Colombia - IFI Restructuring and Divestiture Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 18138 IMPLEMENTATION COMPLETION REPORT COLOMBIA IFI RESTRUCTURING AND DIVESTITURE PROJECT (LOAN NO. 3449-CO) June 29, 1998 Finance, Private Sector and Infrastructure Sector Management Unit Country Management Unit for Colombia, Ecuador and Venezuela Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of December 1997) Currency Unit = peso US$1.00= 1,297.13 pesos GOVERNMENT'S FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS BR Colombia Central Bank BVC Constant value bonds CFP Popular Finance Corporation CFs Financial corporations DFC Development finance company ICR Implementation Completion Report IFI Industrial Development Institute IFIRDP IFI Restructuring and Divestiture Project SAR Staff Appraisal Report SME Small and Medium-Scale Enterprises BAH Booz, Allen and Hamilton, Inc. Vice President: Shahid Javed Burki Country Management Unit Director: Andres Solimano Sector Management Unit Director: Danny Leipziger Task Manager: James Hanna  FOR OFFICIAL USE ONLY Table of Contents PREFACE EVALUATION SUMMARY ................................................i PART I: PROJECT IMPLEMENTATION ASSESSMENT............................................................. A. BACKGROUND ......................................... 1 B. STATEMENT AND EVALUATION OF OBJECTIVES ...........................................3 C. ACHIEVEMENT OF OBJECTIVES ..........................................5 D. MAJOR FACTORS AFFECTING THE PROJECT ..........................................9 E. PROJECT SUSTAINABILITY ..........................................9 F. BANK PERFORMANCE ......................................... 10 G. BORROWER PERFORMANCE .......................................... 10 H. ASSESSMENT OF OUTCOME ......................................... 10 I. FUTURE OPERATION ......................................... 11 J. KEY LESSONS LEARNED .......................................... 11 Annex 1 - IFI Policy Letter PART II: STATISTICAL TABLES APPENDIX A: BORROWER CONTRIBUTION TO THE ICR This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization,  IMPLEMENTATION COMPLETION REPORT COLOMBIA IFI RESTRUCTURING AND DIVESTITURE PROJECT (LOAN NO. 3449-CO) PREFACE This Implementation Completion Report (ICR) reviews the Colombia IFI Restructuring and Divestiture Project (IFIRDP), for which a loan in the amount of US$100 million equivalent was approved on March 24, 1992 and made effective on September 21, 1993. The loan was closed on December 31, 1997, as originally established. Total disbursements were $44.51 million, or 45% of the total loan, and the last disbursement took place in the fourth quarter of FY95, after which time a balance of $55.49 million was cancelled. Preparation of this ICR is based upon a completion mission and review of the project file carried out in May 1998 by Mr. Manuel Lasaga, consultant, who produced a first draft ICR. The review of the draft and completion of the ICR was done by James Hanna, current Task Manager, with the assistance of Ms. Maria Victoria Lister and Ms. Lily Franchini. The borrower contributed indirectly to ICR preparation by providing extensive consultation with the ICR mission and directly to it by preparing its own report, which is included as Appendix A of this Report.  IMPLEMENTATION COMPLETION REPORT COLOMBIA IFI RESTRUCTURING AND DIVESTITURE PROJECT (LOAN NO. 3449-CO) EVALUATION SUMMARY i. The Instituto de Fomento Industrial (IFI) was established in 1940, with the objective of promoting the establishment of basic industry. With a record in the local market as an inefficient state financial intermediary, it eventually became clear to the Government and IFI during an era of intensive reform of the financial and real sectors that substantial restructuring was needed. In order to support this process, the Bank began preparation of this Project in March 1989. ii. Project Objectives. As stated in the Staff Appraisal Report (SAR), the objectives of the project were: "(i) to implement a divestiture and privatization program of IFI's existing equity holdings; and (ii) to support the implementation of a new corporate strategy for IFI which will reorient its role in industrial and financial sector development by transforming it into a more efficient financial institution that can compete on an equal basis in the financial markets". The SAR went on to state that achievement of these two objectives would pave the way for the eventual privatization of IFI itself, for which a specific plan would be drawn up under the project. Project components included an investment divestiture program, an operational and financial upgrading program, a credit program, and definition of a long-term corporate strategy. iii. Given the major trade policy and financial sector reforms which the Government had undertaken prior to project preparation and IFI's relatively poor operating performance at the time, the explicit objectives and components of the project were very appropriate and mutually agreed. However, IFI's Policy Letter (attached as Annex 1) was very tentative on the privatization objective and made a specific commitment only to carry out a strategic analysis of its role as a publicly-owned institution and alternative ownership structures, to be followed by a decision by the Government on the structure to be adopted and a plan of action to implement it. Weaknesses in this important aspect of objectives-setting and design phase of the project resulted later in discord between IFI and the Bank, which led to closing the loan only half way through the disbursement process. iv. Achievement of Objectives. The project objectives related to the divestiture program, improvement in IFI's operating efficiency and financial health, and the financing of specific development projects were substantially met. Notable trends over 1992-1997 include: (i) significant diversification in terms of its funding base; (ii) dynamic growth of second-tier lending; (iii) a significant reduction in the relative size of the investment portfolio with a modest improvement in its earnings, although with  ii sizeable volatility; (iv) improvement in operating efficiency as measured by administrative expenses to total assets, and (v) financing of 18 industrial investments with a total subloan value of $47.2 million and mobilization of remaining financing to meet a total investment cost of $177 million. v. At the same time, action on a definition of a long-term strategy for IFI, while meeting in strict terms IFI's commitments in its Policy Letter, did not achieve the Bank's original vision of eventual privatization or its views on the appropriate balance between first- and second-tier credit management activities within IFI. Despite attempts at the Midterm Review to restructure the Project to fit within IFI's new corporate strategy, this mismatch in views led to the closing of the loan in December 1997 as originally established in the Loan Agreement without commitment of the second half of the loan. vi. Bank and Borrower Performance. The Bank's performance and the Borrower's performance in the IFIRDP were generally satisfactory. The Bank appropriately helped to identify the need to restructure IFI in a way that would make it more efficient in responding to the needs of the industrial sector and also helped craft a realistic divestiture strategy for IFI's special case investments. However, in the design of the Project, the Bank may have misread the Government's intention regarding the final outcome for IFI. Greater dialogue between the Bank, IFI, and the Government on the issue of privatization may have avoided subsequent misunderstandings. Closer attention and early action as to the changing views concerning second-tier lending by IFI might also have helped. At the same time, the Bank kept an open mind to the proposed changes to IFI objectives and worked diligently to arrive at a realistic compromise regarding first- tier and second-tier lending. vii. For its part, IFI worked diligently during project implementation and provided ample information on the operations of the institution. At the same time, IFI's management should have been more forthcoming with the Bank during Project preparation regarding the problems with privatization of IFI. Also, when the expansion into second-tier lending was first considered, IFI should have approached the Bank with a proposal rather than wait until the Project was approaching Mid-term review. viii. Overall Outcome. On the basis of the review of this project, including the review of legal documents, supervision reports, and the findings of the ICR mission, the IFIRD is rated partially satisfactory. The Project achieved its major immediate objectives---improving IFI's operational efficiency and financial condition, implementation of a divestiture program, financing of industrial development investments and helping IFI to develop and diversify its sources of financing, especially from international markets. Unfortunately, the original privatization objective was not a realistic option and, in the Bank's view, the substantial co-mingling of first- and second- tier lending functions is not a sound institutional strategy over the long-term. This, along with likely continued strategic discontinuities created by IFI's relationship with the Government, may possibly undermine the sustainability of the positive accomplishments of the project.  iii ix. Future Operation. The diversification of financing sources of IFI have reduced substantially the need for external financing from development assistance sources. However, IFI maintains project support for specific programs from the IDB to finance microenterprise development and stated in January 1998 that it was considering seeking Bank support to fund second-tier rediscounting of credit to SME firms in the formal sector. However, no such request has been received at the writing of this report. Key Lessons Learned o In Project design, it is essential to get full commitment of the borrower at the time of appraisal and Board presentation to key aims. In the case of IFI, privatization was not a mutually agreed goal but left to future determination and discussed at Mid-term review. o In contrast to macro or sector adjustment programs where reforms deal with general policies, in the case of a project involving complex institutional restructuring, objectives need to be simple, tried, and selective. The loan conditionality dealing with specific efficiency criteria was clear and effective in providing IFI tangible objectives. o Loan appraisal and early implementation should include an in-depth review of market conditions, particularly when the project involves the restructuring of an organization and promotion of new services. The decision that IFI would specialize in new first- tier banking services would have benefited from a more thorough analysis of market needs. o Divestiture of equity holdings comprised of privately held shares is a long drawn out process, especially in those cases where they represent a controlling interest in a non- viable corporation which needs major restructuring. In these situations, flexibility in the design of conditionality is imperative. The IFIRDP succeeded in this objective by giving IFI a flexible timetable, and with respect to the 24 class A companies, it specified the targets in terms of cumulative companies divested, rather than specific company names.  IMPLEMENTATION COMPLETION REPORT COLOMBIA IFI RESTRUCTURING AND DIVESTITURE PROJECT (LOAN NO. 3449-CO) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. BACKGROUND 1. Following the external shocks and weaknesses in the economy during the first half of the 1980s, the Government introduced an economic adjustment program designed to achieve stabilization with growth. A distinguishing feature of the 1984-1987 economic recovery was the impressive growth of the industrial sector. However, this growth was not accompanied hy significant structural change. The importance of industry in Colombia was lower than in other Latin American countries. The export orientation of most industries remained relatively weak and, in most cases, below that of the 1970s. 2. The administration that took office in August 1990 markedly increased the pace of the economic reform program, strengthening macroeconomic management, reforming its trade regime, restructuring and downsizing the public sector, liberalizing the industrial and agricultural sectors and modernizing the financial sector. A modernization program, apertura, focused on trade reform aimed at increasing competitiveness of the industrial sector. The Bank's Industrial Restructuring and Development Program (Loan 3321-CO, or the IRDP) supported government reforms in this area by providing policy change, program support and financing to assist in the restructuring of affected firms. 3. One of the impediments to the adjustment process was the inability of the financial markets to respond efficiently to the new market needs created by the restructuring process. Financial markets in Colombia had been characterized by a continuing lack of long-term credit and underdeveloped capital markets, imperfect competition within the banking sector, over-emphasis on collateral rather than project fundamentals in allocating credit, and little interest in the needs of medium-scale enterprises. In 1990, Congress approved a financial sector reform law, which authorized the Government to introduce the necessary institutional and regulatory changes that would encourage an increase in the depth and competitiveness of the financial system. The principal strategies of this program were: (a) to facilitate market entry and exit for intermediaries; (b) to reduce the burden of reserve requirements; (c) to phase out forced investments, except those mandated by law; (d) to reorient the role of the public sector by increased specialization of 2d tier institutions; (e) to  2 liberalize interest rates; and (f) to allow subsidized credit only in the case of well-defined target groups.' 4. As the apertura program challenged local companies to become more competitive, and the financial market reforms laid the groundwork for innovative financing schemes to support industrial restructuring, the Government began to assess the role of the State-owned banks in this process. The Instituto de Fomento Industrial (IFI) was established in 1940 with the objective of promoting through equity investments the establishment of basic industry. It is a decentralized Government agency under the Ministry of Economic Development. In addition, since 1963, IFI had been authorized to function as a finance company (Corporacion Financiera, CF) with debt financing, like the 23 other CFs operating in Colombia at the time of project preparation, and is currently the largest CF in Colombia with 23 percent market share measured in terms of assets. 5. Many of IFI's investments had fallen short of expectations and IFI also took over ownership or management of parastatal enterprises that performed poorly, thus keeping uneconomic enterprises in operation through repeated financings. A significant share of IFI credits also went to enterprises in which it had an equity interest. In addition, historically, IFI was known in the local market as an inefficient financial intermediary. For example, during 1986-1990, return on assets averaged a loss of 0.36 percent per annum, while net interest as percent of assets was a marginal 1.6 percent, with notable year-to-year fluctuations. 6. As a result of the accumulation of financial problems over time, combined with the financing needs of the industrial sector engendered by the apertura program, it became clear to the Government and IFI that the institution had to be restructured in all aspects. As a result, IFI initiated its own restructuring, which included portfolio divestiture and internal reorganization, and the restructuring and privatization of problematic parastatal enterprises owned or managed by IFI. In order to support this process, the Bank began preparation of this Project in March 1989. Helped by the diagnostic analysis performed by the firm of Booz, Allen, and Hamilton, IFI developed a strategic plan and reached agreement with the Bank for a restructuring and divestiture program in 1992, which was supported by a US$100 million Bank loan approved by its Board in March of that year. 7. From the Bank's perspective, the IFI operation represented an intensive institutional focus which complemented the Bank's other involvement in Colombia's financial sector, which began with DFC lending in 1966. At loan approval, the Bank had made nine DFC loans to the Banco de la Republica (BR) to onlend through private CFs. Another five loans were made to small and medium enterprises (SME), with the first four geared to the specialized development bank for SME lending, the Corporacion Financiera Popular (CFP), which was subsequently privatized in 1992. I Colombia's Financial Policy Framework, 1990-94, Ministry of Finance, April 2, 1991  3 B. STA TEMENTAND EVALUATION OF OBJECTIVES 8. As stated in the Staff Appraisal Report (SAR)2, the objectives of the project were: (i) "to implement a divestiture and privatization program of IFI's existing equity holdings; and (ii) to support the implementation of a new corporate strategy for IFI which will reorient its role in industrial and financial sector development by transforming it into a more efficient financial institution that can compete on an equal basis in the financial markets". The SAR went on to state that achievement of these two objectives would pave the way for the eventual privatization of IFI itself, for which a specific plan would be drawn up under the project. The principal project components to achieve such objectives were as follows: Divestiture Program: o Adoption of new investment policies that will establish clear criteria for investing with strict exit strategies. o Sale of IFI's shares in 24 industrial enterprises. O Sale of IFI's shares or participation in six special case companies: Alcalis de Colombia, Cerro Matoso, Concesion Salinas, Corporacion Andina de Fomento(CAF), Monomeros Colombo Venezolano, and Productora de Papeles (Propal). Improvement in Operations and Financial Condition: o New policies and procedures o Training of management and staff. O Design and implementation of a new MIS o Resolution of the cumulative deficit accruing from the BVCs. o Attain financial performance comparable to other CFs with respect to indicators of administrative costs to assets and profitability Financing of Specific Development Projects: o IFI would lend directly to productive enterprises as a first-tier institution to finance investment in fixed assets and working capital. Definition of a long-term strategy: o Establish new organizational structure o Define ownership options, including privatization of IFI, and a plan of action to implement the one decided upon by the Government 9. While most project objectives were appropriately set and mutually agreed, this appears not to be the case with regard to IFI's long-term corporate strategy. Underpinnings of this issue began with project preparation, when IFI hired the consulting firm of Booz, 2 Staff Appraisal Report: Colombia: IFI Restructuring and Divestiture Project, February 12, 1992, Report No. 10041-CO.  4 Allen, and Hamilton, Inc.(BAH) to evaluate IFI's current objectives and operations.3 The BAH report made numerous recommendations which merged commercial, merchant and an investment banking. In general, IFI was to become a provider of comprehensive financial services to both large and medium-sized corporations. It would operate mainly as a first-tier intermediary in the large-companies market and, as a second-tier institution, working through other CFs and commercial banks, in the medium-sized corporations market. In addition, IFI was to channel both long-term and short-term resources to the financial markets. Among the product lines suggested by the report were: (a) corporate finance, such as project finance and financial restructuring; (b) money market products; (c) investment banking, such as mergers and acquisitions as well as a more aggressive posture in the issuance of bonds and other securities; (d) financial advisory, such as financial engineering and financial planning; and (e) venture capital, especially high tech investments in such areas as biotechnology. In order to manage such diverse activities, the report recommended the creation of an IFI holding company that would consist of four or five specialized financial services companies. 10. Some of the strengths of the BAH report were that it identified certain areas in need of immediate attention, such as the problem of the BVCs (Bonos de Valor Constante), which had generated a huge deficit that exceeded [FI's net worth at the time.4 It also called for an end to the use of earmarked funds, which hindered IFI's ability to profitably re- deploy its resources, and strongly endorsed the divestiture program. At the same time, the report called on IFI to adopt a new product/market mix which would eventually require its privatization. Perhaps in the face of such a wide-ranging strategy proposal, the Bank and IFI did not develop a consensual view on this at the time of appraisal. The SAR provides references, for example, to "a strategic analysis of ... a program of privatization of the capital and the operation of IFI" (para 79). While the IFI Policy Letter approved by the Board of Directors included a similar reference to "ultimately, as [project] objectives are met, to privatize part or all of IFI itself',5 it committed itself to "conduct an analysis of its role as a publicly owned institution and the alternative ownership structures that could be selected in order to meet [the project] objectives... Based on this analysis, the Government would decide on the ownership structure of IFI and the related plan of action to implement it." Interviews during the ICR mission reflect that the Government and IFI's management did not support the privatization of their institution and some considered that privatization was not even a realistic strategy in view of IFI's long-time image in Colombia as a public development finance institution. 11. Clearly, to be feasible, the design of complex institutional restructuring design needs to be responsive not only to country needs but to the institution's basic capabilities and the views held by its stakeholders. Weaknesses in this important aspect of objectives- 3Desarrollo de un Plan estrategico: IFI, Booz Allen & Hamilton Inc., New York, October 1989 4 The BVCs were indexed bonds issued by IFI and purchased exclusively by the Social Security Administration. While IFI paid real rates of interest on the BVCs, it lent them at subsidized interest rates. This practice was stopped by the late 1980s; however, IFI had by then accumulated a sizeable deficit. The IFI Board approved the Policy Letter on January 17, 1992, see SAR Annex I.  5 setting and design phase of the project resulted later in discord between IFI and the Bank, which led to closing the loan only half way through the disbursement process. C ACHIEVEMENT OF OBJECTIVES 12. The project objectives related to the divestiture program, improvement in IFI's operating efficiency and financial health, and the financing of specific development projects were substantially met. Notable trends over 1992-1997 include: (i) significant diversification in terms of its funding base; (ii) dynamic growth of second-tier lending; (iii) a significant reduction in the relative size of the investment portfolio with a modest improvement in its earnings, although with sizeable volatility; (iv) improvement in operating efficiency as measured by administrative expenses to total assets, and (v) financing of 18 industrial investments with a total subloan value of $47.2 million and mobilization of remaining financing to meet total investment cost of $177 million. At the same time, action on a definition of a long-term strategy for IFI, while meeting in strict terms IFI's commitments in its Policy Letter, did not achieve the Bank's original vision of eventual privatization or its views on the appropriate balance between first- and second-tier credit management activities within IFI. Despite attempts at the Midterm Review to restructure the Project to fit within IFI's new corporate strategy, this mismatch in views led to the closing of the loan in December 1997 as originally established in the Loan Agreement without commitment of the second half of the loan. The following provides more detail. 13. Divestiture Program. In 1994, the project helped IFI to adopt a new investment policy, which emphasized profitabilty, focused on strategic sectors, and established clear criteria for entry and exit. The establishment of limits on the amounts invested in a single firm as well as the overall size of the investment portfolio was a positive contribution---it now requires a ceiling on investments of 30 percent of the outstanding equity of a company and must be a private sector enterprise. The exit strategy is now much more focused on the successful transition of the enterprise from the initial business development period. Regarding the sale of IFI's shares in 24 industrial enterprises, this condition has been met substantially. While there were significant delays encountered during implementation, this was not surprising in view of the rather illiquid nature of these shares. Out of the 24 companies, IFI has sold its shares in 15. Of the companies that have not been divested, four are in the process or have already been liquidated, the investment in one has already been written off, and the shares in the remaining four have not been sold off. Two of the four companies whose shares have not been sold are considered to have a high social impact. As to the sale of IFI's shares in six special case companies, two of the six companies have been divested. However, in the case of Concesion Salinas, IFI managed the investment on behalf of the Government according to a management agreement. Recently the Government ruled in favor of IFI by recognizing that, as a party to a management contract, IFI did not incur any liabilities but rather these belonged to the Government. Alcalis is in process of  6 liquidation, and in the case of Monomeros and Propal, their restructuring has postponed the sale of IFI's shares. 14. Operational improvements. The Project instilled much greater awareness within IFI of the need to strengthen efficiency and led to significant improvements in operational performance. In 1993, IFI reorganized its four subgerencias, replacing them by the following five vice-presidencies: Commercial Operations, Finance, Credit Operations, Operations, and Administration. The vice-presidency for Commercial Operations included two departments, one in charge of promoting lending operations and the other responsible for investment promotion. Policies and procedures manuals were updated in the areas of credit and investments and an enhanced evaluation of risk assets is now applied to both credit exposure and equity investments. Numerous training workshops and participation in external educational programs have helped to enhance management and staff capabilities. With the assistance of external consultants, IFI has developed a new MIS, which is currently in the initial phase of implementation. The new system will allow consolidation of management information across all functional areas and products. Once fully operational, the new system will place IFI on the same technology platform as other CFs and commercial banks and should bolster IFI's ability to competitively service its clients. 15. Financial performance. Compared to other private sector CFs, IFI's financial improvements performance over the project period are satisfactory. As per the Table below, IFI's efficiency in terms of general administrative expenses as percent of total assets improved considerably and earnings rose significantly between 1990-96, though they were substantially lower in 1997. Compared to other CFs, IFI's investment portfolio is moderately lower relative to total assets and it has improved its leverage modestly to also be comparable to private CFs. Comnparison of IFI to Private Sector CFs _IFI Private CFs 1990 1996 1997 1996 1997 Return on Assets 0.9% 2.1% 0.8% 2.1% 1.6% Administrative Expenses/Assets 1.9% 1.3% 1.3% 1.5% 1.4% Capital / Assets 33% 25.5% 22.2% 24.5% 24.0% Past Due / Total Loans NA 5.7% 5.7% 3.9% 3.5% 16. Under the project, an important step in improving IFI's financial health was the elimination of its BVC-related deficit. During loan preparation, IFI negotiated an arrangement whereby the Government paid off IFI's liability to the Social Security Administration arising from the BVCs. As per the agreement, IFI would repay the Government's advance payment within four years, placing its shares of Propal and its holdings of the debt instruments issued by Propal, as collateral. This agreement was made effective on June 1991, and when it expired in June 1995, IFI was unable to eliminate its debt, and for some technical reasons it was not possible to liquidate the Propal shares. At that point, IFI swapped shares of Cerromatoso and Monomeros Colombo-Venezolanos for  7 the Propal shares. The successful sale of the Cerromatoso shares allowed IFI subsequently to fulfill its full obligations to the Government for the BVCs in February 1997. 17. The Project was also influential in helping IFI to develop and diversify its sources of financing, especially with respect to international financial markets. In September 1995, IFI raised $75 million through a syndicated loan led by Santander Investment Bank Ltd. In July 1996, IFI launched a successful program of medium-term Euronotes for $125 million led by UBS. Again in March 1997, another loan syndication, this time led by Merrill Lynch, allowed IFI to pre-pay the earlier loan and take advantage of the lower interest rates. These operations are a tribute to IFI's very good standing in the international financial markets. This Project had a positive impact on IFI's image abroad by depicting the Bank as a business partner. In fact, by not canceling the Project after the restructuring terms were turned down, the Bank continued to support IFI's strong image in the international financial community. Overall, in line with the Project objectives, certificates of deposits 6 and bonds represented 44.2 percent of total assets in 1997, up substantially from 12.2 percent in 1992 and representing a good core base of funding. 18. Credit Program. As is typical of emerging markets, long-term funding is still scarce in Colombia. There was a strong demand at the time due to the apertura program and the need for many firms to modernize in order to succeed in the much more competitive marketplace. The Project provided local firms with access to long-term financing---a total of 18 subloans were approved for a total of $47.2 million, mostly in the manufacturing and tourism sectors and a majority of which were larger scale. The program financed about 27 percent of total project costs of $177 million. Twelve of the 18 subloans were performing satisfactory at the time of this evaluation, two had been restructured, three were in the legal process of collection, and one was in the process of liquidation. The amount of the problem loans represented a relatively high 16 percent of the total subloan amount. 19. Based on the enterprises visited for this assessment, most of the loans were for plant modernization. The principal advantages of the program extended by IFI were: (a) long- term funding (the subloan maturities averaged 8.5 years); (b) the grace period; and (c) its Dollar denomination. During the period that most of these sub-loans were disbursed, the Peso appreciated significantly in real terms while domestic interest rates were relatively high, making it very attractive to borrow in Dollars. Subsequently, several sub-loans were pre-paid last year as the Government made Peso financing more attractive and sub- borrowers became concerned of possible Peso devaluation in real terms. 20. Overall, sub-borrowers were pleased with the service received from IFI under this program, although some complaints were made regarding delays in processing of loan collateral. In all cases for which interviews were held, the firms would have made the investment even if the Bank's resources had not been available via their access to other 6 Because of cost advantages, certificates of deposits are used actively in Colombia as a source of medium- term funding. Since IFI is not a retail bank, these certificates are placed with other financial institutions.  8 financial institutions. This may raise some questions about IFI's role as a direct lender to larger enterprises, which tend to have a long track record and few problems accessing financial markets, and reinforces the decision taken in the course of project implementation by the Government for IFI to apply its limited resources to projects with greater social impact at the micro- small and medium-scale enterprise level. 21. Long-term corporate strategy. Towards year-end 1993, IFI began to develop second-tier lending operations in view of the Central Bank's exit from this type of activity. This additional role of IFI was endorsed by Colombia's new Government in September 1994, which had also identified the democratization of credit in Colombia as one of its priorities under its Plan Nacional para la Microempresa. Subsequently, under Law 188 approved by Congress in June 1995, IFI was designated as the leading Government-owned bank for lending to micro, small- and medium-sized enterprises. By May 1996, IFI began to institutionalize its second-tier lending activities through organizational changes. Lending activities were assigned two distinct vice-presidencies, one for first-tier and the other for second-tier lending. The Plan Nacional de Desarrollo gave IFI the responsibility of carrying out two programs, first PROPYME, for small and medium scale enterprises (SMEs) and FINURBANO, for microenterprises. IFI was subsequently quite aggressive in pursuing its second tier lending operations. In terms of new disbursements, second-tier lending went from 22 percent of the total in 1994, to 61 percent in 1997. However, most of the increase was due to the sharp increase in lending to large corporations. The share of FINURBANO and PROPYME disbursements actually went from 22.3 percent in 1994 to 29.8 percent in 1997. 22. These events further solidified the Government's position that IFI would not be privatized and rather expanded the public sector role for the institution in financing industrial development, materially altering the original process of developing a long-term corporate strategy. When the Project reached the Midterm Review period, which had been triggered by the approval of the first $45 million in sub-loans, the change in IFI policies led to a protracted negotiation to restructure the Project. The key issue was the IFI's strategy of pursuing both first- and second-tier lending activities. The Bank objected to this strategy due to a perceived conflict-of-interest that could arise whenever IFI would lend directly to a client to which at the same time it is rediscounting as a second-tier institution a loan from another bank. Thus, the Bank supported restructuring only if lending would be limited to second-tier, accompanied by a phase-out of first-tier lending and investing. A compromise was apparently reached in mid-1997 along the following lines: IFI would embark on a transition to mainly second-tier lending, while first-tier loans would be made in the following specific cases: (i) restructuring of enterprises which are experiencing financial difficulties, including enterprises which have applied for bankruptcy protection; (ii) project with a high technological content; and (iii) projects geared to environmental improvement and which cannot be financed through rediscounting.7 However, in November 1997, IFI's Board of Directors refused to accept the new proposal and reaffirmed its decision target of 40:60 direct loan to rediscount loan mix. Since the original closing date of the Project had '7 Mid-term Review Report and Proposal to Amend the Loan, June 27, 1997.  9 been slated for December of that year, the Bank decided to let the Project expire rather than go through the cancellation procedures. D. ALJOR FACTORSAFFECTING THE PROJECT 23. A strong Government commitment to liberalization of financial markets and increased sector efficiency was an essential underpinning to the development of the Project. The period of implementation coincided with a healthy expansion of the world economy and a doubling of coffee prices, which in turn provided a boost to Colombia's own rapid expansion during 1992-1995, and excellent macroeconomic management also contributed indirectly to the improvement in IFI's performance. The Apertura program introduced by President Barco during his last year in office, and expanded by his successor, President Gaviria, set in motion a program to liberalize the external trade regime, accelerate the reform of public services and develop an internationally competitive private sector. The financial sector reforns also encouraged IFI to apply market-oriented criteria and to focus on the efficiency and competitiveness of its services. In general, the Government was committed to the explicit objectives of the Project but, as stated earlier, did not accept the goal of privatizing IFI. 24. This problem was exacerbated by the rapid turnover of IFI's management. During Project design and implementation, there were six Presidents of IFI, and as normally happens in any organization, each brought with him new goals, ideas, and management.8 At the shareholder level, changes in Government also brought new changes in IFI's goals and organizational structure that went beyond or were in conflict with the original project terms and conditions and led to restructuring attempts. This situation is in sharp contrast with a private firm where the shareholders are active in the business and often stay the course for a longer period of time. E. PROJECT SUSTAINABILITY 25. The sustainability of objectives supported by the project---essentially to provide industrial sector financial services under a well-focused corporate strategy while maintaining financial and operational efficiency comparable to private CFs---is moderately uncertain. It is affected by significant risks stemming from its relationship with Government, which in particular involve a lack of policy and management continuity. Frequent management changes reflecting shifting Government views on the subject of development financing are not conducive to sustainability of the institutional performance a The presidents were: Eduardo Robayo, April 1988 - August 1990; Rodrigo Villamizar, August 1990 - December 1991; Luis Alberto Moreno, December 1991 - July 1992; Gustavo Canal, July 1992 - August 1994; Carlos Wolff Isaza, August 1994 -January 1996; and Gabriel Borrero, January 1996 -.  10 achieved under the project. One of the near-term challenges to project sustainability will be the change in Government expected in August of this year. F. BANK PERFORMANCE 26. The Bank appropriately helped to identify the need to restructure IFI in a way that would make it more efficient in responding to the needs of the industrial sector. The Bank help to craft a realistic divestiture strategy for IFI's special case investments. However, in the design of the Project, the Bank may have misread the Government's intention regarding the final outcome for IFI. The BAH report may have given wrong signals to the Bank regarding the privatization strategy, since most of their recommendations dealt with IFI's new role in investment and merchant banking. Greater dialogue between the Bank, IFI, and the Government on the issue of privatization may have avoided subsequent problems by reaching a definitive agreement early on in the process. Closer attention and early action as to the changing views concerning second-tier lending by IFI might also have helped. At the same time, the Bank kept an open mind to the proposed changes to IFI objectives and worked diligently to arrive at a realistic compromise regarding first-tier and second-tier lending. G. BORROWER PERFORMANCE 27. IFI worked diligently during project implementation and was cooperative with the Bank. Numerous reports were produced to keep the Bank abreast of IFI's activities. IFI has a good reputation for the quality of its professionals and the success in tapping the international financial markets among other things is a tribute to its management capabilities and experience. There is ample information on the operations of the institution, and the staff responded swiftly to the Bank's information requirements. At the same time, management should have been more forthcoming with the Bank during Project preparation regarding the problems with privatization of IFI. Also, when the expansion into second-tier lending was first considered, IFI should have approached the Bank with a proposal rather than wait until the Project was approaching Mid-term review. H. ASSESSMENT OF OUTCOME 28. ' On the basis of the review of this project, including the review of legal documents, supervision reports, and the findings of the ICR mission, the IFIRD is rated partially satisfactory. The Project achieved its major immediate major objectives---improving IFI's operational efficiency and financial condition, implementation of a divestiture program, and financing of industrial development investments. Unfortunately, the original privatization objective was not a realistic option and, in the Bank's view, the substantial co-  11 mingling of first- and second-tier lending functions is not a sound institutional strategy over the long-term. This, along with likely continued strategic discontinuities created by IFI's relationship with the Government, may possibly undermine the sustainability of the positive accomplishments of the project. I. FUTURE OPERATION 29. The diversification of financing sources of IFI have reduced substantially the need for external financing from development assistance sources. However, IFI maintains project support for specific programs from the IDB to finance microenterprise development and stated in January 1998 that it was considering seeking Bank support to fund second-tier rediscounting of credit to SME firms in the formal sector. However, no such request has been received at the writing of this report. J. KEY LESSONS LEARNED o In Project design, it is essential to get full commitment of the borrower at the time of appraisal and Board presentation to key aims. In the case of IFI, privatization was not a mutually agreed goal but left to future determination and discussed at Mid-term review. o In contrast to macro or sector adjustment programs where reforms deal with general policies, in the case of a project involving complex institutional restructuring, objectives need to be simple, tried, and selective. The loan conditionality dealing with specific efficiency criteria was clear and effective in providing IFI tangible objectives. o Loan appraisal and early implementation should include an in-depth review of market conditions, particularly when the project involves the restructuring of an organization and promotion of new services. The decision that IFI would specialize in new first-tier banking services would have benefited from a more thorough analysis of market needs. o Divestiture of equity holdings comprised of privately held shares is a long drawn out process, especially in those cases where they represent a controlling interest in a non- viable corporation which needs major restructuring. In these situations, flexibility in the design of conditionality is imperative. The IFIRDP succeeded in this objective by giving IFI a flexible timetable, and with respect to the 24 class A companies, it specified the targets in terms of cumulative companies divested, rather than specific company names.  12 ANNEX I Page 1 of 6 IFI Restructuring and Divestiture Project IFI Policy Letter January 17, 1992 Introduction 1. Instituto de Fomento Industrial (IFI) was established in 1940 with the objective of promoting the establishment of basic industry and the initial transformation of domestic raw materials to substitute imported raw materials. This was in accordance with Colombia's import substitution model of development. IFI's role was basically to invest where the private sector was not willing to invest due to high initial investment costs and higher than normal commercial risk. In addition, since 1963, IFI has been authorized to function as a development bank, lending to industrial firms directly or through other financial institutions. 2. In its early years, IFI made direct investments in the food, beverages, tobbaco, chemicals, basic metals, and textile industries. Since 1975, emphasis has shifted to the promotion of exports (such as ferronickel and coal) which Government supported after the unexpected increase in petroleum prices. In recent years, IFI has tended to concentrate its investments in a few enterprises. This was a likely development as IFI's sources bf finance have been relatively limited and the typical investment for IFI was in relatively large projects. A significant share of IFI credit has gone to enterprises in which IFI has an equity share. 3. In retrospect, many of IFI's investments fell short of expectations. IFI often has felt obliged as a public sector institution to enter into politically motivated investments. IFI has also, taken over ownership or management o. parastatal enterprises that have performed poorly, keeping uneconomic enterprises in operation through repeated financings. This has slowed or prevented the exit of unprofitable public enterprises, and has led to a drain on IFI's resources. In some cases in which other investors have failed to provide their share of investment costs, or where there have been cost overruns or large operating losses, IFI has been forced to step in to provide additional resources. 4. As the result of the accumulation of financial problems over time, it became clear to Government and IFI that the institution had to be restructured in all aspects. As a result IFI initiated its financial restructuring, portfolio divestiture and internal reorganization, and the restructuring and privatization of problematic parastatal enterprises owned or managed by IFI. The most significant financial issue has been the resolution of the accumulated deficit of the Bonos de Valor Constante (BVC) Fund. 5. All of these issues are currently being addressed by Government and IFI, witl substantial achievements in all areas. Particular progress has been achieved ir defining IFI's corporate mission and product/market strategy, in  13 ANNEX I Page 2 of 6 restructuring its financing and credit policies, and in accelerating its portfolio divestiture. These transition moves have been accompanied by a strengthening in various operational capabilities and a substantial internal reorganization. General Context 6. IFI's role in industrial development. The reorientation of IPI's operations must be placed within the framework of the trade reform program initiated as an element of the "Programa para la Modernizaci6n de la Economia Colombiana" and continued by the current Government. IFI's strategy is designed to address the need for industrial restructuring and facilitate the export supply response to the trade reform. The program creates the need for financing new firms, products, and technologies, with a wider range of financial instruments. In addition, IFI's new role complements the Government's efforts to strengthen public sector management, promote private sector development, and improve the allocation of public sector resources. Specifically, IFI's operations will address the following industrial development issues: o The trade reform program creates the need for long term credit to finance the restructuring of enterprises and for financing the acquisition of new technologies in order to modernize production techniques and improve international competitiveness. o This additional need for credit occurs precisely at a time when the private financial sector's capability to support new investments and industrial restructuring, in addition to the expected growth in imports, is insufficient. 3 Restructuring requires more than credit: an entire pool of financial services will be necessary to support industrial enterprises in their adjustment efforts. In addition, financial institutions involved in restructuring can only succeed if a close and direct relationship with the customer is maintained. O The need for financing is especially acute for medium scale enterprises, as this market segment currently receives a disproportionately low share of credit relative to its production and needs. o Financial intermediaries tend to make credit decisions based on collateral rather than on projected project profitability or cash flow. The reallocation of productive resources required during the trade reform program will require a more efficient allocation of financial resources to sectors in which Colombia enjoys a comparative and/or a competitive advantage. O The new trade policy regime implies greater levels of risk for financial institutions. Close contact with and knowledge of the industrial sector- are prerequisites for sound risk management.  14 ANNEX I Page 3 of 6 7. IFI's role as a financial institution. IFI's comparative advantages as a financial institution include its knowledge of the industrial sector and its close contact with industrial enterprises; its large size in a relatively small financial sector; and its access to external sources of funds. In its new strategy, IFI's comparative advantages will be related to a more focused financial support business. The historical emphasis on large investments followed by credit support will be replaced by financing of more modest scope in conjunction with other financial institutions. IFI will act mainly as a credit institution, limiting direct investments to venture and seed capital, and will focus on the market segment of medium scale enterprises. Unless otherwise agreed within the context of the Financial Policy Framework of April 2, 1991, IFI will operate as a first tier credit institution. 8. IFI will offer a broad array of financial instruments, in order to provide integrated financial support to industrial enterprises. IFI's financial services will include assistance to determine optimal financial structures, the provision of loans directly or through loan syndication with other intermediaries, underwriting and assistance to find and coordinate the provision of complementary sources of financing, and taking temporary equity positions via minority share participations for the provision of seed/venture capital. 9. IFI will play a catalytic role in financial markets by developing packages of financial instruments and cofinancing arrangements with other institutions to finance individual projects. Thus IFI will stimulate financial sector development by cofinancing and coinvesting, promoting competition, and stimulating financial innovation. 10. In summary, the restructured IFI will focus its financial services on: o the provision of medium and long term credit as a first tier financial institution; o financing new firms, products, technologies, and markets; o helping to finance the industrial restructuring program in Colombia; o evaluation criteria for credit allocation based on project profitability and cash flow; o stimulating financial sector development by underwriting and participating in packages of financing with other financial institutions; o quick and efficient approval and disbursement processes; and o the promotion of competition in the financial sector through a more proactive and market oriented strategy that offers the industrial sector a wider and more attractive set of products and services.  15 ANNEX I Page 4 of 6 Obiectives 11. The basic objectives of a restructured IFI are: o to finance industrial sector development; o to promote financial sector development; o to operate under financial performance criteria equivalent to those of privately owned financial institutions; and o ultimately, as these objectives are met, to privatize part or all of IFI itself. Policies 12. Target market. IFI will initially focus its industrial financing on the market segment of medium scale enterprises (currently estimated as firms with total assets between the equivalent of US$1 million and US$25 million). In addition, within its financial capabilities, it will finance and will prepare financial packages for large scale enterprises. 13. Lendin2 policies. IFI's interest rates will be maintained at commercial market rates, i.e., DTF or TCC (for Pesos) and US PRIME or LIBOR (for Dollars) plus a spread adequate to cover intermediation costs, maturity, risk, and a normal profit. IFI will mainly provide medium and long term credit, as required by the financing needs of the project. IFI will limit its credit exposure to any individual client to ten percent of IFI's equity. Credit evaluation will be based on the project's financial, and if appropriate economic, viability and the cash flow prospects of the enterprise and project, supplemented by appropriate collateral. IFI will offer both local and foreign-currency denominated loans according to the financing needs of individual projects, and will continue to build its letter of credit operations. 14. Investment policies. In accordance with its new strategy, IFI will make equity investments in order to promote industrial development, by playing a catalytic role in the creation, expansion and rehabilitation of new projects. The investment policies will be the following: o an adequate economic *and financial rate of return; o exposure limits of equity and loan financing combined of no more than ten percent of IFI's equity and of equity participation of no more than thirty percent of the total equity of the enterprise; o such investments will require a clear definition of IFI's exit strategy. In any case, the maximum time span of IFI's investments should be around five years or less;  16 ANNEX I Page 5 of 6 o consideration will be given to quasi-equity instruments, such as convertible debentures or subordinated debt with warrants, such that IFI will receive a return on its investment and have the opportunity to benefit from their conversion privileges. o the total of IFI's new investments will be limited to a pool of funds. The pool would initially be the peso equivalent of no more than U$35 million, and future size would be determined by the success overtime of these investments; o priority will be given to projects involving exports, new products, markets, or technologies, as well as syndication and the attraction of foreign direct investment. Nonetheless, the decision for an investment will be determined, essentially, by the economic and financial feasibility of the project. 15. Fee-based business. Fee-based business will be derived from corporate advisory services, restructuring services, and syndication, trust, and other services. 16. Sources of funds. IFI will rely on market sources of funds in local and foreign markets, including inter alia term deposits, credit lines rediscounted through the Banco de la Republica, direct investment through capital markets, bonds, external commercial banks, and bilateral institutions, and will phase out any subsidized sources of funds. Official multilateral sources will be considered a transitional source of funds. 17. Financial performance criteria. IFI's general financial objective will be to generate sufficient earnings and make substantial dividend payments to attract both market sources of funds and private investment, which will eventually allow IFI to attract significant private participation in its capital structure. IFI will develop a concise financial strategy covering the following areas: profitability, liquidity, portfolio management, leverage, and dividend payout policy. Plan of Action 18. In order to achieve its objectives and stated policies, IFI and the Government will implement the following plan of action: Financial restructurinz of IFI: o resolution of IFI's liability for the deficit in the BVC Fund and its transfer of fiduciary responsibility and fund management to a third party; o implementation of the 1991-1994 divestiture program; o establishment of an independent entity, that would receive IFI's shares in Cerro Matoso and Monomeros, and if applicable, also in Alcalis. The structure of this new entity, as well as the mechanism for the transfer of  17 ANtEX I Page 6 of 6 the shares, would be defined and put in place not later than December 31, 1994. This scheme should ensure the financial independence between IFI and these enterprises. It would also allow IFI to fulfill its mandate of being a promoter of new investments, as opposed to an industrial holding company. Operational strengthening: o implementation of new policies and procedures; o design, development, and implementation of new control and management information systems; o reorganization of the internal audit function; o development and implementation of a promotional and marketing strategy. Internal reorganization of IFI: o establishment of the new organizational structure; o development and implementation of a plan to retrain, recruit, and retrench staff. Definition of lonx-term strategv: o IFI will carry out, with the assistance of a merchant or investment bank, an analysis of its role as a publicly owned institution and the alternative ownership structures that could be selected in order to meet the objectives stated in para 11. This analysis should also include the definition of the strategies to implement the possible alternatives proposed. o Based on this analysis, the Goverracent will decide on the ownership structure of IFI and the related plan of action to implement it.  18 PART II: STATISTICAL TABLES Table 1: Summary of Assessment Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual Table 5A: Project Costs Table 5B: Project Financing Table 6: Bank Resources: Staff Inputs Table 7: Bank Resources: Missions Table 8: Status of Legal Covenants Table 9A-J: Key Indicators for Project Implementation  19 Table 1: Summary of Assessments A. Achievement of Obiectives Substantial Partial Negligible Not applicable Macro Policies O E El Sector Policies E E EO Financial Objectives I] [ I] Institutional Development [ E3 El Physical Objectives E E El Poverty Reduction E E El Gender Issues E3 Other Social Objectives E E El Environmental Objectives E E El Public Sector Management E E El Private Sector Development E El El Other (specify) E E El B. Project Sustainabilitv Likely Unlikely Moderately Uncertain (9') (9') (9') Highly Generallv C. Bank Performance satisfactory Satisfactorv Deficient (9') (9') (9') Identification E El Preparation Assistance E El Appraisal E El Supervision E El  20 Highly Generally D. Borrower Performance satisfactorv Satisfactory Deficient (/1) (/) (/) Preparation [ Implementation i: Covenant Compliance E I D Operation (if applicable) Cl E E Highly Partiallv Highly E. Assessment of Outcome satisfactory Satisfactory Unsatisfactorv unsatisfactory (I) El) El)(  21 Table 2: Related Bank Loans/Credits {Year of1 Loan/Credit title Purpose approval j Status Preceding operations Credit line 1984 Closed 06/90 1. DFC IX Sector Investment 1991 Closed 03/98 2. Industrial Restructuring Following Operations 1993 1997 1. Export Development (3608) 2. Finan.Mkts.Dev.T.A. (4196) Table 3: Project Timetable Steps in Project Cycle Date Planned Date actual/latest estimate Identification (Executive Project 1/13/89 Summary) Preparation 26 months 3/6/91 Appraisal 5/91 5/5/91 Negotiations 11/90 12/16/91 Board presentation 1/91 3/24/92 Signing 6/21/93 effectiveness 5/92 9/21/93 Mid-Term Review 01/94 3/97 Project Completion 12/31/97 Loan closing 12/31/97  22 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual I_________ |P FY92 IFY93 FY94 FY95 | FY96 | FY97 FY98 Appraisal estimate 3.0 13.8 41.0 68.7 89.0 96.7 100.0 Actual ~0.0 0.0 5.0 30.26 44.51 Actual as % estimate . Date of Final Disbursement: November 13, 1995 Table 5A: Project Costs Estimated costs Appraisal Estimate (US$M) Actual/latest estimate (US$M) ________ Local Foreign Total Local Foreign Total Credit Program 249.7 161.0 410.7 106.5 70.5 177.0 Technical Assistance 1.7 2.9 4.6 1.4 2.1 3.5 TOTAL 251.4 163.9 415.3 107.9 72.6 180.5 Table 5B: Project Financing I Financing Plan Appr aisal Estimate b(USSM) Actual/latest estimate -US$M) Local Foreign Total Local Foreign Total World Bank Loan 1.1 98.9 100.0 44.5 44.5 IFI Funds 127.1 127.1 35.9 28.1 64.0 BR Rediscount Lines 65.0 65.0 0 Firms'Intemal Funds 123.2 123.2 72.0 72.0 Total 251.4 163.9 415.3 107.9 72.6 180.5 1 Estimated  23 Table 6: Bank Resources: Staff Inputs Planned Revised Actual Stage of Project Cycle Weeks US$ Weeks US$ Weeks US$ Preparation to Appraisal NA 43.6 106.7 Appraisal NA 12.4 32.7 Negotiations through Board Approval NA 8.7 23.4 Supervision 43 102.2 53 132.9 76.3 191.3 Completion NA 4.0 9.4 TOTAL 43 102.2 53 132.9 145 363.5  24 Table 7: Bank Resources: Missions Performance Rating Stage of Project Month/ Number Days in Specialized Implemen- Develop- Types of Cycle Year Of Field Staff skills tation ment problems Persons Represented Status Objectives Through appraisal 1990/91 5 Sr. Econ, Cons., Eng., Sr. Oper. Off. Appraisal through 1991/92 1 Sr. Oper.Off. Board approval Cons., Fin. Supervision 7/93 2 Specialist 1 1 Sr. Oper.Off., 8/94 2 Consultant S S 11/94 1 Sr. Oper.Off. S S 5/95 1 Sr. Oper. Off. U S Sr. Oper.Off, Res. Rep, 04/96 3 Cons. U S Sr. Oper.Off, 02/97 2 Res. Rep. U S Partially Partially Completion Satisfactory Satisfactory  25 Table 8: Status of Legal Covenants COLOMBIA: IFI Restructuring and Divestiture Project (Ln. 3449-CO) Agreement Legal Current status Covenants A. Financial Performance Maintain adequate operational efficiency. Requires an Section 3.05 Complied administrative cost ratio no higher than 1 10% of the ratio of private CFs for 1994 onwards (no higher than 130% for Relevant ratio has been as follows: 1993) 1990: 179% 1994 1991: 2190/o 1995 1992: 132% 1996 87% 1997 92% Make efficient use of the public resources invested in IFI, by Section 3.06 Has not complied providing an adequate return on equity (90% of the ROE of private CFs for 1994 onwards, 60% for 1993) Relevant ratio has been as follows: 1990: N/S 1994 35.5% 1991: 51% 1995 45.2% 1992: 45% 1996 3.1% 1997: 43.9% From 1993 onwards, IFI will not rely anymore on Section 3.07 Complied Government transfers for its new resources (stated as "resort to the financial markets as the only source of domestic Borrowing from BR only 0.5% of assets. funding for its operations) Substantial increase in insurance of bonds. From 1993 onwards, IFI will distribute cash dividends Section 4.04 Complied Dividends made to shareholder (see table 5C) B. Project Execution Implement the Project in accordance with its stated Section 3.01 and Not complied objectives and the Statement of Policy (policy Letter of 5.01 (a) January 7, 1992) New policy in 1994 introduced 2nd tier lending Resolution of the BVC (Bonos de Valor Constante) deficit Sections 4.06, Complied problem. 5.01(d) and The mid-term condition requires that IFI either sell the Schedule 8.4 Debt to Government has been paid off. Proposal assets pledged or constitute a financial reserve (provision) to pay the outstanding BVC debt C. Divestiture of IFI's equity investments Four-year program for divestiture of IFI's non-strategic Section 4.05 Complied substantially: investments (the "B" companies). The minimum As of 12/30/97 15 companies sold, four in (cumulative) number required is 13 companies as of process of liquidation, one written off, one in 12/31/93, 19 as of 12/31/94, and 24 as of 12/31/95. offering process, two not sold due to social impact, and one to be sold after expected improvement in valuation. Divestiture of Alcalis, through sale of IFI's shares or sale of Sections 4.07, Complied: Alcalis' two plants, or (alternatively) irreversible closure and 5.01(b) and liquidation of the two plants. These final goals had to be Schedule 8.5 In final liquidation process reached by December 31, 1994. The mid-term condition requires that one plant be sold or liquidated, and that the remaining investment of IFI in Alcalis be sold (or transferred to a trust fund as an intermediate step for the subsequent sale of it.  26 Agreement Loan Current Status Covenants Development of a strategic plan of viable options for Schedules 2.B.3 Complied: Concesion Salinas which will determine under what and B.2 conditions the combination of restructuring and partial Resolved legal problems concerning the privatization of the venture may be feasible. contract and in the process of passing on the As a mid-term condition: Termination of Concesion Salinas concession to a new legal entity. and of IFI's obligations thereunder, and irreversible transfer of those obligations to a trust fund, all in form and substance satisfactory to the Bank and on the basis of the findings and conclusions of the study(ies) required for the above strategic plan. Divestiture of IFI's shares in CAF Section 4.08 Complied: The investment was divested in mid-1994 through transfer of IFI's shares to the Govemment. Preparation of a strategic analysis of IFI's investment in Section 5.01l Complied: Cerro Matoso, including a review of the alternative and Schedules ownership structures for the company and the appropriate 2.B.4 and 8.1 Shares sold 2/18/97 timing for these alternatives. As a mid-term condition, either: (i) sale of IFI's shares to a private investor, or (ii) Completion of a plan of action for the irreversible transfer (by not later than 12/31/95) of IFI's shares in Cerro Matoso to a trust fund as an intermediate step to the subsequent disposal of such shares, on the basis of the findings and conclusions of the study(ies) required for the above strategic analysis. _ Preparation of a strategic analysis of IFI's investment in Section 5.01l Complied substantially: Monomeros, including an analysis of alternative ownership and Schedules structures for the company. As a mid-term condition, either: 2.B.5 and B.3 Action plan completed, evaluating options (i) sale of Ifi's shares to a private investor or other proposed by A-D. Little and Co. shareholders; or (ii) Completion of a plan of action for the irreversible transfer (by no later than 12/31/95) of IFI's shares in Monomeros to a trust fund as an intermediate step to the subsequent disposal of such shares, on the basis of the findings and conclusions of the study(ies) required for the above strategic analysis. Future role and strategy for IFI: The ultimate goal of the Section 3.03 (D) Not complied: project is to restructure the institution and transform it into a and Schedule Privatization of IFI was not a viable option more efficient financial institution that can compete on an 2.B.6 and as of 1994, IFI operates as first and equal basis in the financial markets and, in the process, second tier lending institution. enhancing competition in such markets and filling gaps in financial services. For the mid-term review, the specific agreement in this respect calls for the development of a strategy for the privatization of IFI, and the subsequent definition, based on this strategy, of an action plan to implement it.  Table 9A IFIRDP: Sub-loans Date of Amount of Balance Spread wrt Sub-project Sub-loan Sub-Borrower Disbursement Loan Outstanding Tenor Grace LIBOR Costs Compliance (US$s) (US$s) years years (US$s) 1 Biofilm Ltd. 07/15/94 $2,191,655.67 $0.00 8 3.0 5 $30,392,073 Satisfactory 2 Hotel Santa Clara 05/03/94 $7,500,000.00 $7,149,999.72 10 3.5 5 $24,869,750 Satisfactory 3 Hotel Valle Real 12/20/93 $245,000.00 $245,000.00 10 3.0 5 $2,029,447 Legal Collection 4 Hotel La Cascada 12/14/94 $1,205,000.00 $1,204,860.26 10 2.0 6.25 $7,047,337 Restructured in 12/96 5 Inversiones Araujo Perdomo 12/22/93 $500,000.00 $125,000.00 5 1.0 4 $7,365,853 Satisfactory 6 Ingenio Pichichi 05/27/94 $2,600,000.00 $2,455,933.34 12 3.0 5.4 $4,387,804 Satisfactory 7 Inhoteles S.A. 05/27/94 $549,000.00 $343,125.00 6 2.0 4.5 $1,012,840 Satisfactory 8 Industrial Colombiana de Llantas 03/15/95 $10,580,744.48 $9,835,549.48 10 3.5 5 $31,352,380 Satisfactory 9 Lab. Gener. Farmac. Gen-Far S.} 06/01/94 $1,260,000.00 $1,074,375.00 10 3.0 5 $3,225,333 Satisfactory 10 Lloreda Grasas 05/11/94 $4,538,000.00 $3,687,125.00 10 2.0 5 $15,430,487 Satisfactory 11 Minipak S.A. 07/19/94 $4,396,802.00 $0.00 10 3.0 6.5 $8,120,000 Satisfactory 12 Monofil Ltd. 05/27/94 $240,000.00 $111,420.00 6 1.0 5.5 $449,015 Legal Collection 13 Materiales de Colombia S.A. 07/28/94 $2,891,200.00 $2,268,000.00 7 3.5 4.4 $9,756,097 Restructured 11/97 14 PapelesyCartonesS.A. 09/23/94 $3,629,352.09 $2,717,913.69 7 2.5 6 $12,225,333 Satisfactory 15 Quimica Internal S.A. 11/02/94 $1,675,000.00 $1,675,000.00 5 2.5 6 $3,372,024 Satisfactory 16 Schalge Lock de Colombia S.A. 10/19/94 $209,200.00 $209,200.00 10 4.0 5 $810,186 Satisfactory 17 Quimica Industrial y Textil S.A. 11/02/94 $937,289.10 $0.00 8 2.5 6.1 $8,368,047 Liquidation 18 Sociedad Hotelera Las Acacias 06/01/94 $2,040,000.00 $2,040,000.00 10 3.0 5 $6,819,512 Legal Collection Total/Average $47,188,243.34 $35,142,501.49 8.6 2.7 5.3 $177,033,518  28 Table 9B IFI: Divestiture Program Date of (millions of pesos) Initial Initial Date of Sales Investment Cost Sale Price I COSEDA 12/06/88 13.2 06/01/91 255.3 2 COPESCOL 10/31/83 227.8 07/01/91 956.2 3 PROVICA 06/23/86 47.1 09/01/91 66.7 4 TEXPINAL 12/30/74 214.8 09/01/91 3,534.3 5 PROCARBON 07/09/82 3.5 09/01/91 9,493.2 6 PRODESAL 05/25/82 377.7 10/01/91 2,164.4 7 FERTICOL 03/03/66 1.3 04/01/92 1.3 8 PENNWALT 11/02/77 81.0 11/01/92 1,222.8 9 FATEXTOL 08/16/88 280.0 02/01/93 540.0 10 FRIGOPESCA 12/29/79 571.2 12/01/94 2,511.6 11 INTELSA 09/17/79 11.9 04/01/95 129.6 12 CONASTIL 05/22/69 1,013.8 01/30/92 1,013.8 13 QUIBI 06/10/88 128.5 04/10/96 578.1 14 Artesanias de Colombia 09/01/68 104.6 Sales delayed due to social impact 15 Cartones de Colomiba 11/01/76 202.0 Delay due to expected better returns 16 PESTOLU 09/01/80 102.6 Offering in process 17 Fondo Nacional de Garantias 03/01/82 6,135.6 Not sold due to involvement with micro-enterprises 18 CATSA 12/01/78 248.1 Firm liquidated in September 1996 19 CORFIPOPULAR 12/01/74 996.9 09/30/93 3,294.7 20 FEDERALTEX 08/01/89 859.3 In process of liquidation 21 Maritimas del Caribe 03/01/89 112.5 In process of liquidation 22 Metales Preciosos del Choco 04/01/86 1.6 Investment written off in June 1994 23 PROCULTURA 06/01/81 5.0 Firm liquidated in December 1996 24 Venezolana de Nitrogeno 09/01/73 213.6 12/01/97 21,243.9 Special Companies 1 Cero Matoso 03/12179 53,765.5 02/18/97 178,492.1 2 Monomeros 12/26/67 42,000.0 Looking at options prescribed by AD Little 3 Alcalis de Colombia Ltda. 08/01/70 2,867.1 In process of liquidation 4 Corporacion Adina de Fomentc 07/01/70 1,471.1 06/01/95 21,777.1 5 Productora de Papeles 08/01/90 29,935.4 Firm being restructured, sale on hold.  29 Table 9C IFI: Balance Sheet (millions of pesos) 1992 1993 1994 1995 1996 1997 Cash & Due from 2,159.1 2,275.7 19,012.1 19,690.5 9,710.4 18,815.9 Interbank Placements 658.6 13,005.0 7,254.6 5,316.5 6,095.1 23,202.4 Investments: Fixed income 6,221.1 29,256.5 26,810.1 34,397.6 83,014.9 104,298.1 Stocks 35,330.5 39,364.8 43,027.2 63,744.7 80,384.6 137,050.3 Market valuation adjustment of stocks 37,083.0 20,863.9 41,827.4 63,629.2 66,524.3 92,870.1 Inflation adjustment 7,657.2 16,687.6 28,554.0 12,118.6 28,438.3 51,071.3 Reserves for losses -6,623.0 -6,098.1 -7,427.8 -12,823.3 -22,476.0 -35,251.1 Total Investments 79,668.8 100,074.7 132,790.9 161,066.8 235,886.1 350,038.7 Loans: Current 178,022.0 324,285.6 448,892.6 763,859.5 980,600.6 1,306,170.9 Past Due 5,513.0 8,246.1 16,202.7 37,709.3 60,331.1 80,554.7 Reserves for loan losses -5,828.0 -11,249.0 -8,676.1 -23,171.9 -24,937.5 -36,573.3 Net Loans 177,707.0 321,282.7 456,419.2 778,396.9 1,015,994.2 1,350,152.3 Fixed Assets: Fixed assets 1,427.0 1,459.4 1,843.2 2,302.8 28,159.9 28,571.3 Inflation adjustment 279.0 665.8 1,137.2 1,691.5 17,588.2 25,525.9 Valuation adjustment of fixed assets 803.0 802.4 2,473.2 31,712.6 20,137.8 18,860.1 Cumulative depreciation -683.0 -1,242.2 -1,908.5 -2,675.0 -3,788.0 -5,005.8 Total fixed assets 1,826.0 1,685.4 3,545.1 33,031.9 62,097.9 67,951.5 Other Assets 41,302.8 62,719.8 140,159.9 177,626.1 200,037.5 228,508.4 TOTAL ASSETS 303,322.3 501,043.3 759,181.8 1,175,128.7 1,529,821.2 2,038,669.2 Deposits: Certificates of deposits 12,544.0 21,106.4 110,128.6 121,762.4 138,819.7 506,554.9 Other deposits 1,487.0 1,451.7 218.3 685.8 276.5 253.0 Total deposits 14,031.0 22,558.1 110,346.9 122,448.2 139,096.2 506,807.9 Purchase of Interbank Funds 2,786.0 402.0 100.0 11,500.0 13,000.0 36,900.0 Borrowed Funds: Banco de la Republica 11,156.0 19,036.4 44,006.5 21,739.4 18,988.3 10,005.3 Other domestic financial institutions 27,371.0 23,426.9 58,022.1 97,865.0 64,703.9 85,903.1 Extemal financial institutions 49,600.8 114,550.6 145,029.1 334,397.9 379,217.7 474,776.9 Total borrowed funds 88,127.8 157,013.9 247,057.7 454,002.3 462,909.9 570,685.3 Bonds 23,122.0 74,015.9 112,674.0 184,899.6 465,320.4 394,187.0 Other Liabilities 22,873.0 42,560.4 42,396.0 75,976.1 84,045.9 81,430.0 Total Liabilities 150,939.8 296,550.3 512,574.6 848,826.2 1,164,372.4 1,590,010.2 Net Worth Common stock & reserves 62,909.0 98,620.1 119,904.5 181,722.4 226,957.7 277,386.5 Valuation adjustments 37,885.0 21,666.3 44,300.6 95,341.8 86,662.1 111,730.2 Inflation adjustment of common stock 17,216.0 40,017.8 57,521.2 37,544.3 50,674.4 48,095.8 Other 17j261.0 16,923.0 15,386.4 0.0 0.0 0.0 Retained eamings 6,714.0 17,111.2 0.0 0.0 0.0 0.0 Net income previous period 10,398.0 10,154.6 9,494.5 11,694.0 1,154.6 11,446.6 Total Net Worth 152,383.0 204,493.0 246,607.2 326,302.5 365,448.8 448,659.1 TOTAL LIABILITIES & NET WORTH 303,322,8 501,043.3 759,181.8 1,175,128.7 1,529,821.2 2,038,669.3  30 Table 9D IFI: Income Statement (millions of pesos) 1992 1993 1994 1995 1996 1997 Interest Income 32,145.3 55,297.1 87,747.2 152,026.9 220,147.4 247,746.4 Interest Expense 9,797.7 25,184.6 53,555.7 120,684.1 169,237.1 196,796.1 Netinterestincome 22,347.6 30,112.5 34,191.5 31,342.8 50,910.3 50,950.3 Less: loan loss provisions 2,232.1 6,619.5 1,546.3 15,689.1 11,756.8 23,252.2 Net interest after provisions 20,115.5 23,493.0 32,645.2 15,653.7 39,153.5 27,698.1 Investment Income Dividends and participations 3,916.4 13,509.2 4,363.0 22,081.6 1,284.1 6,198.9 Netgainsfromsaleofstocks 2,538.0 2,151.7 1,691.2 123,629.5 -451.4 22,006.3 Net valuation adjustment to stocks 0.0 0.0 0.0 7,565.6 9,753.1 7,039.4 Less: provisions for investments 68.7 1,079.9 644.5 4,947.6 8,569.9 12,249.1 Total investment income 6,385.7 14,581.0 5,409.7 148,329.1 2,015.9 22,995.5 Non-interest Income Fees and commissions 1,168.3 747.0 638.4 958.4 909.3 1,693.8 Net Foreign exchange 6,672.0 3,678.7 2,379.5 18,026.7 2,402.1 -4,186.3 Other, net 0.0 0.9 230.5 113.6 122.8 12.6 Total non-interest income 7,840.3 4,426.6 3,248.4 19,098.7 3,434.2 -2,479.9 Non-interest expense Personnel 5,383.3 8,425.6 10,138.1 9,701.5 13,751.9 18,098.4 Other 1,798.2 8,887.6 4,118.5 9,030.7 9,554.6 17,941.7 Total non-interest expense 7,181.5 17,313.2 14,256.6 18,732.2 23,306.5 36,040.1 Other Income and Expenses Net inflation adjustment of P/L 1,951.8 2,349.9 2,595.3 935.0 3,637.3 3,420.2 Other income 4,506.7 3,624.7 8,851.1 9,964.7 26,238.0 37,776.8 Other expenses 8,857.7 3,482.5 2,351.5 142,116.5 14,154.9 13,597.7 Net other income and expenses -2,399.2 2,492.1 9,094.9 -131,216.8 15,720.4 27,599.3 Inflation adjustment to balance sheet -12,111.5 -15,117.4 -24,196.8 -18,535.8 -30,549.0 -21,152.5 Net Income before Taxes 12,649.3 12,562.1 11,944.8 14,596.7 6,468.5 18,620.4 Income Taxes 2,251.5 2,407.5 2,450.3 2,902.7 5,314.0 7,173.7 NET INCOME AFTER TAXES 10,397.8 10,154.6 9,494.5 11,694.0 1,154.5 11,446.7  31 Table 9E IFI: Selected Indicators (percent) 1993 1994 1995 1996 1997 Return on Assets 2.52 1.51 1.21 0.09 0.64 Retum on Equity 5.69 4.21 4.08 0.33 2.81 Interest Income I Assets 13.75 13.93 15.72 16.28 13.89 Interest Expense /Assets 6.26 8.50 12.48 12.51 11.03 Net Interest 7.49 5.43 3.24 3.76 2.86 Non-interest expense I Adjusted income 40.7 34.5 10.2 52.3 74.8 Non-interest expense I Assets 4.30 2.26 1.94 1.72 2.02 Personnel /Adjusted income 19.8 24.5 5.3 30.8 37.5 Reserve to Investments 10.9 10.4 16.9 20.7 18.7 Provision to Investments 1.9 0.9 6.5 7.9 6.5 Reserve to Loans 3.4 1.9 2.9 2.4 2.6 Provision to Loans 2.0 0.3 2.0 1.1 1.7 Reserves ! Overdue Loan payments 136.4 53.5 61.4 41.3 45.4 Overdue Loan payments / Total loans 2.5 3.5 4.7 5.8 5.8 Cash & Funds Sold I Assets 3.0 3.5 2.1 1.0 2.1 Loans ! Liabilities 112.1 90.7 94.4 89.4 87.2 Net Worth I Assets 40.8 32.5 27.8 23.9 22.0 Adjusted Income is net interest and investment income plus other income.  32 Table 9F IFI: Structure of Balance Sheet (percent) 1992 1993 1994 1995 1996 1997 Cash & Due from 0.7 0.5 2.5 1.7 0.6 0.9 Interbank Placements 0.2 2.6 1.0 0.5 0.4 1.1 Investments: Fixed income 2.1 5.8 3.5 2.9 5.4 5.1 Stocks 11.6 7.9 5.7 5.4 5.3 6.7 Market valuation adjustment of stockh 12.2 4.2 5.5 5.4 4.3 4.6 Inflation adjustment 2.5 3.3 3.8 1.0 1.9 2.5 Reserves for losses -2.2 -1.2 -1.0 -1.1 -1.5 -1.7 Total Investments 26.3 20.0 17.5 13.7 15.4 17.2 Loans: Current 58.7 64,7 59.1 65.0 64.1 64.1 Past Due 1.8 1.6 2.1 3.2 3.9 4.0 Reserves for loan losses -1.9 -2.2 -1.1 -2.0 -1.6 -1.8 Net Loans 58.6 64.1 60.1 66.2 66.4 66.2 Fixed Assets: Fixed assets 0.5 0.3 0.2 0.2 1.8 1.4 Inflation adjustment 0.1 0.1 0.1 0.1 1.1 1.3 Valuation adjustment of fixed assets 0.3 0.2 0.3 2.7 1.3 0.9 Cumulative depreciation -0.2 -0.2 -0.3 -0.2 -0.2 -0.2 Total fixed assets 0.6 0.3 0.5 2.8 4.1 3.3 Other Assets 13.6 12.5 18.5 15.1 13.1 11.2 TOTAL ASSETS 100.0 100.0 100.0 100.0 100.0 100.0 Deposits: Certificates of deposits 4.1 4.2 14.5 10.4 9.1 24.8 Other deposits 0.5 0.3 0.0 0.1 0.0 0.0 Total deposits 4.6 4.5 14.5 10.4 9.1 24.9 Purchase of Interbank Funds 0.9 0.1 0.0 1.0 0.8 1.8 Borrowed Funds: Banco de la Republica 3.7 3.8 5.8 1.8 1.2 0.5 Other domestic financial institutions 9.0 4.7 7.6 8.3 4.2 4.2 External financial institutions 16.4 22.9 19.1 28.5 24.8 23.3 Total borrowed funds 29.1 31.3 32.5 38.6 30.3 28.0 Bonds 7.6 14.8 14.8 15.7 30.4 19.3 Other Liabilities 7.5 8.5 5.6 6.5 5.5 4.0 Total Liabilities 49.8 59.2 67.5 72.2 76.1 78.0 Net Worth Common stock & reserves 20.7 19.7 15.8 15.5 14.8 13.6 Valuation adjustments 12.5 4.3 5.8 8.1 5.7 5.5 Inflation adjustment of common stock 5.7 8.0 7.6 3.2 3.3 2.4 Other 5.7 3.4 2.0 0.0 0.0 0.0 Retained earnings 2.2 3.4 0.0 0.0 0.0 0.0 Net income previous period 3.4 2.0 1.3 1.0 0.1 0.6 Total Net Worth 50.2 40.8 32.5 27.8 23.9 22.0 TOTAL LIABILITIES & NET WORTH 100.0 100.0 100.0 100.0 100.0 100.0  33 Table 9G IFI: Balance Sheet (US$ OOOs) 1992 1993 1994 1995 1996 1997 Cash & Due from 2,660 2,481 22,871 19,937 9,659 14,546 Interbank Placements 811 14,177 8,727 5,383 6,063 17,937 Investments: Fixed incqme 7,664 31,893 32,252 34,828 82,575 80,627 Stocks 43,523 42,912 51,761 64,542 79,958 105,947 Market valuation adjustment of stock! 45,682 22,744 50,317 64,425 66,172 71,793 Inflation adjustment 9,433 18,191 34,350 12,270 28,288 39,481 Reserves for losses -8,159 -6,648 -8,935 -12,984 -22,357 -27,251 Total Investments 98,142 109,093 159,745 163,081 234,635 270,597 Loans: Current 219,301 353,510 540,008 773,411 975,402 1,009,733 Past Due 6,791 8,989 19,492 38,181 60,011 62,273 Reserves for loan losses -7,179 -12,263 -10,437 -23,462 -24,805 -28,273 NetLoans 218,913 350,237 549,063 788,130 1,010,608 1,043,733 Fixed Assets: Fixed assets 1,758 1,591 2,217 2,332 28,011 22,087 Inflation adjustment 344 726 1,368 1,713 17,495 19,733 Valuation adjustment of fixed assets 989 875 2,975 32,109 20,031 14,580 Cumulative depreciation -841 -1,354 -2,296 -2,708 -3,768 -3,870 Total fixed assets 2,249 1,837 4,265 33,445 61,769 52,530 Other Assets 50,880 68,372 168,609 179,847 198,977 176,648 TOTAL ASSETS 373,655 546,197 913,279 1,189,823 1,521,710 1,575,990 Deposits: Certificates of deposits 15,453 23,009 132,482 123,285 138,084 391,591 Other deposits 1,832 1,583 263 694 275 196 Total deposits 17,284 24,591 132,745 123,979 138,359 391,787 Purchase of Interbank Funds 3,432 438 120 11,644 12,931 28,525 Borrowed Funds: Banco de la Republica 13,743 20,752 52,939 22,011 18,888 7,735 Other domestic financial institutions 33,718 25,538 69,799 99,089 64,361 66,407 Extemal financial institutions 61,102 124,874 174,467 338,579 377,207 367,026 Total borrowed funds 108,563 171,164 297,205 459,679 460,456 441,167 Bonds 28,483 80,686 135,544 187,212 462,853 304,726 Other Liabilities 28,177 46,396 51,001 76,926 83,600 62,949 Total Liabilities 185,939 323,275 616,616 859,440 1,158,199 1,229,155 Net Worth Common stock & reserves 77,496 107,508 144,243 183,995 225,754 214,433 Valuation adjustments 46,670 23,619 53,293 96,534 86,203 86,373 Inflation adjustmentof common stock 21,208 43,624 69,197 38,014 50,406 37,180 Other 21,263 18,448 18,510 0 0 0 Retained eamings 8,271 18,653 0 0 0 0 Net income previous period 12,809 11,070 11,422 11,840 1,148 8,849 Total Net Worth 187,717 222,922 296,663 330,383 363,511 346,835 TOTAL LIABILITIES & NET WORTH 373,656 546,197 913,279 1,189,823 1,521,710 1,575,990  34 Table 9H IFI: Income Statement (US$ OOOs) 1992 1993 1994 1995 1996 1997 Interest Income 42,337 64,071 103,863 166,545 212,356 217,139 Interest Expense 12,904 29,181 63,392 132,209 163,248 172,483 Net interest income 29,433 34,890 40,471 34,336 49,109 44,656 Less: loan loss provisions 2,940 7,670 1,830 17,187 11,341 20,380 Net interest after provisions 26,493 27,221 38,641 17,149 37,768 24,276 Investment Income Dividends and participations 5,158 15,653 5,164 24,190 1,239 5,433 Net gains from sale of stocks 3,343 2,493 2,002 135,435 -435 19,2138 Net valuation adjustment to stocks 0 0 0 8,288 9,408 6,170 Less: provisions for investments 90 1,251 763 5,420 8,267 10,736 Total investment income 8,410 16,895 6,403 162,494 1,945 20,155 Non-interest Income Fees and commissions 1,539 866 756 1,050 877 1,485 Net Foreign exchange 8,787 4,262 2,817 19,748 2,317 -3,669 Other, net 0 1 273 124 118 11 Total non-interest income 10,326 5,129 3,845 20,923 3,313 -2,174 Non-interest expense Personnel 7,090 9,762 12,000 10,628 13,265 15,862 Other 2,368 10,298 4,875 9,893 9,216 15,725 Total non-interest expense 9,458 20,060 16,875 20,521 22,482 31,588 Other Income and Expenses Net inflation adjustment of PIL 2,571 2,723 3,072 1,024 3,509 2,998 Other income 5,935 4,200 10,477 10,916 25,309 33,110 Other expenses 11,666 4,035 2,783 155,688 13,654 11,918 Netother income and expenses -3,160 2,888 10,765 -143,747 15,164 24,191) Inflation adjustment to balance sheet -15,951 -17,516 -28,641 -20,306 -29,468 -18,53'3 Net Income before Taxes 16,660 14,555 14,139 15,991 6,240 16,320 Income Taxes 2,965 2,789 2,900 3,180 5,126 6,287J NETINCOMEAFTERTAXES 13,694 11,766 11,238 12,811 1,114 10,033  Table 91 IFI: Disbursements 3 5 (millions of pesos) 1994* 1995 1996 1997 First Tier Lending Large Enterprises Domestic currency 39,674.0 147,230.9 105,640.5 156,051.6 Foreign currency 87,379.3 222,909.1 176,307.7 106,841.5 Total First Tier Lending 127,053.3 370,140.0 281,948.2 262,893.1 Second Tier Lending FINURBANO 2,652.0 38,956.0 40,131.0 46,421.8 PROPYME Domestic currency 33,813.0 124,939.0 127,533.0 143,983.5 Foreign currency 0.0 1,654.0 21,528.0 7,852.7 Sub-total 33,813.0 126,593.0 149,061.0 151,836.2 Large Enterprises Domestic currency 0.0 680.0 19,179.0 154,369.4 Foreign currency 0.0 0.0 67,887.0 50,186.7 Sub-total 0.0 680.0 87,066.0 204,556.1 Total Second Tier Lending 36,465.0 166,229.0 276,258.0 402,814.1 TOTAL DISBURSEMENT 163,518.3 536,369.0 558,206.2 665,707.2 (Percent Structure) First Tier Lending Large Enterprises Domestic currency 24.3 27.4 18.9 23.4 Foreign currency 53.4 41.6 31.6 16.0 Total First Tier Lending 77.7 69.0 50.5 39.5 Second Tier Lending FINURBANO 1.6 7.3 7.2 7.0 PROPYME Domestic currency 20.7 23.3 22.8 21.6 Foreign currency 0.0 0.3 3.9 1.2 Sub-total 20.7 23.6 26.7 22.8 Large Enterprises Domestic currency 0.0 0.1 3.4 23.2 Foreign currency 0.0 0.0 12.2 7.5 Sub-total 0.0 0.1 15.6 30.7 Total Second Tier Lending 22.3 31.0 49.5 60.5 TOTAL DISBURSEMENT 100.0 100.0 100.0 100.0 * Data for 1994 refer to the period August - December. NOTE: FINURBANO lending is all in domestic currency.  36 Table 9J IFI: Loan Portfolio Classification (millions of pesos) 1992 1993 1994 1995 1996 1997 Commercial A 151,348.1 268,223.5 380,570.7 655,337.2 859,249.9 1,131,255.2 B 17,166.7 16,441.4 51,420.0 68,775.5 88,006.4 165,813.7 C 10,493.9 31,416.9 728.4 6,826.6 21,723.2 28,075.9 D 386.8 6,556.9 20,993.2 54,119.5 38,338.6 27,066.2 E 2,933.6 2,204.0 6,917.7 12,513.6 29,887.0 31,408.5 Sub-total 182,329.1 324,842.7 460,630.0 797,572.4 1,037,205.1 1,383,619.5 Consumer A 1,106.4 7,510.5 1,869.7 882.3 722.2 1,064.0 B 34.7 56.9 2,304.5 2,464.1 1,980.5 1,087.3 C 11.1 22.8 4.7 30.5 193.4 26.1 D 23.0 37.4 156.7 337.3 67.3 104.5 E 30.8 61.4 129.7 232.2 763.2 824.3 Sub-total 1,206.0 7,689.0 4,465.3 3,946.4 3,726.6 3,106.2 TOTAL 183,535.1 332,531.7 465,095.3 801,518.8 1,040,931.7 1,386,725.7 Percent structure: Commercial A 83.0 82.6 82.6 82.2 82.8 81.8 B 9.4 5.1 11.2 8.6 8.5 12.0 C 5.8 9.7 0.2 0.9 2.1 2.0 D 0.2 2.0 4.6 6.8 3.7 2.0 E 1.6 0.7 1.5 1.6 2.9 2.3 Sub-total 100.0 100.0 100.0 100.0 100.0 100.0 Consumer A 91.7 97.7 41.9 22.4 19.4 34.3 B 2.9 0.7 51.6 62.4 53.1 35.0 C 0.9 0.3 0.1 0.8 5.2 0.8 D 1.9 0.5 3.5 8.5 1.8 3.4 E 2.6 0.8 2.9 5.9 20.5 26.5 Sub-total 100.0 100.0 100.0 100.0 100.0 100.0  Table 9K IFI: Equity Investments in Number of Shares 1992 1993 1994 1995 1996 1997 Number of Shares 1 Aceria Paz del Rio 1,068,600,000 1,398,600,000 2 Agroquimica Colombiana de caldas 202,643 202,643 202,643 550,792 3 Agrozulia 2,939,701 2,939,701 2,939,701 2,939,701 2,939,701 2,939,701 4 Alcalis de Colombia 2,867,211 2,867,211 2,867,211 2,867,211 2,867,211 2,867,211 5 Artesanias de Colombia 1,830,980 1,830,980 1,830,980 1,830,980 10,462,907 10,462,907 6 Banco de Comercio Exterior 8,834,645 8,834,645 8,834,645 7 Cales y derivados de la Sierra 562,853,708 8 Carbones de Colombia 2,039,465 201,996 201,996 201,996 201,996 201,996 9 Carbones del Valle y del Cauca 1,022,044 1,022,044 1,022,044 10 Centro de Ferias y Exposiciones Bucaramanga 42,800 51,578 74,284 74,284 11 Cerromatoso 5,512,803 5,512,803 5,512,803 12 Citricos de Colombia 9,910 9,910 9,910 9,910 13 Colombiana de Minas 22,499 22,499 14 Comercializadora intemacional frigopesca 4,874,433 5,708,109 15 Complejo Agroindustral del Tolima 4,982,015 4,982,015 4,982,015 4,982,015 16 Complejo Metalurgico Colombiano 40,000 17 Corporacion Financiera de Desarrollo SA 15,183,107 18 Cosechar 11,954 19 Deposito Centralizado de Valores de Colombia 43 43 43 20 El Gavilan 1,019,142 1,174,383 1,243,383 1,563,383 21 Empresa Col de Prod. y Dist. de Bienes Cultural. 5,000 5,000 5,000 5,000 22 Empresa Colombiana Pesquera Tolu 1,026,202 1,026,202 1,026,202 1,026,202 1,026,202 23 Empresa Desarrollo de Sugamuxi 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 24 Fabrica de Textiles del Tolima 208,001 25 Federacion de Textileros 699,976 762,446 762,446 762,446 762,446 762,446 26 Ferrominera 2,197,199 2,197,199 27 Financiera America 13,433,507,062 28 Financiera Leasing Colvalores 2,544,790 29 Finansol SA Compania de Financiamiento 3,444,387,030 30 Fondo de Desarrollo Santander 100,272,727 100,272,727 100,272,727 100,272,727 100,272,727 100,272,727  Table 9K IFI: Equity Investments in Number of Shares 1992 1993 1994 1995 1996 1997 Number of Shares 31 Fondo Nacional de Garantias 15,487 577,639 577,639 1,019,369 32 Frutas del tropico 45,000 45,000 1,024,346 1,209,647 2,009,647 33 Generar S.A. E.S.P, 3,145,747 34 Industria de Telecomunicaciones 7,853 7,853 7,853 35 Instituto de Capacitacion Empresarial 5,000 36 Inversiones Agroindustriales del Gran caldas 684,615 684,615 37 Leasing de Desarrollo Industrial IFlleasing 3,106,890 3,519,258 4,303,698 38 Maritimas del Caribe 112,500 112,500 112,500 112,500 112,500 112,500 39 Metales preciosos del Choco 1,560 1,560 40 Metalugica Construcel Colombia 405,000 41 Minerales de Colombia 270 270 270 270 270 270 42 Monomeros colombo Venezolanos 272,153 538,233,421 538,233,421 20,000 538,253,421 43 Operadora de la Zona Franca Pozos Colorados 10,050 10,050 10,050 10,050 10,050 44 Productora de Papeles 30,844,910 30,844,910 20,844,910 45 Promotora de empresas agroexportadoras 40,500 40,500 40,500 46 Promotora de inversiones del Tolima 36,000 36,000 36,000 36,000 36,000 36,000 47 Promotora de Inversiones del Valle del Cauca 63,800 63,800 48 Promotora Papelera 69,172 69,172 49 Promotora de Proyectos 62,200 138,662 138,662 252,816 252,816 252,816 50 Promotora de Proyectos De Inv. del Atlantico 420,000 420,000 420,000 420,000 420,000 420,000 51 Promotora Industrial Cokosilk 1,159,420 1,269,546 1,269,546 1,269,546 52 Pryectos de lnfraestructura 15,000 1,983,900 1,983,900 1,983,900 3,474,914 53 Quibi 12,847,611 12,847,611 12,847,611 12,847,611 54 Sedas del Cauca 53,954 53,954 55 Setas de Colombia 15,000,000 15,000,000 18,324,320 23,914,227 23,914,227 29,913,825 56 Sociedad Colombiana de Transporte Ferrovario 2,307,694 57 Sociedad Fiduciaria Industrial Fiduifi 10,759 17,034 26,005 58 Sociedad Transporte Multimodal del Rio Gde 15,000 15,000 15,000 15,000 59 Venezolana de Nitrogeno 30,000 30,000 30,000 30,000 30,000  APPENDIX A BORROWER CONTRIBUTION TO THE ICR  WJN STRIO DE DISEROLLO ECONOMICO ,FNSTITUTO fDE FOMENTO = INDUSTRIAL DE54RROO EMPRESAWAL PAR0 TOS Introducci6n Durante los anios 1991 y 1992 la Naci6n de Colombia y el IFI adelantaron los tramites necesarios para contratar un credito con el Banco Mundial por US$100 millones. (Cien millones de d6lares). El contrato de credito fue firmado el 21 de junio de 1993, bajo el numero 3449-CO y denominado IFI Restructuring and Divestiture Project (Proyecto de reestructuraci6n y desinversiones del IFI). Este credito fue avalado por la Naci6n, segun Resoluci6n del Ministerio de Hacienda y Credito Piblico No. 71 del 3 de junio de 1993. Las siguientes fueron las condiciones de credito: Prestatario: Instituto de Fomento Industrial con el aval de la Republica de Colombia Monto: US$100 millones Plazo maximo 17 anfos con 5 afnos de gracia. Comisi6n de compromiso: 3/4 del 1% anual sobre el monto principal del prestamo no desembolsado. Divisa: Canasta de Monedas (US$, Marcos y Yenes) Adicionalmente, se establecieron unas condiciones generales que debian ser cumplidas por el Instituto, con el fin de proceder a efectuar los desembolsos correspondientes del credito. El desarrollo del credito estuvo enmarcado por la realizaci6n de dos tramos, con el prop6sito de lograr los objetivos planteados. De esta forma se estableci6 el Tramo A, orientado a satisfacer las necesidades de credito del sector productivo y el Tramo B, orientado a la reestructuraci6n interna del IFI. Durante el Tramo A del credito se efectu6 la financiaci6n de 18 proyectos de desarrollo especificos a traves de sub-prestamos a empresas privadas de producci6n para financiar el componente importado de inversiones en maquinaria y equipo, repuestos, construcci6n y/o rehabilitaci6n de instalaciones industriales (excluyendo tierras) y capital de trabajo relacionado. El total comprometido en este tramo ascendi6 a US$ 47 millones. En cuanto a las actividades adelantadas durante el Tramo B, se habia previsto como condici6n de desembolso una revisi6n del adelanto en los compromisos y condicionalidades establecidas para el segundo desembolso. Es asi como el componente de desinversi6n, que hacia parte de las condicionalidades, fue muy dinamico durante 1991 y 1992. Sin embargo, para los siguientes afios las metas establecidas no fueron alcanzadas, ya que este comportamiento se debi6 a que dichas condiciones, que se comprometi6 a cumplir el IFI durante los afios 1990 a 1993, fueron establecidas bajo esquemas y parametros que cambiaron de manera Implementation Completetion Report Credito 3449-CO  MINISTERIO DE DESARROLLO ECONOMICO w INSTITUTO DE FOMENTO UINDSTRIAL DESARROLLO EMPRESARIAL PARA TODOS 2 fundamental en los afios posteriores. El Gobierno de esa epoca reflej6 la orientaci6n general que se le queria dar en el mediano plazo al IFI, definiendo un plan de acci6n para la reestructuraci6n financiera, administrativa y operacional y la implementaci6n de una estrategia de largo plazo, segun la cual el gobierno decidiria sobre la estructura y propiedad del IFI. Sin embargo en 1994, al presentarse el cambio de gobierno, las politicas gubernamentales consideraron al IFI como instrumento esencial para el desarrollo y ejecuci6n de las mismas, ya que seria un aliado estrategico en el programa de generaci6n de empleo. Por tal motivo, se decidi6 que el Instituto tuviera un proceso de transformaci6n que se caracterizara por la reorientaci6n de las politicas crediticias y de inversi6n con el fin de adaptarlas a los compromisos asumidos por el Modelo Alternativo de Desarrollo Social. Con el fin de poder acceder al Tramo B del credito se procedi6 a la evaluaci6n de cumplimiento de los compromisos adquiridos en el Tramo A y a la revisi6n de las condicionalidades a partir de 1996. Es asi como se trabajo conjuntamente con el Banco el documento sobre la Politica del Instituto de Fomento Industrial, el cual reflejaria las nuevas condicionalidades establecidas para el TRAMO B. Finalmente, La Junta Directiva en su deliberaci6n sobre el particular el 27 de noviembre de 1997, mantuvo la posici6n de conservar una composici6n de 40% credito directo y 60% cr6dito de redescuento, de tal forma que conlleve al cumplimiento de los objetivos de democratizacion y descentralizaci6n del credito y al mismo tiempo, le permitan al IFI operar con eficiencia y rentabilidad financiera, por lo que se decidi6 no acceder al segundo tramo de la linea de credito, al no poder cumplir las condicionalidades establecidas.. 1. EVALUACION DE LOS OBJETIVOS Objetivos del proyecto. Los recursos de credito estaban orientados a desarrollar un proyecto cuyos objetivos eran los siguientes: * Proveer financiaci6n a los mecanismos y recursos productivos en Colombia que contribuirian al desarrollo economico y social del pais. * Ejecutar un programa de venta y privatizaci6n de las tenencias de capital existentes del Prestatario, incluyendo el desarrollo y ejecucion de planes individuales de reestructuraci6n y venta * Sustentar la ejecuci6n de la nueva estrategia empresarial para el prestatario, la cual reorientaria su papel en el desarrollo del sector industrial y financiero transformandolo en una instituci6n financiera mas eficiente que pudiera competir en iguales condiciones en los mercados financieros y, en el proceso, aumentando la competencia en dichos mercados y Ilenando los Implementation Completetion Report Cr6dito 3449-CO  MNISTERIO DE DESARROLLO ECONOMICO I _ INSTITUTO 'ffDEFOMENTO INDUSTRIAL DESARROLLO EMPRESARIAL PAPA TOWS 3 vacios en los servicios financieros necesarios para sustentar inversiones compatibles con la liberalizaci6n de la economia. Se consider6 que el proyecto se dividiera en dos tramos y para lograrlo se plantearon los siguientes tramos: TRAMO A: Orientado a satisfacer necesidades de credito del sector productivo a traves de la financiaci6n de proyectos de desarrollo especificos a traves de sub-prestamos a empresas privadas de producci6n para financiar el componente importado de inversiones en maquinaria y equipo, repuestos, construcci6n y/o rehabilitaci6n de instalaciones industriales (excluyendo tierras) y capital de trabajo relacionado. Este tramo se llev6 a cabo entre junio de 1993 y octubre de 1995, para un total de desembolsos de US$ 47 millones a traves de 18 sub-pr6stamos. La implementaci6n de este componente se dio con bastante agilidad y sin mayores contratiempos. Los 18 sub-prestamos desembolsados se concentran principalmente en los sectores manufacturero y de turismo de la siguiente forma: 5 empresas pertenecientes a hoteles y restaurantes, 4 empresas pertenecientes al sector de fabricaci6n de quimicos y cauchos, 3 empresas a la fabricaci6n de productos textiles, 2 empresas pertenecientes a la elaboraci6n de productos alimenticios, 1 a la fabricaci6n de productos minerales, 1 a la fabricaci6n de papel y sus productos y 1 a la prestaci6n de servicios. Dichos creditos se destinaron a la reestructuraci6n y expansi6n de empresas existentes, especificamente para inversi6n en activos fijos (ver Anexo No. 1). El tamafno de las empresas financiadas, al igual que el de los prestamos otorgados varia considerablemente. El rango de tamanio de empresa (medido por total de activos en libros) va de US$ 1,3 millones a US$ 200 millones. Los prestamos financiados bajo la linea abarcan desde US$209.000 a US$ 10 millones (el maximo permitido). TRAMO B : Orientado a la reestructuraci6n interna del IFI. Su desarrollo establecia el desarrollo de un plan estrategico de opciones viables para Concesi6n Salinas, el cual determinara bajo que condiciones puede ser factible la combinaci6n de reestructuraci6n y privatizaci6n parcial de la empresa; la preparaci6n de un analisis estrategico de la inversi6n en CERROMATOSO, incluyendo una revisi6n de las estructuras alternas de propiedad para la compaiiia y el tiempo apropiado para estas alternativas; la preparaci6n de un analisis estrategico de las tenencias del Prestatario en MON6MEROS COLOMBO-VENEZOLANOS y un analisis de estructuras alternas de propiedad; el desarrollo de una estrategia para la privatizaci6n del Prestatario; la ejecuci6n de nuevas politicas, procedimientos y controles para la operaci6n del Prestatario, incluyendo la ejecuci6n de un sistemas de control de calidad organizacional para todos los aspectos de la gerencia del Prestatario y la adquisici6n de equipo necesario para Ilevar a cabo el disefno y la ejecuci6n de los sistemas de informaci6n y contrataci6n de servicios de consultores para todos las anteriores actividades, incluyendo la ejecuci6n de estudios para las mismas. Implementation Completetion Report Credito 3449-CO  MNISTERIO DE DESARROLLO ECONOMICO INSnTUTO DE FOMENTO INDUSTRMAL DESARROUO EMPRESARIAL PAM TODOS 4 Con el prop6sito de desarrollo un plan estrategico de opciones viables para Concesi6n Salinas, se adelantaron varias acciones tendientes a la creaci6n de SAMA (Salinas de Manaure) Sociedad Mixta, con participaci6n de los indigenas Wayuu, para la explotaci6n de las salinas de Manaure, utilizando la infraestructura de la Concesi6n de Salinas. En cuanto a la participaci6n de capital privado de la sociedad SAMA, se cuenta con la aprobaci6n de las sociedades privadas "Navesco S.A.", "Sales de la Guajira", y "Recursos de la Guajira". Con respecto al proceso de venta de Cerromatoso, para cancelar obligaciones con la Naci6n en junio de 1995 el Instituto le transfiri6 y esta recibi6 el dominio sobre los derechos fiduciarios que constituy6 el Instituto sobre la participaci6n accionaria que este tenia en Cerromatoso S.A. (47,70%) y Mon6meros Colombo Venezolanos (33,44%). Igualmente, las acciones que el IFI poseia en la Corporaci6n Andina de Fomento - CAF, por valor de $21.77,1 millones. El objeto de la Fiducia era la administraci6n y tenencia de los activos y la venta a terceros de los mismos, para con su producto cancelar la deuda vigente. Adicionalmente, en el contrato de Fiducia se convino que los recursos obtenidos con la venta de los activos que excediera el monto de las obligaciones serian retornados al Instituto. Es asi como la fiducia en el anio 1996, vendi6 128.111 acciones de Cerromatoso que equivalen al 1,1% del capital. Dicha venta se realiz6 a un precio de $32.610,0 por acci6n arrojando una utilidad de $556,8 millones. Por tal motivo, el Instituto en 1996 registr6 esta suma como disminuci6n de la deuda del deficit de bonos de valor constante y un menor valor de la provisi6n. De otro lado, el dia 18 de febrero de 1997, se efectu6 la venta de las 5.384.692 acciones restantes por valor de $178.492,1 millones a raz6n de $33.148,07 por acci6n generando una utilidad de $19.186,0 millones y las acciones de Mon6meros Colombo-Venezolanos fueron transferidas nuevamente por la Fiducia al IFI, quedando por liquidar el contrato de fiducia. Finalmente, pendiente de liquidaci6n se encuentran las comisiones pagaderas a la Banca de Inversi6n y los gastos inherentes a la venta de las acciones de Cerromatoso. La deuda por Bonos de Valor Constante a la Naci6n qued6 debidamente cancelada en febrero 20 de 1997. A partir de 1993 el prestatario recurrira a los mercados financieros como unica fuente de financiaci6n domestica de sus operaciones, con la excepci6n de las fuentes de fondos actualmente existentes destinados para fines especificos, hasta que los mismos sean paulatinamente eliminados. El IFI ha incursionado en el mercado internacional de capitales, es asi como en 1995 se inici6 la emisi6n de un credito sindicado por US$50 millones. Esta operaci6n culmin6 exitosamente en Septiembre, con una colocaci6n final de US$75 millones, con participaci6n de las siguientes entidades: Santander Investment Bank Limited, como Arranger y Agente, el Dresdner Bank Luxembourg S.A., como Co-Agente, al igual que Fuji Bank, Uni6n de Bancos Suizos, y el West Implementation Completetion Report Credito 3449-CO  MINISTERIO DC DESAMOOUO ECONOMICO I- INSTITUTO ffDE OMENTO X INDUSTRIAL DISARROLLO JMPRESARIAL PARA TODOS 5 LB, como Managers el Banco Exterior de Espafla, el Beerliner Bank AG y el DG Bank y como co- manager el Orix USA Corporation. Adicionalmente se realiz6 en julio de 1996 la emisi6n de las Euronotas de Mediano Plazo por valor de US$125 millones. La operaci6n fue liderada por la Uni6n de Bancos Suizos, con participaci6n de Merry Linch, Citibank, Banco Santander, Banker Trust, Dresdner Bank, ING Barings y CS First Boston. El prestatario acordara con el Banco vender las acciones en el capital social u otra participaci6n de capital en las Companias que se han determinado en el Grupo B, (Anexo 1) en las siguientes fechas: 13 a 31 de diciembre de 1993, 19 a 31 de diciembre de 1994 y 24 a 31 de diciembre de 1995. A diciembre de 1995, el IFI poseia inversi6n en 34 empresas, por un valor de $76.285 millones. De estas inversiones, 20 empresas se encuentran en operacion, 6 en preoperaci6n, 4 en liquidaci6n y 4 en concordato. El 63,67% de dichas inversiones se realiz6 en el sector manufacturero, 27,31% en establecimientos financieros, 4,39% en el sector servicios, 1,91% en el sector transporte y el restante 2,72% a otros sectores. Del total de 24 empresas del Grupo B, 15 fueron vendidas, Colombo-Coreana de Seda S.A., Companifa Pesquera Colombiana S:A., Companfa Colombiana de Astilleros S.A., Corporaci6n Financiera Popular S.A., Fabrica de Textiles del Tolima S.A., Fertilizantes Colombianos S.A., Industria Quimica Penwalt S.A., Productora de Vinos Colombo Argentina S.A., Textiles Espinal S.A., Productora de Derivados de la Sal S.A., Procarb6n de Occidente S.A., Quibi S.A., Catsa S.A. y Frigopesca S.A.; 1 tiene castigo contable, Metales Preciosos del Choc6 S.A.; 1 se encuentra en proceso de liquidaci6n, Maritimas del Caribe; 5 serian "invendibles" y se encuentran provisionadas, Artesanias de Colombia S.A., Procultura S.A., Carbones de Colombia S.A., Pestolu S.A. y Federaltex S.A.; 1 en "stand by", Venezolana de Nitr6geno C.A. y 1 que se decidi6 no venderse, Fondo Nacional de Garantias. Implementation Completetion Report Credito 3449-CO  MINISTEtIO DE DEsARROLO ECONOMICO INSTITUTO NUDE FOMENTO ME I XNDUSTRIAL DESARROLLO IMPRESARIAL PAPA TO D O 6 2. LOGRO DE LOS OBJETIVOS Resumen de Evaluaci6n del Credito (*) Logro de los Objetivos Considerable Parcial Insignificante No aplicable Politicas-Macroecon6micas |___|==___I___ x Poifticas Sectoriales( 1) X Objetivos Financieros(2) X Desarrollo Institucional(2) X Objetivos Fisicos X Reducci6n de la Pobreza X Generaci6n de Ventas X Otros Objetivos Sociales _____ X Objetivos Ambientales X Manejo Sector Publico X Desarrollo Sector Privado(3) X Otros (*) No incluye evaluaci6n sobre los sub-pr6stamos. (1) Sector Industrial Colombiano (2) Instituto de Fomento Industrial (3) Sector Financiero e Industrial Colombiano 3. FACTORES QUE AFECTARON EL PROYECTO Los componentes del proyecto se vieron afectados por los siguientes factores: TRAMO A: * La necesidad de ajustar la tasa de interes de los sub-prestamos, con el prop6sito de que reflejara adecuadamente las condiciones de mercado, lo que retras6 en algunas ocasiones el desembolso de los mismos. * La apertura econ6mica que se habia previsto desarrollar en un periodo de 4 aflos, se realiz6 en I afno, lo que signific6 cambios radicales en algunas empresas, lo que afect6 el desembolso de los sub-prestamos. Implementation Completetion Report Credito 3449-CO  MSTE ODE DESAROLLO ECONOMICO gu_ INSTITUTO gXDE fOMENTO DISIOLO BMPESARiAL PARA TODOS 7 TRAMO B: * La interpretaci6n y reglamentaci6n del articulo 60 de la nueva Constituci6n Politica de 1991 que impuso a las entidades del Estado la obligaci6n, en procesos de privatizaci6n de empresas, de ofrecer inicialmente a los trabajadores y grupos solidarios dichas propiedades en condiciones preferenciales. * La redefinici6n del papel del Banco de la Republica por la Constituci6n Politica de Colombia, lo que restringi6 su funci6n de banco de segundo piso, la cual se traslado al Instituto de Fomento Industrial. * La orientaci6n que el actual gobierno en su Plan Nacional de Desarrollo "El Salto Social", le dio al Instituto, al denominarlo "el instrumento esencial para el fomento del desarrollo industrial y convertirlo en la cabeza del financiamiento industrial". Dicha orientaci6n dio origen a la transformaci6n del Instituto en banco de segundo piso, dando prelaci6n al otorgamiento de las lineas de credito de mediano y largo plazo y democratizando el credito dirigido a las micro, pequeflas y medianas empresas. * El Plan Nacional para la Microempresa, Documento CONPES 2732 del 21 de Septiembre de 1994, contempl6 el fortalecimiento del programa en marcha para la atenci6n a la Pequeina y Mediana Empresa -PROPYME-, asignandole un presupuesto de desembolsos de $600.000 millones para el periodo 1994-1998 y estableci6 el programa crediticio para la microempresa, a traves de FINURBANO (sistema de financiamiento para el sector), con un presupuesto igual de $600.000 millones para el mismo cuatrienio. La responsabilidad de adelantar estos programas se le asign6 al IFI. * Con respecto a las inversiones de capital de riesgo, el Plan Nacional de Desarrollo determin6 que el IFI, deberia dar prioridad a inversiones en empresas industriales y en el desarrollo de canales de comercializaci6n internacional. Las inversiones en empresas manufactureras estaran orientadas hacia aquellas que tengan ventajas estrategicas para el desarrollo industrial del pais, empresas con contenido tecnol6gico, empresas que contribuyan a consolidar las cadenas productivas existentes, generando encadenamientos o externalidades especiales que aumenten la competitividad de las empresas en operaci6n. * La Junta Directiva en su deliberaci6n sobre el tema relacionado con el Plan de Transici6n de Banco de Primer Piso a Banco de Segundo Piso del Instituto, mantuvo la posici6n de conservar una composicion de 40% credito directo y 60% credito de redescuento, de tal forma que conlleve al cumplimiento de los objetivos de democratizaci6n y descentralizaci6n del credito y al mismo tiempo, le permitan al IFI operar con eficiencia y rentabilidad financiera. Dicha composici6n debera ser permanente en el tiempo, sin condicionamientos cualitativos tanto de credito como de inversiones de capital de riesgo. Sin embargo, se enfatiz6 sobre la necesidad de que los creditos de primer piso fueran analizados cuidadosamente para asegurar que sean "bancables" y Implementation Completetion Report Credito 3449-CO  MINISTERIO DE DESARROLLO ECONOMICO -3 INSTITUTO NUDE FOMENTO ENX INDUSTRIAL DESARROUO EMPRESARIAL PARA TOWS 8 manifest6 que las inversiones que realice el IFI deben ser rentables dentro del enfoque de sostenibilidad con criterio social, aceptando los indicadores de eficiencia y eficacia de acuerdo con los estandares internacionales para una banca estatal. 4. CUMPLIMIENTO DEL BANCO Altamente Satisfactorio Satisfactorio Deficiente Identificaci6n X _ Asistencia en la Preparaci6n X _L _ Evaluaci6n X _ Supervisi6n X _ 5. CUMIPLIMIENTO DEL PRESTATARIO Altamente Satisfactorio Satisfactorio Deficiente Preparaci6n X Implementaci6n X Cumplimiento del contrato X Operaci6n X 6. EVALUACION DE LOS RESULTADOS Altamente Satisfactorio Satisfactorio Deficien Implementation Completetion Report Credito 3449-CO  MJNSTRIO DE DESARROLLO ECONOMICO IN5TITUTO ffXDE rOMENTO INDUSTRIAL DESARRLO WESARZAL MM TOO ANEXO No.1 SUB- PRESTAMOS LINEA 3449-CO EMPRESA VALOR VALOR SECTOR ECONOMICO SECTOR PRESTAMO EN PRESTAMO EN GEOGRAFICO US$ COL$ BIOFILM LTDA. 2.191.655,67 2.820.923.845,97 QUIMICOS Y CAUCHOS CARTAGENA HOTEL SANTA CLARA 7.500.000,00 9.653.400.000,00 HOTELES Y RESTAURANTES BOGOTA HOTEL VALLE REAL 245.000,00 315.344.400,00 HOTELES Y RESTAURANTES CALI HOTEL LA CASCADA 1.205.000,00 1.550.979.600,00 HOTELES Y RESTAURANTES ARMENIA INVERSIONES ARAUJO PERDOMO 500.000,00 643.560.000,00 SERVICIOS A EMPRESAS CARTAGENA INGENIO PICHICHI 2.600.000,00 3.346.512.000,00 PROD. ALIMENTICIOS CALI INHOTELES S.A. 549.000,00 706.628.880,00 HOTELES Y RESTAURANTES MEDELLIN INDUSTRIA COLOMBIANA DE LLANTAS 10.580.744,48 13.618.687.835,10 QUIMICOS Y CAUCHOS BOGOTA LAB.GENER.FARMAC. GEN-FAR S.A. 1.260.000,00 1.621.771.200,00 PROD. TEXTILES BOGOTA LLOREDA GRASAS 4.538.000,00 5.840.950.560,00 PROD. ALIMENTICIOS CALI MINIPAK S.A. 4.396.802,00 5.659.211.790,24 QUIMICOS Y CAUCHOS BOGOTA MONOFIL S.A. 240.000,00 308.908.800,00 QUIMICOS Y CAUCHOS BOGOTA MATERIALES DE COLOMBIA S.A. 2.891.200,00 3.721.321.344,00 FAB.PROD. MINERALES BOGOTA PAPELES Y CARTONES S.A. 3.629.352,09 4.671.411.662,08 PAPEL Y SUS PRODUCTOS MEDELLIN QUIMICA INTERNAL S.A. QUINTAL 1.675.000,00 2.155.926.000,00 PROD. TEXTILES BARRANQUILLA SCHLAGE LOCK DE COLOMBIA S.A. 209.200,00 269.265.504,00 MAQUINARIA Y EQUIPO BOGOTA QUIMICA INDUSTRIAL Y TEXTIL S.A. 937.289.,10 1.206.403.546,39 PROD. TEXTILES BOGOTA SOCIEDAD HOTELERA LAS ACACIAS 2.40.000,00 2.625.724.800,00 HOTELES Y RESTAURANTES BOGOTA 47.188.243,34 60.736.931.767,78 Implementation Completetion Report Credito 3449-CO