Enrique Garcia, Corporacion Andina de Fomento
Enrique Garcia is serving his second term as president of
Corporacion Andina de Fomento, having been named to the post in
1991. Garcia has also served as treasurer at the Inter-American
Development Bank as well as planning minister of his native
country, Bolivia. In the last seven years, he has transformed CAF
into a leading lender in the Andean region, in large part through
his strategy of accessing the international capital markets.

On changes in policy and outlook by Latin American

One element which is very, very important is the acceleration of
economic stabilization and reform in Latin America. In the last 10
years, almost every country has advocated market economies, free
markets, privatization and lowering of tariffs and all other
barriers to trade, and advocating foreign investment as a main
source of the future development of the country-this is a common
denominator.Also, all countries are very conscious of the
importance of sound macroeconomic management, which implies that
without internal and external equilibrium-macroeconomic
stability-there is no chance to think in terms of growth and social
development. That’s a common denominator that has given signals to
the external agents of the region that it is capable of doing
things in the right direction.You’ve seen the results of that type
of approach when crises develop. When the Mexican crisis developed
in 1994, the Mexican authorities were very quick to respond, and in
less than a year, they put the economy back on track and moved
ahead. In the 1980s, it took Mexico and Latin America almost seven
years to come to that point. And that’s a clear result of the type
of policies and the mentality that has developed.The other thing,
which I think is very important in developing the market, is the
fact that the countries started to be very conscious of the
importance of having the recognition of rating agencies, and going
one by one to try to get ratings.On a more personal basis, as
minister of planning and coordination in Bolivia in the late 1980s
and early 1990s, I was in a position to move in the direction of
these reforms. And in coming to CAF, the policy of CAF has been to
support debt policy reform in all the countries, not only through
policy advice, but also through the type of things we have been
financing.More specifically, on the market side, when I came to CAF
about six years ago, it was to try to place CAF in the
international capital markets. For that, it was very important to
be the first issuer in Latin America to get an investment grade
rating from Standard&Poor’s-that was in 1993-which opened the
door for other countries to move in the same direction. The
spillover effect of that was first, in our case, to have access to
the market at very competitive terms and to facilitate resources to
the countries, and also the demonstration effect, so that we have
talked countries into the rating process, which I think is

On CAF’s quest to obtain an investment grade

It was quite a challenge, because we had to show the rating
agencies that an institution which had stockholders in
non-investment rated countries had the strength to be an investment
grade rated institution. We had to build the story that, at that
time, CAF had more than 20 years of history as an institution, and
explain the track record of behavior of the countries, the
preferred status of the institution, and most important to show the
type of policies that CAF had. We’re conservative enough to give
assurances to the bondholders and to the market that it was a very
seriously run institution. But it was a challenge to show that an
institution that only had a few countries as members was run
professionally and that there were no political influences in the
management of the institution, and also to present the figures that
we had. When I joined CAF, particularly because of my experience
with the IDB, I saw the future of CAF as an institution relying
essentially on CAF’s ability in the future to tap the international
capital market. Because if it was only relying on the old capital
or short term lines of credit or even loans from the IDB, the
institution really had no chance to grow. So the challenge was to
get to the capital markets, but to do that it was a must to have an
investment grade rating.The first thing I did, in fact two months
after I became president, was I went to New York to see S&P and
Moody’s. I told them the story about CAF and the desire to get the
rating. In the beginning, the reaction was, “Well, it’s an
interesting story, but you see, it’s Latin America.” So I had to
meet with them and present the case in a very professional way, and
it was a process.After a few months, S&P (recognized) that we
were different, that we had a very good track record, and they had
some confidence in the type of management we were bringing to the
institution, and the track record, personally, I had from previous
positions at the IDB and the Bolivian government and so forth. On
the basis of all these elements, they gave us the first investment
grade rating in 1993. Moody’s, when they saw that we had the rating
and that we went to the international capital market with our first
issue-it was a eurobond issue in 1993-immediately there were
investors checking on that. And Moody’s called us and said, “Well,
we are going to rate you.” So we said, “Okay, go ahead.”We started
the strategy: investment grade, euro market first, then we
concentrated for a year or two on tapping the Japanese market. We
had roadshows and were talking to them and doing samurai issues and
eurobond issues, and then we moved to the yankee market. Since last
year, especially in the last few months, we are concentrating a lot
on building up our investor base in Europe so that we have a broad
range of investors.

On reopening international markets for Latin issuers after

After the Mexican peso crisis, Latin America was closed. I decided
it was a good opportunity to test the market for CAF, and not only
test it for CAF but to perhaps be a good example to reopen the
market for Latin America. Because we saw some signs that CAF was
differentiated. We went to the market with a euro yen operation at
the end of January-we were the first issuers to reopen the market,
and the spreads for CAF widened very little. And secondly, we were
the first ones to go to the yankee market about two months
later.The other issue that I think was very interesting was the
issue that we made this January, after the Asian crisis. The
deutschemark issue was the first one for an emerging market
borrower (post-Asian crisis), and, again, I think it was a good
signal. In terms of pricing, the spreads widened not significantly
for CAF and also reopening the market, and also we went to the
yankee market immediately.

On important transactions that CAF has spearheaded in the

I would highlight the role that CAF has played in the gas pipeline
between Bolivia and Brazil. It’s a big transaction, more than a $2
billion project, and CAF was the first multilateral institution to
really get committed to this project. In fact, we were the first
ones to formally approve the financing to Brazil for both the
Bolivian side portion and in the Brazilian side. And the fact that
CAF was helping in the negotiations and was the first one to move
was a very important element in building up the transaction, which
now has, just in the last few months, the World Bank and the IDB
and others. That’s a crucial project for the region.We visualized
that project as a key element in the integration of Latin America.
Why? You have gas reserves in Bolivia which are important for
Brazil, because Brazil needs energy. There are possibilities of
using additional gas reserves not only from Bolivia, but eventually
from Peru, and building gas pipelines in South America can
contribute a lot to the development of that region. We felt that
the project, from the standpoint of CAF’s members, was very
important. For Bolivia, it is a crucial project, because they have
exports that are very important for the whole stability of the
country. For Brazil, it is very important because it provides a
source of clean energy and, in addition to that, it has opened new
opportunity for further integration in the energy sector. So that
was the reason we had confidence.