Curiosa comparativa entre las dos principales instituciones de financiación multilateral en Latinoamérica: CAF y BID
Latin America has two development banks — the perhaps more well-known Inter-American Development Bank and CAF, which bills itself as the development bank of Latin America.
While both operate in the same region there are key distinctions in how they are structured, how they lend and where they focus their efforts. Here’s a look at the two institutions:
The CAF is the main source of multilateral financing for infrastructure in Latin America with a strong focus on promoting regional integration.
In its own words:
“CAF is a financial institution established in 1970 that fosters sustainable development and regional integration in Latin America. It promotes an agenda for integral development that is focused on growth that is sustained, sustainable and of high quality through credit operations, non-reimbursable resources and through its support of the technical and financial structuring of projects in the public and private sectors.”
Year founded: 1970
Headquarters: Caracas, Venezuela
Products and services: loans, structured financing, financial consultancy, guarantees and collaterals, partial guarantees, stock ownership, treasury services, technical cooperation, credit lines
The IDB is Latin America’s oldest regional multilateral development institution. Its purpose is to lend funds for projects aimed at the reduction of poverty and inequality, modernization of the state, protection of the environment, and fostering of economic integration in Latin America and the Caribbean.
In its own words:
“Through financial and technical support for countries working to reduce poverty and inequality, we help improve health and education, and advance infrastructure. Our aim is to achieve development in a sustainable, climate-friendly way. With a history dating back to 1959, today we are the leading source of development financing for Latin America and the Caribbean. We provide loans, grants, and technical assistance; and we conduct extensive research.”
Year founded: 1959
Headquarters: Washington, D.C., USA
Products and services: loans, syndicated loans, guarantees, climate change concessional finance, resources for project preparation and execution, clean energy audits, ecosystem service appraisals, shared value appraisals
Membership and personnel
The CAF has 19 member countries that contribute to its capital structure. Seventeen are from Latin America and the Caribbean, plus Spain and Portugal. Fourteen private regional banks also hold ownership stakes. It has a staff of around 600 people.
The IDB is owned by 48 member countries, including 26 from Latin America and the Caribbean. The remainder are from North America, Europe and Asia. It has a staff of more than 2,000 people.
Shareholder structure is perhaps the biggest difference between the two banks. Whereas the IDB has 22 member countries from outside of Latin America, CAF has just two — Spain and Portugal.
The U.S., the largest IDB shareholder with more than 30 percent of total voting shares, is absent altogether from CAF membership. This means that countries in the region hold a large majority of shares and voting power. It is a distinction that the CAF uses to brand itself as a truly Latin American development bank.
IDB membership is divided into two categories: industrialized countries that are capital providers and ineligible to receive financing, and developing countries that are the exclusive recipients of financing. The CAF is not broken up into the same two camps.
Because of its smaller, uniform and localized ownership structure, CAF functions more as a cooperative than the IDB. It is said to be more agile and responsive to its borrowers than the IDB. CAF loans are subject to fewer levels of review. Those reviews, moreover, are done by the same peer group of borrowers and lenders.
The CAF does not have a standing board. Its members — the central bank governors and finance ministers of member countries — convene between two and four times a year. By contrast, the IDB’s resident board composed of country directors of its members meet to review and approve individual project loans.
As a result, CAF loans are often processed in half the time required by the IDB, which is often viewed as a comparative advantage for potential borrowers.
Because of ownership structure, CAF loans are typically more costly for its borrowers since they do not have the same guaranteed backing from its high-income members. A much higher portion of the CAF’s capital is therefore “paid-in.” Roughly 67 percent of its total authorized capital is contributed directly from its members, compared to just 4 percent at the IDB.
But CAF President Enrique Garcia has previously noted that the absence of donor countries from the developed world turns an apparent weakness into a strength by generating a sense of mutual loyalty. “This creates a genuine sense of shared responsibility among the member countries, leading to a high level of commitment to the success of the institution,” he has said.
Both institutions maintain strong, investment-grade ratings among the major credit ratings agencies.
CAF credit ratings
Source: CAF 2015 Investor presentation
IDB credit ratings
The CAF had $32.4 billion in total assets as of March 31, 2015 and a loan portfolio of $19.4 billion.
The IDB has a much larger balance sheet with total assets of $106.3 billion as of Dec. 31, 2014. The bank’s net loan portfolio at the end of 2014 was $74.2 billion.
CAF has a strong focus on physical infrastructure and projects that promote connectivity and integration within the region, with more than 70 percent of its loans going to those types of projects.
The majority of IDB loans go towards strengthening institutions for social development.
Brazil and Mexico are the two largest recipients of IDB loans. Country lending is more evenly distributed across the CAF’s portfolio.
Source: IDB 2015 investor presentation
Another key distinction between the two banks is their degree of environmental and social safeguards. The IDB’s safeguard policies are generally in line with the World Bank’s. Project teams perform initial independent screenings to determine levels of risk and are then required to follow a host of procedures such as environmental assessments or consultations with affected parties based on that risk.
By contrast, CAF safeguards are generally left to the national standards of project-implementing countries. They are not necessarily weaker, but rather, have fewer independent rules and procedures than the IDB. Comparative research indicates that the CAF’s environmental safeguards, for example, are contained in a few very short and general paragraphs with no formal obligations placed on project teams or borrowers.
The CAF’s over-riding safeguard is for projects to conform to the environmental legislation of the country where the project is executed, as well as the international agreements and commitments by shareholder countries. Additionally, the CAF places host countries ultimately responsible for adopting measures to avoid, control, mitigate and compensate environmental and social impacts and risks.
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