THE INTERNATIONAL FINANCE CORPORATION

Document II-51

Operations of the International Finance Corporation During the Period January 1-June 30, 1964: REPORT OF THE NATIONAL ADVISORY COUNCIL ON INTERNATIONAL MONETARY AND FINANCIAL PROBLEMS, SUBMITTED JANUARY 29, 1965 (EXCERPT) 37

The International Finance Corporation is an investment institution designed to supplement the activities of the International Bank by encouraging the growth of productive private enterprises in its member countries. Through its direct investments and indirectly through the medium of its investments in industrial finance companies, the Corporation, since 1956,38 has sought to bring together domestic and foreign investors and experienced management in support of industrial development in its member countries and their territories. The Corporation does not charge uniform interest rates on its loans and there is no requirement for a government guaranty. There is a commitment fee of 1 percent per annum on the undisbursed portion of its investments.

MEMBERSHIP, SUBSCRIPTIONS, AND NEW RESOURCES

In the half-year under review, three additional countries accepted membership in the IFC-Jamaica, Kenya, and Korea-with subscriptions of $148,000, $184,000, and $139,000, respectively. On June 30, 1964, the Corporation had 78 members, with total subscriptions of $98,964,000. (See appendix table D-1.) 39

Shortly after the close of the period under review, the Directors of the IFC and the Executive Directors of the International Bank recommended to the Boards of Governors that the Articles of Agreement of both the Bank and the IFC be amended to permit the Bank, under appropriate limitations, to make loans to the IFC as it does to private development finance companies, for relending to private companies and to permit the IFC to borrow from the Bank. Such loans from the Bank to the IFC would provide additional resources for financing private industry without the necessity of a government guaranty and thereby result in expanding the scope of IFC operations.

IFC INVESTMENT, STANDBY, AND UNDERWRITING COMMITMENTS

In the January-June 1964 period, the IFC authorized nine new or additional investments in Colombia, Honduras, Mexico, Nigeria, Peru, Sudan, Tanganyika, and Thailand, totaling $9.3 million. Of these, seven investments were approved to assist in the development or expansion of a variety of industrial enterprises and two will provide

37

H. Doc. 70, 89th Cong., Feb. 2, 1965, pp. 20-23. Part V of the NAC report.

28 See American Foreign Policy: Current Documents, 1956, pp. 213 fr.

39 Not printed here, but see table B-1 annexed to doc. II-47, ante.

increased resources to industrial development finance companies in Colombia and Thailand.

In Colombia, IFC investment and underwriting commitments totaling the equivalent of $1.5 million will assist Forjas de Colombia, S.A., to build a new plant for the production of steel forgings; and in Honduras, a $350,000 investment-the first IFC investment in that country-will help to finance an integrated leather tannery, the output of which is expected to stimulate development of a shoe manufacturing industry in Honduras.

In Mexico, the IFC joined with Mexican and French interests, and with the Inter-American Development Bank, to assist in financing construction of a plant for the manufacture of construction equipment. The new funds amounted to the equivalent of $3.6 million, of which the IFC portion was $1.6 million.

An investment of $1.6 million in Compania de Cemento Pacasmayo, S.A., will assist in financing an expansion of the cement producing capacity of this company in northern Peru. The total cost of the project is estimated at approximately $3.7 million. Six United States and foreign financial institutions agreed to participate in the IFC investment.

To assist in expanding the sugar milling and refining capacity of the Kilombero Sugar Co., Ltd., Tanganyika, and to provide additional working capital which had been depleted by previous losses, the IFC, the Commonwealth Development Corporation, and the Netherlands Overseas Finance Company-the three principal investors agreed to provide up to the equivalent of $4.2 million in additional funds as part of the company's reorganization plan. This action was taken as the result of a careful study of the problem which indicated that from an agricultural point of view, the prospects for successful sugar cane operations were favorable. The IFC portion, $1.9 million, supplements an earlier IFC investment equivalent to $2.8 million authorized in 1960.

There were also IFC investments in the equivalent of $770,000 in Nigeria and approximately $690,000 in the Sudan in cotton textile plants. This is the Corporation's first investment in the Sudan. The total cost of the two projects is estimated in excess of $10 million.

In the current period, the IFC also provided funds for industrial finance companies in Colombia and Thailand, totaling the equivalent of approximately $900,000. These funds are intended to stimulate economic development by providing financial and technical assistance to new or growing industries in these countries. The IFC investment of $193,000 in Thailand was supplemented by a $2.5 million loan by the International Bank and by additional funds from the Government of Thailand and from United States and foreign financial institutions. In fiscal 1964, the IFC authorized 18 commitments in the total equivalent of about $21 million, including underwriting and standby commitments of $2.9 million. Of total commitments, 11 will assist in financing the establishment or expansion of private manufacturing or processing industries and the remaining commitments were concerned with the financing of industrial finance companies.

As shown in table 11,0 through June 30, 1964, the Corporation approved 76 commitments in the total net equivalent of $95.7 million in support of a variety of manufacturing and processing industries in 29 member countries. Over 60 percent of its investments were in Latin America. Disbursements by the end of the period were $76.5 million, or about 80 percent of net commitments.

The Corporation sells all or part of its investments whenever it can do so on satisfactory terms. These sales replenish its funds for further investment. Through the end of the period under review, sales of IFC investments and standby and underwriting commitments amounted to $22.4 million; and of the total of $11 million in standby and underwriting commitments, $7.4 million had been acquired by others.

IFC ASSISTANCE TO DEVELOPMENT FINANCE COMPANIES

Since 1962, the IFC has assumed responsibility for the consideration of all proposals for financial and technical assistance by the International Bank and its affiliates to industrial finance companies and development banks. The common objective of these institutions is the provision of medium- and long-term funds for productive investments on a business basis in the interest of the sound economic growth of the country, and the provision of technical advice needed to implement such investments. These companies perform an important function in support of this goal by identifying promising areas of investment, mobilizing domestic savings and directing such savings into productive enterprises which are too small to attract foreign capital and technology. The Bank, and its affiliates, through June 30, 1964, had extended financial assistance totaling $293 million to 18 development finance companies in 16 countries. (See table 12.) 11

The U.S. Director of the International Finance Corporation, or his Alternate, acting on the advice of the Council, supported the decisions taken with respect to the foregoing matters.

Document II-52

Operations of the International Finance Corporation During the Period July 1-December 31, 1964: REPORT OF THE NATIONAL ADVISORY COUNCIL ON INTERNATIONAL MONETARY AND FINANCIAL PROBLEMS, SUBMITTED OCTOBER 18, 1965 (EXCERPT) 12

42

The Board of Governors of the International Finance Corporation held its 1964 Annual Meeting jointly with the Annual Meetings of the

43 H. Doc. 306, 89th Cong., Oct. 19, 1965, pp. 18-22. Part V of the NAC report.

Boards of Governors of the International Bank 43 and the International Development Association.** In his address to the Board of Governors Mr. George D. Woods, President of the IFC, underlined the urgent need for increased efforts to stimulate industrial development and strongly supported the recommendation of the Executive Directors that the Articles of Agreement of the Bank and of the IFC be amended to permit the Bank to make loans to the IFC, within limits, for relending to private enterprise without government guarantee.

He emphasized the importance of sustaining the increased pace of current IFC activities and of considering the possibility of undertaking additional operations in support of economic development. In addition to the provision of finance for industrial development, he noted that it was equally important to provide the basic training and experience which would enable businessmen to promote, organize and put together urgently needed new ventures. The IFC has been able to support this work through the medium of local development finance companies."5

The Board of Governors reviewed the financial statements, audit report, and administrative budget and approved the terms and conditions of membership for Malawi and Trinidad and Tobago.

IFC INVESTMENT, STANDBY AND UNDERWRITING COMMITMENTS

In the half year under review, the IFC authorized commitments in eight member countries in the equivalent of approximately $16 million, including $5.7 million in standby and underwriting commitments. Over 80 percent of total commitments during the period was approved for productive projects in four member countriesArgentina, Ethiopia, Mexico, and Pakistan.

In Mexico, the IFC joined with Credito Bursatil, S.A., a subsidiary of the Banco National de Mexico, S.A., in forming a syndicate to underwrite an offering in the equivalent of approximately $12.5 million of capital shares of a Mexican steel company. U.S. and foreign financial institutions participated in the underwriting. The funds will enable Compania Fundidora de Fierro y Acero de Monterrey to carry out a new program to expand the production of steel. IFC's gross commitment amounted to $6.3 million-the largest ever made by the Corporation.

An IFC investment of $2.5 million will assist La Papelera Argentina, S.A.-one of the largest manufacturing enterprises in Argentina-in financing completion of a $24 million program for modernizing and improving the company's paper plant and expanding its capacity. Additional financing has been provided by the shareholders and through the use of retained earnings. The IFC will receive the right to subscribe to 2.8 million shares of the company.

To assist in financing a program of expansion of the Cotton Company of Ethiopia S.A., the IFC made an investment of $2.5 million,

See ante, doc. II-47.

"See ante, doc. II-50.

The IFC has made commitments of over $17 million in industrial development finance companies. [Footnote in source text.]

including an equity investment in the stock of the Company in the equivalent of $1 million and a loan of $1.5 million. The total cost of the program is estimated at approximately $5.4 million.

In Pakistan, the IFC and the Pakistan Industrial Credit and Investment Corporation Limited (PICIC) joined in assisting in financing an expansion program of the Ismail Cement Industries. Limited, a leading cement producer. Of the total proposed investment of approximately $3.4 million, the IFC portion will amount to $1.7 million in loan and share capital. This is the second joint investment in the company by IFC and PICIC.

In partnership with the National Investment Bank for Industrial Development S.A. of Greece (NIBID), the IFC agreed to invest $1.5 million to assist in financing a $7.5 million expansion program of the Titan Cement Co. S.A., a leading cement producer of Greece. This is the first occasion in which the IFC and NIBID have participated for investment purposes. There was substantial private participation by U.S. and foreign financial institutions.

For the first time, the IFC provided financing in the form of a line of credit in the amount of $1 million to Industrias Alimenticias Noel, S.A., an important food products manufacturer in Colombia. This is the second IFC commitment to this company and will assist in financing an expansion and modernization program.

In Spain, the IFC in conjunction with leading financial institutions in Spain, France, Germany, Italy, the United Kingdom, and the United States, made its second commitment to subscribe to a new issue of capital shares of Banco del Desarrollo Economico Espanol, S.A. The present issue will increase funds for equity operations by the Banco as well as broaden its ability to borrow in the market. The IFC subscription will amount to approximately $300,000 of new shares of the Banco.

The remaining commitment included the exercise of a stock option by the IFC in the equivalent of approximately $154,000 in a Chilean macaroni products factory, for which an earlier IFC investment of $1.5 million was authorized in 1959.

Through the end of the period under review, the IFC had approved 97 commitments in the total net equivalent of $116.2 million, inclusive of $16.6 million in standby and underwriting commitments; and disbursements totaled $83.6 million, or over 70 percent of net commitments. (See table 12.) Approximately $13 million of securities covered by standby and underwriting commitments were acquired by others, and over $25 million of loans and equity were sold or agreed to be sold.

PROPOSED BORROWING FROM THE INTERNATIONAL BANK

To increase the resources available to the IFC in support of private enterprise in its less developed member countries, the Executive Directors of the International Bank and the Board of Directors of the IFC submitted a proposal to their respective Boards of Governors to permit the Bank to lend to the IFC within a limitation on total borrowings and guarantees by the IFC of four times its unimpaired subscribed capital and surplus. The proposal was approved by the