Announcement of Twenty-Five Million Dollars for Private Development Finance Companies in Colombia on May 31, 1966

r- r- EVE 1818 H STREET, N.W., WASHINGTON D. C. 20433 TELEPHONE: EXECUTIVE 3-6360 Bank Press Release No. 66/25 Subject: $25 million for private develop- May 31, 1966 ment finance companies in Colombia The World Bank has approved a loan equivalent to $25 million to the Banco de la Republica, Colombia's central bank. The proceeds will be made available to five Colombian private development finance companies (financieras) to meet the foreign exchange costs of projects which they finance in the private sector. The loan will enable the financieras to increase their contribution to the industrial development of Colombia at a time when additional funds are urgently needed for the expected ~ expansion of industrial investment and output. Seven commercial banks have agreed to participate in the loan, without the World Bank's guarantee, for a total amount of $1,030,000 representing the first two maturities and part of the third which fall due between December 1, 1970 and December 1, 1971. The participants will be Bankers Trust Company, New York; Manu- facturers Hanover Trust Company, New York; Continental Illinois National Bank and Trust Company of Chicago; The Bank of California National Association, San Fran- cisco; Fidelity-Philadelphia Trust Company; Crocker-Citizens National Bank, San Francisco; and First Pennsylvania Banking and trust Company, Philadelphia. At the same time the Meadow Brook National Bank, Bank of North America, Empire Trust Com~ pany and Marine Midland Grace Trust Company of New York are purchasing out of port• folio a total amount of $450,000 of the May 15, 1969 maturity of a $25 million • electric power loan which was made in Colombia in May 1960 •  - 2 - • The five financieras were established between 1959 and 1963 to provide medium and long-term capital to private industry, and to encourage industrial development. They engage in a wide variety of operations including medium and long-term lending, import-export financing, equity participations, promotions, underwriting and guaran- tees. Their operations have had a significant impact on the industrial development of Colombia. In the years 1963/64, for example, they contributed about 16% of the total investment in manufacturing. They have now become the principal private in- stitutions providing medium and long-term capital to the private sector and are ex- pected to increase this role in the future. The institutions which will be the beneficiaries of the loan are Corporacion Financiera Colombiana in Bogota (which began operations in 1959), Corporacion Financiera Nacional in Medellin (1960), Corporacion Financiera de Caldas in Mani- zales (1961), Corporacion Financiera del Valle in Cali (1962), and Corporacion Financiera del Norte in Barranquilla (1963). While the nature of the financierfs' ~ ownership varies, in general it includes important Colombian banking, insurance and industrial companies; foreign banks and industrial concerns; regional interests and small individual shareholders. The International Finance Corporation (IFC), an \ affiliate of the World Bank, has invested in three of them as follows: convertible loans of $2 million each to Colombiana and Nacional in 1961, which were subsequently converted into connnon stock, and in 1964 an equity investment equivalent to $700,000 in Caldas. Colombia has long experience in industry and a class of dynamic and highly skilled entrepreneurs has developed. Colombian labor is readily susceptible to training and responds well to incentives. Manufacturing accounts for about 19% of the domestic product. Within this sector, the two traditional branches -- food • processing and beverages and textiles and clothing -- are of special importance, ) - 3 - • employing nearly half the industrial labor force and contributing almost half the value of industrial production. Colombia has, however, made great efforts to diversify industrial production and other branches, like chemicals, metals and non-metallic ninerals, have become significant. Following a period of rapid expansion in the 1950s, the pace of industrial growth slowed considerably in recent years, due primarily to inflationary pres- sures and balance of payments difficulties. As a result of the Government's recent adoption of an effective stabilization program and measures to improve the climate for industrial development, the rate of increase of manufacturing output is now expected to accelerate. The financieras have obtained most of their borrowed funds for medium and long-term lending from the Banco de la Republica and from the Private Investment • Fund (PIF). The PIF is an account within the Banco de la Republica, established to channel foreign exchange and counterpart funds, through financial institutions, to private investment projects of high economic priority in industry and agri- culture. The financieras have also raised funds from peso bond issues and have received lines of credit from European and United States banks. The World Bank loan to the Banco de la Republica will be for a term of 20 years and will bear interest at 6% per annum. Amortization will begin December 1, 1970. The loan will be guaranteed by the Republic of Colombia • •