Report to Congressional Committees

United States General Accounting Office

GAO

May 2001 MULTILATERAL

DEVELOPMENT

BANKS

Profiles of Selected

Multilateral

Development Banks

GAO-01-665
Page i GAO-01-665 Multilateral Development Banks

Letter 1

Tables

Table 1: MDB Groups and Related Entities’ Dates of

Establishment 7

Table 2: Development Assistance Available at Each Multilateral

Development Bank 10

Table 3: Standard & Poor’s Long-Term Credit Rating Definitions 19

Table 4: Standard & Poor’s Credit Ratings of Multilateral

Development Banks as of September 2000 20

Table 5: Resources Provided to the Multilateral Development

Banks From the United States 21

Table 6: U.S. Appropriations for Contributions to the Multilateral

Development Banks for Fiscal Years 1996 through 2001 22

Table 7: U.S. Approved Callable Capital Subscriptions to the

Multilateral Development Banks for Fiscal Years 1996

through 2001 23

Table 8: U.S. Voting Percentage at the Multilateral Development

Banks 24

Table 9: Concentration of Loans Outstanding to IBRD’s Five

Largest Borrowers as of June 30, 2000 26

Table 10: Key Financial Data for IBRD for Fiscal Years 1998

through 2000 28

Table 11: Concentration of Credits Outstanding to IDA’s Five

Largest Borrowers as of June 30, 2000 29

Table 12: Key Financial Data for IDA for Fiscal Years 1998 through

2000 31

Table 13: IFC’s Five Largest Countries of Operations Based on

Cumulative Lending and Investments as of June 30, 2000 32

Table 14: Key Financial Data for IFC for Fiscal Year 1998 through

2000 33

Table 15: Five Largest Country Exposures in MIGA’s Guarantee

Portfolio as of June 30, 2000 35

Table 16: Key Financial Data for MIGA for Fiscal Year 1998

through 2000 36

Table 17: Concentration of Loans Outstanding to AfDB’s Five

Largest Borrowers as of December 31, 1999 38

Table 18: Key Financial Data for AfDB for 1997 through 1999 40

Table 19: Concentration of Loans Outstanding to AfDF’s Five

Largest Borrowers as of December 31, 1999 41

Table 20: Key Financial Data for AfDF for 1997 through 1999 42

Contents
Page ii GAO-01-665 Multilateral Development Banks

Table 21: Concentration of Loans Outstanding to AsDB’s OCR Five

Largest Borrowers as of December 31, 1999 44

Table 22: Key Financial Data for AsDB’s OCR for 1997 through

1999 46

Table 23: Concentration of Loans Outstanding to AsDF’s Five

Largest Borrowers as of December 31, 1999 47

Table 24: Key Financial Data for AsDF for 1997 through 1999 48

Table 25: Concentration of Loans Outstanding to IDB’s OC Five

Largest Borrowers as of December 31, 1999 50

Table 26: Key Financial Data for IDB’s OC for 1997 through 1999 52

Table 27: Concentration of Loans Outstanding to IDB’s FSO Five

Largest Borrowers as of December 31, 1999 53

Table 28: Key Financial Data for IDB’s FSO for 1997 through 1999 54

Table 29: Concentration of Loans Outstanding to IIC’s Largest Five

Areas of Operations as of December 31,1999 55

Table 30: Key Financial Data for IIC for 1997 through 1999 56

Table 31: EBRD’s Five Largest Countries of Operations Based on

Loans Outstanding as of December 31, 1999 57

Table 32: Key Financial Data for EBRD for 1997 through 1999 59

AfDB African Development Bank

AfDF African Development Fund

AsDB Asian Development Bank

AsDF Asian Development Fund

EBRD European Bank for Reconstruction and Development

FSO Fund for Special Operations

GAAP Generally Accepted Accounting Principles

HIPC Heavily Indebted Poor Countries

IDB Inter-American Development Bank

IIC Inter-American Investment Corporation

IBRD International Bank for Reconstruction and Development

IDA International Development Association

IFC International Finance Corporation

LIBOR London Interbank Offer Rates

MDB Multilateral Development Bank

MIGA Multilateral Investment Guaranty Agency

OC Ordinary Capital (Inter-American Development Bank)

OCR Ordinary Capital Resources (Asian Development Bank)

Abbreviations
Page 1 GAO-01-665 Multilateral Development Banks

May 18, 2001

Congressional Committees

Multilateral Development Banks (MDB) were established to provide

financial support for projects and programs designed to promote social

and economic progress in developing countries. Under the Fiscal Year

2001 Foreign Operations, Export Financing, and Related Programs

Appropriations Act (Public Law 106-429) (the Act), the United States is

providing approximately $1.3 billion to support the missions of the MDBs

discussed in this report. Section 803 of the Act provides that GAO report

on the audits of certain MDBs’ financial operations conducted by persons

or entities outside the MDBs. We will be issuing a series of reports in

response to these reporting requirements. As agreed with your offices, we

will first provide a financial overview of the MDBs, including (1)

summaries of each bank’s mission, function, and operations, (2) key bank

financial data covering the last 3 fiscal years,1

 and (3) the U.S. investment

in capital and voting percentages in each MDB. The information contained

in this report was compiled from a variety of publicly available sources,

including the MDBs’ audited financial statements and annual reports.

Other publicly available data was obtained from the MDBs, the

Congressional Research Service, and Standard & Poor’s. We have begun

work to assess the audit process at some of the regional MDBs and will

report on that work at a later date. We plan to continue similar work with

the remaining MDBs.

MDBs are autonomous international financial entities that finance

economic and social development projects and programs in developing

countries. All members participate in oversight and the setting of

operating policies of the MDBs through their participation on the boards

of governors. The MDBs primarily fund these projects and programs using

money borrowed from world capital markets or money provided by

governments of member countries. Because of the MDBs’ favorable credit

ratings, those MDBs that borrow funds from world capital markets are

able to obtain more favorable loan terms than their borrowers could

 1

The last three fiscal years of data for banks affiliated with the World Bank Group are as of

June 30, 1998 through 2000, and December 31, 1997 through 1999, for the regional

development banks.

United States General Accounting Office

Washington, DC 20548

Overview
Page 2 GAO-01-665 Multilateral Development Banks

otherwise negotiate. Thus, MDBs enable developing countries to access

foreign currency resources on more advantageous terms than would be

available to them solely on the basis of their own international credit

standing. MDBs are not commercial “banks” in the traditional sense of the

term because they do not seek to maximize profits and they do not take

customer deposits to fund their operations.

The MDBs provide assistance in the form of loans, equity investments,

loan and equity guarantees, and technical assistance. The primary vehicle

of development assistance is direct lending. Most loans are issued with

market-based interest rates; however, some MDBs offer loans at

concessional (less than current market) rates to the poorest of the

developing countries. MDB loans are available in various currencies to

their member countries or, in some cases, to private enterprises, for

development projects in a borrowing member country. In some cases, a

member country guarantees loans made to private sector enterprises

within the member country and, as a result, may be held liable for any

defaulted loans.

The United States is the largest member in most of the MDBs discussed in

this report, contributing significant amounts to support the missions of the

MDBs and subscribing a significant amount of the MDBs’ callable capital.2

The Congress appropriates funds for the United States’ contributions to

the MDBs. In fiscal year 2001, the Congress appropriated about $1.0 billion

for the MDBs, with the largest contribution, $775 million, going to the

World Bank Group’s International Development Association. During fiscal

year 2001, the Congress also authorized up to $271 million of new

subscriptions to the MDBs’ callable capital. The Department of the

Treasury oversees the United States’ interests in the MDBs. The United

States is a member of the following MDB groups, which are included in

this report: (1) the World Bank Group, (2) the African Development Bank

Group, (3) the Asian Development Bank, (4) the Inter-American

Development Bank, and (5) the European Bank for Reconstruction and

Development.

In their most recent fiscal year of operations for which information was

available, the MDBs we reviewed approved about $40.1 billion of

 2

Callable capital is a form of capital that is subscribed by members and resembles

promissory notes from members to honor MDB debts if the MDB cannot otherwise meet its

obligations through its other available resources. In the history of the MDBs, there has

never been a call on this capital.
Page 3 GAO-01-665 Multilateral Development Banks

development assistance3 consisting of loans, loan guarantees, and equity

investments for economic and social development.4

 The Latin American

and Caribbean region received the largest portion of this development

assistance, approximately $15.8 billion, while the Asian and Pacific region

received $11.9 billion, Europe and Central Asia received $6.3 billion, and

Africa received $6.1 billion. The World Bank Group accounted for about 53

percent of the MDBs’ total development assistance provided during this

period, while the regional MDBs, which focus their development activities

on a particular region, provided the remaining 47 percent. Loans with

market-based interest rates, equity investments, and loan guarantees

accounted for about $33.5 billion of the total financial support provided by

these MDBs during the most recent fiscal years of operations, while

concessional lending amounted to about $6.6 billion.

We received comments of a technical nature from Treasury officials, and

these comments have been incorporated in the report where appropriate.

Public Law 106-429, Appendix A, Title VIII, identifies 10 MDBs to be

included in the scope of our work. However, in order to present consistent

information across the MDB groups, we also included information on two

of the regional MDBs’ concessional lending arms.5

 For purposes of this

report, each of the five MDBs, along with any related entities, is referred to

as a “group.” The MDBs and their related entities included in our report

are the

 3

These amounts were determined based on the MDBs' annual reports and reported

approvals during the applicable period. Since the International Finance Corporation did not

provide approvals by region, its amounts were determined based on the distribution of its

outstanding portfolio. Further, to avoid any double counting, the total amount of MDB

financing for the last fiscal year does not include guarantees approved by the World Bank

Group’s Multilateral Investment Guaranty Agency (MIGA) because data were not available

to determine the amount of MIGA guarantees that insured other MDB financial assistance.

4

The most recent fiscal year of operation for which information was available was June 30,

2000, for the MDBs affiliated with the World Bank Group and December 31, 1999, for the

regional development banks.

5

The concessional lending arms that we have added to our scope include the Asian

Development Bank’s Asian Development Fund and the Inter-American Development Bank’s

Fund for Special Operations. Both of these concessional lending arms are integral parts of

their affiliated bank and are not separate legal entities.

Scope and

Methodology
Page 4 GAO-01-665 Multilateral Development Banks

• World Bank Group

• International Bank for Reconstruction and Development

• International Development Association

• International Finance Corporation

• Multilateral Investment Guaranty Agency

• African Development Bank Group

• African Development Bank

• African Development Fund

• Asian Development Bank

• Ordinary Capital Resources

• Asian Development Fund

• Inter-American Development Bank

• Ordinary Capital

• Fund for Special Operations

• Inter-American Investment Corporation

• European Bank for Reconstruction and Development

For our report, we analyzed and compiled information from the MDBs’

annual reports and their audited financial statements for the most recent 3

fiscal years for which information was available as of January 1, 2001. We

also reviewed the MDBs’ Articles of Agreement. Other data sources

included the Congressional Research Service and Standard & Poor’s. The

Standard & Poor’s information we used relates to the credit ratings of

several MDBs as of September 2000, criteria used to assess several of the

MDBs, credit ratings of various borrowing members, and credit rating

definitions.6

 This information was used with the permission of Standard &

Poor’s.

The most recent fiscal years of operations for which data were available

from the annual reports and audited financial statements of the regional

MDBs and the related entities of the World Bank Group were for the years

ending December 31, 1999, and June 30, 2000, respectively. Our work

 6

The MDBs receive credit ratings from other rating agencies. However, we used Standard &

Poor’s data for our analysis because of its completeness, its coverage of several MDBs, and

its timing. The Standard & Poor’s information used for our report included Counterparty

Rating Guide, First Quarter 2000; Sovereign Rating History Since 1975, and

Supranationals Special Edition 2000, September 2000.
Page 5 GAO-01-665 Multilateral Development Banks

focused on the MDBs and the related entities listed above; our work did

not cover the other special funds operated by the MDBs. To the extent

possible, we used data audited by the MDBs’ external auditors.

For comparability, we converted financial data from the African

Development Bank Group and the European Bank for Reconstruction and

Development to the U.S. dollar equivalent.7

 When calculating the financial

information provided for the MDBs, we made the following adjustments to

data items:

Loans outstanding include disbursed loans and equity investments,

except where noted.

Net disbursed loans represent loans outstanding less the estimated

loan loss allowance.

Nonaccrual loans include the principal portion only.

Undisbursed loans include loans that are committed but not yet

disbursed.

Paid-in capital excludes amounts not yet due and receivables from

members related to subscribed capital.

Because MDBs follow different accounting standards to prepare financial

data, use different methodologies to estimate loan losses, and have

different policies relating to nonaccrual loans, caution must be taken when

comparing financial results. Further, MDBs serve different purposes and

borrowers, which also affects the comparability of financial data.

We conducted our work in Washington, D.C., from January 2001 through

April 2001 in accordance with generally accepted government auditing

standards. On May 11, 2001, we received comments from cognizant

Treasury officials and have incorporated those views and other technical

suggestions into our report, where appropriate.

 7

Financial data from the African Development Bank Group’s financial statements and

annual reports were converted based on exchange rates included in the notes of the

audited financial statements. Financial data for the European Bank for Reconstruction and

Development were converted based on end-of-period exchange rates for 1997 through 1999

published in the International Monetary Fund’s International Financial Statistics.
Page 6 GAO-01-665 Multilateral Development Banks

Multilateral Development Banks (MDB) are autonomous international

financial entities that finance economic and social development projects

and programs and provide technical assistance in developing countries

primarily using money borrowed from world capital markets or

contributed by governments of developed countries. Governments are the

shareholders—referred to as members—of the MDBs.8

 MDB members

include developing countries that borrow from the MDB as well as

industrialized member countries.9

 Through their participation on the

boards of governors all members, including borrowing members,

contribute to the capital of the MDBs and participate in oversight and in

the setting of operating policies. The ability of the MDBs to borrow funds

at more favorable loan terms than the loan recipients could otherwise

negotiate gives developing countries access to foreign currency resources

on more advantageous terms than would be available to them solely on the

basis of their own international credit standing.

Several of the MDBs have created separate entities or funds to carry out

specific types of development assistance, such as market-based lending or

private sector investments. Table 1 shows each MDB group and its related

entities.

 8

The European Bank for Reconstruction and Development has two members that are not

country governments. These two members are the European Investment Bank and the

European Community.

9

Member countries that borrow from MDBs are generally low- and middle-income

countries in need of social or economic development.

Multilateral

Development Banks:

Their Missions,

Functions, and

Organization
Page 7 GAO-01-665 Multilateral Development Banks

Table 1: MDB Groups and Related Entities’ Dates of Establishment

Multilateral Development Bank Date Established

World Bank Group

 International Bank for Reconstruction and Development 1945

 International Development Association 1960

 International Finance Corporation 1956

 Multilateral Investment Guarantee Agency 1988

African Development Bank Group

 African Development Bank 1964

 African Development Fund 1973

Asian Development Bank

 Ordinary Capital Resources 1966

 Asian Development Fund 1974

Inter-American Development Bank

 Ordinary Capital 1959

 Fund for Special Operations 1959

 Inter-American Investment Corporation 1986

European Bank for Reconstruction and Development 1990

Source: Multilateral Development Bank annual reports.

The World Bank Group draws its membership from developing and

industrialized countries around the world. It includes four institutions,

each providing a different function in carrying out the World Bank Group’s

mission of fighting poverty and improving the standard of living in

developing countries throughout the world.

• The International Bank for Reconstruction and Development (IBRD)—the

oldest and, based on total assets, largest MDB—is the World Bank entity

that provides market-based loans, guarantees, and technical assistance to

middle-income member countries and more creditworthy poorer member

countries.

• The International Development Association is the World Bank’s

concessional lending arm that provides key support for the bank’s poorer

members.

• The International Finance Corporation provides loans, equity investments,

and technical assistance for private sector enterprises.

• The Multilateral Investment Guaranty Agency provides guarantees to

foreign investors against loss caused by noncommercial risks, as well as

technical assistance to host governments.
Page 8 GAO-01-665 Multilateral Development Banks

The remaining four MDB groups are referred to as regional development

banks because they focus their development activities on a particular

region. The regional development banks’ membership consists of

developing or borrowing countries within a particular region of the world

plus industrialized member countries located throughout the world. Four

regional MDBs—and their lending arms that provide concessional lending

or equity investments10—included in this report are described below.

The African Development Bank Group includes the following two entities,

which serve the development needs of Africa.

• The African Development Bank provides market-based loans, equity

investments, loan guarantees, and technical assistance to the public and

private sector.

• The African Development Fund is the concessional lending arm that

provides technical assistance and key support for the bank’s poorer

members.

The Asian Development Bank includes the following two operational

lending arms, which serve the development needs of the Asian and Pacific

regions.

• The Asian Development Bank’s Ordinary Capital Resources provides

market-based loans, equity investments, and loan guarantees, and it

indirectly provides technical assistance to middle-income countries and

creditworthy poorer countries.

• The Asian Development Fund is the concessional lending arm that

provides technical assistance and key support for the bank’s poorer

members.

The Inter-American Development Bank group includes the following three

lending arms, which serve the development needs of Latin America and

the Caribbean.

 10These MDBs also operate many other smaller funds that are not covered in our report.
Page 9 GAO-01-665 Multilateral Development Banks

• The Inter-American Development Bank’s Ordinary Capital provides

market-based loans, guarantees, and technical assistance to the public and

private sectors.

• The Inter-American Development Bank’s Fund for Special Operations is

the concessional lending arm that provides technical assistance and key

support for the bank’s poorer members.

• The Inter-American Investment Corporation is the Inter-American

Development Bank group’s entity that provides loans, equity, and technical

assistance to small and midsize private enterprises.

The European Bank for Reconstruction and Development serves central

and eastern Europe and the Commonwealth of Independent States. It

provides development assistance through market-based loans,

cofinancing, loan guarantees, equity investments, and technical assistance

to the public and private sector.

The MDBs included in our analysis approved about $40.1 billion of

financial assistance11 to developing countries during the most recent fiscal

year of operations for which data were available at January 1, 2001. The

Latin American and Caribbean region received the largest portion of this

development assistance with approximately $15.8 billion, while the Asian

and Pacific region received $11.9 billion, Europe and Central Asia received

$6.3 billion, and Africa received $6.1 billion. The World Bank Group

accounted for about 53 percent of the development assistance during this

period, while the regional MDBs provided the remaining 47 percent. Loans

with market-based interest rates, equity investments, and loan guarantees

accounted for about $33.5 billion of the MDBs’ total financial support

provided during the most recent fiscal years of operations, while

concessional lending amounted to about $6.6 billion.

 11These amounts were determined based on the MDB”s annual reports and reported

approvals during the applicable period. Since the International Finance Corporation did not

provide approvals by region, amounts were determined based on the distribution of its

outstanding portfolio. Further, to avoid any double counting, the total amount of MDB

financing for the last fiscal year does not include guarantees approved by the World Bank

Group’s MIGA because data were not available to determine the amount of MIGA

guarantees that insured other MDB financial assistance.

Lending and Financing

Activities
Page 10 GAO-01-665 Multilateral Development Banks

The MDBs provide assistance in the form of loans, loan and investment

guarantees, equity investments, and technical assistance. The primary

vehicle for development assistance is market-based lending to member

countries. Most loans are issued with market-based interest rates.

However, as indicated in table 2, four of the five MDB groups offer loans at

concessional rates, which are generally between zero and 4 percent.

Concessional lending is provided to the poorest of the developing

countries. Table 2 summarizes the type of development assistance

provided by each of the MDB groups and their related entities.

Table 2: Development Assistance Available at Each Multilateral Development Bank

Multilateral development bank

Market-based

loans

Concessional

loans

Equity

investments

Loan and

investment

guarantees

Technical

assistance

World Bank Group

 International Bank for Reconstruction and

 Development

! !!

 International Development

 Association

! !!

 International Finance Corporation ! !!!

 Multilateral Investment

 Guaranty Agency

! !

African Development Bank Group

 African Development Bank ! !!!

 African Development Fund ! !

Asian Development Bank

 Ordinary Capital Resources ! !!!

 Asian Development Fund !

Inter-American Development Bank

 Ordinary Capital ! !!

 Fund for Special Operations ! !

 Inter-American Investment

 Corporation

!!!

European Bank for Reconstruction and

Development

! !!!

Source: Multilateral Development Bank annual reports and audited financial statements.

MDBs issue loans, in various currencies, to the sovereign member

countries and private sector enterprises for development projects within

borrowing member countries. In some cases, a member country

guarantees loans made to private sector enterprises for projects within the

member’s country, and as a result, the member itself may be held liable for

defaulted loans.
Page 11 GAO-01-665 Multilateral Development Banks

MDBs have lending policies that state that no further loan disbursements

will be granted to borrowing members if any of the MDB loans to or

guaranteed by the member country are in default. This gives the borrowing

or guaranteeing member strong incentives to maintain timely loan

repayments to the MDBs. Member countries must ensure that loans they

have guaranteed also remain current. Therefore, the MDB is given

preferred creditor status12 by member governments. Generally, this

preferential status does not affect the MDBs’ loans to the private sector

when there is no guarantee by a member country.

Operations of MDBs that provide loans with market-based rates are

financed primarily through borrowings from world capital markets,

members’ paid-in capital, and retained earnings. Members also provide

capital through subscriptions to callable capital, which resemble

promissory notes from member countries to honor MDB debts if the MDB

cannot otherwise meet its obligations through its other available

resources. Calls on this type of capital are uniform based on all callable

capital shares outstanding. Since member countries make payments

independent of each other, if the amount received on a call were

insufficient to meet the obligations for which the call was made, the MDB

would make further calls until the amounts received were sufficient to

meet its obligations. However, no member may be required to pay more

than the unpaid balance of its total callable capital subscribed. To date,

there has never been a call on this capital for any of the MDBs included in

our report.

Callable capital may only be used when necessary to pay obligations of the

MDB; it may not be used to fund new loans. Because of the significant

proportion of callable capital that is subscribed by members with strong

credit ratings, including the United States, MDBs are able to use callable

capital as backing to obtain very favorable financing terms when

borrowing from world capital markets. This allows the MDBs to lend

much more than the amount of capital paid in by members and at more

advantageous terms than would be available to borrowers solely on the

basis of their own credit standings. MDBs that have callable capital from

members include the International Bank for Reconstruction and

Development, the Multilateral Investment Guaranty Agency, the African

 12The preferred creditor status derives from the borrowers’ traditional practice of servicing

debt owed to the MDBs before servicing debt owed to other lenders. The articles of

agreement of the MDBs do not address preferred creditor status.

Market-Based Lending and

Related Financing
Page 12 GAO-01-665 Multilateral Development Banks

Development Bank, the Asian Development Bank’s Ordinary Capital

Resources, the Inter-American Development Bank’s Ordinary Capital, and

the European Bank for Reconstruction and Development.

Dealing in various currencies and borrowing funds to finance lending

operations exposes these MDBs to market risk, which is comprised of

interest rate risk13 and exchange rate risk.14 To minimize these risks, MDBs

(1) match the maturities of their assets and liabilities, (2) often set and

semiannually adjust interest rates on loans based on their cost of

borrowing funds, and (3) attempt to match the currency composition of

their lending and borrowing portfolios. In addition, because of the

developmental nature of their operations, the MDBs are exposed to credit

risk15 from lending to low- and middle-income countries, which generally

have lower credit quality. Each of the MDBs has established lending

policies that attempt to minimize credit risk, including the suspension of

further disbursements to members that have outstanding loans that are

nonperforming or in a nonaccrual16 status.

The lending arms of the MDBs that provide concessional rate loans to the

poorest of the developing countries—those meeting certain eligibility

requirements—are financed through capital contributions from member

countries and borrower repayments of outstanding loans. Due to the

nature of concessional lending, these entities do not have callable capital

subscriptions and do not borrow from world capital markets to finance

their operations.

Unlike the market-based lending arms of the MDBs, which borrow from

world capital markets to fund lending, concessional lending arms rely on

 13“Interest rate risk” refers to the changes in interest rates that affect the spread differences

between the rate at which money is earned on lending activities and the rate paid for

money borrowed to fund lending.

14“Exchange rate risk” refers to the possibility of gains or losses that arise when an entity

has assets and liabilities and/or conducts transactions that are denominated in currencies

other than the currency in which it maintains its accounts.

15“Credit risk” refers to the risk of default by a borrower or guarantor that may result from

nonperformance under the terms of lending agreements.

16A loan is considered to be in a nonaccrual status when loan payments are delinquent over

an extended period of time, generally 6 months for most of the MDBs discussed in this

report.

Concessional Lending and

Related Financing
Page 13 GAO-01-665 Multilateral Development Banks

capital replenishments17 or periodic contributions by members in order to

continue lending operations. As a result, these entities do not have the

same interest rate risks associated with borrowing in the marketplace to

fund lending as do the MDBs that provide market-based lending through

leveraging high-quality callable capital. However, due to the nature of

concessional lending to the poorest of the developing countries, these

entities are exposed to considerable credit risks. Because of the credit risk

of their borrowers and the extended maturity structure of this type of

lending, the concessional lending arms discussed in this report, except for

the Asian Development Fund, do not estimate allowances for possible

losses related to their loan portfolios.

The private sector MDB affiliates that provide equity investments rely on

members’ paid-in capital contributions, as opposed to callable capital, to

finance equity investment activities. However, these entities also borrow

from world capital markets to finance lending operations. These affiliates

include the International Finance Corporation of the World Bank Group

and the Inter-American Investment Corporation.

The Heavily Indebted Poor Countries (HIPC) Initiative is a debt relief

program aimed at the world’s poorest nations. The World Bank Group and

the International Monetary Fund proposed the HIPC Initiative in 1996 in

response to a call from leaders of major industrial nations for a

comprehensive approach to the debt problems of the poorest countries.

Enhancements to the HIPC Initiative were implemented in 1999. The

initiative was designed as a coordinated approach to reduce to sustainable

levels the external debt burden of the most heavily indebted countries.18

The goal of the initiative is expected to provide $29.3 billion19 in debt relief

to 32 eligible countries. Debt relief is linked to the support of economic

and social programs designed to reduce poverty. The initiative calls for

countries to prepare a comprehensive “country owned” poverty reduction

strategy before completing the program. The MDBs that participate in the

HIPC Initiative include the International Bank for Reconstruction and

 17Capital replenishments refer to periodic contributions by member countries that are

agreed upon by the institution’s board of governors. These replenishments depend on

members to make agreed-upon contributions in order to fund concessional lending

operations over a specified period of time.

18GAO reported in June 2000 that the initiative is unlikely to achieve this goal unless

optimistic economic assumptions are satisfied (GAO/NSIAD-00-161, June 29, 2000).

19This amount is based on 1999 net present value dollars.

Heavily Indebted Poor

Countries Initiative
Page 14 GAO-01-665 Multilateral Development Banks

Development, the International Development Association, the African

Development Bank Group, and the Inter-American Development Bank.20

The participation of some multilateral institutions is financed through a

trust fund administered by the International Development Association of

the World Bank Group. The HIPC Trust Fund receives contributions from

participating countries. The HIPC Trust Fund’s operations and assets are

completely separate from those of the International Development

Association. The fund can prepay or purchase a portion of debt owed to

participating MDBs and cancel such debt, or it can pay debt service as it

comes due. In fiscal year 2001, the Congress authorized to be appropriated

during the period of October 1, 2000, through September 30, 2003, $435

million for U.S. contributions to the HIPC Trust Fund.

An MDB’s activities are overseen through a board of governors, with a

governor from each member. In general, a board of governors is

responsible for admitting new members, increasing or decreasing capital,

suspending members, authorizing agreements for cooperation with other

international organizations, making decisions about the board of executive

directors, approving the bank’s financial statements, determining the

reserves and the distribution of profits, and making decisions about the

scope of the MDB’s operations. Each of the MDBs also has a board of

executive directors to whom the board of governors has delegated

oversight of day-to-day operations. In general, each board of executive

directors is responsible for ensuring the implementation of the decisions

of the board of governors; making decisions concerning loans, guarantees,

investments, technical assistance, and borrowing funds; submitting

accounts to the board of governors; and approving the budget of the bank.

The MDB’s daily operations are carried out by its own management and

staff of international civil servants.

Generally, MDBs were established pursuant to articles of agreement that

specify the MDB’s purpose, operations, capital structure, and

organizational policies. The articles

• outline the bank’s conditions for borrowing and lending activities,

including the loan approval process;

 20According to the Asian Development Bank (AsDB), members have concluded that there

currently is minimal or no need for AsDB to finance debt relief under the HIPC Initiative.

Governance Structure
Page 15 GAO-01-665 Multilateral Development Banks

• determine how voting shares21 are allocated to members (such allocations

are generally based on a member’s subscribed capital or total

contributions);

• establish the status, immunity, and privileges of the MDB; and

• provide for the disposition of currencies available to the bank, the

withdrawal and suspension of members, and the suspension and

termination of the bank’s operations.

As international financial entities, MDBs are not subject to supervision or

oversight by national financial regulators. The MDBs’ own boards of

executive directors are responsible for setting rules to be observed by the

MDBs in their operations.

The MDBs included in our report received unqualified or “clean” audit

opinions on their financial statements from large, international public

accounting firms for the 3 most recent fiscal years. MDBs prepare their

financial statements to comply with different bases of accounting. Some

MDBs present their financial statements using U.S. generally accepted

accounting principles (GAAP), while others use International Accounting

Standards or a combination of the two. Due to the special nature and

organization of the concessional lending arms of the MDBs, some of these

entities prepare special-purpose financial statements that are meant to

show the sources and uses of resources and to comply with accounting

standards specific to the affiliate’s operations. The concessional lending

arms that prepare special-purpose financial statements include the

International Development Association, the African Development Fund,

and the Inter-American Development Bank’s Fund for Special Operations.

Later sections of this report present ratios for each MDB that can be used

to interpret financial information related to MDB operations. Where

applicable, the financial ratios are presented for each MDB. Standard &

Poor’s used many of these same ratios in its evaluation of several of these

MDBs.22

 21Generally, decisions by the boards of governors and executive directors regarding the

banks’ operations are made by voting.

22The MDBs receive credit ratings from other rating agencies. However, we used Standard

& Poor’s data for our analysis because of its completeness, its coverage of several of the

MDBs, and its timing.

Financial Statement Audits

Financial Data and Ratio

Analysis
Page 16 GAO-01-665 Multilateral Development Banks

Asset quality as it relates to the MDBs generally refers to the

composition of the loan portfolio and is ultimately evidenced in the record

of loan payments to the MDB. Asset quality reflects the creditworthiness

of borrowers and is important for assessing credit risk. Asset quality also

reflects the degree of concentration of risk, which considers the impact on

the loan portfolio of potential default by the largest borrowers. The

preferred creditor status attributed to MDBs generally improves the

quality of the MDBs’ assets. Where applicable, the following financial

information is presented to assess asset quality of the MDBs.

Concentration of loans to the MDBs’ five largest borrowers or

countries of operation indicates the impact that an economic

downturn in a specific region or country could have on the loan

portfolio.

Nonaccrual loans as a percentage of total loans outstanding indicates

the percentage of the MDB’s loan portfolio that is currently

nonperforming.

Loan loss allowance as a percentage of total loans outstanding

indicates how much the MDB estimates it will lose due to

nonperformance or default as a result of credit risk related to its loan

portfolio.

Loan loss allowance as a percentage of total nonaccrual loans

indicates the sufficiency of the MDB’s allowances for estimated losses

compared to its currently nonperforming portfolio.

Capital quality as it relates to the MDBs refers to the composition of

capital as well as the portion of callable capital from the more

creditworthy members. Where applicable, the following financial

information is presented to assess the capital quality of the MDBs.

Paid-in capital as a percentage of total subscribed capital indicates

the portion of subscribed capital that has been actually paid by

members.

AAA rated23 callable capital as a percent of total callable capital

indicates the quality of capital that has been subscribed but not paid-in

 23See table 3 for definitions of credit ratings.
Page 17 GAO-01-665 Multilateral Development Banks

by members. The quality of callable capital is important as a gauge of

the ability of members to meet a capital call in the unlikely event that

an MDB cannot service its debt.

Gearing ratios, as they relate to the MDBs, are measures of loans

outstanding compared to the different types of capital available to the

MDB. MDBs establish policies on gearing, which limit the ratio of

outstanding loans to capital and reserves, to address the inherent risks of

their lending activities. Where applicable, the following financial

information is presented for the MDBs to use in assessing gearing.

Net disbursed loans as a percentage of paid-in capital plus reserves

indicates the ability to absorb borrower defaults without resorting to

capital calls. Paid-in capital plus reserves is a measure of funds

actually available to the MDB.

Net disbursed loans as a percent of AAA callable capital plus paid-in

capital and reserves indicates the ability of the MDB to absorb

defaults.

Leverage is a measure of the MDB’s outstanding debt compared to the

different types of its capital. Similar to gearing ratios, leverage limitations

are established by some of the MDBs to address the inherent risks of their

activities. Where applicable, the following financial information is

presented for the MDBs to use in assessing leverage.

Outstanding debt as a percentage of paid-in capital plus reserves

provides a comparison of an MDB’s outstanding debt with its paid-in

capital plus reserves for funding its operations.

Outstanding debt as a percentage of AAA callable capital plus paidin capital and reserves indicates the MDB’s ability to meet its

outstanding debts with the support of the most creditworthy countries.

Liquidity is a measure of an MDB’s ability to pay its current debt service

and to fund its lending operations on a timely basis. The MDBs’ assets

from their lending operations are relatively illiquid. Therefore, MDBs must

rely on sufficient liquid assets, such as investments in marketable

securities, to ensure timely payment of debt service and disbursement of

new loans. Where applicable, the following financial information is

presented for the MDBs to use in assessing liquidity.
Page 18 GAO-01-665 Multilateral Development Banks

Liquid assets as a percentage of undisbursed loans plus 1 year of

debt service indicates how well MDBs are able to meet their current

obligations.

Administrative expenses ratio is a measure of administrative expenses

compared to total expenses.

Administrative expenses as a percentage of total expenses indicates

the portion of total expenses attributable to administrative activities of

the MDBs.

Profitability ratio measures how well an entity performed during a given

time period, usually a year. Although MDBs’ primary objective is to

promote economic and social development and not to maximize profits,

MDBs do seek to earn adequate income to cover their operational costs

and to build adequate reserves.

Net operating income as a percent of average assets is the rate of

return on an MDB’s assets for the year and is a key measure of the

MDB’s profitability.

Because MDBs follow different accounting standards to prepare financial

data, use different methodologies to estimate loan losses, and have

different policies relating to nonaccrual loans, caution must be taken when

comparing financial results. Further, MDBs serve different purposes and

borrowers, which also affects the comparability of financial data.

Credit ratings are useful for assessing the MDB itself as well as its

borrowers and members. Credit ratings apply to the MDBs insofar as they

borrow in the market place to finance their lending activities. The credit

ratings of borrowing countries also apply to MDBs insofar as the

creditworthiness of an MDB’s borrowers affects the MDB’s loan portfolios.

A credit rating is intended to convey a current evaluation of a borrower’s

overall creditworthiness to pay its financial obligations. The borrower’s

capacity and willingness to pay its obligations are taken into account in

establishing a rating. Table 3 summarizes Standard & Poor’s long-term

credit ratings. Borrowers rated AAA and AA are considered to have a very

strong capacity for meeting financial commitments. Borrowers rated A and

BBB have a strong-to-adequate capacity to meet financial commitments

but with some susceptibility to adverse changes in circumstances.

Borrowers rated BB, B, CCC, and CC have uncertainties and

vulnerabilities in their abilities to meet their financial obligations, with BB

indicating the least degree of uncertainty and vulnerability within that

Credit Ratings
Page 19 GAO-01-665 Multilateral Development Banks

range and CC, the highest. BB through CC borrowers will likely have some

mitigating quality and protective characteristics; however, these may be

outweighed by great uncertainties or major exposures to adverse

conditions. Ratings from AA to CCC may be modified with a plus (+) or

minus (-) sign to show the relative standing within the major rating

categories.

Table 3: Standard & Poor’s Long-Term Credit Rating Definitions

Category Credit rating definition

AAA Extremely strong capacity to meet its financial commitments. This is the

highest rating available.

AA Very strong capacity to meet its financial commitments.

A Strong capacity to meet its financial commitments but is somewhat more

susceptible to the adverse effects of changes in circumstances and

economic conditions than higher rated categories.

BBB Adequate capacity to meet financial commitments. However, adverse

economic conditions or changing circumstances are more likely to lead to a

weakened capacity to meet financial commitments.

BB Less vulnerable in the near future than the lower-rated borrowers. However,

it faces major ongoing uncertainties and exposure to adverse business,

financial, or economic conditions, which could lead to the borrower’s

inadequate capacity to meet financial commitments.

B More vulnerable than the borrower rated BB, but currently has the capacity

to meet its financial commitments. Adverse business, financial, or economic

conditions will likely impair the borrower’s capacity or willingness to meet its

financial commitments.

CCC Currently vulnerable and is dependent upon favorable business, financial,

and economic conditions to meet its financial commitments.

CC Currently highly vulnerable.

Selective

Default

Borrower has failed to pay one or more of its financial obligations when due.

This rating is given when it is believed that the borrower has selectively

defaulted on a specific obligation but will continue to meet its payment

obligations on other obligations in a timely manner.

Source: Standard & Poor’s, Counterparty Ratings Guide.

Despite the risks associated with the MDBs’ operations, many factors

contribute to the generally high credit ratings several of the MDBs

received from Standard & Poor’s. These factors include capital

contributions and subscriptions from highly rated members, preferred

creditor status attributed to obligations to the MDBs by borrowing

members, and the MDBs’ overall conservative financial policies. Table 4

shows the credit ratings for six MDBs that primarily borrow from world

capital markets to finance their lending activities.
Page 20 GAO-01-665 Multilateral Development Banks

Table 4: Standard & Poor’s Credit Ratings of Multilateral Development Banks as of

September 2000

Multilateral Development Bank Credit rating and outlook

International Bank for Reconstruction and

Development

AAA with a stable outlook for the future

International Finance Corporation AAA with a stable outlook for the future

African Development Bank AA+ with a negative outlook for the future

Asian Development Bank – Ordinary Capital

Resources

AAA with a stable outlook for the future

Inter-American Development Bank – Ordinary

Capital

AAA with a stable outlook for the future

European Bank for Reconstruction and

Development

AAA with a stable outlook for the future

Source: Standard & Poor’s, Supranationals Special Edition 2000, September 2000.

The Congress appropriates funds for U.S. contributions to the MDBs. The

United States has provided a total of $40 billion to the MDBs included in

this report. The largest cumulative U.S. contribution, $25.8 billion, has

been made to the International Development Association. The United

States has also subscribed to callable capital of $68.8 billion to the MDBs

included in this report. The largest subscriptions of callable capital have

been to the International Bank for Reconstruction and Development and

the Inter-American Development Bank’s Ordinary Capital for $29.9 billion

and $29 billion, respectively. For each of the MDBs included in our report,

table 5 summarizes resources the United States has provided to the MDBs

from inception through December 31, 1999, except for the MDBs affiliated

with the World Bank Group, whose data are as of June 30, 2000. The

United States is the largest member in most of these MDBs.

U.S. Involvement in

the Multilateral

Development Banks
Page 21 GAO-01-665 Multilateral Development Banks

Table 5: Resources Provided to the Multilateral Development Banks From the United States (Dollars in millions)

Multilateral Development Bank

U.S. paid-in

capital or

contributions

U.S. callable

capital

Total U.S.

subscriptionsa

U.S. percent of

total

subscriptions

within each MDB

World Bank Group

 International Bank for

 Reconstruction and

 Development

$1,998.4 $29,966.2 $31,964.5 16.95

 International Development

 Association

25,841.8 Not applicableb25,841.8 24.28

 International Finance

 Corporation

569.4 Not applicableb569.4 24.16

 Multilateral Investment

 Guaranty Agency

45.2 181.3 226.5 17.79

African Development Bank Group

 African Development Bank 153.3 1,073.0 1,226.3 5.34

 African Development Fund 1,560.6 Not applicableb1,585.2c11.03

Asian Development Bank

 Ordinary Capital Resources 531.1 7,052.8 7,583.9 15.93

 Asian Development Fund 2,647.9 Not applicableb2,647.9 12.95

Inter-American Development Bank

 Ordinary Capital 1,303.0 29,006.7 30,309.7 30.04

 Fund for Special Operations 4,798.2 Not applicableb4,798.2 49.75

 Inter-American Investment

 Corporation

51.0 Not applicableb51.0 25.04

European Bank for Reconstruction and

Development

527.4 1,481.8 2,009.2 10.18

Total $40,027.3 $68,761.8 $108,813.6

Note: Data are as of December 31, 1999, except for the banks affiliated with the World Bank Group,

for which the data are as of the June 30, 2000, fiscal year-end. These were the most recent data

available from the MDBs’ audited financial statements.

a

There are some differences between the amounts reported in the MDBs’ audited financial statements

and Treasury data.

b

This MDB does not finance development activities with borrowing from world capital markets and,

therefore, does not rely on callable capital. Operations are financed primarily through industrialized

member country contributions.

c

The difference of $24.6 million between the amount of paid-in and total subscriptions represents an

installment due from the United States for payment under the eighth replenishment agreement to the

African Development Fund as of December 31, 1999.

Source: Multilateral Development Banks’ audited financial statements.

Tables 6 and 7 provide a summary of U.S. appropriations for contributions

and approved callable capital subscriptions to the MDBs for fiscal years

1996 through 2001.
Page 22 GAO-01-665 Multilateral Development Banks

Table 6: U.S. Appropriations for Contributions to the Multilateral Development Banks for Fiscal Years 1996 through 2001

(Dollars in millions)

Multilateral Development Bank FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001

World Bank Group

 International Bank for Reconstruction and

 Development

$28.2 $0.0 $0.0 $0.0 $0.0 $0.0a

 International Development

 Association

700.0 700.0 1,034.5 800.0 775.0 775.0

 International Finance

 Corporation

60.9 6.7 0.0 0.0 0.0 0.0

 Multilateral Investment

 Guaranty Agency

0.0 0.0 0.0 0.0 4.0 10.0

African Development Bank Group

 African Development Bank 0.0 0.0 0.0 0.0 4.1 6.1

 African Development Fund 0.0 0.0 45.0 128.0 128.0 100.0

Asian Development Bank

 Ordinary Capital Resources 13.2 13.2 13.2 13.2 13.7 0.0

 Asian Development Fund 0.0 100.0 150.0 210.0 77.0 72.0

Inter-American Development Bank

 Ordinary Capital 26.0 25.6 25.6 25.6 25.6 0.0

 Fund for Special Operations 10.0 10.0 20.8 21.2 0.0 0.0

 Inter-American Investment

 Corporation

0.0 0.0 0.0 0.0 16.0 25.0

European Bank for Reconstruction and Development 70.0 11.9 35.8 35.8 35.8 35.8

Total $908.3 $867.4 $1,324.9 $1,233.8 $1,079.2 $1,023.9

Note: Not all MDBs received appropriations for contributions in each fiscal year.

a

The International Bank for Reconstruction and Development is the trustee for the Global

Environment Facility, which was appropriated $108 million during fiscal year 2001.

Source: Congressional Research Service, Multilateral Development Banks: U.S. Contributions FY

1989-2000, February 10, 2000, Jonathan E. Stanford and P.L. 106-429.
Page 23 GAO-01-665 Multilateral Development Banks

Table 7: U.S. Approved Callable Capital Subscriptions to the Multilateral Development Banks for Fiscal Years 1996 through

2001 (Dollars in millions)

Multilateral Development Bank FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001

World Bank Group

 International Bank for Reconstruction and Development $911.4 $0.0 $0.0 $0.0 $0.0 $0.0

 Multilateral Investment Guaranty Agency 0.0 0.0 0.0 0.0 20.0 50.0

African Development Bank Group

 African Development Bank 0.0 0.0 0.0 0.0 64.0 97.5

Asian Development Bank

 Ordinary Capital Resources 647.9 647.9 647.9 647.9 672.2 0.0

Inter-American Development Bank

 Ordinary Capital 1,523.8 1,503.7 1,503.7 1,503.7 1,503.7 0.0

European Bank for Reconstruction and Development 163.3 27.8 123.2 123.2 123.3 123.2

Total $3,246.4 $2,179.4 $2,274.8 $2,274.8 $2,383.2 $270.7a

a

The amount of U.S. approved callable capital subscriptions significantly decreased in fiscal year

2001 because only three of these MDBs were in a replenishment period. The amount needed for

subscriptions to callable capital should be expected to increase as members agree to further capital

replenishments for the MDBs.

Source: Congressional Research Service, Multilateral Development Banks: U.S. Contributions FY

1989-2000, February 10, 2000, Jonathan E. Stanford and P.L. 106-429.

The Department of the Treasury oversees U.S. interests in the MDBs. The

Secretary of the Treasury currently serves as the U.S. governor on each

MDB board of governors. The United States has executive directors that

are presidentially approved and confirmed by the U.S. Senate and that

serve full-time on each MDB board of executive directors. Over time, the

Congress has enacted many legislative policy mandates with respect to the

MDBs. Many of the mandates direct the Secretary of the Treasury to

instruct the U.S. executive directors to use their “voice” and “vote” to

pursue certain U.S. policies. These mandates, addressing a variety of

issues, specify what U.S. policy shall be in particular situations or how the

U.S. executive directors shall vote on particular issues. Voting shares of

the MDBs are allocated to member countries based primarily on capital

subscriptions or contributions but may also be affected by requirements

established in some of the regional MDBs’ articles that allow regional

member countries to maintain a certain level of control over operations.

Table 8 summarizes the U.S. voting percentages at each MDB.
Page 24 GAO-01-665 Multilateral Development Banks

Table 8: U.S. Voting Percentage at the Multilateral Development Banks

Multilateral Development Bank

U.S. voting

percentage U.S. share compared to other member countries

World Bank Group

 International Bank for Reconstruction and

 Development

16.49 The U.S. has the largest voting share of any member country.

 International Development Association 14.83 The U.S. has the largest voting share of any member country.

 International Finance Corporation 23.73 The U.S. has the largest voting share of any member country.

 Multilateral Investment Guaranty Agency 14.60 The U.S. has the largest voting share of any member country.

African Development Bank Group

 African Development Bank 5.32 The U.S. has the largest voting share of any nonregional member

country; however, combined regional members maintain 62.5

percent of the total voting shares.

 African Development Fund 6.20 The U.S. has the second largest voting share of a member country;

the African Development Bank maintains 50 percent of the total

voting shares.

Asian Development Bank

 Ordinary Capital Resources 13.09 The U.S. and Japan, a regional member, have the largest and equal

voting shares.

 Asian Development Fund 13.09aVoting shares are the same as the Asian Development Bank’s

Ordinary Capital Resources.

Inter-American Development Bank

 Ordinary Capital 30.03 The U.S. has the largest voting share of any member country;

however, regional members combined maintain 50.1percent of the

total voting shares.

 Fund for Special Operations 30.03bVoting shares are the same as Inter-American Development Bank’s

Ordinary Capital.

 Inter-American Investment Corporation 25.04 The U.S. has the largest voting share of any member country.

European Bank for Reconstruction and

Development

10.28 The U.S. has the largest voting share of any member country.

Note: Data are as of December 31, 1999, except at the banks affiliated with the World Bank Group,

which have a different fiscal year-end and the data are as of June 30, 2000. These were the most

recent data available.

a

The 1999 annual report of the Asian Development Bank did not indicate how the voting shares of the

Asian Development Fund are allocated among its members. However, the Congressional Research

Service has reported that the Fund’s voting shares are the same as the Ordinary Capital Resources.

b

The 1999 annual report of the Inter-American Development Bank did not specifically indicate how the

voting shares of the Fund for Special Operations are allocated among its members. However, the

articles of agreement establishing the Inter-American Development Bank indicate that the voting

shares of the Fund are determined in the same manner as the voting shares of the Bank. These

provisions indicate that the U.S. voting share shall not be below 30 percent.

Source: Multilateral Development Banks’ audited financial statements, except where noted.

The following sections present more details on the MDBs and their related

entities in which the United States has provided resources. These sections

include summary information on the MDB background and mission,
Page 25 GAO-01-665 Multilateral Development Banks

development activities, financing, and key financial data from the last 3

fiscal years.

The World Bank Group’s members include developing and industrialized

countries around the world. The group includes four institutions, or

lending arms, which provide different functions in carrying out the its

mission of fighting poverty and improving the standard of living in

developing countries throughout the world. These four institutions,

discussed in more detail in the remainder of this section, are as follows:

• The International Bank for Reconstruction and Development (IBRD)—the

oldest and, based on total assets, the largest MDB—is the World Bank

entity that provides market-based loans, guarantees, and technical

assistance to middle-income countries and more creditworthy poorer

countries.

• The International Development Association is the World Bank’s

concessional lending arm and provides support for the bank’s poorer

member countries.

• The International Finance Corporation provides loans, equity investments,

and technical assistance for private sector enterprises.

• The Multilateral Investment Guaranty Agency provides guarantees to

foreign investors against loss caused by noncommercial risks, as well as

technical assistance to host governments.

IBRD is a member of the World Bank Group and was established in 1945.

The principal stated purpose of IBRD is to reduce poverty by promoting

sustainable economic development. IBRD seeks to achieve this goal by

providing loans, guarantees, and technical assistance for projects and

programs of economic reform to its developing member countries, which

are primarily middle-income and creditworthy poorer countries not

limited to a specific region of the world. As reported in its fiscal year 2000

financial statements, IBRD had 181 members, of which 98 were borrowing

countries. IBRD does not operate to maximize profits but seeks to earn

adequate net income to ensure its financial strength and to support its

development activities.

The primary vehicle of IBRD development assistance is direct lending. All

of IBRD’s loans are made to or guaranteed by members, except for loans

to the World Bank Group’s International Finance Corporation. IBRD offers

The World Bank

Group

International Bank for

Reconstruction and

Development

Development Activities
Page 26 GAO-01-665 Multilateral Development Banks

several different loan products in a variety of currencies to meet the needs

of its borrowers. In general, IBRD charges interest rates that are based on

either IBRD’s average cost of borrowing plus a spread or the London

Interbank Offer Rates (LIBOR)24 plus a spread. Repayment periods and

grace periods depend on the type of loan or the borrower’s repayment

abilities. The choice in financial terms is intended to provide borrowers

with the flexibility to select terms that are both compatible with their debt

management strategy and suited to their debt servicing capability. As of

June 30, 2000, IBRD’s loans outstanding totaled approximately $120

billion, including $2.0 billion in nonaccrual status. As shown in table 9,

nearly 42 percent of this outstanding balance is from IBRD’s five largest

borrowing countries.

Table 9: Concentration of Loans Outstanding to IBRD’s Five Largest Borrowers as

of June 30, 2000

Five largest

borrowers

Loans outstanding

(in millions)

Percentage of total

 loans outstanding

Standard & Poor’s

credit ratinga

Indonesia $11,755 9.79 BMexico 11,111 9.25 BB+

China 10,719 8.93 BBB

Argentina 8,292 6.90 BBRepublic of Korea 8,160 6.79 BBB

Total $50,037 41.66

a

Credit rating is based on the most recent rating prior to January 1, 2001, for the borrowing country.

Sources: IBRD’s fiscal year 2000 audited financial statements and Standard & Poor’s, Sovereign

Ratings History Since 1975.

In fiscal year 2000, IBRD approved loans of about $10.9 billion to

developing countries for projects and programs in various sectors. During

fiscal year 2000, human development projects and programs were among

IBRD’s lending priorities. These efforts are aimed at education, health,

nutrition, and social protection. Strengthening the financial sector and

improving public sector management and infrastructure needs, including

transportation, telecommunications, and water supplies, were also a focus

 24LIBOR, a commonly used index for international lending, represents key interest rates at

which the major banks in the London interbank market are willing to lend funds to each

other at various maturities and for different currencies. LIBOR is a key floating rate pricing

benchmark for loans and debt instruments in the global financial markets. These rates are

published daily by the Bank of England and are based on sampling from a group of

reference banks that are active in the Eurocurrency market, but agreements that use

LIBOR do not necessarily rely on quotes published by the Bank of England.
Page 27 GAO-01-665 Multilateral Development Banks

of fiscal year 2000 approvals. Development efforts in these areas are aimed

at attracting private sector investment and poverty reduction in developing

countries. In fiscal year 2000, Turkey received the greatest amount of new

IBRD commitments, with approximately $1.8 billion in support of

structural and social reforms, including over $750 million in response to a

severe earthquake in the region.

IBRD’s operations are financed through retained earnings, paid-in capital,

and borrowings obtained from world capital markets using callable capital

as backing. As of June 30, 2000, AAA-rated countries accounted for 44

percent of IBRD’s total callable capital. Based on its strong membership

support and preferred creditor status, among other factors, IBRD received

a AAA credit rating with a stable outlook for the future from Standard &

Poor’s during September 2000. The quality of IBRD’s callable capital and

its AAA credit rating allow the bank to borrow funds from world capital

markets at favorable interest rates for long loan terms. This results in

IBRD’s ability to pass on more favorable lending terms to borrowers than

would normally be available to them based on their own credit standing.

IBRD’s financial statements are prepared in accordance with U.S. GAAP

and International Accounting Standards. IBRD received an unqualified

audit opinion on its financial statements from Deloitte Touche Tohmatsu

for fiscal years 1998 through 2000. Table 10 summarizes key financial data

related to IBRD’s results of operations over the past 3 fiscal years.

Financing Activities

Key Financial Data
Page 28 GAO-01-665 Multilateral Development Banks

Table 10: Key Financial Data for IBRD for Fiscal Years 1998 through 2000

Financial data 2000 1999 1998

(Dollars in millions)

Total assets $227,810 $230,808 204,971

Loans outstanding 120,104 117,228 106,576

Undisbursed loans 44,754 51,372 51,065

Debt outstanding 110,379 115,739 103,589

Retained earnings 19,027 17,709 16,733

Paid-in capital 9,748 9,549 9,398

Total subscribed capital 188,606 188,220 186,436

Revenues 10,045 9,513 8,561

Expenses 8,054 7,995 7,318

Net operating income 1,991 1,518 1,243

Financial ratios 2000 1999 1998

(Percentages)

Asset quality

Nonaccrual loans / loans outstanding 1.7 1.8 1.9

Loan loss allowance / loans outstanding 2.8 3.0 3.0

Loan loss allowance / nonaccrual loans 167.4 173.4 158.5

Capital quality

Paid-in capital / total subscribed capital 5.2 5.1 5.0

AAA callable capital / total callable capital 43.9 44.0 44.5

Gearing

Net disbursed loans / (paid-in capital + reserves) 405.6 417.0 395.5

Net disbursed loans / (AAA callable capital + paid-in

capital + reserves)

109.4 108.1 99.4

Leverage

Debt outstanding / (paid-in capital + reserves) 383.6 424.6 396.4

Debt outstanding / (AAA callable capital + paid-in

capital + reserves)

103.5 110.1 99.6

Liquidity

Liquid assets / (undisbursed loans + 1-year debt

service)a

35.4 37.2 33.6

Administrative expenses and profitability

Administrative expenses / total expenses 11.6 10.6 10.4

Net operating income / average assets 0.9 0.7 0.7

Note: Data are as of June 30 of the applicable fiscal year.

a

Liquidity ratio was taken from Standard & Poor’s Supranationals Special Edition 2000, September

2000.

Source: Data used in calculating these ratios were taken from IBRD’s audited financial statements for

fiscal years 1998 through 2000, except where noted.
Page 29 GAO-01-665 Multilateral Development Banks

The International Development Association (IDA) was established in 1960

and is the concessional lending arm of the World Bank Group. IDA

primarily supports poverty reduction by providing interest-free loans,

called “credits,” to the poorest developing countries throughout the world.

IDA also provides loan guarantees and technical assistance. In order to

qualify for IDA lending, a country’s per capita income in 1999 had to be

equivalent to less than U.S. $885, and the country had to have only limited

or no creditworthiness for IBRD lending. IDA’s concessional lending is

targeted to building the human capital, policies, institutions, and physical

infrastructure needed to bring about equitable and sustainable growth.

Specifically, many development projects address basic human needs, such

as primary education, health services, clean water, and sanitation. IDA

also funds projects that protect the environment, improve conditions for

private business, build infrastructure, and support reforms that are aimed

at liberalizing countries’ economies.

IDA credits generally have maturities of 35 or 40 years and offer 10-year

grace periods on repayment of principal. There is no interest charge, but

credits do carry a small service charge, currently 75 basis points of

disbursed balances. As of June 30, 2000, IDA’s outstanding credits totaled

approximately $86 billion, including $4.2 billion of credits in nonaccrual

status. As shown in table 11, nearly 48 percent of IDA’s total credits

outstanding were due from IDA’s five largest borrowing countries.

Table 11: Concentration of Credits Outstanding to IDA’s Five Largest Borrowers as

of June 30, 2000

Five largest

borrowers

Credits outstanding

(in millions)

Percentage of total

 credits outstanding

Standard & Poor’s

credit ratinga

Indiab $18,853 21.96 BB

Chinac8,695 10.13 BBB

Bangladesh 6,402 7.46 Not ratedd

Pakistanb 3,857 4.49 BGhana 3,037 3.54 Not ratedd

Total $40,844 47.58

a

Credit rating is based on the most recent rating prior to January 1, 2001, for the borrowing country.

b

India and Pakistan are classified as “blend borrowers” that are eligible for IDA and IBRD lending. As

the creditworthiness of these countries improves, their use of IDA lending should be expected to

decline.

c

As of June 30, 1999, China is no longer eligible for IDA credits.

d

Standard & Poor’s has not issued a credit rating for this country.

Source: IDA’s fiscal year 2000 audited financial statements and Standard & Poor’s, Sovereign

Ratings History Since 1975.

International Development

Association

Development Activities
Page 30 GAO-01-665 Multilateral Development Banks

During fiscal year 2000, IDA approved approximately $4.4 billion in new

credits to 52 countries. Nearly half of this new lending went to countries in

Africa. The human development sector—which includes education, health

and nutrition, and social protection—received approximately 38 percent of

IDA’s lending during this period. India was the largest recipient of IDA

credit approvals during fiscal year 2000, with IDA providing nearly $867

million in support of various projects. The next largest borrowers,

Tanzania and Vietnam, received approximately $330 million and $286

million, respectively, in support of structural and social reform.

IDA’s concessional lending is financed primarily through developed

member country contributions, repayments of outstanding credits by

borrowers, services charges, and investment income. Since IDA does not

charge interest to its borrowers, periodic contributions called

replenishments are needed for IDA to continue its lending operations.

These replenishments generally cover a 3-year period. In 1998, member

countries agreed to the twelfth replenishment, which would allow lending

of approximately $20.5 billion for fiscal years 2000 through fiscal year

2002. This replenishment included $11.6 billion of member country

contributions, a $0.9 billion contribution from IBRD’s net income, and $8.0

billion from IDA’s own funds, consisting of borrower repayments and

investment income.

Due to the special nature and organization of IDA, financial statements are

prepared for the specific purpose of reflecting the sources and uses of

member contributions and other development resources. IDA’s specialpurpose financial statements are prepared to comply with procedures set

forth in its Articles of Agreement and agreed upon by members. Under

IDA’s special accounting procedures, management has elected to present

loans at the full face value and does not estimate a loan loss allowance

related to its loan portfolio. The financial statements are not meant to

comply with U.S. GAAP or International Accounting Standards. IDA

received an unqualified audit opinion on its financial statements from

Deloitte Touche Tohmatsu for fiscal years 1998 through 2000. Table 12

summarizes some of the key financial data concerning IDA’s financial

position over the past 3 fiscal years.

Financing

Key Financial Data
Page 31 GAO-01-665 Multilateral Development Banks

Table 12: Key Financial Data for IDA for Fiscal Years 1998 through 2000 (Dollars in

millions)

Financial data 2000 1999 1998

Resources available for development activities $22,209 $20,947 $21,542

Undisbursed credits 18,944 20,104 19,892

Credits outstanding 85,852 83,158 78,016

Nonaccrual credits 4,190 4,213 3,723

Cumulative member contributions 99,300 95,584 92,043

Note: Data are as of June 30 of the applicable fiscal year.

Source: IDA’s audited financial statements for fiscal years 1998 through 2000.

The International Finance Corporation (IFC) is a member of the World

Bank Group and was established in 1956 to further economic growth in its

developing member countries by promoting private sector development.

IFC’s primary objective is to provide loans and equity investments to

private sector enterprises where sufficient private capital is not otherwise

available on reasonable terms. Unlike most MDBs, IFC loans are not

guaranteed by benefiting countries. In addition, IFC provides technical

assistance and financial advice to businesses and governments.

Membership in IFC is open only to those countries that are members of

the World Bank. IFC had 174 members at the end of fiscal year 2000.

According to IFC’s Articles of Agreement, investments are to be made in

productive private enterprises. To be eligible for IFC financing, projects

must meet profitability and project viability criteria, benefit the economy

of the host country, and comply with stringent developmental impact

requirements. IFC’s main investment activity is making loans for private

entrepreneurial projects, which may involve expansions and

modernization efforts. Its lending activities include cofinancing, loan

syndication, underwriting, and guarantees, which act as a catalyst for

additional project funding from other lenders and investors. IFC also

makes equity investments, typically through the purchase of common or

preferred stock.

As of June 30, 2000, IFC’s outstanding loan and equity investment portfolio

was $10.9 billion, an increase of 9 percent over the previous year’s

portfolio of $10 billion. Loans account for the major part of the financing

provided by IFC, representing $8.3 billion or about 76 percent of the

outstanding portfolio, while equity investments of $2.6 billion or about 24

percent of its outstanding portfolio were held by IFC as of June 30, 2000.

International Finance

Corporation

Development Activities
Page 32 GAO-01-665 Multilateral Development Banks

IFC provides loans and equity investments for a wide range of sectors to

promote development in its member countries located throughout the

world. The two largest sectors are financial services and infrastructure,

which accounted for $4.7 billion or 43 percent of its $10.9 billion loan and

equity investment portfolio. Other sectors include mining, agribusiness,

manufacturing, chemicals, timber, textile, and tourism. As of June 30,

2000, approximately $4.3 billion or 39 percent of IFC’s outstanding loan

and equity investment portfolio related to development in the Latin

America and Caribbean region. This region has received $4.3 billion of

$10.9 billion or 39 percent of IFC’s loan and equity investment portfolio.

As shown in table 13, 40 percent of IFC’s cumulative financing has been

provided to five countries. Since IFC loans are made to the private sector

and are not guaranteed by a member, the risk related to individual projects

is more meaningful than the credit rating of the member country in which

the project is located.

Table 13: IFC’s Five Largest Countries of Operations Based on Cumulative Lending

and Investments as of June 30, 2000

Five largest countries of

operations

Cumulative lending and

investments

(in millions)

Percentage of total lending

and investment

Brazil $4,948 10.24

Argentina 4,882 10.11

Mexico 4,054 8.39

Turkey 2,892 5.99

Thailand 2,664 5.51

Total $19,940 40.24

Source: IFC’s fiscal year 2000 audited financial statements.

IFC raises most of the funds for its lending and equity investment activities

by issuing notes, bonds, and debt securities in the international capital

markets. IFC may borrow in the public markets of a member country only

with approvals from that member. In fiscal year 2000, IFC borrowed $4.4

billion. As of June 30, 2000, IFC’s total outstanding debt was $14.9 billion.

Also, IFC finances its operations through borrowing from the World

Bank’s IBRD, paid-in capital, and retained earnings. As of fiscal year 2000,

IFC had $2.4 billion of subscribed paid-in capital from its member

countries.

IFC’s financial statements are prepared in accordance with U.S. GAAP and

with International Accounting Standards. IFC received an unqualified

Financing

Key Financial Data
Page 33 GAO-01-665 Multilateral Development Banks

audit opinion on its financial statements from Deloitte Touche Tohmatsu

for fiscal years 1998, 1999, and 2000. Table 14 summarizes key financial

data related to IFC’s results of operations over the past 3 fiscal years.

Table 14: Key Financial Data for IFC for Fiscal Years 1998 through 2000

Financial data 2000 1999 1998

(Dollars in millions)

Total assets $38,719 $33,456 $31,621

Loans outstanding 8,340 7,733 6,874

Equity investments outstanding 2,636 2,306 2,102

Debt outstanding 14,919 12,430 11,162

Reserves 3,373 2,993 2,746

Paid-in capital 2,360 2,352 2,338

Total subscribed capital 2,372 2,374 2,364

Revenues 1,682 1,517 1,573

Expenses 1,302 1,268 1,361

Net operating income 380 249 212

Financial ratios 2000 1999 1998

(Percentages)

Asset quality

Nonaccrual loans / loans outstanding 11.1 11.1 9.2

Loan loss allowance / loans outstanding 14.7 14.5 14.2

Loan loss allowance / nonaccrual loans 133.2 130.5 154.3

Gearing

Net disbursed loans / (paid-in capital + reserves) 156.4 153.7 146.6

Leverage

Debt outstanding / (paid-in capital + reserves) 260.2 232.6 219.6

Liquidity

Liquid assets / (undisbursed loans + one year debt

service)a

322.5 286.8 207.0

Administrative expenses and profitability

Administrative expenses / total expenses 20.5 20.3 16.0

Net operating income / average assets 1.1 0.8 0.7

Note: Data are as of June 30 of the applicable fiscal year.

a

Liquidity ratio was taken from Standard & Poor’s, Supranationals Special Edition 2000, September

2000.

Source: Data used in calculating these ratios were taken from IFC’s audited financial statements for

fiscal years 1998 through 2000, except where noted.

The Multilateral Investment Guaranty Agency (MIGA) is a member of the

World Bank Group and was established in 1988. Unlike the other entities

of the World Bank, MIGA does not provide loans to member governments

Multilateral Investment

Guaranty Agency
Page 34 GAO-01-665 Multilateral Development Banks

or private enterprises. Instead, MIGA provides investment guarantees and

insurance to foreign investors. The guarantees and insurance are intended

to stimulate foreign investment in developing countries by private

investors and commercially operated public sector companies. MIGA also

provides technical assistance to host governments advising on ways to

enhance their ability to attract foreign direct investment. MIGA’s

operations are structured to supplement the activities of the other

institutions of the World Bank Group. MIGA had 152 member countries at

June 30, 2000.

To meet its objectives of promoting economic growth and development,

MIGA provides investment guarantees for up to 20 years against the

political risks of: (1) transfer restrictions,25 (2) expropriation,26 (3) breach

of contract, and (4) war and civil disturbances in the host country.

Investments eligible for MIGA guarantees include equity, loans, and loan

guarantees, provided that contractual commitments have terms of at least

3 years. Generally, guarantees can be made for up to 90 percent of the

investment contribution, plus additional amounts to cover earnings or

interest. MIGA seeks to guarantee those investment projects that

contribute to the host country’s needs and are also financially,

economically, and environmentally sound.

MIGA obtains reinsurance27 to augment its underwriting capacity and to

protect portions of its insurance portfolio. The difference between MIGA’s

total guarantees outstanding and the portion of its portfolio covered by

reinsurance is MIGA’s net exposure. Although MIGA remains liable for the

entire guaranteed amount, the reinsurance provides MIGA with a source of

recovery in the event that it must cover an insured incident.

MIGA’s outstanding investment guarantees at the end of fiscal year 2000

were $4.4 billion. During fiscal year 2000, outstanding guarantees

increased by 19 percent from $3.7 billion to $4.4 billion. MIGA’s guarantee

 25Transfer restrictions refer to difficulty or inability in converting local currency into

nonlocal currency. This condition can arise from deterioration of conditions governing

currency conversion, changes in currency exchange laws, and government action that

creates delays in acquiring foreign exchange. Currency devaluation is not considered a

transfer restriction.

26Expropriation refers to acts by a host government that reduce or eliminate ownership,

control, or rights to private investment.

27Reinsurance is the transfer of the guarantee risk and premiums to another insurance

entity.

Investment Guarantees
Page 35 GAO-01-665 Multilateral Development Banks

investment portfolio is diversified across several sectors. The financial

sector accounts for $1.5 billion, or 34 percent, followed by the

infrastructure sector, which accounts for $1.3 billion, or 29 percent of the

portfolio. Investment guarantees are made throughout the developing

regions in the world. The Latin America and Caribbean region accounts for

a significant portion of the outstanding portfolio with $2.2 billion of

investment guarantees, or 51 percent of the portfolio. The majority of the

guarantees were granted to investors from the Netherlands, the United

States, and the United Kingdom, and they account for 20.5 percent, 19.7

percent, and 15.6 percent, respectively.

Table 15: Five Largest Country Exposures in MIGA’s Guarantee Portfolio as of

June 30, 2000 (Dollars in millions)

Five largest country

exposures

Guarantees

outstanding

Net exposure

(guarantees less

reinsurance)

Percentage of total

guarantees

outstanding

Brazil $631.4 $284.8 14.1

Argentina 431.3 203.7 9.6

Peru 329.9 186.4 7.4

Russia 269.1 127.0 6.0

Turkey 225.6 132.8 5.0

Total $1,887.3 $934.7 42.1

Note: Since MIGA’s guarantees insure the private sector, the credit rating of the developing member

country is not applicable.

Source: MIGA’s fiscal year 2000 audited financial statements.

MIGA finances its operations through member country subscriptions,

which initially were 20 percent to paid-in capital and the remaining 80

percent to callable capital. In March 1999, MIGA’s board of governors28

approved an increase in capital resources to $2 billion, with the

subscription period ending March 28, 2002. As of June 30, 2000, member

countries have provided subscriptions totaling $1.27 billion, including $1

billion in callable capital. In addition to member subscriptions, MIGA

earns income from premiums and fees for its guarantees and from its

investments. In fiscal year 2000, MIGA had income from its guarantees of

$29.5 million and investment income of $23.5 million.

MIGA’s financial statements are prepared in accordance with U.S. GAAP

and International Accounting Standards. MIGA received an unqualified

 28 MIGA refers to its board of governors as its Council of Governors.

Financing

Key Financial Data
Page 36 GAO-01-665 Multilateral Development Banks

audit opinion on its financial statements from Deloitte Touche Tohmatsu

for fiscal years 1998, 1999, and 2000. Table 16 summarizes key financial

data related to MIGA’s results of operations over the past 3 fiscal years.

Table 16: Key Financial Data for MIGA for Fiscal Years 1998 through 2000

Financial data 2000 1999 1998

(Dollars in millions) 

Total assets $723 $632 $519

Gross guarantees outstanding 4,365 3,675 2,862 

Reinsurance on guarantees 1,549 1,068 636 

Net exposure on guarantees 2,816 2,608 2,225 

Reserves for claims 376 340 255 

Retained earnings 55 44 34

Paid-in capital 148 121 115 

Total subscribed capital 1,273 1,122 1,079 

Revenues 56 49 192 

Expenses 45 39 178 

Net operating income 11 10 15 

Financial ratios 2000 1999 1998

(Percentages) 

Guarantee quality 

Net exposure on guarantees / total guarantees outstanding 64.5 70.9 77.8

Reinsurance / total guarantees outstanding 35.5 29.1 22.2 

Reserve for claims / total guarantees outstanding 8.6 9.3 8.9 

Reserve for claims / net exposure on guarantees 13.3 13.0 11.5

Capital quality

Paid-in capital / total subscribed capital 11.6 10.8 10.7 

AAA callable capital / total callable capital 45.6 46.1 46.0 

Administrative expenses and profitability

Administrative expenses / total expenses 40.3 39.4 6.9 

Net operating income / average assets 1.6 1.8 3.8 

Note: Data are as of June 30 of the applicable fiscal year.

Source: Data used in calculating these ratios were taken from MIGA’s audited financial statements for

fiscal years 1998 through 2000.
Page 37 GAO-01-665 Multilateral Development Banks

The African Development Bank Group includes the African Development

Bank (AfDB) and the African Development Fund (AfDF)29 which serve the

development needs of Africa. AfDB provides market-based loans and other

development assistance to the public and private sector. As of December

31, 1999, AfDB had outstanding loans of $9.3 billion. AfDF provides

concessional loans, which provide key support to the bank’s poorest

members. As of December 31, 1999, AfDF had outstanding loans of $7.7

billion.

AfDB is a regional MDB established in 1964. The principal stated purpose

of AfDB is to promote sustainable economic growth and reduce poverty in

Africa. In this effort, AfDB targets agriculture, rural development, human

resources development, and private sector development. AfDB has 77

member countries, including 53 regional members, which account for

approximately 63 percent of the bank’s total subscribed capital. In its 1999

annual report, AfDB reported that only 13 of its borrowing member

countries were eligible for AfDB resources, while 39 borrowing member

countries were eligible solely for concessional assistance through AfDF.30

AfDB provides development assistance through market-based loans, loan

guarantees, equity investments, cofinancing, and technical assistance.

Except for private sector development loans, all of the bank’s loans are

made to or guaranteed by member countries. AfDB currently offers several

types of loan products available in a variety of currencies to meet the

needs of its borrowers. Interest rates are primarily based on the bank’s

cost of borrowing plus a spread. Loan repayment periods and grace

periods vary according to the borrowers. As of December 31, 1999, AfDB

had approximately $9.3 billion of outstanding loans, including $1.3 billion

that were in nonaccrual status. As shown in table 17, approximately 60

percent of the bank’s total loans outstanding are to its five largest

borrowers.

 29AfDB operates other special funds whose funds are maintained and accounted for

separately from those of the bank.

30Private sector entities and distinct territories, or enclaves, within the member countries

solely eligible for concessional lending may be eligible for AfDB lending.

African Development

Bank Group

African Development Bank

Development Activities
Page 38 GAO-01-665 Multilateral Development Banks

Table 17: Concentration of Loans Outstanding to AfDB’s Five Largest Borrowers as

of December 31, 1999

Five largest

borrowers

Loans outstanding

(in millions)

Percentage of total

 loans outstanding

Standard & Poor’s

credit ratinga

Morocco $1,488 15.98 BB

Tunisia 1,410 15.15 BBB

Nigeria 1,042 11.20 Not ratedb

Algeria 951 10.22 Not ratedb

Cote d’Ivoirec664 7.13 Not ratedb

Total $5,555 59.68

a

Credit rating is based on the most recent rating prior to January 1, 2001, for the borrowing country.

b

Standard & Poor’s has not issued a credit rating for this country.

c

According to AfDB’s 1999 Annual Report, Cote d’Ivoire is no longer eligible for market-based lending

through the bank.

Source: AfDB’s 1999 audited financial statements and Standard & Poor’s, Sovereign Ratings History

Since 1975.

As AfDB reported in its annual report, during 1999, it approved about $1.1

billion of new lending and equity investments, of which approximately

$920 million, or 86 percent were loans to or guaranteed by member

countries. The remaining approvals were for private sector loans, HIPC

debt relief, equity investments, and emergency operations. The majority of

the new loans to or guaranteed by member countries related to the

agriculture sector and to policy and structural reforms to encourage an

environment conducive to sustainable growth. For example, about $141

million was approved for Tunisia to improve efficiency in resource

allocation for a competitive economy, and Zimbabwe received about $130

million to support government reform efforts to reallocate public

expenditures to education, health, and poverty reduction activities.

Also during 1999, AfDB contributed about $376 million for cofinancing

operations with official agencies and private financial institutions to

promote the flow of resources to its borrowing member countries. AfDF

provided an additional $120 million toward these cofinancing operations.

External sources provided an additional $1.8 billion to member country

borrowers as a result of the bank group’s cofinancing activities during

1999. These ventures related primarily to policy based programs, debt

relief, poverty reduction, and the transportation sector. The World Bank

was the largest cofinancing partner during 1999.

AfDB’s operations are financed through retained earnings, paid-in capital

from members, and funds borrowed from world capital markets using

Financing Activities
Page 39 GAO-01-665 Multilateral Development Banks

callable capital as backing. As of December 31, 1999, AAA rated countries

accounted for approximately 25.5 percent of AfDB’s total callable capital.

The major goal of AfDB’s borrowing strategy is to minimize the cost of its

funding, which is passed on to its borrowers, and to maximize the

development impact of its operations. In 1999, the fifth capital increase

intended to provide 35 percent more capital to AfDB became effective. As

of December 31, 1999, 26 of AfDB’s 77 member countries had deposited

their subscriptions. In September 2000, based on conservative borrowing

policies and an increased capital base, AfDB received a AA+ credit rating

with a negative outlook for the future from Standard & Poor’s because of

the continual deterioration in the asset quality of its loan portfolio.

AfDB’s financial statements are prepared in accordance with International

Accounting Standards. AfDB received unqualified audit opinions on its

financial statements from Deloitte & Touche LLP for 1997, 1998, and 1999.

Table 18 summarizes key financial data related to AfDB’s results of

operations over the past 3 years.

Key Financial Data
Page 40 GAO-01-665 Multilateral Development Banks

Table 18: Key Financial Data for AfDB for 1997 through 1999

Financial data 1999 1998 1997

(Dollars in millions)

Total assets $12,587 $12,864 $12,044

Loans outstanding 9,309 9,520 9,256

Undisbursed loans 4,046 3,581 3,496

Debt outstanding 7,168 7,582 7,385

Reserves 1,668 1,572 1,372

Paid-in capital 2,121 2,134 2,046

Total subscribed capital 22,976 22,375 21,529

Revenues 811 837 891

Expenses 642 679 733

Net operating income 169 158 158

Financial ratios 1999 1998 1997

(Percentages)

Asset quality

Nonaccrual loans / loans outstanding 14.5 14.1 9.4

Loan loss allowance / loans outstanding 5.7 5.2 4.6

Loan loss allowance / nonaccrual loans 39.5 36.7 49.0

Capital quality

Paid-in capital / total subscribed capital 9.2 9.5 9.5

AAA callable capital / total callable capital 25.5 21.5 21.4

Gearing

Net disbursed loans / (paid-in capital + reserves) 231.7 243.6 258.3

Net disbursed loans / (AAA callable capital + paid-in

capital + reserves)

98.0 113.8 118.3

Leverage

Debt outstanding / (paid-in capital + reserves) 189.2 204.6 216.1

Debt outstanding / (AAA callable capital + paid-in

capital + reserves)

80.1 95.6 98.9

Liquidity

Liquid assets / (undisbursed loans + 1-year debt

service)a

33.9 50.9 37.9

Administrative expenses and profitability

Administrative expenses / total expenses 19.2 17.1 14.1

Net operating income / average assets 1.4 1.2 1.3

Note: Data are as of December 31 of the applicable year.

a

Liquidity ratio was taken from Standard & Poor’s Supranationals Special Edition 2000, September

2000.

Source: Data used in calculating these ratios were taken from AfDB’s audited financial statements for

1997 through 1999, except where noted.

AfDF is the concessional lending arm of the AfDB Group and was

established in 1973. AfDF provides loans on concessional terms for

African Development Fund
Page 41 GAO-01-665 Multilateral Development Banks

projects and programs, as well as technical assistance to the bank group’s

low-income regional borrowing member countries that do not qualify for

lending from AfDB. As of December 1999, 75 percent of the bank group’s

regional member countries were solely eligible for the Fund’s concessional

lending due to their credit standing, except for limited AfDB lending

available for projects with the private sector and distinct territories within

these member countries.

AfDF offers loans with very favorable loan terms, including no interest

charges and extended repayment and grace periods. The fund does charge

minimal service charges on outstanding loan balances and undisbursed

commitments. As of December 31, 1999, AfDF’s outstanding loans were

approximately $7.7 billion, including $892 million in nonaccrual status. As

shown in table 19, nearly 28 percent of the Fund’s total loans outstanding

were to AfDF’s five largest borrowers.

Table 19: Concentration of Loans Outstanding to AfDF’s Five Largest Borrowers as

of December 31, 1999

Five largest

borrowers

Loans outstanding

(in millions)

Percentage of total

 loans outstanding

Standard & Poor’s

credit rating

Ethiopia $653 8.50 Not rateda

Tanzania 484 6.29 Not rateda

Mali 377 4.91 Not rateda

Uganda 333 4.33 Not rateda

Malawi 301 3.92 Not rateda

Total $2,148 27.95

a

Standard & Poor’s has not issued a credit rating for this country.

Source: AfDF’s 1999 audited financial statements and Standard & Poor’s, Sovereign Ratings History

Since 1975.

During 1999, AfDF approved about $630 million of new financing to the

bank group’s borrowing member countries. Approximately $518 million or

82 percent related to loans or lines of credit. The remainder related to

technical assistance grants, HIPC debt relief, and other debt alleviation.

The majority of the new loan approvals related to the agriculture sector,

social sector, and multisector. Agriculture-related lending focused on

improving output and food security, enhancing rural incomes, and

reducing poverty. Social sector lending focused on improving access and

quality of education and health services. Multisector lending included

improving access to financial services, especially for women, and building

the institutional and income-generating capabilities of target populations.

Development Activities
Page 42 GAO-01-665 Multilateral Development Banks

To continue lending operations, AfDF relies on net income, borrower

repayments, and contributions from 27 members, including AfDB, which

has contributed nearly 12 percent of AfDF’s total contributions and

maintains 50 percent of the voting shares. The eighth replenishment of the

Fund was approved by the Board of Governors and became effective in

December 1999. This replenishment authorized subscriptions for

contributions of approximately $3.0 billion, which would enable AfDF to

continue concessional lending from 1999 through 2001. As of December

31, 1999, $1.6 billion of the total contribution subscriptions authorized in

the eighth replenishment were contributed.

Because of the special nature and organization of AfDF, financial

statements are currently prepared for the specific purpose of reflecting the

net development resources of the Fund. Under AfDF’s special accounting

basis, outstanding loans are not included in development resources

available, and, accordingly, no allowance for possible loan losses is

recorded. AfDF’s special-purpose financial statements are prepared to

comply with procedures set forth in its Articles of Agreement establishing

the Fund and agreed upon by members. The financial statements are not

meant to comply with International Accounting Standards. AfDF received

an unqualified audit opinion on its financial statements from Deloitte &

Touche LLP for 1997 through 1999. Table 20 summarizes some of the key

financial data of AfDF’s financial position over the past 3 years.

Table 20: Key Financial Data for AfDF for 1997 through 1999 (Dollars in millions)

Financial data 1999 1998 1997

Resources available for development activities $3,773 $4,034 $3,698

Undisbursed loans 3,069 3,310 3,101

Loans outstanding 7,685 7,623 6,804

Nonaccrual loans 892 915 880

Cumulative member contributions 12,829 12,840a

11,512

Note: Data are as of December 31 of the applicable year.

a

Member contributions for 1998 were greater than for 1999 due to a higher exchange rate for

converting the monetary basis of AfDF’s financial statements into the U.S. dollar equivalent applicable

for 1998.

Source: AfDF’s audited financial statements for 1997, 1998, and 1999.

The Asian Development Bank (AsDB) group includes Ordinary Capital

Resources (OCR) and the Asian Development Fund (AsDF), which serve

the development needs of the Asian and Pacific regions. OCR provides

market-based loans, equity investment, guarantees, and indirectly provides

Financing

Key Financial Data

Asian Development

Bank
Page 43 GAO-01-665 Multilateral Development Banks

technical assistance31 to middle-income countries and creditworthy poorer

countries. As of December 31, 1999, OCR had outstanding loans of $28.3

billion. AsDF provides concessional loans and is key to supporting the

bank’s poverty reduction mission. As of December 31, 1999, AsDF had

outstanding loans of $16.0 billion.

AsDB is a regional bank established in 1966. As reported in its 1999 annual

report, AsDB had 58 member countries, including 42 regional members,

which had contributed approximately 64 percent of OCR’s total subscribed

capital. OCR’s principal stated purpose is to reduce poverty in its Asian

and Pacific region borrowing member countries through (1) economic

growth projects and programs to facilitate employment and income

generation for the poor, (2) social development programs to improve the

standard of living for the poor, and (3) good governance to ensure that the

poor have access to basic services. OCR also pursues activities to foster

economic growth, support human development, improve the status of

women, protect the environment, and encourage private sector

development activities, which also serve the overall goal of reducing

poverty.

OCR provides development assistance through market-based loans, loan

guarantees, and cofinancing with the public and private sectors. OCR also

finances equity investments in private enterprises and indirectly provides

technical assistance, which is provided primarily through special funds

operated by AsDB.32 Except for private sector loans, all of the bank’s loans

are made to or guaranteed by borrowing member countries. AsDB offers

several types of loan products available in a variety of currencies to meet

the needs of its borrowers through its OCR. Interest rates are primarily

based on the bank’s cost of borrowing plus a spread, and repayment terms

range from 4 to 30 years. As of December 31, 1999, OCR had $28.3 billion

in outstanding loans, of which nearly 99 percent was loaned to or

guaranteed by borrowing members and less than $73 million was in a

nonaccrual status. As shown in table 21, approximately 79 percent of the

total loans outstanding balance were due from the bank’s five largest

borrowers.

 31 This technical assistance is provided through special funds operated by AsDB.

32AsDB administers several special funds, including the concessional lending Asian

Development Fund (discussed later in this report) whose funds and operations are

separate from those of AsDB.

Asian Development Bank’s

Ordinary Capital

Resources

Development Activities
Page 44 GAO-01-665 Multilateral Development Banks

Table 21: Concentration of Loans Outstanding to AsDB’s OCR Five Largest

Borrowers as of December 31, 1999

Five largest

borrowers

Loans outstanding

(in millions)

Percentage of total

 loans outstanding

Standard & Poor’s

credit ratinga

Indonesia $6,926 24.43 BPeople’s Republic of

China

4,531 15.99 BBB

India 4,280 15.10 BB

Republic of Korea 4,076 14.38 BBB

Philippines 2,697 9.52 BB+

Total $22,510 79.42

a

Credit rating is based on the most recent rating prior to January 1, 2001, for the borrowing country.

Source: AsDB’s 1999 audited financial statements and Standard & Poor’s, Sovereign Ratings History

Since 1975.

During 1999, OCR approved about $3.9 billion in loans to private and

public borrowers, including $2.5 billion related to cofinancing activities.

The bank’s concessional lending Asian Development Fund provided an

additional $699 million in cofinancing activities. Combined, these

cofinancing activities attracted an additional $3.0 billion from external

sources to the bank’s borrowing member countries. A significant portion

of the bank’s loans served the social infrastructure sector with projects

relating to water supply and sanitation, education, health, housing, and

other urban infrastructure facilities. The other sectors that received

significant assistance related to energy, transportation, and

communication. During 1999, the People’s Republic of China was the

largest borrower with about $1.2 billion in approved loans in the energy,

social infrastructure, and transportation and communication sectors.

Indonesia was the second largest borrower with loan approvals of about

$1.0 billion related primarily to energy and health. Combined, these two

countries accounted for approximately 58 percent of OCR’s loan approvals

during 1999.

OCR’s operations are financed through retained earnings, paid-in capital,

and funds borrowed from world capital markets using callable capital as

backing. As of December 31, 1999, AAA rated countries accounted for

about 43 percent of OCR’s total callable capital. AsDB’s last general capital

increase became effective in 1994. Based on AsDB’s strong financial

profile, conservative financial policies, and strong member support, AsDB

received a AAA credit rating with a stable outlook for the future from

Standard & Poor’s in September 2000. The quality of OCR’s callable capital

Financing Activities
Page 45 GAO-01-665 Multilateral Development Banks

and its AAA credit rating allow the bank to borrow funds from world

capital markets at favorable interest rates and loan terms. This results in

the bank’s ability to pass on to borrowers more favorable lending terms

than would normally be available based on their own credit standing.

AsDB’s OCR financial statements are prepared in accordance with U.S.

GAAP. OCR received unqualified audit opinions on its financial statements

from PricewaterhouseCoopers for 1997 through 1999. Table 22

summarizes key financial data related to the results of operations for

AsDB’s OCR over the past 3 years.

Key Financial Data
Page 46 GAO-01-665 Multilateral Development Banks

Table 22: Key Financial Data for AsDB’s OCR for 1997 through 1999a

Financial data 1999 1998 1997

(Dollars in millions)

Total assets $45,295 $41,653 $32,820

Loans outstanding 28,344 24,760 18,839

Undisbursed loans 13,594 14,260 16,432

Debt outstanding 26,286 23,744 17,494

Reserves 7,441 6,961 6,409

Paid-in capital 2,733 2,733 2,559

Total subscribed capital 47,597 48,456 46,411

Revenues 2,028 1,833 1,450

Expenses 1,578 1,366 982

Net operating income 450 467 468

Financial ratios 1999 1998 1997

(Percentages)

Asset quality

Nonaccrual loans / loans outstanding 0.3 0.2 0.2

Loan loss allowance / loans outstanding 0.3 0.2 0.3

Loan loss allowance / nonaccrual loans 100.0 117.1 122.9

Capital quality

Paid-in capital / total subscribed capital 5.7 5.6 5.5

AAA callable capital / total callable capital 43.4 43.8 43.8

Gearing

Net disbursed loans / (paid-in capital + reserves) 277.9 254.8 209.5

Net disbursed loans / (AAA callable capital + paid-in

capital + reserves)

96.2 84.0 67.5

Leverage

Debt outstanding / (paid-in capital + reserves) 258.4 244.9 195.1

Debt outstanding / (AAA callable capital + paid-in capital

+ reserves)

89.4 80.8 62.8

Liquidity

Liquid assets / (undisbursed loans + 1-year debt service)a44.4 39.2 48.1

Administrative expenses and profitability

Administrative expenses / total expenses 6.7 8.9 9.7

Net operating income / average assets 1.0 1.3 1.5

Note: Data are as of December 31 of the applicable year.

a

Liquidity ratio was taken from Standard & Poor’s, Supranationals Special Edition 2000, September

2000.

Source: Data used in calculating these ratios were taken from AsDB’s audited financial statements for

1997 through 1999.

AsDF was established in 1974 and is the concessional lending arm of AsDB

that provides loans to the bank’s least developed borrowing member

Asian Development Fund
Page 47 GAO-01-665 Multilateral Development Banks

countries in the Asian and Pacific region. These are members which have

low per capita gross national product and limited debt repayment

capacity. AsDF supports activities that promote poverty reduction and

improve the quality of life for the poor.

AsDF provides concessional loans to the bank’s members at favorable

interest rates and loan terms. Interest rates are 1.5 percent and repayment

periods range from 24 to 32 years, including an 8-year grace period. The

Fund requires borrowers to absorb exchange risks attributable to

fluctuations in the value of the currencies disbursed. As of December 31,

1999, AsDF had approximately $16.0 billion of outstanding loans, including

$536 million in nonaccrual status. Approximately 76 percent of the Fund’s

balance of outstanding loans was due from its five largest borrowers.

Table 23: Concentration of Loans Outstanding to AsDF’s Five Largest Borrowers as

of December 31, 1999

Five largest

borrowers

Loans outstanding

(in millions)

Percentage of total

 loans outstanding

Standard & Poor’s

credit ratinga

Bangladesh $4,371 27.39 Not ratedb

Pakistan 4,102 25.70 BSri Lanka 1,615 10.12 Not ratedb

Nepal 1,114 6.98 Not ratedb

Philippines 892 5.59 BB+

Total $12,094 75.78

a

Credit rating is based on the most recent rating prior to January 1, 2001, for the borrowing country.

b

Standard & Poor’s has not issued a credit rating for this country.

Source: AsDF’s 1999 audited financial statements and Standard & Poor’s, Sovereign Ratings History

Since 1975.

During 1999, AsDF approved $1.1 billion in new loans, including $699

million of cofinancing lending, which primarily related to development in

the transportation, communication, and social infrastructure sectors.

During this period, Bangladesh was the largest borrower with about $250

million in loans approved in the energy, social infrastructure, and

transportation and communication sectors. Vietnam was the second

largest borrower with loan approvals for about $155 million primarily

related to social infrastructure and industry sectors. Combined, these two

countries accounted for approximately 38 percent of AsDF’s loan

approvals during 1999.

AsDF finances its operations with retained earnings, investment income,

and contributions from 26 member countries, both regional and

Development Activities

Financing
Page 48 GAO-01-665 Multilateral Development Banks

nonregional. AsDF’s resources have been augmented by seven

replenishments. The Board of Governors authorized the seventh

replenishment in 1997. Under the replenishment, contributions were

scheduled to become available to AsDF in four equal installments during

1997 through 2000. In 2000, the Board of Governors approved the eighth

replenishment of AsDF resources.

AsDF’s financial statements are prepared in accordance with U.S. GAAP.

AsDF received an unqualified audit opinion on its financial statements

from PricewaterhouseCoopers for 1997 through 1999. Table 24

summarizes key financial data related to AsDF’s financial position over the

past 3 years.

Table 24: Key Financial Data for AsDF for 1997 through 1999 (Dollars in millions)

Financial data 1999 1998 1997

Total assets $22,192 $20,551 $18,279

Undisbursed loans 5,573 5,963 6,208

Loans outstanding 15,960 14,324 12,266

Nonaccrual loans 536 492 61

Loan loss allowance 7 6 6

Contributed resources 20,452 19,020 16,902

Note: Data are as of December 31 of the applicable year.

Source: AsDF’s audited financial statements for 1997 through 1999.

The Inter-American Development Bank (IDB) is the oldest and, based on

total assets, largest regional MDB. It was established in 1959 to help

accelerate economic and social development in Latin America and the

Caribbean. Current lending priorities include poverty reduction; social

equity; improving the efficiency, transparency, and accountability of the

public sector; economic integration, including trade agreements; and the

environment. IDB consists of the following entities as well as several funds

Key Financial Data

Inter-American

Development Bank
Page 49 GAO-01-665 Multilateral Development Banks

in administration,33 which provide financing and technical assistance, and

the Intermediate Financing Facility Account:34

• The Inter-American Development Bank’s Ordinary Capital (OC) provides

market-based loans, guarantees, and technical assistance to the public and

private sector.

• The Inter-American Development Bank’s Fund for Special Operations is

the concessional lending arm that provides technical assistance and key

support for the bank’s poorer members.

• The Inter-American Investment Corporation is the Inter-American

Development Group’s entity that provides loans and equity, and technical

assistance to small and midsize private enterprises.

During 1999, IDB approved $9.5 billion in new loans and loan guarantees

for the benefit of borrowing regional member countries primarily through

the Ordinary Capital and the Fund for Special Operations. Approximately

$4.3 billion of these new lending approvals were for the social sector and

related to improving economic opportunities for the poor, strengthening

the social infrastructure, such as education and health, and promoting

equitable access to social services.

Most of the operations of IDB are conducted through OC. The operations

and resources of OC are maintained separately from those of IDB’s other

entities and various funds. The members of the bank include 28 regional

and 18 nonregional countries. Developing regional members had

subscribed approximately 50 percent of OC’s total subscribed capital at

December 31, 1999. OC provides development assistance in the form of

loans made to or guaranteed by members as well as loans and loan

guarantees to private sector enterprises located within its regional

borrowing member countries. Loans to the private sector without a

 33In 1999, the bank had a total of 50 funds in administration, which are an important source

of additional financing for special projects, particularly those benefiting the poor. These

funds are generally financed through donations by nonborrowing member countries of the

bank. The operations and resources of these funds are kept separate from the bank’s

Ordinary Capital.

34The Intermediate Financing Facility Account subsidizes part of the interest for which

certain borrowers are liable on loans from the Ordinary Capital.

Inter-American

Development Bank’s

Ordinary Capital
Page 50 GAO-01-665 Multilateral Development Banks

member’s guarantee are limited to 5 percent of the bank’s outstanding

loans and guarantees.

The primary vehicle of OC’s development assistance is direct lending. OC

offers several different loan products that are disbursed in a variety of

currencies. In general, interest rates charged on these loans are based on

the bank’s cost of borrowing or on LIBOR, plus an interest rate spread,

which is currently 50 basis points. Repayment periods range from 15 to 30

years. As of December 31, 1999, OC’s loans outstanding totaled

approximately $38.6 billion and were all fully performing. IDB has never

had a write-off of any of its OC loans.

During 1999, OC approved $9.1 billion in loans and loan guarantees for its

borrowing regional member countries, of which approximately 97 percent

were loans. Brazil received about $4.8 billion, or 53 percent of OC’s

approvals during 1999. Lending to Brazil included a $2.2 billion loan for

social sector reform and a social protection program and a $1.2 billion

loan to further develop small and medium-size productive sectors by

making more market-rate financing available. Columbia and Mexico were

the next largest borrowers in 1999 with about $1.0 billion and $919 million,

respectively. As shown in table 25, nearly 69 percent of OC’s total loans

outstanding were due from its five largest borrowing countries.

Table 25: Concentration of Loans Outstanding to IDB’s OC Five Largest Borrowers

as of December 31, 1999

Five largest

borrowers

Loans outstanding

(in millions)

Percentage of total

 loans outstanding

Standard & Poor’s

 credit ratinga

Brazil $8,464 21.96 B+

Argentina 6,714 17.42 BBMexico 5,668 14.70 BB+

Colombia 3,224 8.36 BB

Peru 2,490 6.46 BBTotal $26,560 68.90

a

Credit rating is based on the most recent rating prior to January 1, 2001, for the borrowing country.

Source: IDB’s 1999 audited financial statements and Standard & Poor’s, Sovereigns Ratings History

Since 1975.

OC’s operations are financed through retained earnings, paid-in capital,

and borrowings obtained from world capital markets using callable capital

as backing. As of December 31, 1999, AAA rated countries accounted for

about 41 percent of OC’s total callable capital. Based on membership

support, preferred creditor status, and strong franchise value as a result of

Development Activities

Financing Activities
Page 51 GAO-01-665 Multilateral Development Banks

its lending expertise, OC received a AAA credit rating with a stable

outlook for the future from Standard & Poor’s during September 2000. The

quality of OC’s callable capital and its strong credit rating allow the bank

to borrow funds from world capital markets at favorable loan terms. This

allows the bank to pass on to borrowers more favorable lending terms

than would normally be available based on their own credit standing. OC’s

most recent and eighth capital increase, approved by IDB’s Board of

Governors in 1995, increased the bank’s resources by $40 billion, bringing

total capital to about $101 billion.

OC financial statements are prepared in accordance with U.S. GAAP. OC

received an unqualified audit opinion on its financial statements from

Arthur Andersen, LLP for 1997 through 1999. Table 26 summarizes key

financial data related to OC’s results of operations over the past 3 years.

Key Financial Data
Page 52 GAO-01-665 Multilateral Development Banks

Table 26: Key Financial Data for IDB’s OC for 1997 through 1999

Financial data 1999 1998 1997

(Dollars in millions)

Total assets $64,355 $54,574 $43,338

Loans outstanding 38,552 32,635 27,301

Undisbursed loans 23,931 23,309 20,684

Debt outstanding 39,553 32,516 27,331

Reserves 7,436 6,867 6,307

Paid-in capital 3,363 3,230 3,135

Total subscribed capital 100,881 94,219 87,557

Revenues 3,194 2,619 2,501

Expenses 2,626 2,226 2,086

Net operating income 568 393 415

Financial ratios 1999 1998 1997

(Percentages)

Asset quality

Nonaccrual loans / loans outstanding Not

applicablea

Not

applicablea

Not

applicablea

Loan loss allowance / loans outstanding 3.0 2.9 3.0

Capital quality

Paid-in capital / total subscribed capital 3.3 3.4 3.6

AAA callable capital / total callable capital 40.9 40.7 40.5

Gearing

Net disbursed loans / paid-in capital +

reserves

346.2 313.8 280.4

Net disbursed loans / (AAA callable

capital + paid-in capital + reserves)

74.3 67.7 61.1

Leverage

Debt outstanding / (paid-in capital +

reserves)

366.3 322.1 289.5

Debt outstanding / (AAA callable capital +

paid-in capital + reserves)

78.6 69.5 63.1

Liquidity

Liquid assets / (undisbursed loans + 1-

year debt service)b

39.4 32.4 30.9

Administrative expenses and

profitability

Administrative expenses / total expenses 10.5 12.3 12.2

Net operating income / average assets 1.0 0.8 1.0

Note: Data are as of December 31 of the applicable year.

a

This ratio is not applicable because IDB’s OC did not have any loans in a nonaccrual status.

b

Liquidity ratio was taken from Standard & Poor’s, Supranationals Special Edition 2000, September

2000.

Source: Data used in calculating these ratios were taken from IDB’s OC audited financial statements

for 1997 through 1999, except where noted.
Page 53 GAO-01-665 Multilateral Development Banks

The Fund for Special Operations (FSO) of IDB provides loans on

concessional terms to the bank’s borrowing regional member countries

that are classified as economically less developed. FSO also provides

technical assistance to borrowing countries. FSO makes low-interest and

longer-maturity loans for countries in the region that require such

financing.

Concessional loans of FSO are made to or guaranteed by borrowing

regional member countries. The rate of interest and other loan terms of

FSO loans depend on the type of currency that is lent to the borrower, the

stage of the country’s development, and the nature of the project.

Generally, these loans charge interest rates from 1 to 4 percent, offer grace

periods of 5 to 10 years, and have maturities of 25 to 40 years. As of

December 31, 1999, FSO’s loans outstanding totaled approximately $7.0

billion and were all fully performing. FSO has never had a write-off except

for debt relief resulting from the implementation of the HIPC Initiative. As

shown in table 27, nearly 51 percent of FSO’s total loans outstanding was

due from its five largest borrowing countries. During 1999, FSO approved

about $417 million in loans to Bolivia, Guyana, Honduras, and Nicaragua.

Table 27: Concentration of Loans Outstanding to IDB’s FSO Five Largest Borrowers

as of December 31, 1999

Five largest

borrowers

Loans outstanding

(in millions)

Percentage of total

loans outstanding

Standard & Poor’s

credit ratinga

Honduras $822 11.82 Not ratedb

Bolivia 803 11.55 B+

Nicaragua 720 10.35 Not ratedb

Ecuador 620 8.91 BEl Salvador 571 8.22 BB+

Total $3,536 50.85

a

Credit rating is based on the most recent rating prior to January 1, 2001, for the borrowing country.

b

Standard & Poor’s has not issued a credit rating for this country.

Source: FSO’s 1999 audited financial statements and Standard & Poor’s, Sovereign Ratings History

Since 1975.

FSO operations are financed primarily through borrower repayments,

investment income, and contributions from 46 member countries. FSO

does not borrow from the world market to obtain additional funding for its

operations. The most recent and eighth increase in contributions was

effective in 1995. This increase in contributions increased the authorized

resources of FSO by approximately $1.0 billion, bringing total

contributions to $9.6 billion.

Inter-American

Development Bank’s Fund

for Special Operations

Development Activities

Financing
Page 54 GAO-01-665 Multilateral Development Banks

Because of the special nature and organization of the FSO, its financial

statements are prepared on a special accounting basis that comply with

procedures set forth in IDB’s Articles of Agreement and agreed upon by

members. This special accounting basis is not meant to be consistent with

U.S. GAAP. Under FSO’s special accounting basis, management has

elected to present loans at the full face value and does not estimate a loan

loss allowance related to its loan portfolio. FSO received unqualified audit

opinions on its financial statements from Arthur Andersen, LLP, for 1997

through 1999. Table 28 summarizes key financial data related to FSO’s

financial position over the past 3 years.

Table 28: Key Financial Data for IDB’s FSO for 1997 through 1999 (Dollars in

millions)

Financial data 1999 1998 1997

Total assets $10,275 $10,296 $10,429

Undisbursed loans 1,931 1,952 1,805

Loans outstanding 6,955 6,827 6,734

Nonaccrual loans 0.0 0.0 0.0

Cumulative member contributions 9,646 9,643 9,572

Note: Data are as of December 31 of the applicable year.

Source: FSO’s audited financial statements for 1997 through 1999.

The Inter-American Investment Corporation (IIC), a multilateral

organization, was established in 1986. Although a member of the IDB

Group, IIC is autonomous, and its resources and management are separate

from those of the IDB. IIC’s mission is to promote the economic

development of its Latin American and Caribbean member countries by

financing small and medium-size enterprises. IIC has 37 member countries

that include 26 Latin American and Caribbean countries, 8 European

countries, and Israel, Japan, and the United States. Its development

investment activities are limited to its 26 regional developing member

countries.

IIC provides project financing in the form of loans and equity investments,

lines of credit to local intermediaries, and investments in local and

regional investment funds. IIC seeks to make loan and equity investments

where sufficient private capital is difficult to obtain or otherwise not

available on reasonable terms. Project funding is supplemented by other

investors and lenders through cofinancing or loan syndication. IIC

provides loan amounts up to 33 percent of the cost of a new project and up

Key Financial Data

Inter-American Investment

Corporation

Development Activities
Page 55 GAO-01-665 Multilateral Development Banks

to 50 percent of the cost of an expansion project. IIC makes equity

investments of up to 33 percent of a company’s capital. In addition, the IIC

provides financial and technical advisory services as part of its evaluation

of the project’s soundness and probability of success.

During 1999, IIC approved $192 million in loans and equity investments.

Loans accounted for 89 percent of IIC approvals during the year. Projects

supporting the financial services sector received approximately 51 percent

of these new approvals. Regional projects and projects in Bolivia received

the largest portions of IIC approvals with approximately 22 percent and 10

percent, respectively. As of December 31, 1999, IIC had approximately

$353 million in loans and equity investments outstanding. As shown in

table 29, nearly 61 percent of IIC’s total outstanding loans and equity

investments related to four of its largest countries of operations, as well as

projects covering the entire region.

Table 29: Concentration of Loans Outstanding to IIC’s Largest Five Areas of

Operations as of December 31,1999

Areas of operation

Loans and equity investments

outstanding (in thousands)

Percentage of total loans

and equity investments

outstanding

Argentina $80,465 22.8

Regional 42,910 12.2

Brazil 33,443 9.5

Bolivia 31,752 9.0

Peru 25,611 7.3

Total $214,181 60.8

Note: Since IIC’s loan and equity investments are made to the private sector, the credit rating of the

member country is not as applicable as the risk associated with each individual project.

Source: IIC’s audited financial statements for 1999.

IIC receives its financing primarily from capital subscriptions from its

member countries. IIC does not have callable capital to finance its

development activities. On December 14, 1999, the Board of Governors

approved a resolution increasing the authorized capital of IIC from $203.7

million to $703.7 million. The resolution called for $500 million for

subscriptions by member countries as of February 28, 2000. Member

country subscriptions are based on their voting shares and are paid in

several installments, the last being payable on or before October 31, 2007.

IIC’s financial statements are prepared in accordance with U.S. GAAP. IIC

has received unqualified audit opinions on its financial statements from

Financing

Key Financial Data
Page 56 GAO-01-665 Multilateral Development Banks

PricewaterhouseCoopers LLP for 1997 through 1999. Table 30 summarizes

key financial data related to IIC’s results of operations over the past 3

years.

Table 30: Key Financial Data for IIC for 1997 through 1999

Financial data 1999 1998 1997

(Dollars in millions)

Total assets $361 $315 $311

Loans outstanding 268 221 208

Loan loss allowance 25 28 26

Equity investments 85 79 59

Allowance for losses on equity investments 10 10 5

Debt outstanding 1,150 90 85

Reserves 5 18 22

Total subscribed capital 203 203 202

Revenues 28 28 34

Expenses 41 32 31

Net operating income (13) (4) 2

Financial ratios 1999 1998 1997

(Percentages)

Asset quality

Loan loss allowance / loans outstanding 9.3 12.7 12.5

Gearing

Net disbursed loans / (paid-in capital + reserves) 116.8 87.3 81.3

Leverage

Debt outstanding / (paid-in capital + reserves) 552.9 40.7 37.9

Administrative expenses and profitability

Administrative expenses / total expenses 31.7 40.6 38.7

Net operating income / average assets (3.8) (1.3) 0.6

Note: Data are as of December 31 of the applicable year.

Source: Data used in calculating these ratios were taken from IIC’s audited financial statements for

1997 through 1999.

The European Bank for Reconstruction and Development (EBRD) is a

regional bank established in 1990. As of December 31, 1999, EBRD’s 60

members consisted of 58 sovereign countries, including 26 countries of

operation that have contributed about 12 percent of EBRD’s total

subscribed capital, the European Community, and the European

Investment Bank. EBRD’s principal stated purpose is to foster the

transition toward open market-oriented economies and to promote private

and entrepreneurial initiatives in the countries of central and eastern

Europe and the Commonwealth of Independent States that are committed

European Bank for

Reconstruction and

Development
Page 57 GAO-01-665 Multilateral Development Banks

to applying principles of multiparty democracy, pluralism, and market

economies.

EBRD provides development assistance through public and private loans,

cofinancing, loan guarantees, share investments,35 and technical

assistance. Through its operations, it promotes private sector activity, the

strengthening of financial institutions and legal systems, and the

development of infrastructure needed to support the private sector. The

majority of the bank’s private sector lending and investments do not

include a sovereign guarantee by a member. As of December 31, 1999,

EBRD had $7.0 billion in loans outstanding, including $455 million in a

nonaccrual status. As shown in table 31, approximately 57 percent of total

loans outstanding related to EBRD’s five largest countries of operations.

Table 31: EBRD’s Five Largest Countries of Operations Based on Loans

Outstanding as of December 31, 1999

Five largest countries of

operations

Loans outstanding

(in millions)

Percentage of total

loans outstanding

Russian Federation $1,627 23.17

Romania 798 11.37

Poland 745 10.62

Hungary 489 6.97

Ukraine 312 4.44

Total $3,971 56.57

Note: Since the majority of EBRD’s loans are to the private sector and do not require a member

guarantee, the credit rating of the developing member is not as applicable as the risk associated with

each individual project.

Source: EBRD’s 1999 audited financial statements.

During 1999, EBRD approved about $2.2 billion for its financing

operations. Approximately 71 percent of these approvals related to private

sector loans or equity investments. The majority of these approvals related

to financial institutions, industry and commerce, and the infrastructure

sectors. EBRD has always placed emphasis on the financial institution

sector, recognizing that a well-functioning market economy requires a

sound and effective financial sector capable of commanding the

confidence of a country’s population. The industry and commerce sector

includes projects related to agriculture, natural resources, tourism, and

 35Share investments are equity investments with creditworthy counterparties that have risk

characteristics similar to loans and, accordingly, are classified and accounted for as loans.

Development Activities
Page 58 GAO-01-665 Multilateral Development Banks

telecommunications. The infrastructure sector relates to power and

energy utilities, transportation, and municipal and environmental

infrastructure. During 1999, regional development projects and projects

within the Ukraine and Czech Republic received the most of the bank’s

new approvals.

EBRD’s operations are financed through retained earnings, paid-in capital

from members, and funds borrowed from world capital markets using

callable capital as backing. As of December 31, 1999, members with a AAA

credit rating accounted for about 60 percent of EBRD’s total callable

capital. EBRD’s most recent capital increase to EBRD was approved in

1996. As of December 31, 1999, 56 out of 60 members had participated in

the increase and brought the total amount subscribed to about 97 percent

of the approved total capital increase. Based on EBRD’s strong

membership support; prudent policy limits on the bank’s operations,

gearing, and liquidity; and strengthening of the organization, EBRD

received a AAA credit rating with a stable outlook for the future from

Standard & Poor’s in September 2000.

EBRD’s financial statements are prepared to comply with International

Accounting Standards, and EBRD received an unqualified audit opinion on

its financial statements from Arthur Andersen for 1997 through 1999. Table

32 summarizes key financial data related to EBRD’s results of operations

over the past 3 years.

Financing Activities

Key Financial Data
Page 59 GAO-01-665 Multilateral Development Banks

Table 32: Key Financial Data for EBRD for 1997 through 1999

Financial data 1999 1998 1997

(Dollars in millions)

Total assets $19,685 $18,723 $14,901

Loans outstanding 6,976 6,735 5,038

Undisbursed loans 3,899 5,158 4,798

Debt outstanding 12,619 11,348 8,155

Reserves (92) (185) 109

Paid-in capital 4,945 5,779 5,372

Total subscribed capital 19,731 22,508 20,283

Revenues 859 955 789

Expenses 816 1,260 772

Net operating income 43 (305) 18

Financial ratios 1999 1998 1997

(Percentages)

Asset quality

Nonaccrual loans / loans outstanding 6.5 5.0 2.6

Loan loss allowance / loans outstanding 13.7 12.6 5.6

Loan loss allowance / nonaccrual loans 209.7 251.7 219.1

Capital quality

Paid-in capital / total subscribed capital 25.1 25.7 26.5

AAA callable capital / total callable capital 59.7 60.8 64.0

Gearing

Net disbursed loans / (paid-in capital + reserves) 124.1 105.2 86.7

Net disbursed loans / (AAA callable capital + paid-in

capital + reserves)

44.5 37.5 31.6

Leverage

Debt outstanding / (paid-in capital + reserves) 260.0 202.8 148.8

Debt outstanding / (AAA callable capital + paid-in

capital + reserves)

93.2 72.4 54.3

Liquidity

Liquid assets / (undisbursed loans + 1-year debt

service)a

160.6 143.7 117.1

Administrative expenses and profitability

Administrative expenses / total expenses 19.7 13.3 19.6

Net operating income / average assets 0.2 (1.8) 0.1

Note: Data are as of December 31 of the applicable year.

a

Liquidity ratio was taken from Standard & Poor’s, Supranationals Special Edition 2000, September

2000.

Source: Data used in calculating these ratios were taken from EBRD’s audited financial statements

for 1997 through 1999, except where noted.
Page 60 GAO-01-665 Multilateral Development Banks

On May 11, 2001, we received comments of a technical nature from

cognizant Treasury officials. We have incorporated these technical

comments as appropriate.

We are sending copies of this report to the Honorable Paul H. O’Neill,

Secretary of the Treasury, and other interested parties. Copies will be

made available to others upon request.

Please contact Jeanette Franzel, Acting Director, at (202) 512-9471 or by

email at franzelj@gao.gov if you or your staffs have any questions

concerning this report. Key contributors to this report were Darryl Chang,

Marcia Carlsen, Julia Ziegler, and Meg Mills.

Jeffrey C. Steinhoff

Managing Director, Financial Management and

Assurance

Agency Comments
Page 61 GAO-01-665 Multilateral Development Banks

Congressional Committees

The Honorable Jesse Helms

Chairman

The Honorable Joseph Biden

Ranking Member

Committee on Foreign Relations

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Robert C. Byrd

Ranking Member

Committee on Appropriations

United States Senate

The Honorable Mitch McConnell

Chairman

The Honorable Patrick K. Leahy

Ranking Member

Subcommittee on Foreign Operations, Export

 Financing, and Related Programs

Committee on Appropriations

United States Senate

The Honorable Michael G. Oxley

Chairman

The Honorable John J. LaFalce

Ranking Minority Member

Committee on Financial Services

House of Representatives

The Honorable Doug Bereuter

Chairman

The Honorable Bernard Sanders

Ranking Minority Member

Subcommittee on International Monetary

 Policy and Trade

Committee on Financial Services

House of Representatives
Page 62 GAO-01-665 Multilateral Development Banks

The Honorable C.W. Bill Young

Chairman

The Honorable David Obey

Ranking Minority Member

Committee on Appropriations

House of Representatives

The Honorable Jim Kolbe

Chairman

The Honorable Nita M. Lowey

Acting Ranking Minority Member

Subcommittee for Foreign Operations, Export

 Financing, and Related Programs

Committee on Appropriations

House of Representatives

(194006)