Ordinary Capital

During 2007, the Bank approved 89 loans for $7.7 billion from the Ordinary Capital resources as compared to 90 loans for $5.4 billion in 2006. The increase in the amount of loan approvals was mostly due to an increase in investment and non-sovereign-guaranteed lending that was partially offset by a decrease in policy-based lending. Also, disbursements totaled $6.7 billion, higher than the $6.1 billion disbursed in 2006. Undisbursed loans increased to $16.4 billion in 2007 from $16.1 billion in 2006.

The Bank also approved four non-trade-related guarantees without sovereign counter-guarantees for $900 million in 2007 as compared to two guarantees for $180 million in 2006, and there were no guarantees approved with sovereign counter-guarantee (2006—one for $60 million). Twelve trade-finance guarantee lines of credit totaling $227 million were authorized under the Trade Finance Facilitation Program (compared to 10 and $133 million, respectively, in 2006), and an already existing line was increased by $9 million, while 68 guarantees for a total of $135 million were issued during the year (compared to 36 guarantees for a total of $68 million issued in 2006).

Since the Bank’s inception, there have been no write-offs in the sovereign-guaranteed loan portfolio, which, as of December 31, 2007, represented over 97 percent of the $48 billion in loans outstanding. As of that date, all loans were performing. The allowances for loan and guarantee losses amounted to $70 million compared to $104 million in 2006. The decrease was mainly due to improvements in the non-sovereign- guaranteed loan portfolio risk and a loan writeoff of $21 million.

The implementation of the Local Currency Facility (LCF) continued in 2007. The Board of Executive Directors approved 10 new operations to entities in Brazil, Chile, Colombia and Peru. In addition, the Bank made its first local currency conversion of an outstanding loan into Peruvian new soles for $50 million and an additional disbursement in Mexican pesos of $23 million under a loan approved in 2001. Management expects to present a revision to the LCF in early 2008 for consideration by the Board that would increase the flexibility for local currency loans while reducing the cost to the borrowers.

The Bank issued bonds for a total face amount of $6.1 billion equivalent (2006—$5.4 billion) and proceeds of $5.5 billion (2006—$5.3 billion) with an average life of 7.9 years (2006—6.5 years). Borrowings raised in any given year are used for general operations, including loan disbursements and refinancing of maturing debt. The Bank launched one strategic benchmark $1 billion global bond with a five-year maturity, and issued its first-ever bonds denominated in Costa Rican colones, Indian rupees and New Turkish liras. The Bank also issued a benchmark 17-year Mexican peso transaction comprising two bonds totaling $577 million, the longest and largest peso-denominated transaction issued by a foreign entity. In addition, the Bank transacted other bonds denominated in Australian dollars, Canadian dollars, Icelandic krónur, New Zealand dollars, South African rand, United States dollars, and certain other borrowing member country currencies.

The Bank issued bonds denominated in borrowing member country currencies totaling $909 million (2006—$526 million), comprised of the following currencies: Brazilian reais $197 million, Colombian pesos $30 million, Costa Rican colones $50 million, and Mexican pesos $632 million (2006—Mexican pesos $406 million and Peruvian new soles $120 million). Bonds denominated in currencies from borrowing member countries are issued on a cost-effective basis for the Bank, and their issuance contributes, in part, to the development of local capital markets and expands the effective foreign demand for local currencies.

Figure 12 • Borrowings Issued in 2007, Before Swaps shows the Bank’s debt issues during 2007 by currency. All non-United States dollar issues were initially swapped to U.S. dollars. TablesVII and VIII provide more detail on these borrowings as well as outstanding borrowings by currency, before swaps, as of December 31, 2007.

The Bank continued to be rated AAA by the major rating agencies in 2007, as it has been since it was first rated.

Operating Income was $283 million in 2007 compared with $627 million in 2006. The decrease was primarily due to a reduction in net interest income, caused by significant unrealized losses on the Bank’s trading investment portfolio resulting from the recent subprime crisis, including the contagion effect on market values, as well as an increase in net non- interest expense, including realignment expenses, and a lower credit for loan and guarantee losses.