Getting to know clients beyond the Andean region, while responding to targeted needs

Another important factor in CAF’s survival and growth relates to the ways the institution has been able to build knowledge that is relevant for all of its shareholders, while understanding each country’s unique financing needs. Over the past decades, CAF has developed a fundamental

locally grounded capacity. According to Santiso and Whitehead (2006), CAF’s technical and cognitive capacity, which is totally grounded in Latin America, contributes more directly to the policy-making debates and regional agenda discussions between and within the countries on issues as different as fiscal sustainability and pension reforms or growth strategies in Latin America. Since the mid-2005, CAF has also hosted an in-house research program (further discussed in Chapter 5) that has helped to attract and maintain technocratic capacities in the countries, be it directly (through financing technicians in government offices) or indirectly (through providing research resources to local think tanks or academic centers) (Santiso & Whitehead, 2006).

In his interview, Garcia highlighted how top central bankers and ministers of finance in the region—which are members of CAF’s Board—enthusiastically attend CAF’s meetings

because it gives them a forum of discussion and it is also seen as very informative, giving members a better sense of what is going on in the region, in particular in respect to financing for key projects or best practices for project finance (Enrique Garcia, personal interview, November 19, 2012). This knowledge in technical and regional matters has resulted—particularly since the mid 1990s—in shareholders granting a considerable amount of discretion to the institution since they see both positive financial management and formal and informal knowledge management opportunities. Garcia has strived to promote an internal culture of cohesiveness, enhancing specialized knowledge and pride in the institution’s work.

But CAF’s survival and relevance have also been possible due to the efforts of senior

officials to go beyond research agendas and to actually establish meaningful cooperation and financing links between the institution and the individual members. For example, in the case of Brazil, even though the country has its own national development bank and several bilateral agreements with other nations, the infrastructure needs of the country are enormous and,

consequently, CAF has been able to finance various strategic projects in specialized geopolitical sectors. For instance, CAF has been able to work with Brazilian municipalities since the

country’s Foreign Financing Commission (COFIEX) has enabled municipal governments to

request direct financing from multilateral organizations. In 2006, CAF presented its Program in Support of Municipal Governments in Brazil (PRAM) and COFIEX authorized the

implementation of the program in three states (CAF, 2010a).

In April 2007, CAF approved the first loan to the municipalities of Canoas and

Florianopolis. In 2009, the PRAM’s success resulted in a request from the Brazilian government

for the preparation of a CAF program to assist the governments of municipalities and states that would be venues for the 2014 Soccer World Cup (CAF, 2010a). CAF’s support of this program

for Brazilian municipalities amounts to US$1 billion and the funds that have been granted serve to partially finance projects in the fields of urban transportation, economic and social

infrastructure, basic services, the environment, and sustainable tourism, through individual loans to each host city or state in Brazil (CAF, 2010a). In this way, CAF has supported the Brazilian state with one of the government’s priorities—the development of local infrastructure through

administrative decentralization. In regard to municipalities and states, Brazil has an annual demand of over US$ 600 million with CAF, and it could be even more if it were not for the limits set up by the institution (Senior CAF official of the VP of Country Programs, personal interview, November 26, 2012). By the end of 2012, the state of Rio de Janeiro had become CAF’s 9th _{largest borrower, with 1.3% of the total loan portfolio (US$ 209 million) (CAF,}

2013a).

Loans to municipalities are by and large sovereign sector operations, but CAF has also been involved in supporting the private sector in Brazil. Even before Brazil became a Series A shareholder, national officials had already identified that one of the greatest advantage of increasing its membership in CAF would be to obtain guarantees for national institutions and companies. During his presidency at BNDES, Guido Mantega remarked: “the biggest problem for trade creditors of [Brazilian] goods and services abroad are the guarantees” (Mantega quoted in Business News Americas, 2005). Once Brazil became a full member, CAF has been able to allocate, for example, US$ 200 million through a line of credit to Odebrecht, S.A. to issue partial credit guarantees and finance short-term working capital operations. With this facility, CAF plays an important role in meeting the need for new guarantors to continue the execution of relevant projects in the region, particularly in the infrastructure sector (CAF AR, 2011). When

CAF can act a guarantor for a BNDES project, the national development bank does not need to draw upon its own resources (e.g. the Workers’ Assistance Fund7_{) for that kind of activity.}

Brazil also became interested in full participation in CAF as a consequence of its international strategic policy promoted by the current and former governments. For Brazil, cooperation on infrastructure matters has been at the center of its regional engagement agenda (see Chapters 5 and 6), not only for the public sector but also for private conglomerates. Several Brazilian enterprises have been involved in the construction of highways throughout South America in recent years within and beyond IIRSA’s scope, while CAF has accumulated knowledge (both technical, political and public policy related) on road infrastructure like no other RFIs. Consequently, as a CAF official mentioned during an interview, Brazil’s interests in

joining CAF as a full member are a ‘no brainer’:

It makes sense as a ‘signaling’ mechanism that is very consistent with its foreign policy on regional matters. Brazil also didn’t have to contribute with an onerous capital…and

considering the flow of Brazilian investments to Latin America, which are, to a great extent, linked to infrastructure services…it just made sense to join an institution like CAF

(CAF official, Public Policy and Competitiveness Unit, personal interview, November 21, 2012).

Moreover, as a Series C shareholder, Brazil could borrow from CAF up to four times its capital invested in the Andean entity, but as a full-member (Series A) the limit is eight times.

For the original CAF shareholders, the relationship with the institution is truly based on the combination of the factors discussed above—sense of ownership, speed of loans, lack of

7_{The Workers’ Assistance Fund (FAT, in Portuguese) is a government-established fund composed of compulsory contributions deducted from} net operating revenues. At least 40% of annual revenues of FAT are transferred to the BNDES (Constitutional FAT). Because these funds are meant to support employment in Brazil, BNDES usually requires that other actors provide guarantees for international projects.

dogmatic recipes and access to local and regional expertise—but at the same time, CAF also continues to look for ways to strengthen its relationship with founding members through new avenues. For example, in 2012, CAF assisted Bolivia in issuing the first sovereign bonds in nearly a century. The Bolivian government sold US$ 500 million worth of 10-year bonds and earmarked the funds for investment in infrastructure and industrialization projects in energy and mining (Reuters, 2012). The issuing of sovereign bonds was preceded by approximately a year of work with CAF, which accompanied the process at the New York Stock Exchange. The selection of the international investment banks Goldman Sachs and Bank of America Merrill Lynch— banks that have experience working with CAF—was another important step in the process (Bolivia’s Ministry of Economy and Public Finance, 2012). According to Enrique Garcia, CAF

worked with Bolivian officials first by discussing the current role of CRAs in opening doors for infrastructure financing and second, by formally advising them through internal units (e.g. on how to set up a road show and recommending external consultants) (Garcia, personal interview, November 12, 2012).