Fund for Special Operations

In 2007, the Bank approved one regular loan and 18 parallel loans (see Significant Developments in 2007) for a total of $464 million, comprised of $152 million and $312 million from the resources of the FSO and the Ordinary Capital, respectively. In 2006, the Bank approved 23 loans for $602 million. As of December 31, 2007, outstanding loans, net of the allowance for debt relief, amounted to $4 billion (2006—$3.7 billion) and were fully performing. FSO operations generated Income before technical cooperation, debt relief, and general reserve transfers of $82 million compared to $119 million in 2006.

Under the Multilateral Debt Relief and Concessional Finance Reform (see additional information under Significant Developments in 2007), in 2007 the FSO discontinued its transfers of resources to the IFF ($61 million was allocated to the IFF in 2006). However, as part of the creation of the new IDB Grant Facility (GRF), the Board of Governors approved the transfer from the FSO to the GRF of $50 million to provide grant resources to Haiti.

Significant Developments in 2007

Under an initiative approved in December 2006, the Board of Governors authorized the Multilateral Debt Relief and Concessional Finance Reform in March 2007, which included the granting of 100 percent debt relief for Bolivia, Guyana, Haiti, Honduras and Nicaragua on FSO loan balances outstanding as of December 31, 2004. Under this initiative, the FSO forgave approximately $3.4 billion in principal payments, including approximately $0.4 billion for Haiti to be effective once it reaches Completion Point under the Enhanced HIPC Initiative, and $1.0 billion of future interest payments. FSO loan balances of approximately $3.9 billion were written off in 2007 as part of the implementation of this initiative, including $893 million related to debt relief remaining to be delivered to eligible HIPC countries, except Haiti, under the Enhanced HIPC Initiative. In addition, as a result of the new concessional finance reform, effective January 1, 2007, FSO lending is in the form of 40-year bullet loans with a high degree of concessionality, which, when blended with Ordinary Capital loans via the parallel lending mechanism, allows the Bank to provide concessional resources to FSO countries consistent with a debt sustainability framework.

As a direct consequence of this reform, the Board of Governors also approved that the FSO should bear a smaller share of the administrative expenses of the Bank currently allocated between the Ordinary Capital and the FSO. Finally, countries eligible for IFF subsidies will receive concessional resources for new loans starting in 2007 through 2015 in the form of parallel loans rather than a reduction in the interest rate billed, and will continue to receive the reduction in interest rate billed for loans approved up to December 31, 2006; FSO transfers to the IFF were discontinued.

In January 2007, the Board of Governors approved debt relief for Haiti under the Enhanced HIPC Initiative. Haiti, which has reached Decision Point, is expected to receive debt relief of $20 million under this initiative. In addition, under the Multilateral Debt Relief and Concessional Finance Reform, Haiti will have access to a mix of loans and/or grants with adequate levels of concessionality, once it reaches Completion Point.

In June 2007, the Board of Governors approved the creation of the GRF for the purpose of making grants appropriate for dealing with special circumstances arising in specific countries (currently Haiti only) or with respect to specific projects. The GRF is funded by transfers from the FSO and possible direct contributions from donor countries.

In October 2007, the Board of Executive Directors approved a Management recommendation to change the FSO’s special basis of accounting for loans and contribution quotas to become fully compliant with United States generally accepted accounting principles (GAAP), effective in 2007. As a result of this decision, for loans, (i) an allowance for loan losses will be estimated, and (ii) the recognition of the Bank’s participation in all debt relief initiatives will be made at the time the commitment is probable. Also, for contribution quotas, the recognition of the members’ contributions will be effectively made as payments are received in cash or demand notes, and contributions received in currencies other than the reporting currency will be translated at historical rates of exchange prevailing at the date of payment. Therefore, the 2007 financial statements have been prepared in accordance with GAAP and the comparative figures have been modified to be in conformity with GAAP.

Copies of the basic financial statements of the Ordinary Capital, the FSO, the IFF and the GRF appear on pages 60–67. The full set of the financial statements, including the external auditors’ opinions and the notes to the financial statements, are presented in the Management’s Discussion and Analysis and Financial Statements section of this Annual Report.