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Bonds

Bank expects to raise $9 billion in 2003

Bond issues provide the Inter-American Development Bank with a solid level of liquidity to meet the financing needs of both past and future lending activity. During 2002 the IDB raised $8.7 billion in capital markets to help finance development lending to Latin America and the Caribbean. Borrowings in 2001 totaled $7.2 billion.

Investors responded positively to bond issues by the IDB and other multilateral financial institutions during 2002, considering them an attractive alternative that offers a higher yield than government securities while providing safety and liquidity, particularly in periods of international financial turbulence and uncertainty.

For 2003 the IDB’s total borrowing proceeds for the entire year are expected to be about $9 billion. The Bank placed its first global bond issue of 2003 on Jan. 16, raising $2 billion following a strong response from investors in Asia, the United States and Europe.

The Bank successfully adapted to changing conditions, and its flexibility enabled the IDB to effectively deliver a borrowing program in 2002 with a lower financing cost than the previous year," said Esteban Molfino, chief of the IDB’s Funding Section.

The weighted average costs of U.S. dollar fixed rate borrowings by the IDB was 3.58 percent in 2002, compared with 4.94 percent in 2001. Similarly, the weighted average cost of fixed rate borrowing in euros was 3.64 percent in 2002, compared with 4.64 percent in 2002.

Although the U.S. dollar is expected to continue during 2003 as the chief currency for both after swap operations and direct borrowings, the IDB will also access a range of currencies and markets to diversify its sources of funding.

During 2002 the Bank issued bonds denominated in Australian dollars, Polish zlotys, Swiss francs and Taiwan dollars, in addition to U.S. dollars and euros. A flexible approachwill also be a hallmark for borrowings during 2003.

We expect to meet our funding needs by offering securities to satisfy international institutional investor demand via large benchmark deals, as well as the appetite for strong AAA assets originated from other segments of the market through targeted bond issues." says Molfino.

The IDB has maintained a triple A credit rating from both Moody’s and Standard & Poor’s ever since its first bond issue in 1962. The high quality rating enables the Bank to offer long-term development loans to Latin America and Caribbean countries at attractive interest rates.

Highlights of 2002

Last year the Bank carried out 51 borrowing transactions. The average maturity of the borrowings in 2002 was 6.1 years, with maturities of individual transactions ranging from 1 year to 12 years, compared with an average maturity of 4.0 years in the previous year.

The reappearance of retail demandwas reflected in seven IDB deep discount bond issues with a total face value of $2.1 billion. Deep discount bonds are sold at a price less than par and pay below market coupons. These bond issues responded to a strong demand from Japanese retail investors for this type of assets in 2002.

Following their success in 2002, the IDB is expected to offer additional deep discount bond issues 2003. The Bank did not offer this instrument to investors in 2001.

Asian investors acquired 57 percent of the IDB issues 2002, an increase of 15 percent from the previous year. European sales remained steady at 26 percent of the total, while purchases in the Americas totaled 17 percent, a decrease of 16 percent compared with 2001.

Retail investor interest is growing, although institutional investors remained dominant in 2002, acquiring 67 percent of the total bond issues. Retail investors bought 33 percent in 2002, compared with 8.9 percent in 2001 and nearly zero in 2000.

The Bank during 2002 successfully increased its Swiss franc bond maturing in October 2007 to 1 billion Swiss francs, the largest bond issue by the IDB in that currency.

After a two-year drought for large-scale 10-year issues by multilateral institutions, the Bank successfully placed a strategic, benchmark global bond for $2 billion in 2002, reopening the 10-year market for high-quality, nonagency borrowers. This bond issue was ranked as the second best supranational bond of 2002 in the poll conducted by the magazine Euroweek.

The first of two U.S. dollar denominated global bonds offered during 2002 also totaled $2 billion and carried a three-year maturity. Issued in January, it was increased twice during the year to $2.5 billion, the Bank’s largest outstanding benchmark security in the U.S. market.

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