Colombia - Fourth Development Finance Companies Project

-74Z-C RESTRICTED FILE gpy Report No. P-936 This report was prepared for use within the Bank and its oaiFcited organizaltions. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO BANCO DE LA REPUBLICA WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR A FOURTH DEVELOPMENT FINANCE COMPANIES PROJECT May 13, 1971  INTEZFATIONAL BANK FOR RECONSTRUCTION AND DEVEOPM4ENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO BANCO DE LA REPUELICA WITH THE GUARANTEE OF THE REPUBLIC OF COLOIMBIA FOR A FOURTH DEVELOPPIENT FINANCE COITANIES PROJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US$40 million to Banco de la Republica (BR), the central bank of Colombia, the proceeds of which are to be made available to five Colombian private development finance companies (Financieras). The loan would be guaranteed by the Republic of Colombia. PART I - HISTORICAL 2. The five Financieras are the same companies that are parti- cipating in Loans 451 CO, 534 CO and 625 CO, which were made in May 1966, Hay 1968 and June 1969. The two larger and older of the five, Corporacion Financiera Colombiana (Colombiana) and Corporacion Finan- ciera Nacional (Nacional), were established in 1959 in Bogota and Medellin, respectively. The three others, Corporacion Financiera de Caldas (Caldas), Corporacion Financiera del Valle (Valle) and Corporacion Financiera del Norte (Norte) were established in Manizales in 1961, in Cali in 1961 and in Barranquilla in 1963, respectively. IFC has invested in each of these companies as follows: a US$2 million convertible loan to Nacional made in 1961 and converted into common stock during 1961-63, a US$2 million convertible loan to Colombiana made in 1961 and converted into common stock during 1961-62, a US$700,000 equity investment in Caldas made in 1964, and equity investments of US$430,000 each in Valle and Norte made in 1969. 3. Private industry in Colombia suffered for many years from a lack of sources of medium and long-term finance. To help alleviate this situation, the Bank supported the creation of a Private Investment Fund (PIF) in 1