98 Not rated b Philippines 892 5.59 BB+
Total $12,094 75.78
a Credit rating is based on the most recent rating prior to January 1, 2001,
for the borrowing country. b Standard & Poor?s has not issued a credit
rating for this country.
Source: AsDF?s 1999 audited financial statements and Standard & Poor?s,
Sovereign Ratings History Since 1975.
During 1999, AsDF approved $1.1 billion in new loans, including $699 million
of cofinancing lending, which primarily related to development in the
transportation, communication, and social infrastructure sectors. During
this period, Bangladesh was the largest borrower with about $250 million in
loans approved in the energy, social infrastructure, and transportation and
communication sectors. Vietnam was the second largest borrower with loan
approvals for about $155 million primarily related to social infrastructure
and industry sectors. Combined, these two countries accounted for
approximately 38 percent of AsDF?s loan approvals during 1999.
AsDF finances its operations with retained earnings, investment income, and
contributions from 26 member countries, both regional and Development
Activities
Financing
Page 48 GAO- 01- 665 Multilateral Development Banks
nonregional. AsDF?s resources have been augmented by seven replenishments.
The Board of Governors authorized the seventh replenishment in 1997. Under
the replenishment, contributions were scheduled to become available to AsDF
in four equal installments during 1997 through 2000. In 2000, the Board of
Governors approved the eighth replenishment of AsDF resources.
AsDF?s financial statements are prepared in accordance with U. S. GAAP. AsDF
received an unqualified audit opinion on its financial statements from
PricewaterhouseCoopers for 1997 through 1999. Table 24 summarizes key
financial data related to AsDF?s financial position over the past 3 years.
Table 24: Key Financial Data for AsDF for 1997 through 1999 (Dollars in
millions) Financial data 1999 1998 1997
Total assets $22,192 $20,551 $18,279 Undisbursed loans 5, 573 5,963 6,208
Loans outstanding 15,960 14,324 12,266 Nonaccrual loans 536 492 61 Loan loss
allowance 7 6 6 Contributed resources 20,452 19,020 16,902
Note: Data are as of December 31 of the applicable year. Source: AsDF?s
audited financial statements for 1997 through 1999.
The Inter- American Development Bank (IDB) is the oldest and, based on total
assets, largest regional MDB. It was established in 1959 to help accelerate
economic and social development in Latin America and the Caribbean. Current
lending priorities include poverty reduction; social equity; improving the
efficiency, transparency, and accountability of the public sector; economic
integration, including trade agreements; and the environment. IDB consists
of the following entities as well as several funds Key Financial Data
Inter- American Development Bank
Page 49 GAO- 01- 665 Multilateral Development Banks
in administration, 33 which provide financing and technical assistance, and
the Intermediate Financing Facility Account: 34
The Inter- American Development Bank?s Ordinary Capital (OC) provides
market- based loans, guarantees, and technical assistance to the public and
private sector.
The Inter- American Development Bank?s Fund for Special Operations is the
concessional lending arm that provides technical assistance and key support
for the bank?s poorer members.
The Inter- American Investment Corporation is the Inter- American
Development Group?s entity that provides loans and equity, and technical
assistance to small and midsize private enterprises.
During 1999, IDB approved $9.5 billion in new loans and loan guarantees for
the benefit of borrowing regional member countries primarily through the
Ordinary Capital and the Fund for Special Operations. Approximately $4.3
billion of these new lending approvals were for the social sector and
related to improving economic opportunities for the poor, strengthening the
social infrastructure, such as education and health, and promoting equitable
access to social services.
Most of the operations of IDB are conducted through OC. The operations and
resources of OC are maintained separately from those of IDB?s other entities
and various funds. The members of the bank include 28 regional and 18
nonregional countries. Developing regional members had subscribed
approximately 50 percent of OC?s total subscribed capital at December 31,
1999. OC provides development assistance in the form of loans made to or
guaranteed by members as well as loans and loan guarantees to private sector
enterprises located within its regional borrowing member countries. Loans to
the private sector without a
33 In 1999, the bank had a total of 50 funds in administration, which are an
important source of additional financing for special projects, particularly
those benefiting the poor. These funds are generally financed through
donations by nonborrowing member countries of the bank. The operations and
resources of these funds are kept separate from the bank?s Ordinary Capital.
34 The Intermediate Financing Facility Account subsidizes part of the
interest for which certain borrowers are liable on loans from the Ordinary
Capital. Inter- American
Development Bank?s Ordinary Capital
Page 50 GAO- 01- 665 Multilateral Development Banks
member?s guarantee are limited to 5 percent of the bank?s outstanding loans
and guarantees.
The primary vehicle of OC?s development assistance is direct lending. OC
offers several different loan products that are disbursed in a variety of
currencies. In general, interest rates charged on these loans are based on
the bank?s cost of borrowing or on LIBOR, plus an interest rate spread,
which is currently 50 basis points. Repayment periods range from 15 to 30
years. As of December 31, 1999, OC?s loans outstanding totaled approximately
$38.6 billion and were all fully performing. IDB has never had a write- off
of any of its OC loans.
During 1999, OC approved $9.1 billion in loans and loan guarantees for its
borrowing regional member countries, of which approximately 97 percent were
loans. Brazil received about $4.8 billion, or 53 percent of OC?s approvals
during 1999. Lending to Brazil included a $2.2 billion loan for social
sector reform and a social protection program and a $1.2 billion loan to
further develop small and medium- size productive sectors by making more
market- rate financing available. Columbia and Mexico were the next largest
borrowers in 1999 with about $1.0 billion and $919 million, respectively. As
shown in table 25, nearly 69 percent of OC?s total loans outstanding were
due from its five largest borrowing countries.
Table 25: Concentration of Loans Outstanding to IDB?s OC Five Largest
Borrowers as of December 31, 1999
Five largest borrowers
Loans outstanding (in millions) Percentage of total
loans outstanding Standard & Poor?s credit rating a
Brazil $8,464 21.96 B+ Argentina 6, 714 17.42 BBMexico 5,668 14.70 BB+
Colombia 3,224 8.36 BB Peru 2,490 6.46 BBTotal
$26,560 68.90
a Credit rating is based on the most recent rating prior to January 1, 2001,
for the borrowing country. Source: IDB?s 1999 audited financial statements
and Standard & Poor?s, Sovereigns Ratings History Since 1975.
OC?s operations are financed through retained earnings, paid- in capital,
and borrowings obtained from world capital markets using callable capital as
backing. As of December 31, 1999, AAA rated countries accounted for about 41
percent of OC?s total callable capital. Based on membership support,
preferred creditor status, and strong franchise value as a result of
Development Activities
Financing Activities
Page 51 GAO- 01- 665 Multilateral Development Banks
its lending expertise, OC received a AAA credit rating with a stable outlook
for the future from Standard & Poor?s during September 2000. The quality of
OC?s callable capital and its strong credit rating allow the bank to borrow
funds from world capital markets at favorable loan terms. This allows the
bank to pass on to borrowers more favorable lending terms than would
normally be available based on their own credit standing. OC?s most recent
and eighth capital increase, approved by IDB?s Board of Governors in 1995,
increased the bank?s resources by $40 billion, bringing total capital to
about $101 billion.
OC financial statements are prepared in accordance with U. S. GAAP. OC
received an unqualified audit opinion on its financial statements from
Arthur Andersen, LLP for 1997 through 1999. Table 26 summarizes key
financial data related to OC?s results of operations over the past 3 years.
Key Financial Data
Page 52 GAO- 01- 665 Multilateral Development Banks
Table 26: Key Financial Data for IDB?s OC for 1997 through 1999 Financial
data 1999 1998 1997
(Dollars in millions) Total assets $64,355 $54,574 $43,338 Loans outstanding
38,552 32,635 27,301 Undisbursed loans 23,931 23,309 20,684 Debt outstanding
39,553 32,516 27,331 Reserves 7,436 6,867 6,307 Paid- in capital 3, 363
3,230 3,135 Total subscribed capital 100,881 94,219 87,557 Revenues 3,194
2,619 2,501 Expenses 2, 626 2,226 2,086 Net operating income 568 393 415
Financial ratios 1999 1998 1997
(Percentages)
Asset quality
Nonaccrual loans / loans outstanding Not applicable a Not
applicable a Not applicable a Loan loss allowance / loans outstanding 3. 0
2.9 3. 0
Capital quality
Paid- in capital / total subscribed capital 3. 3 3.4 3. 6 AAA callable
capital / total callable capital 40.9 40.7 40.5
Gearing
Net disbursed loans / paid- in capital + reserves 346.2 313.8 280.4 Net
disbursed loans / (AAA callable capital + paid- in capital + reserves) 74.3
67.7 61.1
Leverage
Debt outstanding / (paid- in capital + reserves) 366.3 322.1 289.5 Debt
outstanding / (AAA callable capital + paid- in capital + reserves) 78.6 69.5
63.1
Liquidity
Liquid assets / (undisbursed loans + 1- year debt service) b 39.4 32.4 30.9
Administrative expenses and profitability
Administrative expenses / total expenses 10.5 12.3 12.2 Net operating income
/ average assets 1.0 0. 8 1.0
Note: Data are as of December 31 of the applicable year. a This ratio is not
applicable because IDB?s OC did not have any loans in a nonaccrual status.
b Liquidity ratio was taken from Standard & Poor?s, Supranationals Special
Edition 2000, September 2000. Source: Data used in calculating these ratios
were taken from IDB?s OC audited financial statements for 1997 through 1999,
except where noted.
Page 53 GAO- 01- 665 Multilateral Development Banks
The Fund for Special Operations (FSO) of IDB provides loans on concessional
terms to the bank?s borrowing regional member countries that are classified
as economically less developed. FSO also provides technical assistance to
borrowing countries. FSO makes low- interest and longer- maturity loans for
countries in the region that require such financing.
Concessional loans of FSO are made to or guaranteed by borrowing regional
member countries. The rate of interest and other loan terms of FSO loans
depend on the type of currency that is lent to the borrower, the stage of
the country?s development, and the nature of the project. Generally, these
loans charge interest rates from 1 to 4 percent, offer grace periods of 5 to
10 years, and have maturities of 25 to 40 years. As of December 31, 1999,
FSO?s loans outstanding totaled approximately $7.0 billion and were all
fully performing. FSO has never had a write- off except for debt relief
resulting from the implementation of the HIPC Initiative. As shown in table
27, nearly 51 percent of FSO?s total loans outstanding was due from its five
largest borrowing countries. During 1999, FSO approved about $417 million in
loans to Bolivia, Guyana, Honduras, and Nicaragua.
Table 27: Concentration of Loans Outstanding to IDB?s FSO Five Largest
Borrowers as of December 31, 1999
Five largest borrowers
Loans outstanding (in millions) Percentage of total
loans outstanding Standard & Poor?s credit rating a
Honduras $822 11.82 Not rated b Bolivia 803 11.55 B+ Nicaragua 720 10.35 Not
rated b Ecuador 620 8.91 BEl Salvador 571 8.22 BB+
Total $3,536 50.85
a Credit rating is based on the most recent rating prior to January 1, 2001,
for the borrowing country. b Standard & Poor?s has not issued a credit
rating for this country.
Source: FSO?s 1999 audited financial statements and Standard & Poor?s,
Sovereign Ratings History Since 1975.
FSO operations are financed primarily through borrower repayments,
investment income, and contributions from 46 member countries. FSO does not
borrow from the world market to obtain additional funding for its
operations. The most recent and eighth increase in contributions was
effective in 1995. This increase in contributions increased the authorized
resources of FSO by approximately $1.0 billion, bringing total contributions
to $9.6 billion. Inter- American
Development Bank?s Fund for Special Operations
Development Activities Financing
Page 54 GAO- 01- 665 Multilateral Development Banks
Because of the special nature and organization of the FSO, its financial
statements are prepared on a special accounting basis that comply with
procedures set forth in IDB?s Articles of Agreement and agreed upon by
members. This special accounting basis is not meant to be consistent with U.
S. GAAP. Under FSO?s special accounting basis, management has elected to
present loans at the full face value and does not estimate a loan loss
allowance related to its loan portfolio. FSO received unqualified audit
opinions on its financial statements from Arthur Andersen, LLP, for 1997
through 1999. Table 28 summarizes key financial data related to FSO?s
financial position over the past 3 years.
Table 28: Key Financial Data for IDB?s FSO for 1997 through 1999 (Dollars in
millions)
Financial data 1999 1998 1997
Total assets $10,275 $10,296 $10,429 Undisbursed loans 1, 931 1,952 1,805
Loans outstanding 6,955 6,827 6,734 Nonaccrual loans 0. 0 0.0 0. 0
Cumulative member contributions 9, 646 9,643 9,572
Note: Data are as of December 31 of the applicable year. Source: FSO?s
audited financial statements for 1997 through 1999.
The Inter- American Investment Corporation (IIC), a multilateral
organization, was established in 1986. Although a member of the IDB Group,
IIC is autonomous, and its resources and management are separate from those
of the IDB. IIC?s mission is to promote the economic development of its
Latin American and Caribbean member countries by financing small and medium-
size enterprises. IIC has 37 member countries that include 26 Latin American
and Caribbean countries, 8 European countries, and Israel, Japan, and the
United States. Its development investment activities are limited to its 26
regional developing member countries.
IIC provides project financing in the form of loans and equity investments,
lines of credit to local intermediaries, and investments in local and
regional investment funds. IIC seeks to make loan and equity investments
where sufficient private capital is difficult to obtain or otherwise not
available on reasonable terms. Project funding is supplemented by other
investors and lenders through cofinancing or loan syndication. IIC provides
loan amounts up to 33 percent of the cost of a new project and up Key
Financial Data
Inter- American Investment Corporation
Development Activities
Page 55 GAO- 01- 665 Multilateral Development Banks
to 50 percent of the cost of an expansion project. IIC makes equity
investments of up to 33 percent of a company?s capital. In addition, the IIC
provides financial and technical advisory services as part of its evaluation
of the project?s soundness and probability of success.
During 1999, IIC approved $192 million in loans and equity investments.
Loans accounted for 89 percent of IIC approvals during the year. Projects
supporting the financial services sector received approximately 51 percent
of these new approvals. Regional projects and projects in Bolivia received
the largest portions of IIC approvals with approximately 22 percent and 10
percent, respectively. As of December 31, 1999, IIC had approximately $353
million in loans and equity investments outstanding. As shown in table 29,
nearly 61 percent of IIC?s total outstanding loans and equity investments
related to four of its largest countries of operations, as well as projects
covering the entire region.
Table 29: Concentration of Loans Outstanding to IIC?s Largest Five Areas of
Operations as of December 31, 1999
Areas of operation Loans and equity investments outstanding (in thousands)
Percentage of total loans and equity investments
outstanding
Argentina $80,465 22.8 Regional 42,910 12.2 Brazil 33,443 9. 5 Bolivia
31,752 9. 0 Peru 25,611 7. 3
Total $214,181 60.8
Note: Since IIC?s loan and equity investments are made to the private
sector, the credit rating of the member country is not as applicable as the
risk associated with each individual project.
Source: IIC?s audited financial statements for 1999.
IIC receives its financing primarily from capital subscriptions from its
member countries. IIC does not have callable capital to finance its
development activities. On December 14, 1999, the Board of Governors
approved a resolution increasing the authorized capital of IIC from $203.7
million to $703.7 million. The resolution called for $500 million for
subscriptions by member countries as of February 28, 2000. Member country
subscriptions are based on their voting shares and are paid in several
installments, the last being payable on or before October 31, 2007.
IIC?s financial statements are prepared in accordance with U. S. GAAP. IIC
has received unqualified audit opinions on its financial statements from
Financing
Key Financial Data
Page 56 GAO- 01- 665 Multilateral Development Banks
PricewaterhouseCoopers LLP for 1997 through 1999. Table 30 summarizes key
financial data related to IIC?s results of operations over the past 3 years.
Table 30: Key Financial Data for IIC for 1997 through 1999 Financial data
1999 1998 1997
(Dollars in millions) Total assets $361 $315 $311 Loans outstanding 268 221
208 Loan loss allowance 25 28 26 Equity investments 85 79 59 Allowance for
losses on equity investments 10 10 5 Debt outstanding 1,150 90 85 Reserves 5
18 22 Total subscribed capital 203 203 202 Revenues 28 28 34 Expenses 41 32
31 Net operating income (13) (4) 2
Financial ratios 1999 1998 1997
(Percentages)
Asset quality
Loan loss allowance / loans outstanding 9. 3 12.7 12.5
Gearing
Net disbursed loans / (paid- in capital + reserves) 116.8 87.3 81.3
Leverage
Debt outstanding / (paid- in capital + reserves) 552.9 40.7 37.9
Administrative expenses and profitability
Administrative expenses / total expenses 31.7 40.6 38.7 Net operating income
/ average assets (3.8) (1.3) 0.6
Note: Data are as of December 31 of the applicable year. Source: Data used
in calculating these ratios were taken from IIC?s audited financial
statements for 1997 through 1999.
The European Bank for Reconstruction and Development (EBRD) is a regional
bank established in 1990. As of December 31, 1999, EBRD?s 60 members
consisted of 58 sovereign countries, including 26 countries of operation
that have contributed about 12 percent of EBRD?s total subscribed capital,
the European Community, and the European Investment Bank. EBRD?s principal
stated purpose is to foster the transition toward open market- oriented
economies and to promote private and entrepreneurial initiatives in the
countries of central and eastern Europe and the Commonwealth of Independent
States that are committed European Bank for
Reconstruction and Development
Page 57 GAO- 01- 665 Multilateral Development Banks
to applying principles of multiparty democracy, pluralism, and market
economies.
EBRD provides development assistance through public and private loans,
cofinancing, loan guarantees, share investments, 35 and technical
assistance. Through its operations, it promotes private sector activity, the
strengthening of financial institutions and legal systems, and the
development of infrastructure needed to support the private sector. The
majority of the bank?s private sector lending and investments do not include
a sovereign guarantee by a member. As of December 31, 1999, EBRD had $7.0
billion in loans outstanding, including $455 million in a nonaccrual status.
As shown in table 31, approximately 57 percent of total loans outstanding
related to EBRD?s five largest countries of operations.
Table 31: EBRD?s Five Largest Countries of Operations Based on Loans
Outstanding as of December 31, 1999
Five largest countries of operations
Loans outstanding (in millions) Percentage of total
loans outstanding
Russian Federation $1,627 23.17 Romania 798 11.37 Poland 745 10.62 Hungary
489 6.97 Ukraine 312 4.44
Total $3,971 56.57
Note: Since the majority of EBRD?s loans are to the private sector and do
not require a member guarantee, the credit rating of the developing member
is not as applicable as the risk associated with each individual project.
Source: EBRD?s 1999 audited financial statements.
During 1999, EBRD approved about $2.2 billion for its financing operations.
Approximately 71 percent of these approvals related to private sector loans
or equity investments. The majority of these approvals related to financial
institutions, industry and commerce, and the infrastructure sectors. EBRD
has always placed emphasis on the financial institution sector, recognizing
that a well- functioning market economy requires a sound and effective
financial sector capable of commanding the confidence of a country?s
population. The industry and commerce sector includes projects related to
agriculture, natural resources, tourism, and
35 Share investments are equity investments with creditworthy counterparties
that have risk characteristics similar to loans and, accordingly, are
classified and accounted for as loans. Development Activities
Page 58 GAO- 01- 665 Multilateral Development Banks
telecommunications. The infrastructure sector relates to power and energy
utilities, transportation, and municipal and environmental infrastructure.
During 1999, regional development projects and projects within the Ukraine
and Czech Republic received the most of the bank?s new approvals.
EBRD?s operations are financed through retained earnings, paid- in capital
from members, and funds borrowed from world capital markets using callable
capital as backing. As of December 31, 1999, members with a AAA credit
rating accounted for about 60 percent of EBRD?s total callable capital.
EBRD?s most recent capital increase to EBRD was approved in 1996. As of
December 31, 1999, 56 out of 60 members had participated in the increase and
brought the total amount subscribed to about 97 percent of the approved
total capital increase. Based on EBRD?s strong membership support; prudent
policy limits on the bank?s operations, gearing, and liquidity; and
strengthening of the organization, EBRD received a AAA credit rating with a
stable outlook for the future from Standard & Poor?s in September 2000.
EBRD?s financial statements are prepared to comply with International
Accounting Standards, and EBRD received an unqualified audit opinion on its
financial statements from Arthur Andersen for 1997 through 1999. Table 32
summarizes key financial data related to EBRD?s results of operations over
the past 3 years. Financing Activities
Key Financial Data
Page 59 GAO- 01- 665 Multilateral Development Banks
Table 32: Key Financial Data for EBRD for 1997 through 1999 Financial data
1999 1998 1997
(Dollars in millions) Total assets $19,685 $18,723 $14,901 Loans outstanding
6,976 6,735 5,038 Undisbursed loans 3, 899 5,158 4,798 Debt outstanding
12,619 11,348 8, 155 Reserves (92) (185) 109 Paid- in capital 4, 945 5,779
5,372 Total subscribed capital 19,731 22,508 20,283 Revenues 859 955 789
Expenses 816 1,260 772 Net operating income 43 (305) 18
Financial ratios 1999 1998 1997
(Percentages)
Asset quality
Nonaccrual loans / loans outstanding 6. 5 5.0 2. 6 Loan loss allowance /
loans outstanding 13.7 12.6 5. 6 Loan loss allowance / nonaccrual loans
209.7 251.7 219.1
Capital quality
Paid- in capital / total subscribed capital 25.1 25.7 26.5 AAA callable
capital / total callable capital 59.7 60.8 64.0
Gearing
Net disbursed loans / (paid- in capital + reserves) 124.1 105.2 86.7 Net
disbursed loans / (AAA callable capital + paid- in capital + reserves) 44.5
37.5 31.6
Leverage
Debt outstanding / (paid- in capital + reserves) 260.0 202.8 148.8 Debt
outstanding / (AAA callable capital + paid- in capital + reserves) 93.2 72.4
54.3
Liquidity
Liquid assets / (undisbursed loans + 1- year debt service) a 160.6 143.7
117.1
Administrative expenses and profitability
Administrative expenses / total expenses 19.7 13.3 19.6 Net operating income
/ average assets 0.2 (1.8) 0.1
Note: Data are as of December 31 of the applicable year. a Liquidity ratio
was taken from Standard & Poor?s, Supranationals Special Edition 2000,
September
2000. Source: Data used in calculating these ratios were taken from EBRD?s
audited financial statements for 1997 through 1999, except where noted.
Page 60 GAO- 01- 665 Multilateral Development Banks
On May 11, 2001, we received comments of a technical nature from cognizant
Treasury officials. We have incorporated these technical comments as
appropriate.
We are sending copies of this report to the Honorable Paul H. O?Neill,
Secretary of the Treasury, and other interested parties. Copies will be made
available to others upon request.
Please contact Jeanette Franzel, Acting Director, at (202) 512- 9471 or by
email at franzelj@ gao. gov if you or your staffs have any questions
concerning this report. Key contributors to this report were Darryl Chang,
Marcia Carlsen, Julia Ziegler, and Meg Mills.
Jeffrey C. Steinhoff Managing Director, Financial Management and Assurance
Agency Comments
Page 61 GAO- 01- 665 Multilateral Development Banks
Congressional Committees
The Honorable Jesse Helms Chairman The Honorable Joseph Biden Ranking Member
Committee on Foreign Relations United States Senate
The Honorable Ted Stevens Chairman The Honorable Robert C. Byrd Ranking
Member Committee on Appropriations United States Senate
The Honorable Mitch McConnell Chairman The Honorable Patrick K. Leahy
Ranking Member Subcommittee on Foreign Operations, Export
Financing, and Related Programs Committee on Appropriations United States
Senate
The Honorable Michael G. Oxley Chairman The Honorable John J. LaFalce
Ranking Minority Member Committee on Financial Services House of
Representatives
The Honorable Doug Bereuter Chairman The Honorable Bernard Sanders Ranking
Minority Member Subcommittee on International Monetary
Policy and Trade Committee on Financial Services House of Representatives
Page 62 GAO- 01- 665 Multilateral Development Banks
The Honorable C. W. Bill Young Chairman The Honorable David Obey Ranking
Minority Member Committee on Appropriations House of Representatives
The Honorable Jim Kolbe Chairman The Honorable Nita M. Lowey Acting Ranking
Minority Member Subcommittee for Foreign Operations, Export
Financing, and Related Programs Committee on Appropriations House of
Representatives
(194006)
*** End of document. ***