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Inter-American Development Bank borrows $8 billion in year 2000

The Inter-American Development Bank, which remains the leading source of multilateral financing for economic and social development in Latin America and the Caribbean, raised $8 billion in international capital markets during 2000. The IDB had borrowed $9 billion in 1999.

The Bank expects to raise up to $8 billion in 2001 according to its Capital Markets Division Chief, Stephen Abrahams.

"As in previous years, the borrowings will be done as straight U.S. dollar bond offerings or as offerings in other currencies swapped into U.S. dollars. We also have need for the equivalent of US$400 million in Swiss francs and around 300 million euros on an after-swap basis," Abrahams said.

The IDB, which has had a triple A credit rating from both Moody’s and Standard & Poor’s for its debt ever since its first bond issue in 1962, regularly turns to capital markets to seek the lowest cost financing for its funding program. Thanks to its prudent policies, the Bank is able to offer borrowing member countries long-term loans at very competitive interest rates.

With its total approved capital standing at $101 billion, and given its member countries’ credit quality and support and its preferred creditor status in all its borrowing members, the IDB is well positioned to remain among the top-rated lending institutions.

Highlights of 2000

Last year the Bank carried out 21 borrowing transactions. The average maturity of the borrowings was 6.4 years, with maturities of individual transactions ranging from two years to 21 years.

The Bank continued to focus its funding on institutionally targeted bond issues in 2000. In the U.S. dollar market, the Bank refocused its issuance to fewer and larger transactions in response to the expressed interest of investors for more liquid bond issues. While in 1999 the Bank had raised $5 billion in five separate global bonds, in 2000 the same amount was raised through only two bond issues of $2 and $3 billion. These bonds outperformed comparator bonds in secondary market trading in response to stronger investor demand. The Bank also issued its inaugural global bond denominated in euros. Overall, institutional investors bought 99% of the Bank’s bond issues in 2000. This compares to 93% in the year 1999.

The Bank also strives to broaden the demand for its securities through issuing debt in a variety of currencies, maturities and structures. In 2000, the Bank issued bonds in British pounds sterling, euros, Hong Kong dollars and Taiwan dollars in addition to the U.S. dollar issues. These borrowings were all swapped into U.S. dollar liabilities.

The Bank also maintains a discount note program, which offers the Bank an additional cash management tool. Discount notes are short-term securities of up to one year issued in the U.S. agency market. The Bank’s program is authorized to issue up to US$5 billion outstanding, but the average balances are aimed to be much smaller. During 2000 the Bank issued $4.5 billion of discount notes.

In order to keep tight control on credit risk exposures, the Bank enters into swaps only with highly rated counterparties with negotiated master agreements that provide for daily marking to market and collateralization.

The Bank’s funding again was recognized by the financial press. In May 2000, Euromoney magazine named the IDB Supranational Borrower of the year 2000. In January 2001, the Bank had two of its bond issues rank first and second best supranational bond issues of 2000 in Euroweek magazine’s annual poll, with the Bank winning the position of best supranational borrower of the year 2000. This was the second year in a row the Bank reached that position. "We are delighted at this recognition", says Abrahams, "especially the fact that our 2010 U.S. dollar global bond was ranked number nine among all issues executed last year. This is particularly significant, because it is a competition that pits us not just against the other supranationals, but also against all issuers."

Outlook for 2001

In 2001 the Bank will borrow between US$6 and $8 billion. The Bank will continue to rely on institutionally targeted benchmark transactions in 2001, and it expects to issue two larger benchmark deals in U.S. dollars. Following this strategy, the Bank has already issued a five-year, $2 billion benchmark transaction, filling in its existing yield curve of 10-year and three- year highly liquid bond issues.

The benchmark issuance will, as in past years, be supplemented by arbitrage-driven transactions as opportunities emerge.

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