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INTER-AMERICAN DEVELOPMENT BANK

T H E I D B F O S T E R I N G T R A D E F I N A N C E I N L A T I N A M E R I C A A N D T H E C A R I B B E A N ( L A C )

S T R U C T U R E D A N D C O R P O R A T E F I N A N C E D E P A R T M E N T

March 2008

STRUCTURED AND CORPORATE FINANCE DEPARTMENT

INTER-AMERICAN DEVELOPMENT BANK2

IDB’s 26 Borrowing Member Countries (BMC)IDB’s 26 Borrowing Member Countries (BMC)

Argentina

Bahamas

Barbados

Belize

Bolivia

Brazil

Chile

Colombia

Costa Rica

Dominican Republic

Ecuador

El Salvador

Guatemala

Guyana

Haiti

Honduras

Jamaica

Mexico

Nicaragua

Panama

Paraguay

Peru

Suriname

Trinidad and Tobago

Uruguay

Venezuela



Latin American and Caribbean Risk Latin American and Caribbean Risk (S&P Issuer Credit Rating)(S&P Issuer Credit Rating)

Investment Grade

Non-Investment Grade

ChileBaham

as

Trinidad & Tobago

Barbados

Mexico

Brazil

Colombia

El Salvador

PeruCosta Rica

Guatemala

Panama

Venezuela

Argentina

Dominican Republic

Suriname

Uruguay

Belize

Jamaica

Paraguay

Bolivia

Ecuador

CCC

B

BB

BBB

A

AA

AAAHonduras*

Nicaragua*

*Rated by Moody’s; converted to S&P



Rationale for IDB Support to Trade FinanceRationale for IDB Support to Trade Finance

Trade crucial for development and growth

Importance in Latin America and the Caribbean (LAC): export-fuelled growth, free-trade agreements, growing intra-

regional trade

One barrier to trade: limited trade finance availability and affordability, especially for smaller banks and companies

IDB support to increase, stabilize and deepen reach of trade finance for:

strengthening the LAC region’s competitiveness

helping LAC exporters take advantage of the region’s competitive advantages

helping imports for supply of capital goods (local production),affordable consumer goods (welfare impact)



IDB’s Regional Trade Finance Facilitation ProgramIDB’s Regional Trade Finance Facilitation Program

Issuing Banks: Private or state-owned banks incorporated in IDB Borrowing Member Countries, track record in trade finance, satisfactory credit worthiness, compliance with IDB standards

Confirming Banks: Any international/regional bank with recognized track record in international trade financing

Participants

No joining costs

Usually, guarantee fees equivalent to 75% of confirmation fee / spread on the TFFP-guaranteed amount

Costs

(i) Letters of Credit(ii) Export and import financing funded by Confirming Banks(iii) International Guarantees (Bid, Performance, Advance Payment Bonds) and Stand-by Letters

of Credit

Eligible Transactions

Up to 100% per individual transactionCoverage Level

Up to 3 yearsTenor

(i) Max. Total Program exposure at any time: US$400 million

(ii) Up to US$40 million credit line per Issuing Bank;

(iii) Up to US$120 million exposure per IDB Borrowing Member Country

Applicable Exposure Limits

Credit Guarantee (“CG”) in favor of Confirming Banks to cover the risk they take on eligible trade financing instruments issued by LAC Issuing Banks

Nature

Sept. 2004: Approved by IDB Board of Directors (initially for 5 years), launched in April 2005, first guarantee issuance July 2005

November 2006: Permanent status for TFFP, maximum guarantee coverage level raised from 90 to 100 percent



TFFP – Current StatusTFFP – Current Status (as of February 2008)(as of February 2008)

US$539 million approved lines with 29 Issuing Banks located in 14 LAC countries

127 Confirming Banks belonging to 60 International Banking Groups

- Argentina BBVA Banco Francés Banco Río

- Brazil BicBanco Banco Pine Banco Industrial do Brasil Banco Indusval

- Bolivia Banco de Crédito de

Bolivia- Colombia

BBVA Colombia Banco de Bogotá Banco Davivienda

- Costa Rica Banco Nacional de Costa

Rica Banco de Costa Rica Banco Improsa

- Dominican Republic Banco BHD Banco Popular Dominicano

- Ecuador Banco Boliviariano Banco Pichincha Produbanco Banco de Guayaquil Banco Internacional

- Guatemala Banco Agromercantil

- Honduras Banco Ficohsa

- Jamaica First Global Bank

- Nicaragua Banco de Crédito Centroamericano - Bancentro Banco de la Producción - BanPro

- Panama Banco Aliado

- Paraguay Interbanco

- Peru Banco Internacional del Perú - Interbank Banco Interamericano de Finanzas - BIF



9 3668

100

38

72

165200

134.7

67.6

18.9

180

24.9

96.3

171.51

230

2005 2006 2007 2008*

Number of Credit Guaranteesissued

Number of underlyingtransactions

Volume of Credit Guaranteesissued (in million US$)

Overall volume of supportedtransactions (in million US$)

TFFP Developments & ProjectionsTFFP Developments & Projections (existing resources) (existing resources)

* projections

TFFP Transactions TFFP Transactions (non-cumulative)(non-cumulative)

TFFP Issuing BanksTFFP Issuing Banks

1017

29

45

2005 2006 2007 2008*

Avg. TFFP Issuing Bank line size: US$18.6 million (from US$5 million to US$40 million)

TFFP Guarantees Issued to date: 117 credit guarantees for more than US$227 million, supporting 288 individual trade transactions

Terms: average of 194 days (ranging from 38 to 540 days), avg. TFFP guarantee coverage level: 82 percent

Size of underlying trade transactions:US$ 7,866.92 - US$10 million (avg.: US$1.4 million)



TFFP’s Value-AddedTFFP’s Value-Added

Core Counter-Cyclical Role

Support external sector through difficult times

Especially important in LAC - one of the historically most volatile regions of the world

TFFP bank network built in “good times” - stands ready for increase in volatility

Uptake in demand for TFFP support – liquidity crunch, volatility and decline in risk-taking capacity already affecting LAC

TFFP niches

Have emerged in light of relatively benign global and regional market conditions in recent years

Intra-regional trade

Reaching out to smaller players



TFFP’s Value-Added: The Clients’ ViewTFFP’s Value-Added: The Clients’ View“(…) this program has allowed us to broaden our scope of action in the international trade area. (…) it has enabled us to handle transactions directly with markets and institutions we would not have been able to work with otherwise. This has been directly reflected in better conditions for our clients. Therefore, we believe that is program is, and will continue to be, an effective tool for development for the Ecuadorian productive sector, helping it to reach higher competitiveness levels and facilitating its insertion in international trade.” Julio Mackliff E., Executive Vice President - Banco de Guayaquil, Ecuador

“(…) Even if Banco de Crédito de Bolivia S.A. has not yet officially started to work under this program, we can mention that we have already been approached by several banks in order to talk about the program, as well as to undertake some first transactions. (..) We congratulate and applaud this initiative. (…)”Carlos Navarro V. - Banco de Crédito de Bolivia S.A., Bolivia

“Many aspects of the program have led us to sign the TFFP agreement, but the main one could be that the approved credit from the IDB can support the bank in political risks situations and during economic crises, when the lending banks may reduce their lines of credit to the country. A light example could be noticed during the last two to three weeks (in August) when subprime turmoil took place all over. The credit approval from the IDB gives some credit comfort to the lending banks, even if they are not "confirming banks", and allows the country through its "issuing banks" to continue its trade business, which is of great importance for all the developing countries in Latin America.(...)”Paulo Celso del Ciampo, Executive Director International Division - BicBanco, Brazil

“We think that the program adds a lot of value especially to small and medium-sized issuing banks in the region, as it gives them access to alternative funding sources which better fit their needs, as well as allows them to broaden and diversify their correspondent bank network. As to Confirming Banks, the program gives them the opportunity to establish new relationships with banks they don’t usually work with due to lack of commercial relationship or country risk restrictions. (..) we see great potential in the “south-south” operations, which is why we have included 9 Latin American subsidiaries as Confirming, and 2 as Issuing Banks in the program, and we are working with IDB on the inclusion of more.(..)”Gema Sacristan, Director, Export&Agency Finance-The Americas, Global Trade Finance – BBVA



TFFP: Reaching Out to Smaller PlayersTFFP: Reaching Out to Smaller Players Still abundant liquidity for bigger players in strong LAC economies

TFFP value-added especially for: Lower-tier banks in larger economies (i.e. Brazil, Peru)

Smaller countries (NI, HO, GU, BO, JA, EC, etc.)

TFFP Effect: deepening availability of trade finance

Lower-tier banks are able to expand trade operations by accessing more sources of trade finance through TFFP network of Confirming Banks

Micro, Small and Medium-Sized Enterprises (MSMEs) natural clients of smaller banks

More trade financing for MSMEs Helps them grow through trade employment and social impact

Strengthens their competitiveness

Enables them to take advantage of trade opportunities (also fuelled by LAC free-trade agreements, such as DR-CAFTA)

Closes market gaps in access to trade finance for MSMEs - fostering “financial democracy”



Example of TFFP End-BeneficiariesExample of TFFP End-Beneficiaries

Hamilton Rios Indústria Comércio e Exportação Ltda.

Brazilian medium-sized company

Extracts sisal from agave plant leaves, processes and exports sisal fiber for textile industry

Small local sisal fiber suppliers (cultivation in ‘minifúndios’)

Sisal cultivation essential source of work to thousands of people in this Northeast region of Brazil (semi-arid climate, low and irregular precipitations, few agricultural options for the population)

More than 600,000 people depending directly or indirectly on sisal cultivation, without any alternative source of income

Environmentally friendly, no use of chemicals

Through TFFP Issuing Bank BicBanco, Hamilton Rios has to date benefited of TFFP guarantees for 6 export transactions amounting to US$2.6 million

Hamilton Rios Indústria Comércio e Exportação Ltda.

Brazilian medium-sized company

Extracts sisal from agave plant leaves, processes and exports sisal fiber for textile industry

Small local sisal fiber suppliers (cultivation in ‘minifúndios’)

Sisal cultivation essential source of work to thousands of people in this Northeast region of Brazil (semi-arid climate, low and irregular precipitations, few agricultural options for the population)

More than 600,000 people depending directly or indirectly on sisal cultivation, without any alternative source of income

Environmentally friendly, no use of chemicals

Through TFFP Issuing Bank BicBanco, Hamilton Rios has to date benefited of TFFP guarantees for 6 export transactions amounting to US$2.6 million



Boosting TFFP’s ImpactBoosting TFFP’s Impact IDB committed to counter-cyclical and market-deepening role of TFFP

TFFP ideal vehicle for helping trade finance to increasingly reach Micro, Small and Medium-Sized Enterprises (MSMEs)

Goals:

Fulfill counter-cyclical role in case of crisis

Integrate smaller banks and banks from smaller LAC countries

Increase local trade finance capacity, with focus on MSMEs

Bottlenecks:

Constrained human and financial resources (low fee income from smaller transactions vs. high initial and ongoing operational costs)

Limits to risk-taking capacity



Opportunities to explore through the TFFP (1)Opportunities to explore through the TFFP (1)

Bottlenecks to overcome: i) financial and human resource constraints to integration of smaller Issuing Banks into TFFP ii) limits on risk-taking capacity

Smaller Issuing Banks for TFFP – Funding Needs:

credit analysis, integration of smaller Issuing Banks

Monitoring credit quality of these banks, line renewals

Transactions processing, coaching these banks in use of TFFP

Donor Risk Sharing Funds for:

Countries experiencing volatility

Banks in smaller/lower-income countries and regions

Countries and/or banks reaching TFFP exposure limits



Opportunities to explore through the TFFP (2)Opportunities to explore through the TFFP (2)

To improve LAC trade finance capacity to improve trade finance skills

Funding Needs for:

Provision of trade finance training courses for Issuing Banks

Organization and coordination of the trade finance training courses



Other potential areas for Co-Financing/Cooperation Other potential areas for Co-Financing/Cooperation

Financing to Trade Funds Dedicated to Investing in Trade Finance Receivables from LAC SME Exporters

Financing Infrastructure Projects to Foster Trade

Financing LAC Local Banks in Smaller Economies, Strengthening their Capacity to provide Multi-Purpose Longer-Term Financing (i.e. Ecuador, Honduras)

Fostering Housing Finance within the LAC Region



Facilitating Trade Finance through A/B Facilitating Trade Finance through A/B Loan Structure for Trade Funds Loan Structure for Trade Funds

Project: Crecera – Trade Finance Credit Facility

Transaction: A/B Loan Facility

Amount: US$ 130 million (IDB A-Loan $ 25m + FMO $ 15m + B-Loan $ 90m)

Tenor: 5-y A portion and 3-y B portion renewable up to 5-y

Borrower: Latin America Export Finance Fund, Ltd (LAEFF)

Manager: Crecera Finance Company – San Francisco

Lenders: Inter-American Development Bank, FMO, WestLB, Caja Madrid, Bayerische LB, Caixa Geral, Mizuho

Objective: Finance a portfolio of 60+ medium and small exporters located in Argentina, Brazil, Peru, and Uruguay

• A-Loans from IDB (total US$ 25 million, in two stages) and FMO (US$ 15 million). Through B-Loan Syndication, facility was increased by a total of US$ 90 million

• A-Loan supported start-up stage of LAEFF, structure allowed to add B-Loan along with the growth of the fund operation and gradual increase of leverage

• New way by IDB to mobilize financing from the commercial and private investor market into trade finance in the region, through demonstration effect and leverage effect in the investment fund structure

• A-Loans from IDB (total US$ 25 million, in two stages) and FMO (US$ 15 million). Through B-Loan Syndication, facility was increased by a total of US$ 90 million

• A-Loan supported start-up stage of LAEFF, structure allowed to add B-Loan along with the growth of the fund operation and gradual increase of leverage

• New way by IDB to mobilize financing from the commercial and private investor market into trade finance in the region, through demonstration effect and leverage effect in the investment fund structure



Project: TECON – SANTA CATARINA – BRAZIL Cost: About US$ 140.1 million IDB Participation: IDB A-loan up to US$ 35 million

IDB B-loan up to US$ 50 millionProject company: Itapoá Terminais Portuários S.A.Sponsors: Aliança Navegação e Logística Ltda

Hamburg Süd GroupPortinvest Participações S.A.

Remarks: The project consists of the construction and operation of a fully-private, public-use,greenfield container port withthe infrastructure and superstructure for container berths, warehousing and logistics facilities and an access road that traverses the Project area

Improving Infrastructure capacity to foster TradeImproving Infrastructure capacity to foster Trade



Improving capacity for Long Term Financing in Improving capacity for Long Term Financing in Smaller EconomiesSmaller Economies

Other projects currently being analyzed within IDB’s SCF/FMK Division:

5-year financing to 3 financial institutions (two in Ecuador, one in Honduras).

A/B Loan structure

Multi-purpose use, will benefit mainly SME clients of these three banks

Contact InformationContact Information

Daniela Carrera

Division Chief

Tel: +1 202 623 1088

E-mail: [email protected]

Joao Vianei da Silva

Senior Trade Finance Officer

Tel: +1 202 623 3298

E-mail: [email protected]

Financial Markets Division

Structured and Corporate Finance Department

Inter-American Development Bank

1300 New York Avenue, N.W.

Washington, DC 20577 – USA

pdf inter american development bank (idb)

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