How do Development Finance Institutions Add Value:

CAF’s Experience

Vice-president of Corporate Finance and Investment Banking

October 21st 2008

Content

1. CAF’s approach to CG2. Illustrative cases 3. Summary and Next Steps

CAF

CAF is a multilateral financial institution with 17 member countries and 15 private banks throughout Latin America, the Caribbean and Europe. Constituted in 1968, CAF

supports the sustainable development and regional integration of its shareholders

1990 2008

• Bolivia

• Colombia

• Ecuador

• Perú

• Venezuela

• Argentina

• Brasil

• Costa Rica

• Chile

• Jamaica

• México

• Panamá

• Paraguay

• Rep. Dominicana

• Trinidad y Tobago

• Uruguay

• España• Letter of Intent (Guatemala & Italy)

• As de Development Financial Institution it has recognized Good Corporate Governance Practices as a critical factor of institutional quality critical for competitiveness (as is recognized by the World Development Report)

• Improves the competitiveness of enterprises though risk reduction by: Channelling more financial resources and in better conditions Establishing better contracts and for longer terms with all stakeholders

• Improves the competitiveness of the economy in general by: Its effect on the development of Capital an Financial markets: Potential

increase in investment levels and reduction of systemic crisis (transparency, lower costs and lower risks)

Improves supervision and regulation in sectors/industries that require them.

CAF’s approach to CG

CAF approach to CG: Technical cooperation programs

• It started with a program (Kemmerer) that began in 2003 and whose objective was to contribute to strengthen regulatory and supervising units of banks, insurance companies, pension funds and brokerage companies of its shareholder countries.

• It main activities were oriented to the: Improvement of quality and quantity of issuers. Improvement in the performance of capital markets. Integration of stock markets. Promotion of the development of new financial instruments

• It lead to the creation of a specific Program for the promotion of Good Corporate Governance Practices

• Considering the linkages between good corporate governance and access to capital, company performance and sustainable economic development, improving corporate governance practices has become an important element of the development mission of CAF.

Current activities include:• Documents: i) ‘Andean Code’, ii) Introduction to CG for enterprises, iii) CG for

closed and family enterprises• Tools: Auto evaluation software on CG practices• Promotion: Sponsoring and participation in over 30 events on the topic of CG in

the region• Sponsoring of the Peruvian and the Colombian Codes• Co- financing the implementation of good CG practices in more than 15

enterprises of different kinds • Organization of workshops for over 90 consultants in the Andean countries on

principles and methodologies for the implementation of good CG practices• First study on the measurement of CG practices in the Andean region.

More information at http://gc.caf.com

CAF’s Corporate Governance Program

Adding to its activities directed as contributions to the sustainable development of the member countries, it is clear that the promotion of good corporate governance practices among its clients:

• Reduces investment risks

• Is an opportunity for adding value

• Helps avoiding reputational risk

For that reason CAF has been involved from the beginning in the development and signature of the Approach Statement and is currently working on its implementation

CAF’s approach to CG: beyond TC

illustrative cases

- Graña y Montero Group (Listed Company - Peru)

- EMCALI (State Owned Enterprise - Colombia)

- Petroperú (State Owned Enterprise - Peru)

- La Fabril (100% Family Owned Company - Ecuador)

- Transredes (State Owned Enterprise - Bolivia)

Graña y Montero Group (Listed Company - Peru)

Fuel reception and storage Oil well drilling

Information TechnologyOutsourcing

Engineering projectsEnvironmental studies

Toll administration, highwaysand parking lots

Housing Projects

Holding Company

• Founded in 1933 is the oldest and biggest construction company in the country, currently it has diversified its scope of activities and has operations in 4 different countries in Latin America.

• On 2004 the company decided to improve its Corporate Governance practices.

• The implementation was part of a Technical Cooperation Program sponsored by CAF and the analysis was based on the Guidelines for an Andean Code on Corporate Governance developed by CAF.

Guidelines for the Holding:1. Creation of the Investors Relation Department 2. Statutes were modified to:

• Create 2 Board Committees: Auditing and Remunerations • Include a majority of Independent Board Members

3. Conflict of interest declaration by Board Members 4. New Role of the Board of Directors 5. Annual Corporate Governance Report

Guidelines for the Subsidiaries:1. Independent Board Members in the Subsidiaries Board of Directors2. Board of Directors Auto evaluation3. Standardization of information through Directory Boards and General

Shareholder Meeting 4. Role of Directory Boards and formalization of General Shareholder

Meeting Agenda

Graña y Montero Group (Listed Company - Peru)

Graña y Montero: Stock Evolution

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Corporate Governance Implementation: May 2005

EMCALI (State Owned Enterprise -Colombia)

• EMCALI is the utility service company responsible of theprovision of Light & Power, Water & Sewage and Telecomto a south western region of Colombia, serving over half amillion families.

• EMCALI is owned by the Municipality of CALI.

• On April 2000, due to cumulated losses, theSuperintendence of Public Services ordered itsintervention.

• As part of management efforts to strengthen theorganization, and facing its return to the Municipality’scontrol, EMCALI requested CAF’s technical assistance toimplement Good Corporate Governance Principles.

EMCALI (State Owned Enterprise -Colombia)

• The Implementation included: A diagnostic of the current CG practice at EMCALI. The design and proposal of a new structure of

governance, including statues and a CG Code.

• Summary of recommendations: Equitable treatment of shareholders of EMCALI and its

subsidiaries. Clear ownership policies that define the Municipality’s role. Definition of a clear mandate for the Board. Transparency and disclosure of information. Identification of groups of interest and their legal rights.

A new administration is studying its implementation

Petroperú (State Owned Enterprise - Peru)

• Petroperú – Petróleos del Perú, created in 1963, is Peru’s biggest state owned enterprise.

• The company’s activities include, refining, transport and commercialization of petrol and its by-products.

• Currently the company is facing new challenges as it has realized that for its long term growth strategy, access to the capital markets is critical.

• In order to comply with future requirements, Petroperu has requested CAF’s technical assistance in order to implement Good Corporate Governance Principles.

La Fabril (100% Family Owned Company -Ecuador)

• A family owned company founded in 1937 as atextile merchandiser, which currently participates ina wide array of economic sectors (bio fuels, agroindustry, cattle breeding, fish and shrimp, personalcare and electric generation).

• As part of its contractual obligations with CAFrelated to a standing operation, starting on January2007 the company initiated an implementation planto incorporate Good Corporate Governancepractices.

La Fabril (100% Family Owned Company -Ecuador)

• According to the new corporate structure, the companyhas been divided in 6 business units, each with a BoardCommittee integrated by family shareholders and seniormanagement.

La Fabril Consumo

La Fabril Industrial

Energy Palma

Gondi Agroindustria Mana Generación

Board Comittee

Board Comittee

Board Comittee

Board Comittee

Board Comittee

Board Comittee

Board of Directors

• By 2009 the company will have a fully implementedCorporate Governance structure

Transredes (State Owned Enterprise -Bolivia)

• Transredes – Transporte de Hidrocarburos, was formed in 1996 under the framework of the Capitalization Law, by which the Bolivian State owned oil and gas company (YPFB) transferred to the newly formed private company assets relating to the transportation of liquids and gas.

• On June 2008 the Bolivian Government, after declaring its nationalization, took control of 97.38% of the company, changing its Board Members, Senior Management and name (YPFB Transporte S.A).

• Transredes access to credit facilities is vital for its long term investment program and its compliance to Corporate Governance principles is a critical factor related to CAF’s continuing participation as one of its creditors.

Summary

• CG has been recognized as a critical factor for growth andsustainable development at the macro and enterpriselevels. There are several ways in which DFIs cancontribute.

• CAF’s experience with specific implementations and CGconsiderations, illustrates the opportunity for value creationfor companies and the reduction of CAF’s investment andreputational risks.

• Strengthening CG adds value, as it (i) is frequently criticalfor sustainable growth of companies; (ii) solves specificchallenges facing different types of companies includingstate-owned, family oriented or public.

Next Steps

Continue with its technical cooperation program providing in its range of activities, this year concentrating in:

– State-owned enterprises– Family oriented companies

Working in the implementation of the DFI Corporate Governance Approach Statement

– currently revising its general policies and manuals in order to set policy for the relevant decision making instances

– coordinating the development of courses for its commercial and supervision staff

– promoting good CG practices through guidelines and evaluation methodologies and supporting the implementationof good CG practices among specific clients

http://gc.caf.com