<PAGE>
International Bank for Reconstruction and
Development
[LOGO]
Management's Discussion & Analysis
and
Financial Statements
June 30, 1998
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Table of Contents
June 30, 1998
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MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<S> <C> <C>
1. Financial Overview . . . . . . . . . . . . . . . . . . . . . . .3
2. Development Activities . . . . . . . . . . . . . . . . . . . . .4
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Lending Limit. . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Activities . . . . . . . . . . . . . . . . . . . . . . . 12
3. Risk Management. . . . . . . . . . . . . . . . . . . . . . . . 12
Credit Risk. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Interest Rate Risk . . . . . . . . . . . . . . . . . . . . . . 15
Exchange Rate Risk . . . . . . . . . . . . . . . . . . . . . . 16
Operating Risk . . . . . . . . . . . . . . . . . . . . . . . . 17
4. Liquidity Management . . . . . . . . . . . . . . . . . . . . . 18
5. Funding Resources. . . . . . . . . . . . . . . . . . . . . . . 19
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6. Results of Operations. . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . 30
Statement of Changes in Retained Earnings . . . . . . . . . . . . . 31
Statement of Changes in Cumulative Translation Adjustment . . . . . 31
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 32
Summary Statement of Loans. . . . . . . . . . . . . . . . . . . . . 34
Statement of Subscriptions to Capital Stock and Voting Power. . . . 37
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . 41
Report of Independent Accountants . . . . . . . . . . . . . . . . . 74
</TABLE>
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2 Management's Discussion and Analysis
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CERTAIN FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO RISKS AND
UNCERTAINTIES. IBRD'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE SET FORTH
IN SUCH FORWARD-LOOKING STATEMENTS.
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Management's Discussion and Analysis 3
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1. FINANCIAL OVERVIEW
The International Bank for Reconstruction and Development (IBRD) is an
international organization established in 1945 and owned by its member
countries. IBRD's main goals are promoting sustainable economic development
and reducing poverty. It pursues these goals primarily by providing loans,
guarantees and related technical assistance for projects and programs in its
developing member countries. IBRD's ability to intermediate funds from
international capital markets for lending to its developing member countries
is an important element in achieving its development goals. IBRD's objective
is not to maximize profit, but to earn adequate net income to ensure its
financial strength and to sustain its development activities on an ongoing
basis.
The table below presents selected financial data for the last five fiscal years:
<TABLE>
<CAPTION>
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1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FOR THE YEAR U.S. $ MILLIONS
Loan Income 6,881 7,235 7,922 8,187 7,822
Interest 6,775 7,122 7,804 8,069 7,707
Commitment Charges 106 113 118 118 115
Provision for Loan Losses (251) (63) (42) (12) --
Investment Income 1,233 834 720 1,082 711
Borrowing Expenses (6,144) (5,952) (6,570) (6,944) (6,646)
Net Noninterest Expense (476) (769) (843) (959) (836)
Net Income 1,243 1,285 1,187 1,354 1,051
PERFORMANCE RATIOS %
Net Return on Average Earning Assets:(a) 0.98 1.04 0.91 1.00 0.85
Gross Return on:
Average Earning Assets(a) 6.38 6.51 6.62 6.94 6.82
Average Outstanding Loans(a) 6.54 6.75 6.92 7.12 7.45
Average Cash and Investments 5.62 5.00 4.43 5.69 3.53
Cost of Average Borrowings (after swaps) 6.10 6.14 6.44 6.62 5.49
Interest Coverage Ratio 1.20 1.22 1.18 1.19 1.16
Reserves-to-Loans Ratio(b) 14.06 14.49 14.36 14.49 14.35
TOTAL AT YEAR-END U.S. $ MILLIONS
Total Assets 204,971 161,945 152,004 168,579 157,399
Cash and Liquid Investments(c) 24,648 18,107 15,898 18,274 19,095
Loans Outstanding 106,576 105,805 110,246 123,499 109,291
Accumulated Provision for Loan Losses (3,240) (3,210) (3,340) (3,740) (3,324)
Borrowings Outstanding(d) 103,589 96,679 96,719 108,290 98,815
Total Equity 26,514 27,228 28,300 30,461 26,946
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</TABLE>
a. Includes commitment charges.
b. On July 30, 1998, the Executive Directors approved a change in the
computation of the Reserves-to-Loans ratio.
Prior year amounts have been restated for comparability.
c. Includes investments designated as held-to-maturity.
d. Outstanding borrowings, before swaps, net of premium/discount.<PAGE>
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4 Management's Discussion and Analysis
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The financial strength of IBRD is based on the support it receives from its
shareholders and on its array of financial policies and practices.
Shareholder support for IBRD is reflected in the capital backing it has
received from its members and in the record of its borrowing members in
meeting their debt-service obligations to it. IBRD's financial policies and
practices have led it to build reserves, to diversify its funding sources, to
hold a large portfolio of liquid investments and to limit a variety of risks,
including credit, market and liquidity risks.
IBRD's principal assets are its loans to member countries. The bulk of
IBRD's outstanding loans are priced on a cost pass-through basis, in which
the cost of funding the loans - and hence the benefits of IBRD's
intermediation efficiency -are passed through to the borrower, plus a fixed
spread of 50 basis points. During FY 1992 - FY 1998 IBRD provided waivers of
a portion of commitment charges and interest to eligible borrowers.
From year to year IBRD's net income is affected by a number of factors,
including the level of nonaccrual loans, changes in interest rates (which
flow through with a lag to the pass-through lending rates) and the level of
the lending rates (which determine the earnings on equity funding loans).
IBRD holds its assets and liabilities primarily in U.S. dollars, Deutsche
mark and Japanese yen. IBRD mitigates its exposure to currency exchange rate
risks by matching the currencies of its assets, liabilities and reserves;
however, reported income is affected by exchange rate movements. The
increasing strength of the U.S. dollar, IBRD's reporting currency, has
reduced assets, liabilities and reported net income during the last three
fiscal years. This financial statement reporting effect does not impact
IBRD's risk bearing and earning capacity.
IBRD's primary consideration in the allocation of net income is the adequacy
of its reserves. In recent years IBRD has had sufficient net income to allow
it to fund significant transfers to the International Development Association
(IDA), the Heavily Indebted Poor Countries (HIPC) Debt Initiative Trust Fund
and other development priorities of its shareholders.
During FY 1998 IBRD experienced unprecedented growth in its loan
disbursements and commitments, prompted primarily by the financial crisis in
East Asia and adjustment lending in Eastern Europe and Central Asia. This
loan growth has reduced IBRD's reserves-to-loans ratio from 14.49% at June
30, 1997 to 14.06% at June 30, 1998. However, the implications of this
reduction in the reserves-to-loans ratio for IBRD's risk-bearing capacity
depend on changes in credit risks in the loan portfolio. On July 30, 1998,
to ensure that the reserves-to-loans ratio continues to be adequate, IBRD's
Executive Directors approved the allocation of $750 million of FY 1998 net
income to reserves. The maturity of high interest, fixed rate loans from the
early 1980s and, more broadly, the effects of lower lending rates on net
income via the investment in loans of IBRD members' equity (free funds),
contribute to an outlook of declining net income. IBRD continues to evaluate
additional measures for enhancing its risk bearing capacity.
2. DEVELOPMENT ACTIVITIES
IBRD offers a range of instruments to its member countries to meet their
development needs. These financial instruments fall into two primary
categories, loans and guarantees.
LOANS
From its establishment through June 30, 1998, IBRD had approved loans
totaling $323,449 million to borrowers in 128 countries. The loans held by
IBRD, including loans approved but not yet effective, at June 30, 1998
totaled $157,641 million, of which $106,576 million was disbursed and $51,065
million was undisbursed. Cumulative loan repayments at June 30, 1998, based
on exchange rates at the time of disbursement, were $121,421 million.
IBRD's lending operations have conformed generally to five principles derived
from its Articles of Agreement (the Articles). These principles, taken
together, seek to ensure that IBRD loans are made to member countries for
financially and economically sound purposes to which those countries have
assigned high priority, and that funds lent are utilized as intended. The
five principles are:
(i) IBRD makes loans to governments, governmental authorities or private
enterprises in the territories of member countries. A loan that is not
made directly to the member in whose territories the project is
located must be guaranteed as to principal, interest and other charges
by the member or its central bank or a comparable agency of the member
acceptable to IBRD. A guarantee by the member itself has been obtained
in all such cases to date.
(ii) IBRD's loans are designed to promote the use of resources for
productive purposes in its member countries. Projects financed by
IBRD loans are required to meet IBRD's standards for technical,
economic, financial, institutional and environmental soundness.
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Management's Discussion and Analysis 5
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(iii) In making loans, IBRD must act prudently and pay due regard to the
prospects of repayment. Decisions to make loans are based upon, among
other things, studies by IBRD of a country's economic structure,
including assessments of its resources and ability to generate
sufficient foreign exchange to meet debt-service obligations.
(iv) IBRD must be satisfied that in the prevailing market conditions
(taking into account the member's overall external financing
requirements), the borrower would be unable to obtain financing
under conditions which, in the opinion of IBRD, are reasonable for
the borrower. IBRD is intended to promote private investment, not
to compete with it.
(v) The use of loan proceeds is supervised. IBRD makes arrangements to
ensure that funds loaned are used only for authorized purposes and,
where relevant, with due attention to considerations of
cost-effectiveness. This policy is enforced primarily by requiring
borrowers (a) to submit documentation establishing, to IBRD's
satisfaction, that the expenditures financed with the proceeds of
loans are made in conformity with the applicable lending agreements
and (b) to procure goods and services through procedures, including
international competitive bidding, which IBRD judges to be likely
to lead to cost-efficient procurement.
Within the scope permitted by the Articles, these policies must necessarily
be developed and adjusted in light of experience and changing conditions.
The process of identifying and appraising a project and approving and
disbursing a loan often extends over several years. The appraisal of
projects is carried out by IBRD's operational staff (engineers, financial
analysts, economists and other sector and country specialists). With minor
exceptions, all loans must be approved by the IBRD's Executive Directors.
Loan disbursements are subject to the fulfillment of conditions set out in
the loan agreement. IBRD is in the process of revising its financial project
management and disbursement procedures with the intention of making them more
efficient and effective, through the Loan Administration Change Initiative.
During project implementation IBRD staff with experience in the sector or the
country involved periodically visit project sites to review progress, monitor
compliance with IBRD policies and assist in resolving any problems that may
arise. Subsequent to completion the project is evaluated to determine the
extent to which its major objectives were met. Similar appraisal, approval,
supervision and evaluation procedures apply in the case of IBRD structural
and sectoral adjustment and other non-project loans.
LENDING INSTRUMENTS
IBRD lending may take the form of any of the following instruments:
INVESTMENT LENDING
IBRD has several products that support investment activities, either discrete
projects or programs of investments. These loans broadly fall into the
following categories:
-- SPECIFIC INVESTMENT LOANS fund the creation of new productive
assets or economic, social, and institutional infrastructure or
their rehabilitation to full capacity.
-- SECTOR INVESTMENT AND MAINTENANCE LOANS are designed to bring
investments, policies, and performance in specific sectors or
subsectors in line with agreed economic priorities.
-- FINANCIAL INTERMEDIARY LOANS support the development of financial
institutions and provide funds to be channeled through intermediaries
for general credit or for the development of sectors or subsectors.
The primary objective of these loans is to improve the operational
efficiency of financial institutions in a competitive environment.
-- EMERGENCY RECOVERY LOANS are made to restore assets and productivity
immediately after a major emergency (such as war, civil disturbance,
or natural disaster) that seriously disrupts the country's economy.
-- TECHNICAL ASSISTANCE LOANS are designed to strengthen capacity in
entities concerned with policies, strategies and institutional
reforms in such areas as public enterprise reform and divestiture,
civil service and judicial reform, government budgetary management,
and the formulation of economic policy.
IBRD's management is also developing a range of new lending instruments. The
first of these new products are the Adaptable Lending (AL) instruments, which
include:
-- LEARNING AND INNOVATION LOANS (LILs): These are designed to
support small, time-sensitive programs to build capacity, pilot
promising initiatives, or to experiment with and develop
locally-based models prior to large
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6 Management's Discussion and Analysis
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scale interventions. LILs are modest in size with each loan not
exceeding $5 million. Approvals of LILs are at the management
level rather than at the Executive Director level.
-- ADAPTABLE PROGRAM LOANS (APLs): These are designed to provide for
funding of a long-term development program through a series of
operations. Succeeding operations are committed on the basis of
satisfactory performance on agreed milestones, indicators, periodic
reviews, and the evaluation of implementation progress and emerging
needs. Authority for approval is with the Executive Directors for
the first loan of each program and the long-term program agreement.
Authority for approval of subsequent APLs is with IBRD's management
subject to oversight and review by the Executive Directors.
The introduction of LILs and APLs was approved by the Executive Directors on
September 4, 1997.
A breakdown of IBRD's investment lending approved in FY 1998 and in each of
the two preceding fiscal years is as follows:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------------------------------------------------------
FY 1998 FY 1997 FY 1996
-------------------- --------------------- -----------------------
AS A % OF AS A % OF AS A % OF
INSTRUMENTS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adaptable Program Loans $ 749 4 $ - - $ - -
Emergency Recovery Loans 410 2 - - 318 2
Financial Intermediary Loans 122 * 92 1 75 1
Learning and Innovation Loans 33 * - - - -
Sector Investment and Maintenance Loans 599 3 545 4 1,933 13
Specific Investment Loans 9,000 43 9,477 65 9,136 62
Technical Assistance Loans 238 1 273 2 364 3
------- ---- --------- --- --------- ---
Total $11,151 53 $ 10,387 72 $ 11,826 81
------- ---- --------- --- --------- ---
------- ---- --------- --- --------- ---
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</TABLE>
* Indicates amounts less than 0.5%.
ADJUSTMENT LENDING
Most IBRD loans are for specific projects. IBRD also makes adjustment loans
designed to support the introduction of basic changes in economic, financial
and other policies of key importance for the economic development of member
countries. Disbursements on these loans are conditional on certain
performance objectives. The Executive Directors have agreed that adjustment
lending, excluding debt and debt-service reduction loans, will normally not
exceed 25% of total IBRD lending. As a result of several adjustment and
similar loans made by IBRD this fiscal year, 47% of IBRD's lending in FY 1998
consisted of such loans. The Executive Directors considered the matter and
are fully aware that, in light of the specific and unusual financial
circumstances in Asia at present, the guideline has been exceeded this fiscal
year, and may possibly be exceeded again in subsequent years. Adjustment
loans are broadly classified as follows:
-- STRUCTURAL ADJUSTMENT LOANS support specific policy changes and
institutional reforms. Agreement on a satisfactory macroeconomic
framework and policy actions that can be monitored on a specific
schedule are required.
-- SECTOR ADJUSTMENT LOANS support comprehensive policy changes and
institutional reforms in major sectors. They also require
agreement on a satisfactory macroeconomic framework and its
implementation, and a specific action program that can be monitored.
-- REHABILITATION LOANS provide support for government policy reform
programs to assist the private sector where foreign
exchange is required for urgent rehabilitation of key
infrastructure and productive facilities.
-- DEBT AND DEBT-SERVICE REDUCTION LOANS assist an eligible,
highly-indebted country in financing an approved debt and
debt-service reduction operation on its commercial debt that is
designed to reduce the debt to a manageable level and contribute to
a viable medium-term financing plan and the attainment of
medium-term growth objectives.
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Management's Discussion and Analysis 7
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A breakdown of IBRD's adjustment lending approved in FY 1998, and in each of
the two preceding fiscal years is as follows:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
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FY 1998 FY 1997 FY 1996
-------------------- --------------------- ---------------------
AS A % OF AS A % OF AS A % OF
INSTRUMENTS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
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<S> <C> <C> <C> <C> <C> <C>
Structural adjustment loans(a) $ 8,285 39 $ 1,295 9 $ 350 2
Sector adjustment loans 1,650 8 2,590 18 2,450 17
Rehabilitation loans - - 70 * - -
-------- --- ------- --- -------- ---
Total $ 9,935 47 $ 3,955 27 $ 2,800 19
-------- --- ------- --- -------- ---
-------- --- ------- --- -------- ---
Debt and Debt-Service
Reduction Loans $ - - $ 183 1 $ 30 *
-------- --- ------- --- -------- ---
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</TABLE>
a. Includes a $3,000 million economic reconstruction loan to the Republic
of Korea.
* Indicates amounts less than 0.5%.
ENCLAVE LENDING
On rare occasions an IBRD loan will be made for a large, foreign exchange
generating project in an IDA-only country. In these circumstances
appropriate risk mitigation measures are incorporated (including off-shore
escrow accounts and debt-service reserves acceptable to IBRD) to ensure that
the risks to IBRD are minimized. At June 30, 1998, IBRD had less than $150
million in outstanding loans for enclave projects.<PAGE>
<PAGE>
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8 Management's Discussion and Analysis
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LENDING BY SECTOR
A breakdown by sector of IBRD's outstanding loans and loans approved in each of
the last three fiscal years is as follows:
<TABLE>
<CAPTION>
LOANS APPROVED DURING
TOTAL LOANS OUTSTANDING -------------------------------------------------
SECTORS AT END FY 1998 FY 1998 FY 1997 FY 1996
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USD M % USD M % USD M % USD M %
--------- --- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture $ 11,564 11 $ 1,481 7 $ 2,811 19 $ 1,414 10
Education 4,749 5 1,928 9 762 5 921 6
Electric Power and Other Energy 13,625 13 1,115 5 1,613 11 2,459 17
Environment 1,310 1 754 4 23 * 535 4
Finance 14,822 14 6,103 29 994 7 1,199 8
Health, Population and Nutrition 2,309 2 911 4 246 2 1,495 10
Industry 5,924 5 - - 145 1 217 2
Mining and Other Extractive 1,817 2 1,369 7 300 2 571 4
Multi-Sector 17,194 16 1,188 6 1,373 9 906 6
Oil and Gas 3,975 4 130 1 114 1 30 *
Public Sector Management 4,764 4 1,638 8 730 5 1,036 7
Social 1,857 2 934 4 1,304 9 440 3
Telecommunications and Informatics 1,254 1 68 * - - 35 *
Transportation 12,581 12 2,135 10 3,085 21 2,237 15
Urban Development 5,084 5 894 4 646 5 632 4
Water Supply and Sanitation 3,293 3 438 2 380 3 529 4
--------- --- ------------- ------------- -------------
Total (a)** $ 106,122 100 $21,086 100 $ 14,525 100 $ 14,656 100
--------- --- ------------- ------------- -------------
--------- --- ------------- ------------- -------------
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</TABLE>
a. Excludes loans to the IFC.
* Indicates amounts less than 0.5%.
** May differ from sum of individual figures shown due to rounding.
FINANCIAL TERMS OF LENDING INSTRUMENTS
Any of the previously described instruments can be offered with various
financial terms. Presently IBRD offers new loans with three types of
financial terms: multicurrency pool loans, LIBOR-based single currency loans,
and fixed rate single currency loans. This product offering is intended to
provide borrowers flexibility to select terms that are compatible with their
debt management strategy and suited for their debt-servicing capability. All
loans carry a three- to five-year grace period for principal and amortize
over a period that in most cases ranges from 12 to 20 years.
In general IBRD charges a spread on its outstanding loans of 50 basis points
over its average cost of borrowings, with the exception of the two loans
described under "single currency loans" below. In addition, all loans carry a
commitment charge of 75 basis points per annum on undisbursed amounts.
Waivers of a portion of interest owed by all eligible borrowers are in effect
and have been for each of the previous seven fiscal years. Waivers of a
portion of the commitment charge owed on undisbursed portion of loans made to
or guaranteed by members are in effect and have been for each of the last
nine fiscal years. Further details are provided in the Notes to Financial
Statements-Note C.
MULTICURRENCY POOL LOANS
The currency composition of multicurrency pool loans is determined on the
basis of a pool, which provides a currency composition that is the same for
all loans in the pool. Pursuant to a policy established by the Executive
Directors and subject
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Management's Discussion and Analysis 9
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to their periodic review, at least 90% of this pool is in fixed currency
ratios of one U.S. dollar to 125 Japanese yen to two Deutsche mark equivalent.
The lending rate on these loans is variable, adjusted every six months to
reflect the previous semester average cost of outstanding borrowings
allocated to fund these loans, weighted by the average composition of the
pool. IBRD adds its standard spread of 50 basis points to that average cost.
LOAN CONVERSION OPTIONS
In FY 1997 in response to borrower demand for broader currency choice, the
Executive Directors approved a policy to offer currency choice for all IBRD
multicurrency pool loans for which the invitation to negotiate was issued by
September 1, 1996. The purpose of this invitation was to provide borrowers
the flexibility to amend the terms of their existing multicurrency pool loans
to reflect the offered currency of their choice. Under this offer which
extended from September 1, 1996 to June 1, 1998, borrowers had three options:
(a) retain the terms of their existing multicurrency pool loans; (b) convert
undisbursed loan amounts to single currency loan (SCL) terms; and (c) convert
disbursed loan balances and undisbursed loan amounts (to the extent not
converted to SCL terms) to one of four new single currency pools (SCPs).
CONVERSION TO SINGLE CURRENCY LOAN TERMS
Aggregate conversions of undisbursed balances through July 1, 1998 to SCL
terms were $21,115 million, with U.S. dollars comprising 79.7% of the total.
CONVERSION TO SINGLE CURRENCY POOLS
Single currency pool terms are not available for new commitments. Borrowers
selecting conversion to single currency pool terms had the choice of four
different pools (U.S. dollar, Japanese yen, Deutsche mark or Swiss franc).
All variable rate multicurrency pool loans that were converted to single
currency pools carry the applicable pool's variable lending rate, reset
semi-annually to reflect the previous semester average cost of outstanding
borrowings allocated to fund that pool weighted by the shares of currencies
in the pool, plus the standard spread of 50 basis points.
Aggregating the conversions which took place on the conversion dates of July
1, 1997, January 1, 1998, and July 1, 1998, borrowers converted U.S. dollar
equivalent $48,549 million (of which $615 million was undisbursed) from the
multicurrency pool to single currency pools. Among the four currency
choices, conversion to the U.S. dollar SCP loan pool accounted for 85.6% and
conversion to the Deutsche mark pool accounted for 14.2 % of the total
converted loan volume.
-- IMPLEMENTATION. Given the cost pass-through nature of the loan
products, special efforts were taken to ensure an equitable initial
re-allocation of outstanding borrowings to fund the SCPs. This was
achieved by allocating similar debt profiles to each of the
currency pools on the basis of overall cost and maturity
considerations. IBRD will reconfigure the currency composition of
each pool to at least 90% of the pool's target currency by July 1,
1999, and maintain it at or above 90% thereafter, subject to
available funding and swap access in the necessary currencies.
-- LENDING RATES. Lending rates for the U.S. dollar and Deutsche mark
SCP loans for the January 1, 1998 to June 30, 1998 semester were
8.37% and 6.92%, respectively. The U.S. dollar rate of 8.37% is
significantly higher than the 6.54% rate in effect for the July 1
to December 31, 1997 semester. This is because as the U.S. dollar
SCP was converted from a multicurrency pool to a U.S. dollar pool,
it involved swapping lower nominal cost non-U.S. dollar liabilities
to U.S. dollar liabilities, thus reflecting the difference in
market interest rates between these currencies and the U.S. dollar.
This difference was greatest in the case of Japanese yen where
market interest rates were substantially lower than for U.S.
dollars.
SINGLE CURRENCY LOANS
Borrowers may select LIBOR-based or fixed rate SCL terms for new loans. IBRD
currently offers SCLs in U.S. dollars, Japanese yen, Deutsche mark, French
francs, pounds sterling, Swiss francs, and Netherlands guilders and will
consider borrower requests for such loans in other currencies.
LIBOR-based SCLs carry a lending rate that is reset semi-annually. The
lending rate consists of a base rate, which is the prevailing six-month
interbank offered rate (LIBOR, or PIBOR for French franc denominated SCLs)
for the applicable currency on the loan's rate reset date, plus a spread. The
spread consists of: (a) IBRD's average cost margin for funding allocated to
these loans relative to the base rate, and (b) IBRD's standard spread of 50
basis points. These variable rate loans
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10 Management's Discussion and Analysis
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are designed to pass through to its borrowers IBRD's funding spread to LIBOR.
This spread is set every six months, in January and July. At June 30, 1998,
LIBOR-based SCLs make up 14.1% of the total outstanding loans. At the end of
FY 1998, the proportion of outstanding LIBOR-based SCLs denominated in U.S.
dollars was 97.3%, with the remaining portion denominated in Deutsche mark,
French francs, Japanese yen and other currencies.
IBRD approved and disbursed two LIBOR-based single currency loans to the
Republic of Korea in FY 1998 that have non-standard financial terms. The
first, a $3,000 million economic reconstruction loan, carries a 6-month LIBOR
interest rate plus a fixed spread of 100 basis points and has a loan
origination charge. The second, a $2,000 million structural adjustment loan,
carries a 6-month LIBOR interest rate plus a fixed spread of 75 basis points
and has a loan origination charge. Neither loan is eligible for interest
waivers.
Fixed rate SCLs carry lending rates that are set on specified semi-annual
rate fixing dates for amounts disbursed during the preceding six months. The
lending rate consists of a base rate, which reflects market interest rates
for the applicable currency on the rate-fixing date for the equivalent loan
maturity, plus a spread. The spread consists of: (a) IBRD's funding cost
margin relative to the base rate for these loans, (b) a risk premium to
compensate IBRD for market risks it incurs in funding these loans, and (c)
IBRD's standard spread of 50 basis points.
SCLs continue to be IBRD's fastest growing loan product, with the outstanding
balance more than doubling during FY 1998.
The following table presents a breakdown of IBRD's loan portfolio by product:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
- ------------------------------------------------------------------------------------------------------------------------------
FY 1998 FY 1997 FY 1996
----------------------- ------------------------ ------------------------
PRINCIPAL AS A % OF PRINCIPAL AS A % OF PRINCIPAL AS A % OF
LOAN PRODUCT BALANCE TOTAL LOANS BALANCE TOTAL LOANS BALANCE TOTAL LOANS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjustable rate multicurrency pool loans
Outstanding $ 56,274 53 $ 91,842 87 $ 96,856 88
Undisbursed 8,765 17 27,422 53 44,786 82
LIBOR-based single currency loans
Outstanding 15,018 14 4,493 4 957 1
Undisbursed 29,801 58 19,144 37 7,387 14
Fixed rate single currency loans
Outstanding(1) 5,683 5 2,563 2 1,307 1
Undisbursed 12,356 24 5,007 10 2,335 4
Single currency pool loans
Outstanding 25,658 24 - - - -
Undisbursed 131 * - - - -
Other loans
Outstanding 3,943 4 6,907 7 11,126 10
Undisbursed 12 * 3 * 12 *
--------- --- --------- --- -------- ---
Total loans **
Outstanding $106,576 100 $105,805 100 $110,246 100
Undisbursed $ 51,065 100 $ 51,576 100 $ 54,520 100
--------- --- --------- --- -------- ---
--------- --- --------- --- -------- ---
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Includes $1,114 million of fixed rate single currency loans whose
rate had not yet been fixed at June 30, 1998.
* Indicates amounts less than 0.5%.
** May differ from the sum of individual figures due to rounding.
For more information see the Notes to Financial Statements-Note C.
<PAGE>
- ------------------------------------------------------------------------------
Management's Discussion and Analysis 11
- ------------------------------------------------------------------------------
GUARANTEES
IBRD offers guarantees to its members and in exceptional cases will offer
enclave guarantees in IDA-only countries subject to a limit of $300 million.
IBRD guarantees are flexible instruments that provide the credit enhancement
required to mobilize private capital. IBRD's objective in offering
guarantees is to help mobilize private funding and to leverage IBRD's
participation in these projects by providing required credit enhancements.
IBRD guarantees can be customized to suit varying country and project
circumstances. They can be targeted to mitigate specific risks - generally
risks relating to political, regulatory and government performance - which
the private sector is not normally in a position to absorb or manage. Two
types of guarantees are offered:
-- PARTIAL RISK GUARANTEES cover debt-service defaults that may result
from nonperformance of government obligations. These are defined
in the contracts negotiated between the government or a
government-sponsored entity and the private company responsible for
implementing the project. The IBRD guarantee is limited to backing
the government's obligations; the obligations of the private
company contained in the project agreements are not covered and
thus the private lenders assume the risk of nonperformance by the
private company.
-- PARTIAL CREDIT GUARANTEES are used for private sector projects when
there is a need to extend loan maturities, but not necessarily to
cover sovereign contractual obligations. This approach may be most
appropriate when the lenders are not willing to accept the
sovereign risk of the host government for a term long enough to
meet the needs of the project. By guaranteeing later maturities,
such partial credit guarantees help induce the market to extend the
term to the maximum risk it can bear. The presence of the
guarantee may also induce a lower interest rate.
Each guarantee requires the counter-guarantee of the member government as
does any loan not made to a member government. Guarantees are priced within
a limited range to reflect the risks involved, and preparation fees may be
charged where there are exceptional costs involved for IBRD.
IBRD applies the same country creditworthiness and project evaluation
criteria for guarantees as it applies for loans. Projects in any country
that is eligible for IBRD lending are eligible for IBRD guarantees. IBRD
offers partial credit guarantees and partial risk guarantees to private
investors where the government requests such support and the operation meets
other IBRD determined criteria.
IBRD's exposure at June 30, 1998 on its guarantees (measured as their present
value in terms of their first call date) was $1,501 million. The face value
of such guarantees was $2,047 million, of which $371 million was subject to
call. IBRD charges a fee of 25 basis points per annum on its exposure on
guarantees. Additional information is provided in the Notes to Financial
Statements-Note C.
IBRD may also provide partial risk guarantees for export-oriented projects in
an IDA-only country (enclave guarantees) if the project is expected to
generate foreign exchange outside the country, and IBRD determines that the
country will have adequate foreign exchange to meet its obligations under the
counter-guarantee if the guarantee is called. The government is expected to
use revenue accruing to it from any such project for productive development
purposes. A project covered by an enclave guarantee includes security
arrangements with appropriate risk mitigation measures--such as offshore
revenue escrow accounts and debt-service reserves acceptable to IBRD--to
minimize IBRD's exposure and the risk of a call on the guarantee. The annual
commitment of enclave guarantees is initially limited to an aggregate
guaranteed amount of $300 million.
LENDING LIMIT
Under IBRD's Articles, as applied, the total amount outstanding of callable
guarantees, participation in loans and direct loans made by IBRD may not be
increased to exceed the statutory lending limit (the sum of IBRD's subscribed
capital, reserves and surplus.) At June 30, 1998, outstanding loans and
callable guarantees totaled $106,947 million, or 52.9% of the statutory
lending limit. The Executive Directors have issued guidelines pursuant to
which all guarantees issued by IBRD are included in the calculation of this
ratio from the time those guarantees first become callable.
In 1991 the Executive Directors decided that discussions on an additional
capital increase would be initiated if IBRD's lending commitments during any
fiscal year reach 80% of the sustainable level of lending (the level that in
IBRD's judgment could be sustained without the need for additional capital).
IBRD's lending commitments for FY 1998 were $21,086 million, or 77.7% of the
sustainable level of lending. In May 1998 IBRD reviewed the lending program
and concluded that the risk of
<PAGE>
- ------------------------------------------------------------------------------
12 Management's Discussion and Analysis
- ------------------------------------------------------------------------------
breaching the statutory lending limit was low and that discussions on
additional capital increases for the purpose of commitment authority were not
currently warranted.
OTHER ACTIVITIES
In addition to its financial operations, IBRD has furnished technical
assistance to its member countries, both in connection with and independently
of loan operations. Such assistance has taken a variety of forms, including
the assignment of qualified professionals to survey development possibilities
of member countries, to analyze their fiscal, economic and other development
problems, to assist member countries in drawing up development programs, to
appraise projects suitable for investment and to assist member countries in
improving their asset and liability management techniques. To assist its
developing member countries, IBRD also established an Economic Development
Institute, which provides courses and other training activities dealing with
economic policy, development and administration for selected groups of
government officials, and has made contributions for research and other
developmental activities. Furthermore, IBRD has on a number of occasions at
the request of members concerned, facilitated efforts toward the settlement
of international economic and financial disputes. Additionally, IBRD, alone
or jointly with IDA, administers on behalf of donors, funds restricted for
specific uses. These funds are held in trust and are not included in the
assets of IBRD. See the Notes to Financial Statements-Note H.
3. RISK MANAGEMENT
IBRD assumes various kinds of risks in the process of providing development
banking services. Its activities can give rise to three major types of risk:
credit risk, market risk, and liquidity risk. IBRD is also exposed to
operating risk. These risks are described below.
The objective of Asset-Liability Management (ALM) at IBRD is to ensure
adequate funding for each product at the most attractive available cost, and
to manage the currency composition, maturity profile and interest rate
sensitivity characteristics of the portfolio of liabilities supporting each
product in accordance with the particular requirements for that product and
within prescribed risk parameters.
The major risk inherent to IBRD is (country) credit risk, or loan portfolio
risk. IBRD is also subject to commercial credit, market (interest and
exchange rate), operating and liquidity risk, which it actively manages. The
risk management governance structure begins with the ASSET-LIABILITY
MANAGEMENT COMMITTEE (ALCO) which makes decisions or recommendations to
senior management in the areas of financial policy, the adequacy and
allocation of risk capital, and oversight of financial reporting. There are
three standing subcommittees reporting to ALCO:
The MARKET RISK AND CURRENCY MANAGEMENT SUBCOMMITTEE develops and monitors
the policies under which market and commercial credit risks faced by IBRD are
measured, reported and managed. The subcommittee also monitors compliance
with policies governing commercial credit exposure and currency management.
Specific areas of activity include establishing guidelines for limiting
balance sheet and market risks and the use of derivative instruments, and
monitoring of matches between assets and their funding.
The role of the FINANCIAL POLICY AND INFORMATION TECHNOLOGY SUBCOMMITTEE is
to identify, discuss and resolve issues in financial policies and information
technology initiatives under development in IBRD's financial complex.
The role of the STRATEGIC CREDIT SUBCOMMITTEE is to monitor global economic
and political trends for their effect on individual country risks, portfolio
concentration characteristics, trends in exposures to risk clusters, and
aggregate changes in the magnitude, nature and composition of credit risk in
the portfolio. Strategic issues such as the credit risk implications of new
IBRD lending products, the allocation of capital, loan loss provisioning,
arrears clearance and debt repayment workouts form a significant portion of
this subcommittee's agenda.
For the day-to-day management of risk, IBRD's risk management structure
extends into its business units. Risk management processes have been
established to facilitate, control, and monitor risk-taking. These processes
are built on a foundation of initial identification and measurement of risks
by each of the business units.
The processes and procedures by which IBRD manages its risk profile
continually evolve as its activities change in response to market, credit,
product, and other developments. The Executive Directors periodically review
trends in IBRD's risk profiles and performance as well as any significant
developments in risk management policies and controls.
<PAGE>
- ------------------------------------------------------------------------------
Management's Discussion and Analysis 13
- ------------------------------------------------------------------------------
CREDIT RISK
Credit risk, the risk of loss from default by a borrower or counterparty, is
inherent in IBRD's business. Under the direction of the ALCO, policies and
procedures for measuring and managing such risks are formulated, approved and
communicated throughout IBRD. Senior managers represented on ALCO are
responsible for maintaining sound credit assessments, addressing transaction
and product risk issues, providing an independent review function and
monitoring the loans, investments and borrowings portfolios.
IBRD faces two main types of credit risk: country credit risk and commercial
credit risk.
COUNTRY CREDIT RISK
Country credit risk is the primary risk faced by IBRD. It has three
components. Expected losses from all three components are covered by the
Accumulated Provision for Loan Losses, while unexpected losses are covered by
IBRD's risk-bearing capital and income generating capacity. IBRD continuously
reviews the creditworthiness of its member countries as borrowers and adjusts
its overall country programs and lending operations to reflect the results of
these reviews.
(i) The first component is idiosyncratic risk or the risk that individual
countries will accumulate extended debt-service arrears (or move
closer to accumulating extended payment arrears) for country specific
reasons.
(ii) The second component is covariance risk. This is the risk that one
or more borrowers will accumulate extended payment arrears (or move
closer to accumulating extended payment arrears) as a result of a
common shock. This shock could be, for example, a regional
political crisis or an adverse change in the global environment
(such as a fall in commodity prices or a rise in international
interest rates).
(iii) The third component is portfolio concentration risk. This reflects
the concentration in IBRD's portfolio that results from lending to
a relatively small group of borrowers. This concentration
exacerbates the idiosyncratic and covariance risk described above.
This risk is managed using the portfolio concentration limit
described below.
In 1997 the Executive Directors approved an approach to portfolio
concentration under which IBRD's largest loan portfolio exposure to a
single borrowing country is restricted to the lower of an equitable
access limit or a concentration risk limit. The equitable access limit
is equal to 10% of IBRD's subscribed capital, reserves and unallocated
surplus. The concentration risk limit is based on the adequacy of
IBRD's equity capital relative to its largest loan portfolio exposure
to a single borrowing country. The concentration risk limit takes into
account not only current exposure, but also projected exposure over
the ensuing three- to five-year period. This limit is determined by
the Executive Directors each year at the time they consider IBRD's
reserves adequacy and the allocation of its net income for the
preceding fiscal year. For FY 1998 the concentration risk limit was
set at $13.5 billion. The equitable access limit was $20.2 billion.
IBRD's largest loan portfolio exposure (including the present value of
guarantees) to a single borrowing country was $11.4 billion at June
30, 1998.
OVERDUE AND NON-PERFORMING LOANS
It is IBRD's policy that if a payment of principal, interest or other charges
with respect to an IBRD loan or IDA credit becomes 30 days overdue, no new
loans to that member country, or to any other borrower in that country, will
be presented to the Executive Directors for approval, nor will any previously
approved loan be signed, until payment for all amounts 30 days overdue or
longer has been received. In addition, if such payments become 60 days
overdue, disbursements on all loans to or guaranteed by that member country
are suspended until all overdue amounts have been paid. Where the member
country is not the borrower, the time period for suspension of the approval
and signing of new loans to or guaranteed by the member country is 45 days
and the time period for suspension of disbursements is 60 days. It is the
policy of IBRD to place all loans made to or guaranteed by a member of IBRD
in nonaccrual status, if principal, interest or other charges on any such
loan are overdue by more than six months, unless IBRD's management determines
that the overdue amount will be collected in the immediate future. IBRD
maintains an Accumulated Provision for Loan Losses to recognize the risk
inherent in current and potential overdue payments. The methodology for
determining the Accumulated Provision for Loan Losses is discussed in detail
below. Additional information on IBRD's provisioning policy and status of
nonaccrual loans can be found in the Summary of Significant Accounting and
Related Policies and Note C of the Financial Statements.
<PAGE>
- ------------------------------------------------------------------------------
14 Management's Discussion and Analysis
- ------------------------------------------------------------------------------
In 1991 the Executive Directors adopted a policy to assist members with
protracted arrears to IBRD to mobilize sufficient resources to clear their
arrears and to support a sustainable growth-oriented adjustment program over
the medium term. Under this policy IBRD will develop a lending strategy and
will process loans, but not sign or disburse such loans, during a
pre-clearance performance period with respect to members that: (a) agree to
and implement a medium-term, growth-oriented structural adjustment program
endorsed by IBRD; (b) undertake a stabilization program, if necessary,
endorsed, or financially supported, by the IMF; (c) agree to a financing plan
to clear all arrears to IBRD and other multilateral creditors in the context
of a medium-term structural adjustment program; and (d) make debt-service
payments as they fall due on IBRD loans during the performance period. The
signing, effectiveness and disbursement of such loans will not take place
until the member's arrears to IBRD have been fully cleared.
ACCUMULATED PROVISION FOR LOAN LOSSES
IBRD's Accumulated Provision for Loan Losses reflects the following:
-- Management's assessment of the overall collectibility risk in the
total accruing loan portfolio (which includes callable guarantees);
and
--- The present value losses on nonaccruing loans. Such losses are
equal to the difference between the discounted present value of the
debt-service payments on a loan at its contractual terms and the
expected cash flows on that loan.
The adequacy of the Accumulated Provision for Loan Losses is determined by
assessing the amount required to cover potential expected losses in the
accrual portfolio and losses inherent in the nonaccrual portfolio. The
amount required to cover potential expected losses in the accruing portfolio
is related to mean of the distribution of losses facing the institution over
the next three years. This is calculated using a risk-adjusted capital
allocation framework that takes into account the concentration and covariance
risk in the portfolio. The amount required to cover losses inherent in the
nonaccrual portfolio is based on the calculation of the discounted present
value of cash flows.
Estimating potential losses is inherently uncertain and depends on many
factors, including general macroeconomic and political conditions, unexpected
correlations within the portfolio, and other external factors. IBRD
periodically reviews such factors and reassesses the adequacy of the
Accumulated Provision for Loan Losses accordingly.
COMMERCIAL CREDIT RISK
IBRD's commercial credit risk is concentrated in instruments issued by
sovereigns, agencies, banks and corporate entities. The majority of these
investments are with AAA and AA institutions.
In the normal course of its business, IBRD utilizes various derivatives and
foreign exchange financial instruments to meet the financial needs of its
borrowers, to generate income through its trading activities, and to manage
its exposure to fluctuations in interest and currency rates.
Derivative and foreign exchange transactions involve, to varying degrees,
credit risk. The effective management of credit risk is vital to the success
of IBRD's trading and ALM activities. Because of changing market environment,
the monitoring and managing of these risks is a continual process.
IBRD seeks to control the credit risk arising from derivatives and foreign
exchange transactions through its credit approval process, the use of
collateral agreements and risk control limits, and monitoring procedures. The
credit approval process involves evaluating each counterparty's
creditworthiness, assigning credit limits to each counterparty, and
determining if there are specific transaction characteristics that alter the
risk profile. Credit limits are calculated and monitored on the basis of
potential exposures taking into consideration current market values and
estimates of potential future movements in those values. If there is a
collateral agreement with the counterparty to reduce credit risk, then the
amount and nature of the collateral obtained is based on the credit rating of
the counterparty. Collateral held includes cash and government securities.
IBRD's management treats the credit risk exposure as the replacement cost of
the derivative or foreign exchange product. This is also referred to as
replacement risk or the mark-to-market exposure amount. While notional
principal is the most commonly used volume measure in the derivative and
foreign exchange markets, it is not a measure of credit or market risk.
<PAGE>
- ------------------------------------------------------------------------------
Management's Discussion and Analysis 15
- ------------------------------------------------------------------------------
Mark-to-market exposure is a measure, at a point in time, of the value of a
derivative or foreign exchange contract in the open market. When the
mark-to-market is positive, it indicates the counterparty owes IBRD and,
therefore, creates a replacement risk for IBRD. When the mark-to-market is
negative, IBRD owes the counterparty and does not have replacement risk.
When IBRD has more than one transaction outstanding with a counterparty, and
there exists a legally-enforceable master agreement with the counterparty,
the "net" mark-to-market exposure represents the netting of the positive and
negative exposures with the same counterparty. If this net mark-to-market is
negative, then IBRD's exposure to the counterparty is considered to be zero.
Net mark-to-market is, in IBRD's view, the best measure of credit risk when
there is a legally-enforceable master netting agreement between IBRD and the
counterparty. For the notional amounts and related credit risk exposure
amounts by product, see the Notes to Financial Statements-Note E.
The following table provides details of IBRD's estimated credit exposure--by
counterparty rating category--on its investments and swaps, net of collateral
held:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
IN MILLIONS OF U.S. DOLLARS
AT JUNE 30, 1998 AT JUNE 30, 1997
---------------------------------------------------------------------- ---------------------------------
SWAP
INVESTMENTS EXPOSURE
------------------------- ---------
AGENCIES, TOTAL EXPOSURE TOTAL EXPOSURE
BANKS & TO INVESTMENTS TO INVESTMENTS
COUNTERPARTY RATING SOVEREIGNS CORPORATES AND SWAPS % OF TOTAL AND SWAPS % OF TOTAL
- ------------------- ---------- ---------- -------- --------------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
AAA $ 6,026 $ 3,587 $ 127 $ 9,740 37 $ 4,074 21
AA 2,299 12,075 351 14,725 56 12,889 68
A - 1,800 139 1,939 7 2,134 11
---------- ---------- -------- --------------- ---------- -------------- ----------
Total $ 8,325 $ 17,462 $ 617 $ 26,404 100 $ 19,097 100
---------- ---------- -------- --------------- ---------- -------------- ----------
---------- ---------- -------- --------------- ---------- -------------- ----------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in credit exposure during the year reflects the increase in the
size of the investment portfolio. The credit exposure from swaps declined
from FY 1997 to FY 1998 by $38 million to $617 million. The increase in the
relative weight of credit exposures to AAA-rated entities was mainly due to
the addition of asset swaps and asset-backed securities to the investment
instruments used.
INTEREST RATE RISK
There are two potential sources of interest rate risk to IBRD. The first is
the interest rate sensitivity associated with the net spread between the rate
IBRD earns on its assets and the cost of borrowings which fund those assets.
The second is the interest rate sensitivity of the income earned from funding
a portion of IBRD assets with equity. The borrowing cost pass-through
formulation incorporated in the lending rates charged on most of IBRD's loans
has traditionally helped limit the interest rate sensitivity of the net
spread earnings on its loan portfolio. Such cost pass-through loans
currently account for more than 87% of the existing outstanding loan
portfolio. However, cost pass-through loans do entail some residual interest
rate risk, given the one-semester lag inherent in the lending rate
formulation. If new borrowings are at interest rates above the average in
the debt pool, the higher average debt costs would not be passed through to
the lending rate charged to the borrowers and thus not affect the interest
income generated on cost pass-through loans until the following semester.
The reverse is true when market interest rates decline.
In addition, the cost pass-through currency pool products have traditionally
been funded with a large share of medium- and long-term fixed rate
borrowings, so as to provide the borrowers with a reasonably stable interest
basis. Given the sustained interest rate declines seen over the last several
years, the cost of these historical fixed rate borrowings in the
multicurrency pool and the single currency pools is currently considerably
higher than IBRD's new borrowing costs. In particular, approximately $327
million of this historical (and currently 'above-market') debt allocated to
the multicurrency pool has contractual maturities longer than that of the
longest outstanding loans. In the absence of new disbursements and additions
to the multicurrency pool, IBRD would be subject to some risk associated with
potentially having to redeploy these above-market borrowings, as and when the
loans mature.
<PAGE>
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16 Management's Discussion and Analysis
- ------------------------------------------------------------------------------
Interest rate risk on non cost pass-through products, which currently account
for 13% of the existing portfolio, is controlled by using interest rate swaps
to closely align the rate sensitivity characteristics of the loan portfolio
with that of their underlying funding. The interest rate risk on IBRD's
liquid portfolio is managed within specified duration-mismatch limits and is
further limited by stop-loss limits. As a result of changes in policy,
liquidity has been funded by floating rate debt since June 1996. This has
enabled the match-funding of liquidity with associated debt sharing the same
interest rate characteristics as the liquid portfolio to take place.
IBRD's level of net income is sensitive to the level of nominal interest
rates, reflecting the fact that these rates determine the level of earnings
on its equity base ($23,300 million at June 30, 1998) that funds a portion of
the outstanding loans (net of provisions). In general, lower nominal
interest rates result in lower lending rates which, in turn, reduce the
nominal earnings on IBRD's equity.
Interest rate risk also arises from a variety of other factors, including
differences in the timing between the contractual maturity or repricing of
IBRD's assets, liabilities and derivative financial instruments. For
example, IBRD's net interest income and financial condition are affected by
changes in the level of market interest rates as the repricing
characteristics of its loans and other assets do not necessarily match those
of its borrowings. With regard to floating rate assets and liabilities, IBRD
is exposed to timing mismatches between the reset dates on its floating rate
receivables and payables.
As part of its ALM process IBRD employs interest rate swaps to manage and
align the rate sensitivity characteristics of its assets and liabilities.
IBRD uses derivative instruments to adjust the interest rate repricing
characteristics of specific on-balance sheet assets and liabilities, or
groups of assets and liabilities with similar repricing characteristics.
EXCHANGE RATE RISK
In order to minimize exchange rate risk in a multicurrency environment, IBRD
matches its borrowing obligations in any one currency (after swap activities)
with assets in the same currency, as prescribed by the Articles, primarily by
holding or lending the proceeds of its borrowings in the same currencies in
which they were borrowed. In addition, IBRD's policy is to minimize the
exchange rate sensitivity of its reserves-to-loans ratio. It carries out
this policy by undertaking currency conversions periodically to align the
currency composition of its reserves to that of its outstanding loans. This
policy is designed to minimize the impact of market rate fluctuations on the
reserves to loans ratio, thereby preserving IBRD's ability to absorb
potential losses from arrears regardless of the market environment.
<PAGE>
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Management's Discussion and Analysis 17
- ------------------------------------------------------------------------------
The following graph summarizes IBRD's currency position in major currencies for
FY 1998:
[Graphic]
OPERATING RISK
Operating risk is the potential for loss arising from internal activities or
external events caused by breakdowns in information, communication, physical
safeguards, business continuity, supervision, transaction processing,
settlement systems and procedures, and the execution of legal, fiduciary, and
agency responsibilities. IBRD, like all financial institutions, is exposed to
many types of operating risks, including the risk of fraud by staff or
outsiders. IBRD attempts to mitigate operating risk by maintaining a
comprehensive system of internal controls that is designed to keep operating
risk at appropriate levels in view of the financial strength of IBRD and the
characteristics of the activities and markets in which IBRD operates. In the
past IBRD has suffered certain immaterial losses from operating risk and
while it maintains an adequate system of internal controls, there can be no
absolute assurance that IBRD will not suffer such losses in the future.
IBRD adopted the COSO(1) control framework and a self-assessment methodolgy to
evaluate the effectiveness of its internal controls in FY 1996, and has an
on-going program in place to cover all business units. Commencing in FY
1997, IBRD obtained an attestation from its external auditors on the
effectiveness of internal controls over financial reporting.
ECONOMIC AND MONETARY UNION IN EUROPE (EMU)
The 1992 Maastricht Treaty on European Union set the framework for forming an
Economic and Monetary Union (EMU), with a single currency, the euro, and a
single monetary policy defined by a common independent authority, the
European Central Bank. EMU creates various operating risks for IBRD because
significant changes will have to be implemented including currency
conversion, modification of payment and settlement systems, redenomination of
currencies, and financial reporting changes. The main challenge posed by EMU
is the extended transition period (three years) when payments can be made in
each participating member state in euro and in the previous national currency
which remains a sub-denomination of the euro during the transition. IBRD has
created an internal euro task force which is working in conjunction with
various
- -------------------------
1 The Committee of Sponsoring Organizations of the Treadway Commission
(commonly referred to as COSO) was convened by the U.S. Congress in response
to the well publicized financial irregularities that occurred in the late
1980's.
<PAGE>
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18 Management's Discussion and Analysis
- ------------------------------------------------------------------------------
business unit groups to identify and address the changes required by the
introduction of the euro. Management expects that a plan will be adopted and
changes will be implemented on a schedule which meets the EMU start date of
January 1, 1999.
THE YEAR 2000 ISSUE
The Year 2000 (Y2K) issue is the result of computer programs using two digits
rather than four to define the applicable year. Some of IBRD's computer
programs that have date-sensitive software may be unable to properly
interpret dates beyond the year 1999. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions. IBRD presently
believes that timely modifications to existing software and or hardware will
mitigate its Y2K risks.
Over the last five years, IBRD has revamped many of its systems, in the
process making them Y2K compliant. Also, IBRD is currently replacing many of
its individual systems with either an SAP or a Summit solution at a cost of
approximately $45 million. Both these systems are Y2K compliant. This
implementation is expected to be completed by June 30, 1999. The date on
which IBRD plans to complete the Y2K modifications is based on management's
best estimates, which were derived utilizing numerous assumptions of future
events. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes and similar
uncertainties.
4. LIQUIDITY MANAGEMENT
Liquidity risk arises in the general funding of IBRD's activities and in the
management of positions. It includes the risk of being unable to fund its
portfolio of assets at appropriate maturities and rates and the risk of being
unable to liquidate a position in a timely manner at a reasonable price. The
objective of liquidity management is to ensure the availability of sufficient
cash flows to meet all of IBRD's financial commitments.
Under IBRD's liquidity management policy aggregate liquid asset holdings
should be kept at or above a specified prudential minimum. That minimum is
equal to the highest six months of debt-service plus one-half of net loan
disbursements as projected for a fiscal year based on commitments at the
beginning of that year. IBRD also holds liquid assets over the specified
minimum to provide flexibility in timing its borrowing transactions and to
meet working capital needs.
IBRD's liquid holdings are held principally in obligations of governments and
other official entities, time deposits and other unconditional obligations of
banks and financial institutions, asset-backed securities, and futures and
options contracts pertaining to such obligations. The liquid asset holdings
are separated into three sub-portfolios, each with different risk profiles,
funding, and liquidity characteristics, but all contributing to the
prudential purpose of liquidity. The three sub-portfolios are summarized
below:
STABLE PORTFOLIO
The "stable" portfolio is the equivalent of the prudential minimum. In line
with its purpose as a cash cushion in times of financial stress, the
portfolio is held in an adequately liquid form to reasonably assure IBRD of
the fund's availability to meet commitments over a six-month period. The
portfolio size is relatively constant, allowing for consideration of a wide
range of management strategies, including taking duration and credit risk.
The FY 1999 prudential minimum liquidity level has been set at $18,500
million, representing a $1,200 million increase over that for FY 1998.
OPERATIONAL PORTFOLIO
The "operational" portfolio is the equivalent of IBRD's operating cash
account and meets IBRD's short-term cash requirements, i.e., working capital
needs, by ensuring that funds are available as needed to meet payment
obligations. Balances in this portfolio require a high degree of liquidity
and only minimal credit or market risk is taken. The aggregate size of this
portfolio is also influenced to an extent by this need, at times, to have
balances in multiple currencies, especially those in which IBRD does not have
a ready source of short-term funding.
<PAGE>
- ------------------------------------------------------------------------------
Management's Discussion and Analysis 19
- ------------------------------------------------------------------------------
DISCRETIONARY PORTFOLIO
The "discretionary" portfolio is the locus of flexibility for IBRD's funding
program and is governed by a comparison of the various costs and benefits of
incremental borrowing and investment decisions. The size of the discretionary
portfolio depends upon the perceived usefulness of borrowing in advance of
immediate needs, on the relative attractiveness of market opportunities and
on the usefulness of additional short-term borrowings for market presence
purposes.
IBRD's cash and liquid investments amounted to $24,648 million (including
$1,299 million classified as held-to-maturity investments) at June 30, 1998.
This amount was equivalent to approximately 23.3% of IBRD's outstanding
borrowings after swaps. The annualized financial return on average
investments in IBRD's trading portfolio for FY 1998 was 5.45% compared to
4.73% in FY 1997. The return on its held-to-maturity portfolio for FY 1998
was 8.44% compared to 8.31% for FY 1997.
For further information, refer to the Notes to Financial Statements-Note B.
5. FUNDING RESOURCES
EQUITY
Total shareholders' equity at June 30, 1998 was $26,514 million compared with
$27,228 million at June 30, 1997. The slight decrease from FY 1997 primarily
reflects the revaluation effects of exchange rate movements of $1,045 million
which offset the increase in retained earnings of $539 million and the
increase in paid-in capital of $240 million. At June 30, 1998, this equity
comprised $11,288 million of paid-in capital and $16,733 million of retained
earnings, reduced by $547 million of amounts to maintain value of currency
holdings and payments on account of pending subscriptions, and $960 million
of cumulative translation adjustment.
CAPITAL
The authorized capital of IBRD at June 30, 1998 was $190,811 million, of
which $186,436 million had been subscribed. Of the subscribed capital,
$11,288 million had been paid in and $175,148 million was callable. Of the
paid-in capital, $7,677 million was available for lending and $3,611 million
was not available for lending. The terms of payment of IBRD's capital and
the restrictions on its use that are derived from the Articles and from
resolutions of IBRD's Board of Governors are:
(i) $2,370 million of IBRD's capital was initially paid in gold or U.S.
dollars or was converted by the subscribing members into U.S.
dollars. This amount may, under the Articles, be freely used by
IBRD in its operations.
(ii) $8,918 million of IBRD's capital was paid in the currencies of the
subscribing members. Under the Articles this amount is subject to
maintenance-of-value obligations and may be loaned only with the
consent of the member whose currency is involved. In accordance
with such consents, $5,096 million of this amount had been used in
IBRD's lending operations at June 30, 1998.
(iii) $149,149 million of IBRD's capital may, under the Articles, be
called only when required to meet obligations of IBRD for funds
borrowed or on loans guaranteed by it. This amount is thus not
available for use by IBRD in making loans. Payment on any such
call may be made, at the option of the particular member, either in
gold, in U.S. dollars or in the currency required to discharge the
obligations of IBRD for which the call is made.
(iv) 25,999 million of IBRD's capital is to be called only when required
to meet obligations of IBRD for funds borrowed or on loans
guaranteed by it, pursuant to resolution of the Board of Governors
of IBRD (though such conditions are not required by the Articles).
Of this amount, 10% would be payable in gold or U.S. dollars and
90% in the currencies of the subscribing members. While these
resolutions are not legally binding on future Boards of Governors,
they do record an understanding among members that this amount will
not be called for use by IBRD in its lending activities or for
administrative purposes.
No call has ever been made on IBRD's callable capital. Any calls on unpaid
subscriptions are required to be uniform, but the obligations of the members
of IBRD to make payment on such calls are independent of each other. If the
amount received on a call is insufficient to meet the obligations of IBRD for
which the call is made, IBRD has the right and is bound to make further calls
until the amounts received are sufficient to meet such obligations. However,
no member may be required on any such call or calls to pay more than the
unpaid balance of its capital subscription.
<PAGE>
- ------------------------------------------------------------------------------
20 Management's Discussion and Analysis
- ------------------------------------------------------------------------------
At June 30, 1998, of the uncalled capital, $102,563 million (58.6%) was
callable from the member countries of IBRD that are also members of the
Development Assistance Committee of the Organization for Economic Cooperation
and Development. This amount was equal to 97.1% of IBRD's outstanding
borrowings after swaps at June 30, 1998. The capital subscriptions of those
countries and the callable amounts are set out below:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
- ------------------------------------------------------------------------------
TOTAL CAPITAL UNCALLED PORTION OF
MEMBER COUNTRY (a) SUBSCRIPTION SUBSCRIPTION
- ------------------------------------------------------------------------------
<S> <C> <C>
United States $ 31,965 $ 29,966
Japan 15,321 14,377
Germany 8,734 8,191
France 8,372 7,851
United Kingdom 8,372 7,832
Italy 5,404 5,069
Canada 5,404 5,069
Netherlands 4,283 4,018
Belgium 3,496 3,281
Switzerland 3,210 3,012
Australia 2,951 2,770
Spain 2,857 2,682
Sweden 1,806 1,696
Austria 1,335 1,254
Denmark 1,237 1,162
Norway 1,204 1,132
Finland 1,033 971
New Zealand 873 821
Portugal 659 620
Ireland 636 599
Luxembourg 199 190
---------- ----------
TOTAL $ 109,351 $ 102,563
---------- ----------
---------- ----------
- ------------------------------------------------------------------------------
</TABLE>
a. Details regarding the capital subscriptions
of all members of IBRD at June 30, 1998 are
provided in the Statement of Subscriptions to
Capital Stock and Voting Power in the
Financial Statements.
For a further discussion of capital stock, restricted currencies, maintenance
of value and membership refer to the Summary of Significant Accounting and
related policies and the Notes to Financial Statements-Note A.
BORROWINGS
IBRD diversifies its sources of funding by offering its securities to private
and official investors globally on terms acceptable to IBRD. Official
investors are governments, central banks and other governmental institutions.
Under the Articles, IBRD may borrow only with the approval of the member in
whose markets the funds are raised and the member in whose currency the
borrowing is denominated, and only if each such member agrees that the
proceeds may be exchanged for the currency of any other member without
restriction.
In FY 1998 medium- and long-term debt raised from the market by IBRD amounted
to $28,020 million. This excludes proceeds from continuous short-term
issuance programs, i.e., Central Bank Facility and Discount Notes, and
transactions with a maturity of less than one year. The increase in medium-
and long-term borrowings in FY 1998 primarily reflected increased loan
disbursements in response to the financial crisis in East Asia and adjustment
lending in Eastern Europe and Central Asia. <PAGE>
<PAGE>
- ------------------------------------------------------------------------------
Management's Discussion and Analysis 21
- ------------------------------------------------------------------------------
FUNDING OPERATIONS
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS FY 1998 FY 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Total Medium- and Long-term Borrowings * $ 28,020 $ 17,694
Average Maturity (years) 5.8 5.2
Number of Transactions 195 139
Number of Currencies 21 18
- ------------------------------------------------------------------------------
</TABLE>
* Net proceeds on a trade date basis.
Most new funding was swapped initially into floating rates. Fixed rates were
established subsequently for some of this funding in accordance with the
requirements of different loan products and policy guidelines.
The after-swap currency composition of new funding was mostly in U.S. dollars
and reflected the need to fund loan assets and liquidity. Borrowings were
carried out in those currencies that provided the best market opportunities,
resulting in 195 transactions during FY 1998.
IBRD buys its debt back strategically to reduce the cost of borrowings and to
reduce exposure to refunding requirements in a particular year. During FY
1998 IBRD repurchased a total of $540 million of its outstanding borrowings
and prepaid $561 million of its outstanding borrowings.
A more detailed analysis of borrowings is provided in the Notes to Financial
Statements-Note D.
6. RESULTS OF OPERATIONS
IBRD's net income can be seen as broadly comprising a spread on earning
assets, plus the contribution of equity, less provisions for loan losses and
administrative expenses. The significant factors affecting the spread on
earning assets are described below:
-- LOANS are funded by a combination of debt and equity, with debt
funding approximately 77% of loans.
Most loans are subject to a cost pass-through formulation with the
loans carrying a variable lending rate linked to the particular
borrowings allocated to them. Such cost pass-through loans
currently account for approximately 87% of the outstanding loan
portfolio. Other loans which are not cost pass-through products,
comprise 13% of the existing loan portfolio.
Income generated from loans funded by equity is directly sensitive
to the level of nominal interest rates with any changes in these
rates directly impacting net income. Loans funded by equity
comprise 23% of the loan portfolio.
-- INVESTMENTS are primarily funded by variable rate debt sharing the
same interest rate characteristics as the investment portfolio. As
a result the interest rate sensitivity of the spread of investment
returns over its cost of funding has been substantially eliminated
with net investment income being largely unaffected by interest
rate fluctuations. Further, the impact on net income from the
margin on the investment portfolio is not significant.<PAGE>
<PAGE>
- ------------------------------------------------------------------------------
22 Management's Discussion and Analysis
- ------------------------------------------------------------------------------
The following table is a comparison of the FY 1998 and FY 1997 results.
<TABLE>
<CAPTION>
FY 1998 FY 1997
---------- --------
<S> <C> <C>
NET INCOME U.S. $ MILLIONS
Loan Income 6,881 7,235
Interest 6,775 7,122
Commitment Charges 106 113
Provision for Loan Losses (251) (63)
Investment Income 1,233 834
Borrowing Expenses (6,144) (5,952)
---------- --------
Net Interest Income 1,719 2,054
Net Noninterest Expense (476) (769)
---------- --------
Net Income 1,243 1,285
---------- --------
---------- --------
PERFORMANCE RATIOS %
Return on Average Earning Assets(a) 6.38 6.51
Less: Average Cost of Borrowings Outstanding 6.10 6.14
---------- --------
Net Interest Margin on Average Earning Assets(a) 0.28 0.37
Less: Provision for Loan Losses 0.20 0.05
Net Non-Interest Expense 0.37 0.62
Contribution of Members' Equity 1.27 1.34
---------- --------
Net Income as a percentage of Average Earning Assets(a) 0.98 1.04
---------- --------
---------- --------
AVERAGE ASSETS AND LIABILITIES U.S. $ MILLIONS
Total Earning Assets 127,138 123,879
Cash and Investments 21,895 16,627
Disbursed and Outstanding Loans 105,243 107,251
Borrowings Outstanding(b) 100,718 96,929
- -----------------------------------------------------------------------------------
</TABLE>
a. Includes commitment charges
b. Borrowings outstanding, after swaps.
Net income as a percentage of average earning assets declined 6 basis points
from 1.04% for FY 1997 to 0.98% for FY 1998. The following main factors
contributed to the decline: increased loan loss provisioning, the negative
effect of the conversions of multicurrency pool loans to single currency pool
terms and lower nominal rates for loans funded by equity. These negative
effects on net income were partially offset by gains attributed to IBRD's
pension and other postretirement benefit accounts.
The negative effect of the conversions of the multicurrency pool loans to
single currency pool (SCP) terms was the primary factor lowering the net
interest income margin on average earning assets. The SCP conversions
reduced the loan spread
<PAGE>
- ------------------------------------------------------------------------------
Management's Discussion and Analysis 23
- ------------------------------------------------------------------------------
through the interaction of the change in currency composition, resulting in a
higher nominal rate, with the lag in the pass-through lending rate.
Effectively, this raised debt costs before raising the lending rate on the
affected loans.
NET INTEREST INCOME
<TABLE>
<CAPTION>
FY 1998 FY 1997 FY 1996
---------------------- ----------------------- -----------------------
AVERAGE AVERAGE AVERAGE
IN MILLIONS OF U.S. DOLLARS AMOUNT RETURN % AMOUNT RETURN % AMOUNT RETURN %
- ------------------------------------- --------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
LOANS
Gross Interest Income $ 7,090 6.74 $ 7,514 7.01 $ 8,271 7.22
Non-performing Loan Interest (84) (0.08) (146) (0.14) (188) (0.16)
Interest Waiver (241) (0.23) (259) (0.24) (286) (0.25)
Provision for Loan Losses (251) (0.24) (63) (0.06) (42) (0.04)
Commitment Charges 106 0.10 113 0.11 118 0.10
Prepayment Premiums 10 0.01 13 0.01 7 0.01
--------- ---------- ---------- ---------- --------- ----------
LOAN INCOME 6,630 6.30 7,172 6.69 7,880 6.88
INVESTMENT INCOME 1,233 5.62 834 5.00 720 4.43
--------- ---------- ---------
TOTAL INTEREST INCOME 7,863 6.18 8,006 6.47 8,600 6.58
COST OF BORROWINGS (6,144) 6.10 (5,952) 6.14 (6,570) 6.44
--------- ---------- ---------
NET INTEREST INCOME $ 1,719 1.35 $ 2,054 1.66 $ 2,030 1.56
--------- ---------- ---------
--------- ---------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in loan income of $542 million (7.6%) was primarily due to a
falling interest rate environment in the major financial markets and the
continuing maturity of high-interest, fixed rate loans. Of the decrease in
loan interest income, $290 million was due to a decrease in the average
interest rate of the loan portfolio, and $136 million was associated with the
decrease in the balance of average loans outstanding in terms of U.S.
dollars. The other major factor contributing to the change in loan income
was the increase in the provision for loan losses. During FY 1998 the
expected losses due to the changes in the credit quality of the portfolio
combined with growth in net disbursements resulted in an increase in the
provision for loan losses of $188 million from FY 1997 to FY 1998.
The following table provides a breakdown of the gross loan interest income by
loan product.
<TABLE>
<CAPTION>
FY 1998 FY 1997 FY 1996
------------------------- --------------------------- ----------------------------
INTEREST INCOME INTEREST INCOME INTEREST INCOME
---------------- ----------------- ----------------
AVERAGE RETURN AVERAGE RETURN AVERAGE RETURN
IN MILLIONS OF U.S. DOLLARS VOLUME AMOUNT % VOLUME AMOUNT % VOLUME AMOUNT %
- ---------------------------------- -------- ------- ------ -------- -------- ------ --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $105,243 $ 7,090 6.74 $107,251 $ 7,514 7.01 $114,534 $ 8,271 7.22
Fixed Rate (excluding SCLs) 5,233 460 8.78 8,838 771 8.72 13,835 1,189 8.59
Multicurrency Pool (adjustable) 68,857 4,502 6.54 93,874 6,456 6.88 99,391 6,997 7.04
Single Currency Loans
Fixed 3,273 225 6.89 1,962 136 6.94 747 51 6.88
Adjustable 10,052 615 6.12 2,577 151 5.86 561 34 6.06
Single Currency Pools (SCPs)
Adjustable 17,828 1,288 7.23 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During FY 1998 investment income increased by $399 million (47.7%). Of this
increase, $103 million resulted from higher returns (up from 5.0% to 5.6%)
mainly due to a shift from Japanese yen and Deutsche mark investments into
higher-yield U.S. dollar investments. Higher average outstanding investment
balances, reflecting the modified liquidity policy, accounted for the
remaining increase of $296 million.
<PAGE>
- ------------------------------------------------------------------------------
24 Management's Discussion and Analysis
- ------------------------------------------------------------------------------
The cost of borrowings increased by $192 million (3.2%). The replacement of
longer maturity fixed rate debt with variable rate debt, coupled with a
falling interest rate environment, lowered the average cost of borrowings
from 6.14% to 6.10%. This decrease was offset by a higher average borrowings
balance, resulting in an increase of $231 million in borrowing costs.
FY 1997 VERSUS FY 1996
Net interest income totaled $2,054 million in FY 1997, compared to $2,030
million in FY 1996. The reduction in total interest income of $594 million in
FY 1997 as compared to FY 1996 was offset by a slightly larger decrease in
the cost of borrowings of $618 million, resulting in a $24 million increase
in net interest income.
The reduction in loan interest income arose from lower average loan interest
rates driven by a decline in the average cost of borrowings, resulting from a
declining interest rate environment in the financial markets. A 21 basis
point decline in the average loan interest rate resulted in a reduction of
$240 million, while a decrease of $7,283 million in the average outstanding
loans balance accounted for a $517 million reduction in gross interest
income. The negative effect of non-performing loan interest in FY 1997 was
lower by $42 million primarily due to the clearance of arrears of loan
interest and charges by Bosnia and Herzegovina in June 1996, and its
subsequent debt-service payments during FY 1997.
Investment income increased by $114 million mainly due to a shift from
Japanese yen and Deutsche mark investments into higher-yield U.S. dollar
investments.
NET NONINTEREST EXPENSE
The following table presents the main components of noninterest expense:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS FY 1998 FY 1997 FY 1996
- ------------------------------------------ -------- ------- --------
<S> <C> <C> <C>
Gross Administrative Expenses
Staff Salaries 263 255 255
Other Staff Costs 203 217 254
Consultant Fees 91 71 72
Operational Travel 94 81 79
Other Expense 293 277 250
------- ------ -----
Total Gross Administrative Expenses 944 901 910
Less:
Pension & Postretirement Benefit Income 399 63 --
Reimbursements 69 67 64
Contribution to Special Programs 112 120 113
------- ------ -----
Total Net Administrative Expenses 364 651 733
Contribution to Special Programs 112 120 113
Net Other Income -- (2) (3)
------- ------ -----
Total Net Noninterest Expense 476 769 843
------- ------ -----
------- ------ -----
- --------------------------------------------------------------------------------------
</TABLE>
Net noninterest expenses declined by $293 million. This decrease is
attributable to the recognition of additional income from pension and other
postretirement benefit plans.
1997 VERSUS 1996
Net noninterest expenses declined by $74 million in FY 1997. In FY 1997
income resulting from a change in assumptions associated with the Staff
Retirement Plan of $112 million reduced total net noninterest expense.
<PAGE>
International Bank for Reconstruction and
Development
Financial Statements
June 30, 1998
<PAGE>
28 IBRD Financial Statements
- ------------------------------------------------------------------------------
Balance Sheet
June 30, 1998 and June 30, 1997
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Assets
DUE FROM BANKS
Unrestricted currencies $ 55 $ 26
Currencies subject to restrictions--Note A 712 615
------------ -----------
767 641
------------ -----------
INVESTMENTS
Trading--Notes B and E 23,284 17,229
Held-to-maturity--Notes B and E 2,673 1,279
Assets designated for other postretirement benefits--Notes B and J 1,456
------------ -----------
27,413 18,508
------------ -----------
SECURITIES PURCHASED UNDER RESALE AGREEMENTS--Trading--Note B 466 97
NONNEGOTIABLE, NONINTEREST-BEARING DEMAND OBLIGATIONS ON ACCOUNT
OF SUBSCRIBED CAPITAL 1,890 1,902
AMOUNTS RECEIVABLE FROM CURRENCY SWAPS
Investments--Trading--Notes B and E 10,510 4,571
Borrowings--Notes D and E 55,767 29,031
------------ -----------
66,277 33,602
------------ -----------
AMOUNTS RECEIVABLE TO MAINTAIN VALUE OF CURRENCY HOLDINGS 392 574
OTHER RECEIVABLES
Amounts receivable from investment securities traded 262 29
Accrued income on loans 1,963 1,932
Accrued interest on investments 189 143
------------ -----------
2,414 2,104
------------ -----------
LOANS OUTSTANDING (see Summary Statement of Loans, Notes C and E)
Total loans 157,641 157,381
Less undisbursed balance 51,065 51,576
------------ -----------
Loans outstanding 106,576 105,805
Less accumulated provision for loan losses 3,240 3,210
------------ -----------
Loans outstanding net of accumulated provision 103,336 102,595
------------ -----------
OTHER ASSETS
Unamortized issuance costs of borrowings 652 492
Miscellaneous--Note I 1,364 1,430
------------ -----------
2,016 1,922
------------ -----------
Total assets $204,971 $161,945
------------ -----------
------------ -----------
</TABLE>
<PAGE>
IBRD Financial Statements 29
- ------------------------------------------------------------------------------
Balance Sheet
June 30, 1998 and June 30, 1997
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Liabilities
BORROWINGS--Notes D and E
Short-term $ 6,729 $ 7,648
Medium- and long-term 96,860 89,031
------------ -----------
103,589 96,679
------------ -----------
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND PAYABLE FOR CASH
COLLATERAL RECEIVED--Note B
Trading 860 294
Held-to-maturity 1,374 --
------------ -----------
2,234 294
------------ -----------
AMOUNTS PAYABLE FOR CURRENCY SWAPS
Investments--Trading--Notes B and E 10,113 4,694
Borrowings--Notes D and E 57,755 29,687
------------ -----------
67,868 34,381
------------ -----------
AMOUNTS PAYABLE TO MAINTAIN VALUE OF CURRENCY HOLDINGS 2 4
OTHER LIABILITIES
Amounts payable for investment securities purchased 255 135
Accrued charges on borrowings 2,519 2,167
Payable for Board of Governors-approved transfers--Note F 122 201
Accounts payable and miscellaneous liabilities 1,151 856
Liabilities under other postretirement benefits--Note J 717 --
------------ -----------
4,764 3,359
------------ -----------
Total liabilities 178,457 134,717
------------ -----------
Equity
CAPITAL STOCK (see Statement of Subscriptions to Capital Stock and
Voting Power, Note A)
Authorized capital (1,581,724 shares--June 30, 1998;
1,558,478 shares--June 30, 1997)
Subscribed capital (1,545,457 shares--June 30, 1998;
1,512,211 shares--June 30, 1997) 186,436 182,426
Less uncalled portion of subscriptions 175,148 171,378
------------ -----------
11,288 11,048
AMOUNTS TO MAINTAIN VALUE OF CURRENCY HOLDINGS--Note A (554) (106)
PAYMENTS ON ACCOUNT OF PENDING SUBSCRIPTIONS--Note A 7 7
RETAINED EARNINGS (see Statement of Changes in Retained
Earnings, Note F) 16,733 16,194
CUMULATIVE TRANSLATION ADJUSTMENT (see Statement of Changes
in Cumulative Translation Adjustment) (960) 85
------------ -----------
Total equity 26,514 27,228
------------ -----------
Total liabilities and equity $204,971 $161,945
------------ -----------
------------ -----------
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
<PAGE>
30 IBRD Financial Statements
- ------------------------------------------------------------------------------
Statement of Income
For the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
INCOME
Income from loans--Note C
Interest $6,775 $7,122 $7,804
Commitment charges 106 113 118
Income from investments--Note B
Trading
Interest 1,107 718 673
Net gains/(losses)
Realized (10) 47 31
Unrealized 1 (43) (83)
Held-to-maturity
Interest 176 103 100
Income from securities purchased under resale agreements--Note B 59 53 66
Income from investments designated for other postretirement
benefits--Notes B and J 107 -- --
Income (expense) from Staff Retirement Plan--Note I 182 63 (60)
Other income 10 12 11
------ ------ ------
Total income 8,513 8,188 8,660
------ ------ ------
EXPENSES
Borrowing expenses--Note D
Interest 6,000 5,827 6,455
Prepayment (gains)/losses (7) 16 9
Amortization of issuance and other borrowing costs 151 109 106
Interest on securities sold under repurchase agreements and payable for
cash collateral received--Note B 100 44 67
Administrative expenses--Notes G and H 763 714 673
Other postretirement benefits expense--Note J 50 -- --
Provision for loan losses--Note C 251 63 42
Other expenses 10 10 8
------ ------ ------
Total expenses 7,318 6,783 7,360
------ ------ ------
OPERATING INCOME 1,195 1,405 1,300
Effect of accounting change--Note J 160 -- --
Contributions to special programs--Note G (112) (120) (113)
------ ------ ------
NET INCOME $1,243 $1,285 $1,187
------ ------ ------
------ ------ ------
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
<PAGE>
IBRD Financial Statements 31
- ------------------------------------------------------------------------------
Statement of Changes in Retained Earnings
For the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Retained earnings at beginning of the fiscal year $16,194 $16,099 $15,502
Board of Governors-approved transfers to--Note F
International Development Association (304) (600) (250)
Debt Reduction Facility for IDA-Only Countries -- -- (100)
Trust Fund for Gaza and West Bank -- (90) (90)
Trust Fund for Bosnia and Herzegovina -- -- (150)
Heavily Indebted Poor Countries Debt Initiative Trust Fund (250) (500) --
Multilateral Investment Guarantee Agency (150) -- --
Net income for the fiscal year 1,243 1,285 1,187
-------- -------- -------
Retained earnings at end of the fiscal year $16,733 $16,194 $16,099
-------- -------- -------
-------- -------- -------
</TABLE>
- -------------------------------------------------------------------------------
Statement of Changes in Cumulative Translation Adjustment
For the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996
Expressed in millions of U.S. dollars
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- ---------
<S> <C> <C> <C>
Cumulative translation adjustment at beginning of the fiscal year $ 85 $ 1,056 $ 3,308
Translation adjustment for the fiscal year (1,045) (971) (2,252)
---------- -------- ---------
Cumulative translation adjustment at end of the fiscal year $ (960) $ 85 $ 1,056
---------- -------- ---------
---------- -------- ---------
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
<PAGE>
32 IBRD Financial Statements
- ------------------------------------------------------------------------------
Statement of Cash Flows
For the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Cash flows from lending and investing activities
Loans
Disbursements $(19,283) $(14,009) $(13,321)
Principal repayments 10,146 10,710 11,494
Principal prepayments 1,372 1,311 812
Investments: Held-to-maturity
Purchases of securities and repayments of securities sold
under repurchase agreements (33,202) (8,911) (5,417)
Maturities of securities and proceeds from securities sold under
repurchase agreements 33,184 8,895 5,422
-------- -------- -------
Net cash used in lending and investing activities (7,783) (2,004) (1,010)
-------- -------- -------
Cash flows from Board of Governors-approved transfers to
International Development Association (298) (599) (250)
Debt Reduction Facility for IDA-Only Countries (18) (1) (86)
Trust Fund for Gaza and West Bank, Trust Fund for Bosnia and
Herzegovina, and Emergency Assistance for Rwanda (60) (91) (179)
Heavily Indebted Poor Countries Debt Initiative Trust Fund (250) (500) --
Multilateral Investment Guarantee Agency (150) -- --
-------- -------- -------
Net cash used in Board of Governors-approved transfers (776) (1,191) (515)
-------- -------- -------
Cash flows from financing activities
Medium- and long-term borrowings
New issues 27,748 14,928 9,851
Retirements (13,569) (14,137) (10,330)
Net short-term borrowings (1,009) 3,277 340
Net currency swaps (300) (266) (649)
Net capital stock transactions 217 71 111
-------- -------- -------
Net cash provided by (used in) financing activities 13,087 3,873 (677)
-------- -------- -------
Cash flows from operating activities
Net income 1,243 1,285 1,187
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 855 541 399
Provision for loan losses 251 63 42
Changes in other assets and liabilities
(Increase) decrease in accrued income on loans and investments (204) 18 176
Decrease (increase) in miscellaneous assets 8 (153) (80)
Increase in net assets associated with other postretirement benefits (739) -- --
Increase (decrease) in accrued charges on borrowings 448 (49) (214)
Increase (decrease) in accounts payable and miscellaneous liabilities 335 35 (18)
-------- -------- -------
Net cash provided by operating activities 2,197 1,740 1,492
-------- -------- -------
Effect of exchange rate changes on unrestricted cash and
liquid investments (205) (319) (1,632)
-------- -------- -------
Net increase (decrease) in unrestricted cash and liquid investments 6,520 2,099 (2,342)
Unrestricted cash and liquid investments at beginning of the
fiscal year 16,829 14,730 17,072
-------- -------- -------
Unrestricted cash and liquid investments at end of the fiscal year $ 23,349 $ 16,829 $ 14,730
-------- -------- -------
-------- -------- -------
</TABLE>
<PAGE>
IBRD Financial Statements 33
- ------------------------------------------------------------------------------
Statement of Cash Flows
For the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Composition of unrestricted cash and liquid investments:
Investments held in trading portfolio $23,284 $ 17,229 $ 15,001
Unrestricted currencies 55 26 27
Net receivable (payable) for investment securities traded/purchased 7 (106) 857
Net receivable (payable) from currency swaps--Investments 397 (123) 2
Net payable for securities purchased/sold under resale/repurchase
agreements and payable for cash collateral received (394) (197) (1,157)
-------- -------- -------
$23,349 $ 16,829 $ 14,730
-------- -------- -------
-------- -------- -------
Supplemental disclosure
Increase (decrease) in ending balances resulting from exchange
rate fluctuations
Loans outstanding $ (6,994) $ (6,429) $(14,436)
Investments: Held-to-maturity 2 94 (29)
Borrowings (7,239) (4,701) (11,731)
Currency swaps--Borrowings 1,632 (495) (1,184)
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
<PAGE>
34 IBRD Financial Statements
- ------------------------------------------------------------------------------
Summary Statement of Loans
June 30, 1998
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Loans Undisbursed Percentage
approved balance of of total
Total but not yet effective Loans loans
Borrower or guarantor loans effective(1) loans(2) outstanding outstanding
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Algeria $ 2,360 $ 150 $ 515 $ 1,695 1.59
Argentina 9,116 1,232 2,362 5,522 5.18
Armenia 9 -- -- 9 0.01
Bahamas, The 6 -- -- 6 0.01
Bangladesh 35 -- -- 35 0.03
Barbados 27 -- 14 13 0.01
Belarus 147 -- 26 121 0.11
Belize 50 -- 11 39 0.04
Bolivia 28 -- -- 28 0.03
Bosnia and Herzegovina 557 -- -- 557 0.52
Botswana 39 -- -- 39 0.04
Brazil 9,612 1,177 2,737 5,698 5.35
Bulgaria 823 16 198 609 0.57
Cameroon 368 -- 3 365 0.34
Chile 1,069 -- 151 918 0.86
China 17,735 3,316 5,849 8,570 8.04
Colombia 2,371 85 643 1,643 1.54
Congo, Democratic Republic of 81 -- -- 81 0.08
Congo, Republic of 67 -- -- 67 0.06
Costa Rica 217 -- 40 177 0.17
Cote d'Ivoire 952 -- -- 952 0.89
Croatia 610 77 249 284 0.27
Cyprus 69 -- 21 48 0.05
Czech Republic 434 -- 74 360 0.34
Dominica 5 1 4 -- --
Dominican Republic 367 33 137 197 0.18
Ecuador 1,154 111 227 816 0.77
Egypt, Arab Republic of 983 20 154 809 0.76
El Salvador 572 146 162 264 0.25
Estonia 107 -- 33 74 0.07
Fiji 37 -- 9 28 0.03
Gabon 97 -- 23 74 0.07
Ghana 28 -- -- 28 0.03
Grenada 5 1 4 -- --
Guatemala 355 111 59 185 0.17
Guyana 16 -- -- 16 0.02
Honduras 246 -- -- 246 0.23
Hungary 1,160 147 306 707 0.66
India 11,914 478 3,567 7,869 7.38
Indonesia 14,514 672 3,997 9,845 9.24
Iran, Islamic Republic of 727 -- 307 420 0.39
Iraq 42 -- -- 42 0.04
Jamaica 551 -- 154 397 0.37
Jordan 890 5 168 717 0.67
Kazakhstan 1,414 15 657 742 0.70
Kenya 173 -- -- 173 0.16
Korea, Republic of 6,666 -- 249 6,417 6.02
Latvia 229 8 67 154 0.14
Lebanon 626 105 360 161 0.15
Lesotho 122 45 20 57 0.05
</TABLE>
<PAGE>
IBRD Financial Statements 35
- ------------------------------------------------------------------------------
Summary Statement of Loans (Continued)
June 30, 1998
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Loans Undisbursed Percentage
approved balance of of total
Total but not yet effective Loans loans
Borrower or guarantor loans effective(1) loans(2) outstanding outstanding
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Liberia $ 131 $ -- $ -- $ 131 0.12
Lithuania 260 -- 140 120 0.11
Macedonia, former Yugoslav Republic of 164 34 45 85 0.08
Madagascar 2 -- -- 2 *
Malawi 27 -- -- 27 0.03
Malaysia 1,071 -- 82 989 0.93
Mauritania 4 -- -- 4 *
Mauritius 146 12 29 105 0.10
Mexico 15,074 2,242 2,040 10,792 10.13
Moldova 245 12 88 145 0.14
Morocco 3,955 29 695 3,231 3.03
Nicaragua 18 -- -- 18 0.02
Nigeria 2,375 -- 191 2,184 2.05
Oman 11 -- -- 11 0.01
Pakistan 3,584 -- 660 2,924 2.74
Panama 339 -- 126 213 0.20
Papua New Guinea 311 5 49 257 0.24
Paraguay 374 40 189 145 0.14
Peru 2,752 22 696 2,034 1.91
Philippines 5,032 136 927 3,969 3.72
Poland 2,988 -- 963 2,025 1.90
Portugal 13 -- -- 13 0.01
Romania 2,390 35 1,041 1,314 1.23
Russian Federation 9,170 153 3,356 5,661 5.31
St. Kitts and Nevis 4 1 2 1 *
St. Lucia 10 1 5 4 *
St. Vincent and the Grenadines 3 1 2 * *
Senegal 11 -- -- 11 0.01
Seychelles 6 -- 2 4 *
Sierra Leone 1 -- -- 1 *
Slovak Republic 235 -- 14 221 0.21
Slovenia 137 -- 8 129 0.12
South Africa 46 46 -- -- --
Sri Lanka 27 -- -- 27 0.03
Sudan 6 -- -- 6 0.01
Swaziland 33 -- 24 9 0.01
Syrian Arab Republic 71 -- -- 71 0.07
Tanzania 27 -- -- 27 0.03
Thailand 2,554 -- 905 1,649 1.55
Trinidad and Tobago 143 -- 66 77 0.07
Tunisia 2,176 129 668 1,379 1.29
Turkey 4,833 583 926 3,324 3.12
Turkmenistan 89 -- 80 9 0.01
Ukraine 2,076 219 746 1,111 1.04
Uruguay 715 -- 247 468 0.44
</TABLE>
<PAGE>
36 IBRD Financial Statements
- ------------------------------------------------------------------------------
Summary Statement of Loans (Continued)
June 30, 1998
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Loans Undisbursed Percentage
approved balance of of total
Total but not yet effective Loans loans
Borrower or guarantor loans effective(1) loans(2) outstanding outstanding
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Uzbekistan $ 339 $ 52 $ 134 $ 153 0.14
Venezuela 1,714 8 536 1,170 1.10
Yugoslavia, Federal Republic of
(Serbia/Montenegro)3 1,089 -- -- 1,089 1.02
Zambia 46 -- -- 46 0.04
Zimbabwe 534 -- 78 456 0.43
Subtotal(5) 157,143 11,711 39,317 106,115 99.56
Caribbean Development Bank(4) 33 -- 25 8 0.01
International Finance Corporation 465 -- 12 453 0.43
---------- ---------- ---------- ---------- ----------
Total--June 30, 19985 $157,641 $11,711 $39,354 $106,576 100.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total--June 30, 1997 $157,381 $ 9,027 $42,549 $105,805
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
* Indicates amount less than $0.5 million or less than 0.005 percent.
NOTES
1. Loans totaling $8,930 million ($6,417 million--June 30, 1997) have been
approved by IBRD, but the related agreements have not been signed. Loan
agreements totaling $2,781 million ($2,610 million--June 30, 1997) have
been signed, but the loans do not become effective and disbursements
thereunder do not start until the borrowers and guarantors, if any, take
certain actions and furnish certain documents to IBRD.
2. Of the undisbursed balance, IBRD has entered into irrevocable commitments
to disburse $1,215 million ($1,937 million--June 30, 1997).
3. See Notes to Financial Statements--Notes A and C.
4. These loans are for the benefit of The Bahamas, Barbados, Grenada, Guyana,
Jamaica, Trinidad and Tobago, and territories of the United Kingdom
(Associated States and Dependencies) in the Caribbean Region, that are
severally liable as guarantors to the extent of subloans made in their
territories.
5. May differ from the sum of individual figures shown due to rounding.
<PAGE>
IBRD Financial Statements 37
- ------------------------------------------------------------------------------
Statement of Subscriptions to
Capital Stock and Voting Power
June 30, 1998
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Subscriptions Voting Power
------------------------------------------------------------------ -----------------------
Percentage Amounts Number Percentage
of Total Amounts subject of of
Member Shares total amounts paid in(1) to call(1)(2) votes total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Afghanistan 300 0.02 $ 36.2 $ 3.6 $ 32.6 550 0.03
Albania 830 0.05 100.1 3.6 96.5 1,080 0.07
Algeria 9,252 0.60 1,116.1 67.1 1,049.0 9,502 0.60
Angola 2,676 0.17 322.8 17.5 305.4 2,926 0.18
Antigua and Barbuda 520 0.03 62.7 1.3 61.5 770 0.05
Argentina 17,911 1.16 2,160.7 132.2 2,028.4 18,161 1.14
Armenia 1,139 0.07 137.4 5.9 131.5 1,389 0.09
Australia 24,464 1.58 2,951.2 181.8 2,769.5 24,714 1.55
Austria 11,063 0.72 1,334.6 80.7 1,253.9 11,313 0.71
Azerbaijan 1,646 0.11 198.6 9.7 188.8 1,896 0.12
Bahamas, The 1,071 0.07 129.2 5.4 123.8 1,321 0.08
Bahrain 1,103 0.07 133.1 5.7 127.4 1,353 0.09
Bangladesh 4,854 0.31 585.6 33.9 551.6 5,104 0.32
Barbados 948 0.06 114.4 4.5 109.9 1,198 0.08
Belarus 3,323 0.22 400.9 22.3 378.5 3,573 0.22
Belgium 28,983 1.88 3,496.4 215.8 3,280.6 29,233 1.84
Belize 586 0.04 70.7 1.8 68.9 836 0.05
Benin 868 0.06 104.7 3.9 100.8 1,118 0.07
Bhutan 479 0.03 57.8 1.0 56.8 729 0.05
Bolivia 1,785 0.12 215.3 10.8 204.5 2,035 0.13
Bosnia and Herzegovina 549 0.04 66.2 5.8 60.4 799 0.05
Botswana 615 0.04 74.2 2.0 72.2 865 0.05
Brazil 24,946 1.61 3,009.4 185.1 2,824.2 25,196 1.58
Brunei Darussalam 2,373 0.15 286.3 15.2 271.1 2,623 0.16
Bulgaria 5,215 0.34 629.1 36.5 592.6 5,465 0.34
Burkina Faso 868 0.06 104.7 3.9 100.8 1,118 0.07
Burundi 716 0.05 86.4 3.0 83.4 966 0.06
Cambodia 214 0.01 25.8 2.6 23.2 464 0.03
Cameroon 1,527 0.10 184.2 9.0 175.2 1,777 0.11
Canada 44,795 2.90 5,403.8 334.9 5,068.9 45,045 2.83
Cape Verde 508 0.03 61.3 1.2 60.1 758 0.05
Central African Republic 862 0.06 104.0 3.9 100.1 1,112 0.07
Chad 862 0.06 104.0 3.9 100.1 1,112 0.07
Chile 6,931 0.45 836.1 49.6 786.6 7,181 0.45
China 44,799 2.90 5,404.3 335.0 5,069.3 45,049 2.83
Colombia 6,352 0.41 766.3 45.2 721.1 6,602 0.42
Comoros 282 0.02 34.0 0.3 33.7 532 0.03
Congo, Democratic
Republic of 2,643 0.17 318.8 25.4 293.5 2,893 0.18
Congo, Republic of 927 0.06 111.8 4.3 107.5 1,177 0.07
Costa Rica 233 0.02 28.1 1.9 26.2 483 0.03
Cote d Ivoire 2,516 0.16 303.5 16.4 287.1 2,766 0.17
Croatia 2,293 0.15 276.6 17.3 259.3 2,543 0.16
Cyprus 1,461 0.09 176.2 8.4 167.9 1,711 0.11
Czech Republic 6,308 0.41 761.0 45.9 715.0 6,558 0.41
Denmark 10,251 0.66 1,236.6 74.6 1,162.0 10,501 0.66
Djibouti 559 0.04 67.4 1.6 65.9 809 0.05
Dominica 504 0.03 60.8 1.1 59.7 754 0.05
Dominican Republic 2,092 0.14 252.4 13.1 239.3 2,342 0.15
Ecuador 2,771 0.18 334.3 18.2 316.1 3,021 0.19
Egypt, Arab Republic of 7,108 0.46 857.5 50.9 806.6 7,358 0.46
</TABLE>
<PAGE>
38 IBRD Financial Statements
- ------------------------------------------------------------------------------
Statement of Subscriptions to
Capital Stock and Voting Power (Continued)
June 30, 1998
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Subscriptions Voting Power
------------------------------------------------------------------ -----------------------
Percentage Amounts Number Percentage
of Total Amounts subject of of
Member Shares total amounts paid in(1) to call(1)(2) votes total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
El Salvador 141 0.01 $ 17.0 $ 1.7 $ 15.3 391 0.02
Equatorial Guinea 715 0.05 86.3 2.7 83.5 965 0.06
Eritrea 593 0.04 71.5 1.8 69.7 843 0.05
Estonia 923 0.06 111.3 4.3 107.1 1,173 0.07
Ethiopia 978 0.06 118.0 4.7 113.3 1,228 0.08
Fiji 987 0.06 119.1 4.8 114.3 1,237 0.08
Finland 8,560 0.55 1,032.6 61.9 970.8 8,810 0.55
France 69,397 4.49 8,371.7 520.4 7,851.3 69,647 4.38
Gabon 987 0.06 119.1 5.1 113.9 1,237 0.08
Gambia, The 543 0.04 65.5 1.5 64.0 793 0.05
Georgia 1,584 0.10 191.1 9.3 181.8 1,834 0.12
Germany 72,399 4.68 8,733.9 542.9 8,190.9 72,649 4.57
Ghana 1,525 0.10 184.0 12.7 171.2 1,775 0.11
Greece 1,684 0.11 203.1 14.1 189.1 1,934 0.12
Grenada 531 0.03 64.1 1.4 62.7 781 0.05
Guatemala 2,001 0.13 241.4 12.4 229.0 2,251 0.14
Guinea 1,292 0.08 155.9 7.1 148.8 1,542 0.10
Guinea-Bissau 540 0.03 65.1 1.4 63.7 790 0.05
Guyana 1,058 0.07 127.6 5.3 122.3 1,308 0.08
Haiti 1,067 0.07 128.7 5.4 123.3 1,317 0.08
Honduras 641 0.04 77.3 2.3 75.0 891 0.06
Hungary 8,050 0.52 971.1 58.0 913.1 8,300 0.52
Iceland 1,258 0.08 151.8 6.8 144.9 1,508 0.09
India 44,795 2.90 5,403.8 333.7 5,070.1 45,045 2.83
Indonesia 14,981 0.97 1,807.2 110.3 1,697.0 15,231 0.96
Iran, Islamic Republic of 23,686 1.53 2,857.4 175.8 2,681.5 23,936 1.50
Iraq 2,808 0.18 338.7 27.1 311.6 3,058 0.19
Ireland 5,271 0.34 635.9 37.1 598.8 5,521 0.35
Israel 4,750 0.31 573.0 33.2 539.8 5,000 0.31
Italy 44,795 2.90 5,403.8 334.8 5,069.0 45,045 2.83
Jamaica 2,578 0.17 311.0 16.8 294.2 2,828 0.18
Japan 127,000 8.22 15,320.6 944.0 14,376.7 127,250 8.00
Jordan 1,388 0.09 167.4 7.8 159.6 1,638 0.10
Kazakhstan 2,985 0.19 360.1 19.8 340.3 3,235 0.20
Kenya 2,461 0.16 296.9 15.9 281.0 2,711 0.17
Kiribati 465 0.03 56.1 0.9 55.2 715 0.04
Korea, Republic of 9,372 0.61 1,130.6 67.9 1,062.7 9,622 0.60
Kuwait 13,280 0.86 1,602.0 97.4 1,504.6 13,530 0.85
Kyrgyz Republic 1,107 0.07 133.5 5.7 127.9 1,357 0.09
Lao People's
Democratic Republic 178 0.01 21.5 1.5 20.0 428 0.03
Latvia 1,384 0.09 167.0 7.8 159.2 1,634 0.10
Lebanon 340 0.02 41.0 1.1 39.9 590 0.04
Lesotho 663 0.04 80.0 2.3 77.6 913 0.06
Liberia 463 0.03 55.9 2.6 53.3 713 0.04
Libya 7,840 0.51 945.8 57.0 888.8 8,090 0.51
Lithuania 1,507 0.10 181.8 8.7 173.1 1,757 0.11
Luxembourg 1,652 0.11 199.3 9.8 189.5 1,902 0.12
Macedonia, former
Yugoslav Republic of 427 0.03 51.5 3.2 48.3 677 0.04
Madagascar 1,422 0.09 171.5 8.1 163.5 1,672 0.11
Malawi 1,094 0.07 132.0 5.6 126.4 1,344 0.08
</TABLE>
<PAGE>
IBRD Financial Statements 39
- ------------------------------------------------------------------------------
Statement of Subscriptions to
Capital Stock and Voting Power
June 30, 1998
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Subscriptions Voting Power
------------------------------------------------------------------ -----------------------
Percentage Amounts Number Percentage
of Total Amounts subject of of
Member Shares total amounts paid in(1) to call(1)(2) votes total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Malaysia 8,244 0.53 $ 994.5 $ 59.5 $ 935.0 8,494 0.53
Maldives 469 0.03 56.6 0.9 55.7 719 0.05
Mali 1,162 0.08 140.2 6.1 134.1 1,412 0.09
Malta 1,074 0.07 129.6 5.4 124.1 1,324 0.08
Marshall Islands 469 0.03 56.6 0.9 55.7 719 0.05
Mauritania 900 0.06 108.6 4.1 104.4 1,150 0.07
Mauritius 1,242 0.08 149.8 6.7 143.1 1,492 0.09
Mexico 18,804 1.22 2,268.4 139.0 2,129.4 19,054 1.20
Micronesia,
Federated States of 479 0.03 57.8 1.0 56.8 729 0.05
Moldova 1,368 0.09 165.0 7.6 157.4 1,618 0.10
Mongolia 466 0.03 56.2 2.3 53.9 716 0.05
Morocco 4,973 0.32 599.9 34.8 565.1 5,223 0.33
Mozambique 930 0.06 112.2 4.8 107.4 1,180 0.07
Myanmar 2,484 0.16 299.7 16.1 283.6 2,734 0.17
Namibia 1,523 0.10 183.7 8.8 174.9 1,773 0.11
Nepal 968 0.06 116.8 4.6 112.1 1,218 0.08
Netherlands 35,503 2.30 4,282.9 264.8 4,018.1 35,753 2.25
New Zealand 7,236 0.47 872.9 51.9 821.0 7,486 0.47
Nicaragua 608 0.04 73.3 2.1 71.3 858 0.05
Niger 852 0.06 102.8 3.8 99.0 1,102 0.07
Nigeria 12,655 0.82 1,526.6 92.7 1,433.9 12,905 0.81
Norway 9,982 0.65 1,204.2 72.6 1,131.6 10,232 0.64
Oman 1,561 0.10 188.3 9.1 179.2 1,811 0.11
Pakistan 9,339 0.60 1,126.6 67.8 1,058.9 9,589 0.60
Palau, Republic of 16 0.00 1.9 0.2 1.8 266 0.02
Panama 385 0.02 46.4 3.2 43.2 635 0.04
Papua New Guinea 1,294 0.08 156.1 7.1 149.0 1,544 0.10
Paraguay 1,229 0.08 148.3 6.6 141.6 1,479 0.09
Peru 5,331 0.34 643.1 37.5 605.6 5,581 0.35
Philippines 6,844 0.44 825.6 48.9 776.7 7,094 0.45
Poland 10,908 0.71 1,315.9 79.6 1,236.3 11,158 0.70
Portugal 5,460 0.35 658.7 38.5 620.2 5,710 0.36
Qatar 1,096 0.07 132.2 9.0 123.3 1,346 0.08
Romania 4,011 0.26 483.9 30.5 453.4 4,261 0.27
Russian Federation 44,795 2.90 5,403.8 333.9 5,070.0 45,045 2.83
Rwanda 1,046 0.07 126.2 5.2 120.9 1,296 0.08
St. Kitts and Nevis 275 0.02 33.2 0.3 32.9 525 0.03
St. Lucia 552 0.04 66.6 1.5 65.1 802 0.05
St. Vincent and
the Grenadines 278 0.02 33.5 0.3 33.2 528 0.03
Samoa 531 0.03 64.1 1.4 62.7 781 0.05
Sao Tome and Principe 495 0.03 59.7 1.1 58.6 745 0.05
Saudi Arabia 44,795 2.90 5,403.8 335.0 5,068.9 45,045 2.83
Senegal 2,072 0.13 250.0 13.0 237.0 2,322 0.15
Seychelles 263 0.02 31.7 0.2 31.6 513 0.03
Sierra Leone 718 0.05 86.6 3.0 83.6 968 0.06
Singapore 320 0.02 38.6 3.9 34.7 570 0.04
Slovak Republic 3,216 0.21 388.0 23.0 365.0 3,466 0.22
Slovenia 1,261 0.08 152.1 9.5 142.6 1,511 0.09
Solomon Islands 513 0.03 61.9 1.2 60.7 763 0.05
Somalia 552 0.04 66.6 3.3 63.3 802 0.05
</TABLE>
<PAGE>
40 IBRD Financial Statements
- ------------------------------------------------------------------------------
Statement of Subscriptions to
Capital Stock and Voting Power (Continued)
June 30, 1998
Expressed in millions of U.S. dollars
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Subscriptions Voting Power
------------------------------------------------------------------ -----------------------
Percentage Amounts Number Percentage
of Total Amounts subject of of
Member Shares total amounts paid in(1) to call(1)(2) votes total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
South Africa 13,462 0.87 $ 1,624.0 $ 98.8 $ 1,525.2 13,712 0.86
Spain 23,686 1.53 2,857.4 175.6 2,681.7 23,936 1.50
Sri Lanka 3,817 0.25 460.5 26.1 434.3 4,067 0.26
Sudan 850 0.05 102.5 7.2 95.3 1,100 0.07
Suriname 412 0.03 49.7 2.0 47.7 662 0.04
Swaziland 440 0.03 53.1 2.0 51.1 690 0.04
Sweden 14,974 0.97 1,806.4 110.2 1,696.2 15,224 0.96
Switzerland 26,606 1.72 3,209.6 197.2 3,012.4 26,856 1.69
Syrian Arab Republic 2,202 0.14 265.6 14.0 251.7 2,452 0.15
Tajikistan 1,060 0.07 127.9 5.3 122.5 1,310 0.08
Tanzania 1,295 0.08 156.2 10.0 146.2 1,545 0.10
Thailand 6,349 0.41 765.9 45.2 720.7 6,599 0.41
Togo 1,105 0.07 133.3 5.7 127.6 1,355 0.09
Tonga 494 0.03 59.6 1.1 58.5 744 0.05
Trinidad and Tobago 2,664 0.17 321.4 17.6 303.7 2,914 0.18
Tunisia 719 0.05 86.7 5.7 81.1 969 0.06
Turkey 7,379 0.48 890.2 52.9 837.2 7,629 0.48
Turkmenistan 526 0.03 63.5 2.9 60.5 776 0.05
Uganda 617 0.04 74.4 4.4 70.1 867 0.05
Ukraine 10,908 0.71 1,315.9 79.3 1,236.6 11,158 0.70
United Arab Emirates 2,385 0.15 287.7 22.6 265.1 2,635 0.17
United Kingdom 69,397 4.49 8,371.7 539.5 7,832.2 69,647 4.38
United States 264,969 17.15 31,964.5 1,998.4 29,966.2 265,219 16.67
Uruguay 2,812 0.18 339.2 18.6 320.7 3,062 0.19
Uzbekistan 2,493 0.16 300.7 16.1 284.7 2,743 0.17
Vanuatu 586 0.04 70.7 1.8 68.9 836 0.05
Venezuela 20,361 1.32 2,456.2 150.8 2,305.5 20,611 1.30
Vietnam 968 0.06 116.8 8.1 108.7 1,218 0.08
Yemen, Republic of 2,212 0.14 266.8 14.0 252.8 2,462 0.15
Zambia 2,810 0.18 339.0 20.0 319.0 3,060 0.19
Zimbabwe 3,325 0.22 401.1 22.4 378.7 3,575 0.22
--------- ------ -------- ------- -------- --------- ------
Total--June 30, 1998(2) 1,545,457 100.00 $186,436 $11,288 $175,148 1,590,707 100.00
--------- ------ -------- ------- -------- --------- ------
--------- ------ -------- ------- -------- --------- ------
Total--June 30, 1997 1,512,211 100.00 $182,426 $11,048 $171,378 1,557,211
--------- ------ -------- ------- -------- ---------
--------- ------ -------- ------- -------- ---------
</TABLE>
NOTES
1. See Notes to Financial Statements Note A.
2. May differ from the sum of individual figures shown due to rounding.
The Notes to Financial Statements are an integral part of these Statements.
<PAGE>
IBRD Financial Statements 41
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Notes to Financial Statements
- ------------------------------------------------------------------------------
Purpose and Affiliated Organizations
The International Bank for Reconstruction and Development (IBRD) is an
international organization which commenced operations in 1946. The principal
purpose of IBRD is to promote economic development in its member countries,
primarily by providing loans and related technical assistance for specific
projects and for programs of economic reform in developing member countries.
The activities of IBRD are complemented by those of three affiliated
organizations, the International Development Association (IDA), the
International Finance Corporation (IFC), and the Multilateral Investment
Guarantee Agency (MIGA). Each of these organizations is legally and
financially independent from IBRD, with separate assets and liabilities, and
IBRD is not liable for their respective obligations. IDA's purpose is to
promote economic development in the less developed areas of the world
included in IDA's membership by providing financing on concessionary terms.
IFC's purpose is to encourage the growth of productive private enterprises in
its member countries through loans and equity investments in such enterprises
without a member's guarantee. MIGA was established to encourage the flow of
investments for productive purposes among member countries and, in
particular, to developing member countries by providing guarantees against
noncommercial risks for foreign investment in its developing member countries.
Summary of Significant Accounting and Related Policies
IBRD's financial statements are prepared in conformity with the accounting
principles generally accepted in the United States and with International
Accounting Standards.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from these estimates. Significant judgments have
been used in the computation of estimated and fair values of loans and
borrowings, the determination of the adequacy of the Accumulated Provision
for Loan Losses, the determination of net periodic pension cost and the
present value of obligations.
Certain reclassifications of the prior years' information have been made to
conform to the current year's presentation.
Translation of Currencies: IBRD's financial statements are expressed in terms
of U.S. dollars solely for the purpose of summarizing IBRD's financial
position and the results of its operations for the convenience of its members
and other interested parties.
IBRD is an international organization which conducts its operations in the
currencies of all of its members. IBRD's resources are derived from its
capital, borrowings, and accumulated earnings in those various currencies.
IBRD has a number of general policies aimed at minimizing exchange rate risk
in a multicurrency environment. IBRD matches its borrowing obligations in any
one currency (after swaps) with assets in the same currency, as prescribed by
its Articles of Agreement, primarily by holding or lending the proceeds of
its borrowings (after swaps) in the same currencies in which they are
borrowed. In addition, IBRD periodically undertakes currency conversions to
more closely match the currencies underlying its Retained Earnings with those
of the outstanding loans.
Assets and liabilities are translated at market exchange rates in effect at
the end of the period. Income and expenses are translated at either the
market exchange rates in effect on the dates on which they are recognized or
at an average of the market exchange rates in effect during each month.
Translation adjustments are charged or credited to Equity.
Valuation of Capital Stock: In the Articles of Agreement, the capital stock
of IBRD is expressed in terms of "U.S. dollars of the weight and fineness in
effect on July 1, 1944" (1944 dollars). Following the abolition of gold as a
common denominator of the monetary system and the repeal of the provision of
the U.S. law defining the par value of the U.S. dollar in terms of gold, the
pre-existing basis for translating 1944 dollars into current dollars or into
any other currency disappeared. The Executive
<PAGE>
42 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Directors of IBRD have decided, until such time as the relevant provisions of
the Articles of Agreement are amended, that the words "U.S. dollars of the
weight and fineness in effect on July 1, 1944" in Article II, Section 2(a) of
the Articles of Agreement of IBRD are interpreted to mean the Special Drawing
Right (SDR) introduced by the International Monetary Fund, as the SDR was
valued in terms of U.S. dollars immediately before the introduction of the
basket method of valuing the SDR on July 1, 1974, such value being $1.20635
for one SDR.
Maintenance of Value: Article II, Section 9 of the Articles of Agreement
provides for maintenance of the value (MOV), at the time of subscription, of
such restricted currencies (see Note A), requiring (1) the member to make
additional payments to IBRD in the event that the par value of its currency
is reduced or the foreign exchange value of its currency has, in the opinion
of IBRD, depreciated to a significant extent in its territories and (2) IBRD
to reimburse the member in the event that the par value of its currency is
increased.
Since currencies no longer have par values, maintenance of value amounts are
determined by measuring the foreign exchange value of a member's currency
against the standard of value of IBRD capital based on the 1974 SDR. Members
are required to make payments to IBRD if their currencies depreciate
significantly relative to the standard of value. Furthermore, the Executive
Directors have adopted a policy of reimbursing members whose currencies
appreciate significantly in terms of the standard of value.
The net MOV amounts relating to restricted currencies out on loan, and
amounts that have been reclassified from receivables for those countries that
have been in arrears for two years or more, are included in Amounts to
Maintain Value of Currency Holdings. For amounts on loan, these MOV amounts
are shown as a component of Equity since MOV becomes effective only as such
currencies are repaid to IBRD.
Retained Earnings: Retained Earnings consists of allocated amounts (Special
Reserve, General Reserve, Pension Reserve and Surplus) and unallocated Net
Income.
The Special Reserve consists of loan commissions set aside pursuant to
Article IV, Section 6 of the Articles of Agreement, which are to be held in
liquid assets. These assets may be used only for the purpose of meeting
liabilities of IBRD on its borrowings and guarantees in the event of defaults
on loans made, participated in, or guaranteed by IBRD. The Special Reserve
assets are included under Investments held in the Trading portfolio,
comprising obligations of the United States Government, its agencies, and
other official entities. The allocation of such commissions to the Special
Reserve was discontinued in 1964 with respect to subsequent loans and no
further additions are being made to it.
The General Reserve consists of earnings from prior fiscal years which, in
the judgment of the Executive Directors, should be retained in IBRD's
operations.
The Pension Reserve consists of the difference between actual funding of the
Staff Retirement Plan (the Plan) and the Plan's accounting income for the
fiscal year 1997. This Pension Reserve would be reduced if in any future
fiscal year pension accounting expenses were to exceed the actual funding of
the Plan.
Surplus consists of earnings from prior fiscal years which are retained by
IBRD until a further decision is made on their disposition or the conditions
of transfer for specified uses have been met.
Unallocated Net Income consists of earnings in the current fiscal year.
Commencing in 1950, a portion or all of the unallocated Net Income has been
allocated to the General Reserve. The Board of Governors, consisting of one
Governor appointed by each member, periodically approves transfers out of
unallocated Net Income and Surplus, components of Retained Earnings, after an
assessment by the Executive Directors of IBRD's reserve needs, to various
entities for development purposes consistent with IBRD's Articles of
Agreement.
<PAGE>
IBRD Financial Statements 43
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Loans: All of IBRD's loans are made to or guaranteed by members, except loans
to IFC. The majority of IBRD's loans have repayment obligations in various
currencies determined on the basis of a currency pooling system. IBRD also
offers single currency loans. Except for certain loans which were converted
to the currency pooling system, loans negotiated prior to July 1980 and all
single currency loans are repayable in the currencies disbursed.
Any loan origination fees incorporated in a loan's terms are deferred and
recognized over the life of the loan as an adjustment of yield. However,
incremental direct costs associated with originating loans are expensed as
incurred as such amounts are considered immaterial.
It is IBRD's practice not to reschedule interest or principal payments on its
loans or participate in debt rescheduling agreements with respect to its
loans. In exceptional cases, however, such as when implementation of a
financed project has been delayed, the loan amortization schedule may be
modified to avoid substantial repayments prior to project completion. Delays
in receiving loan payments result in present value losses to IBRD since it
does not charge fees or additional interest on any overdue interest or loan
charges. These present value losses are equal to the difference between the
present value of payments for interest and charges made according to the
related loan's contractual terms and the present value of its expected future
cash flows. Such present value losses are considered in the determination of
the Accumulated Provision for Loan Losses. IBRD has not written off any of
its outstanding loans.
It is the policy of IBRD to place in nonaccrual status all loans made to or
guaranteed by a member of IBRD if principal, interest, or other charges with
respect to any such loan are overdue by more than six months, unless IBRD
management determines that the overdue amount will be collected in the
immediate future. In addition, if development credits made by IDA to a
member government are placed in nonaccrual status, all loans made to or
guaranteed by that member government will also be placed in nonaccrual status
by IBRD. On the date a member's loans are placed in nonaccrual status, unpaid
interest and other charges accrued on loans outstanding to the member are
deducted from the income of the current period. Interest and other charges on
nonaccruing loans are included in income only to the extent that payments
have actually been received by IBRD. If collectibility risk is considered to
be particularly high at the time of arrears clearance, the member's loans may
not automatically emerge from nonaccrual status, even though the member's
eligibility for new loans may have been restored. A decision on the
restoration of accrual status is made on a case-by-case basis after a
suitable period of payment performance has passed from the time of arrears
clearance.
IBRD determines the Accumulated Provision for Loan Losses based on an
assessment of collectibility risk in the total loan and callable guarantees
portfolio, including loans in nonaccrual status. The accumulated provision is
periodically adjusted based on a review of the prevailing circumstances.
Adjustments to the accumulated provision are recorded as a charge or credit
to income. In the context of determining the adequacy of the Accumulated
Provision for Loan Losses, IBRD considers the present value of expected cash
flows relative to the contractual cash flows for loans.
Investments: Investment securities are classified based on IBRD management's
intention on the date of purchase. Securities which management has the
intention and ability to hold until maturity are included in the
Held-to-maturity portfolio and reported at amortized cost. Securities
designated for other postretirement benefits are carried and reported at
market value or at their estimated fair values. The changes in the values of
the securities designated for other postretirement benefits are included in
the determination of net income. All other investment securities are held in
a Trading portfolio and classified as an element of liquidity in the
Statement of Cash Flows due to their nature and IBRD's policies governing the
level and use of such investments. Investment securities and related
financial instruments held in IBRD's Trading portfolio are carried and
reported at market value. Unrealized gains and losses for financial
instruments held in the Trading portfolio are included in income. Derivative
instruments are used in liquidity management to take advantage of profitable
trading opportunities and as a proxy for cash securities. These instruments
include short-term, over-the-counter foreign exchange forwards, currency
swaps, cross-currency interest rate swaps, interest rate swaps, and
exchange-traded futures and options on fixed income instruments. These
<PAGE>
44 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
derivatives are carried at market value. From time to time, IBRD enters
into forward contracts for the sale or purchase of investment securities;
these transactions are recorded at the time of commitment.
Securities Purchased Under Resale Agreements and Securities Sold Under
Repurchase Agreements: Securities purchased under resale agreements and
securities sold under repurchase agreements are recorded at historical cost.
IBRD takes possession of securities purchased under resale agreements,
monitors the fair value of the securities and, if necessary, requires
additional collateral.
Borrowings: To ensure funds are available for lending and liquidity purposes,
IBRD borrows in the worldwide capital markets offering its securities to
private and governmental buyers. IBRD issues short-term and medium- and
long-term debt instruments denominated in various currencies with both fixed
and adjustable interest rates. Borrowings are carried on the balance sheet at
their par value (face value) adjusted for any unamortized premiums or
discounts. Issuance costs associated with a bond offering are deferred and
amortized over the period during which the related indebtedness is
outstanding. The unamortized balance of the issuance costs is included in
Other Assets on the balance sheet, and the issuance costs amortization is
presented as a separate element under Borrowing Expenses on the income
statement. Amortization of discounts and premiums is included in interest
under Borrowing Expenses on the income statement.
IBRD uses derivatives in its borrowing and liability management activities to
create synthetic debt instruments to take advantage of cost saving
opportunities across capital markets and lower its funding costs, to delink
the time at which its borrowing costs are fixed from the timing of the actual
market borrowings, and to establish an appropriate match between the currency
and interest rate characteristics of its assets and liabilities. These
instruments include currency and interest rate swaps, swap spread-locks,
foreign exchange forwards, exchange-traded futures and options. These
derivatives are used to modify the interest rate and/or currency
characteristics of the borrowing portfolio and are linked to the related
borrowings at inception and remain so throughout the terms of their
contracts. The interest component of these derivatives is recognized as an
adjustment to the borrowing cost over the life of the derivative contract and
included in Interest under Borrowing Expenses on the income statement. Upon
termination, the change in the derivative's market value is recorded as an
adjustment to the carrying value of the underlying borrowing and recognized
as an adjustment of the borrowing cost over the remaining life of the
borrowing. In instances where the underlying borrowing is prepaid, the change
in the associated derivative's market value is recognized immediately as an
adjustment to the cost of the underlying borrowing instrument and accordingly
in the determination of net income. Currency swap payables and receivables
are recorded on a historical cost basis and are separate items on the balance
sheet. The notional principal on interest rate swaps is treated as an
off-balance sheet item.
Fair Value Disclosures: Financial instruments for which market quotations are
available have been valued at the prevailing market value. Financial
instruments for which market quotations are not readily available have been
valued using methodologies and assumptions that necessarily require the use
of subjective judgments. Accordingly, the actual value at which such
financial instruments could be exchanged in a current transaction or whether
they are actually exchangeable is not determinable.
Accounting and Reporting Developments
Accounting for Transfers of Assets and Servicing of Financial Assets and
Extinguishments of Liabilities: In June 1996 the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 125 entitled "Accounting for Transfers of Assets and Servicing of
Financial Assets and Extinguishments of Liabilities" which included
provisions that were later deferred by SFAS No. 127. This statement deferred
the provisions for transfers involving repurchase agreements, securities
borrowing/lending and collateral agreements for transfers of financial assets
until January 1, 1998. During the third quarter of fiscal year 1998, IBRD
adopted these provisions prospectively. The adoption of this standard did not
have a material impact on IBRD's financial statements.
<PAGE>
IBRD Financial Statements 45
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Reporting Comprehensive Income: In June 1997 the FASB issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 defines comprehensive income as the change in equity
excluding all transactions with shareholders such as the issuance of stock.
Comprehensive Income has two major components: net income, and other
comprehensive income. Other comprehensive income includes such items as
unrealized gains and losses on available-for-sale securities and foreign
currency translation. This statement is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. Adoption of this
standard will have no effect on IBRD's reported results of operations or
financial position.
Disclosures about Segments of an Enterprise and Related Information: In June
1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes the criteria
for determining an operating segment and the related financial information
disclosure required. It also establishes standards for disclosing related
information regarding products and services, geographic areas and major
customers. In August 1997 the International Accounting Standards Committee
(IASC) issued International Accounting Standard (IAS) 14 (revised), "Segment
Reporting", which requires disclosures of similar information. Both of these
standards will be effective for IBRD's fiscal year ending June 30, 1999.
Comparative information for earlier years will need to be restated. Adoption
of these standards will have no effect on IBRD's reported results of
operations or financial position.
Employers' Disclosures about Pensions and Other Postretirement Benefits: In
February 1998 FASB issued SFAS No.132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits". This statement revises employers'
disclosures about pension and other postretirement benefits. It requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis, and eliminates
certain disclosures that are no longer as useful. This statement is effective
for fiscal years beginning after December 15, 1997. In addition, in February
1998, the IASC issued IAS 19 (revised), "Employee Benefits", which is
effective for accounting periods beginning on or after January 1, 1999. This
standard limits the methods employed to calculate pension expense and
requires certain disclosures regarding the calculation of such expense.
Adoption of these standards is not expected to have a material effect on
IBRD's reported results of operations or financial position.
Accounting for Derivative Instruments and Hedging Activities: In June 1998
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires a company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. This
statement is effective for fiscal years beginning after June 15, 1999. Since
the statement significantly changes the accounting treatment for derivative
instruments and hedging activities, IBRD is in the process of evaluating the
potential impact of this standard on its financial position and results of
operations.
Presentation of Financial Statements: In August 1997 IASC issued IAS No. 1
(revised), "Presentation of Financial Statements". IAS 1 (revised) is
designed to improve the quality of financial statements presented using
International Accounting Standards by providing guidance on the structure of
financial statements and establishing certain practical requirements. This
standard is effective for fiscal years beginning on or after July 1, 1998.
Adoption of this standard is not expected to have a material effect on IBRD's
reported results of operations or financial position.
Note A--Capital Stock, Restricted Currencies, Maintenance of Value, and
Membership
Capital Stock: At June 30, 1998, IBRD's capital comprised 1,581,724
(1,558,478--June 30, 1997) authorized shares, of which 1,545,457
(1,512,211--June 30, 1997) shares had been subscribed. Each share has a par
value of 0.1 million 1974 SDRs, valued at the rate of $1.20635 per 1974 SDR.
Of the subscribed capital, $11,288 million ($11,048 million--June 30,
<PAGE>
46 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
1997) has been paid in, and the remaining $175,148 million ($171,378
million--June 30, 1997) is subject to call only when required to meet the
obligations of IBRD created by borrowing or guaranteeing loans. As to
$149,149 million ($145,940 million--June 30, 1997) the restriction on calls
is imposed by the Articles of Agreement and as to $25,999 million ($25,438
million--June 30, 1997) by resolutions of the Board of Governors.
Restricted Currencies: A portion of capital subscriptions, paid in to IBRD,
has been paid in the local currencies of the members. These amounts, referred
to as restricted currencies, are usable by IBRD in its lending operations
only with the consent of the respective members, and for administrative
expenses.
Maintenance of Value: Of the total amount of $554 million included in Amounts
to Maintain Value of Currency Holdings, which has been deducted from equity,
$86 million represents MOV receivables for countries that have amounts in
arrears for two years or more. IBRD still considers these MOV receivables in
arrears as obligations due from the members concerned. The remaining $468
million represents net MOV amounts relating to restricted currencies out on
loan that become payable under the same terms as other MOV payments only
after such currencies are repaid to IBRD.
Membership: In February 1993 IBRD's Executive Directors decided that the
former Socialist Federal Republic of Yugoslavia (SFRY) had ceased to be a
member of IBRD and that the Republic of Bosnia and Herzegovina (now called
Bosnia and Herzegovina), the Republic of Croatia, the former Yugoslav
Republic of Macedonia, the Republic of Slovenia and the Federal Republic of
Yugoslavia (Serbia and Montenegro) (FRY) are authorized to succeed to the
SFRY's membership when certain requirements are met, including entering into
a final agreement with IBRD on IBRD's loans made to or guaranteed by the SFRY
which the particular successor Republic would assume. Four of the five
successor Republics--Bosnia and Herzegovina, Croatia, Slovenia and the former
Yugoslav Republic of Macedonia--have become members of IBRD. The paid-in
portion of the SFRY's subscribed capital allocated to the FRY is included
under Payments on Account of Pending Subscriptions until the requirements of
succession are met.
Note B--Investments
As part of its overall portfolio management strategy, IBRD invests in
government and agency obligations, time deposits, asset-backed securities and
related financial instruments with off-balance sheet risk including futures,
forward contracts, currency swaps, cross-currency interest rate swaps,
interest rate swaps, options and short sales.
Government and Agency Obligations: These obligations include marketable
bonds, notes and other obligations. IBRD can only invest in obligations
issued or unconditionally guaranteed by governments of countries with a
minimum credit rating of AA; however, if such obligations are denominated in
the home currency of the issuer, no rating is required. IBRD can only invest
in obligations issued by an agency or instrumentality of a government of a
country, a multilateral organization or any other official entity with a
minimum credit rating of AA.
Time Deposits: Time deposits include certificates of deposit, bankers'
acceptances, and other obligations issued or unconditionally guaranteed by
banks and other financial institutions.
Asset-backed Securities: Asset-backed securities are instruments whose cash
flow is based on the cash flows of a pool of underlying assets managed by a
trust. IBRD can only invest in such securities with a AAA credit rating.
Futures and Forwards: Futures and forward contracts are contracts for delayed
delivery of securities or money market instruments in which the seller
agrees to make delivery at a specified future date of a specified instrument,
at a specified price or yield. Futures contracts are traded on regulated
United States and international exchanges. IBRD generally closes out most
open positions in futures contracts prior to maturity. Therefore, cash
receipts or payments are mostly limited to the change in market value of the
futures contracts. Futures contracts generally entail daily settlement of the
net cash margin.
<PAGE>
IBRD Financial Statements 47
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Options: Options are contracts that allow the holder of the option the right,
but not the obligation, to purchase or sell a financial instrument at a
specified price within a specified period of time from or to the seller of
the option. The purchaser of an option pays a premium at the outset to the
seller of the option, who then bears the risk of an unfavorable change in the
price of the financial instrument underlying the option. IBRD only invests in
exchange-traded options. The initial price of an option contract is equal to
the premium paid by the purchaser and is significantly less than the contract
or notional amount. IBRD does not write uncovered option contracts.
Repurchase and Resale Agreements and Securities Loans: Repurchase agreements
are contracts under which a party sells securities and simultaneously agrees
to repurchase the same securities at a specified future date at a fixed
price. The reverse of this transaction is called a resale agreement.
Securities loans are contracts under which securities are lent for a
specified period of time at a fixed price.
Short Sales: Short sales are sales of securities not held in IBRD's portfolio
at the time of the sale. IBRD must purchase the security at a later date and
bears the risk that the market value of the security will move adversely
between the time of the sale and the time the security must be delivered.
Currency Swaps: Currency swaps are agreements between two parties to exchange
cashflows denominated in different currencies at one or more certain times
in the future. The cashflows are based on a predetermined formula reflecting
rates of interest and an exchange of principal.
Cross-Currency Interest Rate Swaps: Cross-currency interest rate swaps are
currency swaps where one set of cashflows reflects a fixed rate of interest
and the other reflects a floating rate of interest.
Interest Rate Swaps: Interest rate swaps are agreements which transform a
fixed rate obligation in a particular currency into a floating rate
obligation in that currency or vice-versa.
<PAGE>
48 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Liquid Portfolio: A summary of IBRD's position in trading and other liquid
portfolio instruments at June 30, 1998 and June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
In millions of U.S. dollars equivalent
- ----------------------------------------------------------------------------------------------------------------------------------
Other All
Deutsche mark Japanese yen U.S. dollars currencies currencies
------------- ------------ -------------- ---------------- ------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Trading:
Government and agency obligations:
Carrying value 89 642 4,542 -- 1,532 2,873 1,866 20 8,029 3,535
Average balance during fiscal year 679 429 1,952 324 2,549 2,237 1,491 182 6,671 3,172
Net gains (losses) for the fiscal year (5) (2) (11) (2) 38 (13) 2 10 24 (7)
Average yield (%) 4.32 3.22 0.67 -- 5.65 5.92 4.96 3.52 2.65 5.40
Average maturity (years) 1.50 2.03 1.44 -- 2.62 5.35 3.29 0.19 2.09 4.71
Time deposits:
Carrying value 1,568 1,311 1,676 3,569 7,948 7,664 2,388 1,149 13,580 13,693
Average balance during fiscal year 1,746 578 2,834 2,126 7,670 6,847 1,563 1,055 13,813 10,606
Net gains (losses) for the fiscal year -- -- -- -- -- -- -- -- -- --
Average yield (%) 3.58 3.11 0.44 0.49 5.74 5.91 3.62 3.76 4.46 4.05
Average maturity (years) 0.09 0.23 0.15 0.20 0.09 0.13 0.14 0.17 0.11 0.16
Asset-backed securities:
Carrying value -- -- -- -- 1,675 -- -- -- 1,675 --
Average balance during fiscal year -- -- -- -- 594 -- -- -- 594 --
Net gains (losses) for the fiscal year -- -- -- -- * -- -- -- * --
Average yield (%) -- -- -- -- 7.08 -- -- -- 7.08 --
Average maturity (years) -- -- -- -- 7.91 -- -- -- 7.91 --
Futures and forwards:
Carrying value * 1 * * -- -- * -- * 1
Average balance during fiscal year 1 1 1 2 (*) -- (5) (*) (3) 3
Net gains (losses) for the fiscal year (3) (*) (3) 1 (29) 11 3 * (32) 12
Options:
Carrying value -- * -- * -- * -- -- -- *
Average balance during fiscal year -- * * * * * * * * *
Net gains (losses) for the fiscal year -- (*) (*) (*) (*) (1) (*) * (*) (1)
Total Trading Investments**
Carrying value 1,657 1,954 6,218 3,569 11,155 10,537 4,254 1,169 23,284 17,229
Average balance during fiscal year 2,426 1,008 4,787 2,452 10,813 9,084 3,049 1,237 21,075 13,781
Net gains (losses) for the fiscal year (8) (2) (14) (*) 9 (3) 5 10 (8) 4
Repurchase agreements and Securities
loans:
Carrying value (265) -- -- -- (339) (294) (256) -- (860) (294)
Average balance during fiscal year (129) (34) (2) -- (389) (716) (130) (80) (650) (830)
Average cost (%) 3.27 -- -- -- 5.68 5.73 6.49 -- 5.18 5.73
Average maturity (years) 0.05 -- -- -- 0.02 0.02 0.04 -- 0.03 0.02
</TABLE>
<PAGE>
IBRD Financial Statements 49
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Liquid Portfolio (continued)
<TABLE>
<CAPTION>
In millions of U.S. dollars equivalent
- -------------------------------------------------------------------------------------------------------------------- --------
Other All
Deutsche mark Japanese yen U.S. dollars currencies currencies
------------- ------------- --------------- ------------- ---------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resale agreements:
Carrying value 204 2 -- -- -- 95 262 -- 466 97
Average balance during fiscal year 192 305 1 -- 846 721 79 92 1,118 1,118
Average yield (%) 3.09 2.90 -- -- -- 5.46 6.01 -- 4.74 5.41
Average maturity (years) 0.07 0.02 -- -- -- 0.06 0.04 -- 0.05 0.06
Short sales:(b)
Carrying value (54) -- -- -- -- (92) (97) -- (151) (92)
Average balance during fiscal year (4) (42) -- -- (1) (134) (2) (15) (7) (191)
Currency swaps receivable:
Carrying value 49 -- 144 -- 5,451 4,571 -- -- 5,644 4,571
Average balance during fiscal year 4 -- 45 -- 5,206 1,047 6 -- 5,261 1,047
Average yield (%) 3.43 -- 0.47 -- 5.62 5.78 -- -- 5.47 5.78
Average maturity (years) 0.41 -- 0.01 -- 0.15 0.24 -- -- 0.15 0.24
Currency swaps payable:
Carrying value (959) (908) (2,302) (3,226) (148) -- (2,016) (560) (5,425) (4,694)
Average balance during fiscal year (1,383) (198) (2,688) (694) (13) -- (49) (142) (4,133) (1,034)
Average cost (%) 3.57 3.10 0.45 0.48 5.63 -- 3.52 3.69 2.28 1.37
Average maturity (years) 0.13 0.33 0.16 0.21 0.01 -- 0.16 0.27 0.15 0.24
Cross-currency interest rate swaps
receivable:
Carrying value -- -- -- -- 4,866 -- -- -- 4,866 --
Average balance during fiscal year -- -- -- -- 2,893 -- -- -- 2,893 --
Net gains (losses) for the fiscal year(a) -- -- -- -- 2 -- -- -- 2 --
Average yield (%) -- -- -- -- 5.75 -- -- -- 5.75 --
Average maturity (years) -- -- -- -- 2.16 -- -- -- 2.16 --
Cross-currency interest rate swaps
payable:(c)
Carrying value (31) -- (2,870) -- -- -- (1,773) -- (4,674) --
Average balance during fiscal year (6) -- (1,602) -- -- -- (1,328) -- (2,936) --
Net gains (losses) for the fiscal year(a) (*) -- 10 -- -- -- (5) -- 5 --
Average cost (%) 3.63 -- 0.67 -- -- -- 5.21 -- 2.41 --
Average maturity (years) 1.13 -- 2.20 -- -- -- 2.12 -- 2.16 --
Interest rate swaps:(c)
Carrying value -- -- -- -- (14) -- -- -- (14) --
Average balance during fiscal year -- -- -- -- (1) -- -- -- (1) --
Net gains (losses) for the fiscal year(a) -- -- -- -- (8) -- -- -- (8) --
Average cost (%) -- -- -- -- 0.04 -- -- -- 0.04 --
Average maturity (years) -- -- -- -- 2.18 -- -- -- 2.18 --
</TABLE>
a. Included in Net gains/losses on the trading portfolio in the income
statement.
b. Included in Amounts payable for investment securities purchased on the
balance sheet.
c. Included in Currency Swaps--Trading on the balance sheet.
<PAGE>
50 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Held-to-maturity portfolio: The carrying and fair values of investment
securities in the Held-to-maturity portfolio at June 30, 1998 and June 30, 1997
are as follows:
<TABLE>
<CAPTION>
In millions
----------------------------------------------------------------------------------------------------------------
1998
------------------------------------------------------------------
Average Gross Gross
Carrying yield unrealized unrealized Fair
value (%) gains losses value
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government and agency obligations . . . . . . $ 1,138 8.74 $175 $-- $ 1,313
Time deposits . . . . . . . . . . . . . . . . 1,535 7.52 1,535
------- ---- ---- ------- --------
Subtotal. . . . . . . . . . . . . . . . . . . 2,673 8.04 175 -- 2,848
Repurchase Agreements . . . . . . . . . . . . (1,374) 7.39 * -- (1,374)
------- ---- ---- ------- --------
Total . . . . . . . . . . . . . . . . . . . . $ 1,299 8.73 $175 $-- $ 1,474
------- ---- ---- ------- --------
------- ---- ---- ------- --------
----------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than $0.5 million.
<TABLE>
<CAPTION>
In millions
----------------------------------------------------------------------------------------------------------------
1997
------------------------------------------------------------------
Average Gross Gross
Carrying yield unrealized unrealized Fair
value (%) gains losses value
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government and agency obligations . . . . . . $1,140 8.74 $110 $ -- $1,250
Time deposits . . . . . . . . . . . . . . . . 139 6.38 -- -- 139
------- ---- ---- ------- --------
Total . . . . . . . . . . . . . . . . . . . . $1,279 8.49 $110 $ -- $1,389
------- ---- ---- ------- --------
------- ---- ---- ------- --------
----------------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1998 and June 30, 1997, the Held-to-maturity portfolio comprised
investments in pounds sterling only.
<PAGE>
IBRD Financial Statements 51
- -------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
The expected maturities of investment securities in the Held-to-maturity
portfolio at June 30, 1998 and June 30, 1997 are sum-marized below:
<TABLE>
<CAPTION>
In millions
---------------------------------------------------------------------------------
1998a
-----------------------------------
Net
Carrying Fair unrealized
value value gains
-----------------------------------
<S> <C> <C> <C>
July 1, 1998 through June 30, 1999 . . . . . $ 330 $ 331 $ 1
July 1, 1999 through June 30, 2003 . . . . . 90 99 9
July 1, 2003 through June 30, 2008 . . . . . 742 870 128
Thereafter . . . . . . . . . . . . . . . . . 137 174 37
Total. . . . . . . . . . . . . . . . . . . . $1,299 $1,474 $175
------- ------- --------
------- ------- --------
--------------------------------------------------------------------------------
</TABLE>
a. Includes repurchase agreements.
<TABLE>
<CAPTION>
In millions
---------------------------------------------------------------------------------
1997
-----------------------------------
Net
Carrying Fair unrealized
value value gains
-----------------------------------
<S> <C> <C> <C>
July 1, 1997 through June 30, 1998 . . . . . $ 139 $ 139 $ --
July 1, 1998 through June 30, 2002 . . . . . 172 177 5
July 1, 2002 through June 30, 2007 . . . . . 255 277 22
Thereafter . . . . . . . . . . . . . . . . . 713 796 83
------- ------- --------
Total. . . . . . . . . . . . . . . . . . . . $1,279 $1,389 $110
------- ------- --------
------- ------- --------
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
52 IBRD Financial Statements
- -------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Assets designated for other postretirement benefits: IBRD holds investments
designated to satisfy liabilities arising out of other postretirement
benefits (see Note J). The following are the asset values at June 30, 1998
and at June 30, 1997:
<TABLE>
<CAPTION>
In millions
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
----------------------------------------------------------------------------------------
Net Net
Carrying Average balances Gains Carrying Average balance Gains
value during fiscal year (Losses) value during fiscal year (Losses)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Securities
U.S. . . . . . . . . . . . . . . . . . . $ 474 $ 415 $ 77 $ 372 $ 354 $ 45
Non-U.S. . . . . . . . . . . . . . . . . 587 550 36 549 514 88
Other Securities . . . . . . . . . . . . . 395 378 21 340 344 22
------ ------ ---- ------ ------ ------
Total. . . . . . . . . . . . . . . . . . . $1,456 $1,343 $134 $1,261 $1,212 $155
------ ------ ---- ------ ------ ------
------ ------ ---- ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note C--Loans, Cofinancing and Guarantees
Multicurrency Loans
Fixed rate loans: On loans negotiated prior to July 1982, IBRD charges
interest at fixed rates.
Adjustable rate loans: In 1982 IBRD mitigated its interest rate risk by
moving from fixed rate to adjustable rate lending. This rate, reset twice a
year, is based on IBRD's own cost of qualified borrowings plus a 50 basis
point spread, resulting in a pass-through of its average borrowing costs to
those members that benefit from IBRD loans.
Single Currency Loans
Fixed rate loans: IBRD introduced fixed rate single currency loans in 1995.
The rates charged on fixed rate single currency loans are set on semi-annual
rate fixing dates for loan amounts disbursed during the preceding six-month
period and remain fixed for such disbursed amounts until they are repaid. For
the interim period from the date each disbursement is made until its rate
fixing date, interest accrues at a variable rate equal to the rate on
LIBOR-based single currency loans (PIBOR-based for French franc denominated
loans) applicable for such interim period. The fixed lending rate comprises a
base rate reflecting medium- to long-term market rates on the rate fixing
date, plus a total spread consisting of (a) IBRD's funding cost margin for
these loans, (b) a risk premium (intended to compensate IBRD for market risks
incurred in funding these loans), and (c) a spread of 50 basis points.
LIBOR-based loans: IBRD introduced LIBOR-based single currency loans in 1993.
The rates charged on LIBOR-based single currency loans are a direct
pass-through of IBRD's cost of funding for these loans, and are reset
semi-annually. They comprise a base rate equal to the six-month reference
interbank offered rate for the applicable currency on the rate reset date and
a total spread consisting of (a) IBRD's average funding cost margin for these
loans and (b) a spread of 50 basis points.
IBRD has approved and disbursed two LIBOR-based single currency loans--one in
December 1997 and the other in March 1998--that have non-standard financial
terms. The first, an economic reconstruction loan in an amount of $3,000
million, carries a six-month LIBOR interest rate plus a fixed spread of 100
basis points. The second, a structural adjustment loan in an amount of $2,000
million, carries a six-month LIBOR interest rate plus a fixed spread of 75
basis points. Both loans have a loan origination charge. Neither loan is
eligible for the waivers described below.
<PAGE>
IBRD Financial Statements 53
- -------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
Waivers of Loan Interest and Charges
On July 31, 1997, IBRD's Executive Directors approved a one-year interest
waiver of 25 basis points on disbursed and outstanding loans for all payment
periods commencing in the fiscal year ending June 30, 1998 for all eligible
borrowers. A similar waiver of 25 basis points was in effect for the fiscal
years ended June 30, 1997 and June 30, 1996. In fiscal year 1995 IBRD's
Executive Directors approved a one-time 10 basis point interest waiver, for
two consecutive six-month interest periods, on multicurrency pool loans which
a borrower converts from loan interest rate terms in effect between 1982 and
1989 to interest rate terms in effect since 1989. For the fiscal year ended
June 30, 1998, the combined effect of these waivers was to reduce Net Income
by $241 million ($259 million--June 30, 1997, $286 million--June 30, 1996).
Further, on July 31, 1997, the Executive Directors approved a one-year
commitment fee waiver of 50 basis points on undisbursed loans to all
borrowers for all payment periods commencing in the fiscal year ending June
30, 1998. A similar waiver of 50 basis points was in effect for the fiscal
years ended June 30, 1997 and June 30, 1996. For the fiscal year ended June
30, 1998, the effect of the commitment fee waiver was to reduce Net Income by
$211 million ($226 million--June 30, 1997, $235 million--June 30, 1996).
<PAGE>
54 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
A summary of IBRD's outstanding loans by currency and product at June 30, 1998
and June 30, 1997 follows:
In millions of U.S. dollars equivalent
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------------------------------------
Multicurrency loans(a) Single currency pools Single currency loans(b) Total loans
------------------- --------------------- ----------------------------- ------------------
Weighted Weighted Weighted Average Weighted
average average average maturity average
Currency/Rate Type Amount rate (%)(c) Amount rate (%)(c) Amount rate (%)c (years) Amount rate (%)(c)
- ----------------- ------ --------- ------- --------- ------ ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deutsche mark
Fixed $ 1,140 8.74 $ 13 11.42 $ 54 5.60 5.75 $ 1,207 8.63
Adjustable 18,067 6.36 1,792 7.04 315 3.88 7.66 20,174 6.38
Japanese yen
Fixed 910 8.85 -- -- -- -- -- 910 8.85
Adjustable 15,802 6.36 -- -- 61 0.86 6.94 15,863 6.34
Netherlands
guilders
Fixed 97 8.44 -- -- -- -- -- 97 8.44
Adjustable 540 6.36 -- -- -- -- -- 540 6.36
Swiss francs
Fixed 586 7.96 -- -- -- -- -- 586 7.96
Adjustable 1,450 6.36 -- -- -- -- -- 1,450 6.36
U.S. dollars
Fixed 1,068 8.56 228 9.93 4,374 6.82 6.06 5,670 7.27
Adjustable 18,510 6.37 23,625 8.37 15,649 6.10 8.24 57,784 7.11
Others
Fixed 112 9.40 -- -- 141 6.28 6.20 253 7.66
Adjustable 1,935 6.36 -- -- 107 3.85 9.34 2,042 6.23
--------- ------ --------- ------- ------- ------- ------ ------ -----
Loans
outstanding
Fixed 3,913 8.61 241 10.01 4,569 6.79 6.06 8,723 7.70
Adjustable 56,304 6.36 25,417 8.28 16,132 6.03 8.23 97,853 6.80
--------- ------ --------- ------- ------- ------- ------ -------- -----
Total $60,217 6.51 $ 25,658 8.29 $20,701 6.20 7.75 $106,576 6.88
--------- ------ --------- ------- ------- ------- ------ -----
--------- ------ --------- ------- ------- ------- ------ -----
Less accumulated provision for loan losses 3,240
--------
Loans outstanding net of accumulated provision $103,336
--------
--------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) See page 55.
(b) See page 56.
(c) See page 56.
<PAGE>
IBRD Financial Statements 55
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
In millions of U.S. dollars equivalent
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------------------
Multicurrency loans(a) Single currency loans(b) Total loans
-------------------- --------------------------------- ----------------------
Weighted Weighted Average Weighted
average average maturity average
Currency/Rate Type Amount rate (%)(c) Amount rate (%)(c) (years) Amount rate (%)c
- ------------------ ------- ---------- ------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Deutsche mark
Fixed $ 1,937 8.77 $-- -- -- $ 1,937 8.77
Adjustable 27,269 6.70 83 3.48 7.07 27,352 6.69
Japanese yen
Fixed 1,954 8.87 -- -- -- 1,954 8.87
Adjustable 30,154 6.70 5 0.81 3.51 30,159 6.70
Netherlands guilders
Fixed 179 8.42 -- -- -- 179 8.42
Adjustable 1,155 6.70 -- -- -- 1,155 6.70
Swiss francs
Fixed 1,064 8.02 -- -- -- 1,064 8.02
Adjustable 3,438 6.70 -- -- -- 3,438 6.70
U. S. dollars
Fixed 1,578 8.78 2,315 7.03 6.63 3,893 7.74
Adjustable 27,848 6.70 4,515 6.01 8.99 32,363 6.60
Others
Fixed 154 9.11 133 6.35 7.17 287 7.83
Adjustable 2,020 6.70 4 3.53 7.80 2,024 6.69
------- ---------- ------- ----------- -------- ---------- ----------
Loans outstanding
Fixed 6,866 8.68 2,448 6.99 6.66 9,314 8.24
Adjustable 91,884 6.70 4,607 5.96 8.95 96,491 6.66
------- ---------- ------- ----------- -------- ---------- ----------
Total $98,750 6.84 $7,055 6.32 8.16 105,805 6.80
------- ---------- ------- ----------- -------- ----------
------- ---------- ------- ----------- -------- ----------
Less accumulated provision for loan losses 3,210
----------
Loans outstanding net of accumulated provision $102,595
----------
----------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average Maturity -- Multicurrency loans. IBRD maintains a targeted
currency composition in its multicurrency loans. The present target ratio
is one U.S. dollar for every 125 Japanese yen and two Deutsche mark
equivalents (consisting of Deutsche mark, Netherlands guilders and Swiss
francs). These five major currencies comprise at least 90 percent of the
multicurrency loans' U.S. dollar equivalent value, with the remainder in
other currencies. This ratio has been maintained since 1991, and is
reviewed periodically. The composition of the multicurrency loans is
affected by the selection of currencies for disbursements on those loans
and by the currencies selected for the billing of the principal
repayments. Along with the selection of disbursement currencies, IBRD
manages the selection of repayment currencies to maintain the alignment
of the multicurrency loans' composition with the target ratio. The
selection of currencies for repayment billing by IBRD precludes the
determination of average maturity information for multicurrency loans by
individual currency. Accordingly, IBRD only discloses the maturity
periods for its multicurrency loans on a combined U.S. dollars equivalent
basis.
<PAGE>
56 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
(b) Average Maturity -- Single Currency Pools. Each single currency pool is a
multicurrency at inception, but will be adjusted to reach a level of at
least 90% in the designated currency by July 1, 1999 and will be
maintained at or above that level thereafter. The currency composition
of these single currency pools is affected by IBRD's management of the
selection of repayment currencies to the extent non-designated currencies
remaining in these pools are selected for repayment. This varying
selection of currencies for repayment precludes the determination of
average maturity information for the single curency pools loans by
individual currencies. Accordingly, IBRD only discloses the maturity
periods for its single currency pool loans on a combined U.S. dollar
equivalent basis.
(c) Excludes effects of any waivers of loan interest.
The maturity structure of IBRD's loans at June 30, 1998 and June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
In millions
- ---------------------------------------------------------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------------------------------
Single currency Single currency
Multicurrency loans pools loans All loans
-------------------- ------------------- ------------------- -------------------------------
Rate
Period type: Fixed Adjustable Fixed Adjustable Fixed Adjustable Fixed Adjustable Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July 1, 1998 through
June 30, 1999 $1,854 $ 6,090 $149 $ 2,547 $ 42 $ 133 $2,045 $ 8,770 $ 10,815
July 1, 1999 through
June 30, 2003 1,876 22,298 92 10,108 1,721 2,577 3,689 34,983 38,672
July 1, 2003 through
June 30, 2008 180 20,421 -- 9,280 2,518 9,182 2,698 38,883 41,581
Thereafter 3 7,495 -- 3,482 288 4,240 291 15,217 15,508
------- -------- ---- -------- ------- ------- ------ ------- --------
Loans outstanding $3,913 $56,304 $241 $25,417 $4,569 $16,132 $8,723 $97,853 $106,576
------- -------- ---- -------- ------- ------- ------ ------- --------
------- -------- ---- -------- ------- ------- ------ ------- --------
<CAPTION>
In millions
- -----------------------------------------------------------------------------------------------------------------
1997
----------------------------------------------------------------------------------
Single currency
Multicurrency loans loans All loans
------------------ -------------------- ------------------------------------
Rate
Period type: Fixed Adjustable Fixed Adjustable Fixed Adjustable Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 1, 1997 through
June 30, 1998 $2,844 $ 9,150 $ -- $ 4 $2,844 $ 9,154 $ 11,998
July 1, 1998 through
June 30, 2002 3,675 37,141 773 774 4,448 37,915 42,363
July 1, 2002 through
June 30, 2007 335 33,585 1,365 2,283 1,700 35,868 37,568
Thereafter 12 12,008 310 1,546 322 13,554 13,876
------ ------- ------ ------ ------ ------- --------
Loans outstanding $6,866 $91,884 $2,448 $4,607 $9,314 $96,491 $105,805
------ ------- ------ ------ ------ ------- --------
------ ------- ------ ------ ------ ------- --------
</TABLE>
<PAGE>
IBRD Financial Statements 57
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
Estimated Value of Loans
All of IBRD's loans are made to or guaranteed by countries that are members
of IBRD, except for those loans made to IFC. IBRD does not currently sell its
loans, nor is there a market of loans comparable to those made by IBRD.
Multicurrency loans and Single Currency Pools: The estimated value of fixed
rate loans negotiated prior to July 1982 has been based on discounted future
cash flows using the rate at which IBRD could undertake borrowings of
comparable maturities at June 30, 1998 plus a 50 basis point spread. The
estimated value of adjustable rate multicurrency loans and single currency
pools is based on the relationship of the fair value to the carrying value of
the underlying qualified borrowings, since the interest rate for such loans
is based on the interest rate of the qualified borrowings.
Single Currency Loans: The estimated value of fixed rate single currency
loans has been based on discounted future cash flows using the rate at which
IBRD could make similar loans of comparable maturities at June 30, 1998. The
estimated value of LIBOR-based single currency loans has been based on the
relationship of the fair value to the carrying value of the underlying
borrowings funding these loans.
The following table reflects the carrying and estimated values of the loan
portfolio based on current borrowing rates net of the Accumulated Provision
for Loan Losses at June 30, 1998 and June 30, 1997:
In millions
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
value value value value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Multicurrency loans
Fixed $ 3,913 $ 4,286 $ 6,866 $ 7,655
Adjustable 56,304 60,915 91,884 99,775
Single currency pools
Fixed 241 261 -- --
Adjustable 25,417 27,861 -- --
Single currency loans
Fixed 4,569 4,746 2,448 2,497
Adjustable 16,132 16,530 4,607 4,844
-------- -------- -------- --------
Total loans
Fixed 8,723 9,293 9,314 10,152
Adjustable 97,853 105,306 96,491 104,619
-------- -------- -------- --------
106,576 114,599 105,805 114,771
Less accumulated
provision for
loan losses 3,240 3,240 3,210 3,210
-------- -------- -------- --------
Loans outstanding net
of accumulated
provision $103,336 $111,359 $102,595 $111,561
-------- -------- -------- --------
-------- -------- -------- --------
- ----------------------------------------------------------------------------
</TABLE>
<PAGE>
58 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Cofinancing and Guarantees
IBRD has taken direct participations in, or provided partial guarantees of,
loans syndicated by other financial institutions for projects or programs
also financed by IBRD through regular loans. IBRD also has provided partial
guarantees of securities issued by an entity eligible for IBRD loans. IBRD's
partial guarantees of bond issues are included in the guarantees amount
mentioned below. IBRD's direct participations in syndicated loans are
included in the reported loan balances.
Guarantees of loan principal of $2,047 million at June 30, 1998 ($1,593
million--June 30, 1997) were not included in reported loan balances. At June
30, 1998, $371 million of these guarantees were subject to call ($148
million--June 30, 1997). IBRD has partially guaranteed the timely payment of
interest amounts on certain loans that have been sold. At June 30, 1998,
these guarantees, approximating $0.04 million ($0.5 million--June 30, 1997),
were subject to call.
Overdue Amounts
At June 30, 1998, no loans payable to IBRD other than those referred to in
the following paragraphs were overdue by more than three months.
At June 30, 1998, the loans made to or guaranteed by certain member countries
and the FRY with an aggregate principal bal-ance outstanding of $2,044
million ($2,360 million--June 30, 1997), of which $1,142 million ($1,314
million--June 30, 1997) was overdue, were in nonaccrual status. At such date,
overdue interest and other charges in respect of these loans totaled $948
million ($893 million--June 30, 1997). If these loans had not been in
nonaccrual status, income from loans for the fiscal year ended June 30, 1998
would have been higher by $84 million ($146 million--June 30, 1997, $188
million--June 30, 1996).
<PAGE>
IBRD Financial Statements 59
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
A summary of countries with loans or guarantees in nonaccrual status follows:
<TABLE>
<CAPTION>
In millions
- --------------------------------------------------------------------------------------
1998
-------------------------------------------------
Principal Principal and Nonaccrual
Borrower outstanding charges overdue since
- ----------------------------------- ----------- --------------- --------------
<S> <C> <C> <C>
With overdues
Congo, Democratic Republic of . . . $ 81 $ 86 November 1993
Congo, Republic of . . . . . . . . . 67 21 November 1997
Iraq . . . . . . . . . . . . . . . . 42 68 December 1990
Liberia. . . . . . . . . . . . . . . 131 254 June 1987
Sudan. . . . . . . . . . . . . . . . 6 5 January 1994
Syrian Arab Republic . . . . . . . . 71 228(a) February 1987
Yugoslavia, Federal Republic of
(Serbia/Montenegro) . . . . . . . 1,089 1,428 September 1992
----------- ---------------
Total. . . . . . . . . . . . . . . . 1,487 2,090
Without overdues
Bosnia and Herzegovina . . . . . . . 557 -- September 1992
----------- ---------------
Total. . . . . . . . . . . . . . . . . $2,044 $2,090
----------- ---------------
----------- ---------------
- --------------------------------------------------------------------------------------
</TABLE>
a. Represents interest and charges overdue.
On July 27, 1997, the Syrian Arab Republic and IBRD entered into an agreement
covering, among other things, the application of payments by Syria of its
overdue principal, interest, and charges. Under this agreement, Syria paid
the overdue principal to IBRD in one payment of $263 million on September 2,
1997 and has been making monthly payments to IBRD since then.
On June 22, 1998, Sierra Leone paid off all its arrears and, as a result, its
loans came out of nonaccrual status. Loans to Sierra Leone had been in
nonaccrual status since January 15, 1998. During the fiscal year ended June
30, 1997, no loans came out of nonaccrual status.
In connection with the cessation of the membership of the SFRY discussed in
Note A, in February 1993 IBRD reached an agreement with the FRY for the
apportionment and service of debt due to IBRD on loans made to or guaranteed
by the SFRY and assumed by the FRY, which confirmed a February 1992 interim
agreement between the SFRY (then consisting of the Republics of Bosnia and
Herzegovina, Macedonia, Montenegro and Serbia) and IBRD pertaining, among
other things, to such loans. As of the date hereof, no debt-service payments
have been received by IBRD from the FRY.
In June 1996 the accumulated arrears on loans to the former SFRY assumed by
Bosnia and Herzegovina were cleared through three new consolidation loans
extended by IBRD. These new loans consolidated all outstanding principal and
overdue interest on the loans assumed by Bosnia and Herzegovina. This
resulted in an increase in loans outstanding of $168 million and the deferral
of the recognition of the related interest income.
<PAGE>
60 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
The average recorded investment in nonaccruing loans during the fiscal year
ended June 30, 1998 was $2,138 million, ($2,430 million--June 30, 1997,
$2,466 million--June 30, 1996).
Accumulated Provision for Loan Losses
IBRD has never suffered a loss on any of its loans, with the exception of
losses resulting from the difference between the present value of payments
for interest and charges made according to the related loan's contractual
terms and the present value of its expected future cash flows. Certain
borrowers have found it difficult to make timely payments for protracted
periods, resulting in their loans being placed in nonaccrual status. Several
borrowers have emerged from nonaccrual status after a period of time by
bringing up-to-date all principal payments and all overdue service payments,
including interest and other charges. In an attempt to recognize the risk
inherent in these and any other potential overdue payments, IBRD maintains an
accumulated provision for loan losses. Of the Accumulated Provision for Loan
Losses of $3,240 million, $1,000 million is attributable to the nonaccruing
loan portfolio at June 30, 1998.
An analysis of the changes to the Accumulated Provision for Loan Losses for
the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996 appears
below:
<TABLE>
<CAPTION>
In millions
- -----------------------------------------------------------------------------
1998 1997 1996
----- ------ ------
<S> <C> <C> <C>
Balance, beginning of the fiscal year. . . $3,210 $3,340 $3,740
Provision for loan losses. . . . . . . . . 251 63 42
Translation adjustment . . . . . . . . . . (221) (193) (442)
----- ------ ------
Balance, end of the fiscal year. . . . . . $3,240 $3,210 $3,340
----- ------ ------
----- ------ ------
- -----------------------------------------------------------------------------
</TABLE>
IBRD has endorsed a multilateral initiative for addressing the debt problems
of a group of countries identified as heavily indebted poor countries (HIPCs)
to ensure that the reform efforts of these countries will not be put at risk
by unsustainable external debt burdens. Under this initiative, creditors are
to provide enhanced debt relief for those countries that demonstrated good
policy performance over an extended period to bring their debt burdens to
sustainable levels. IBRD has taken the situa-tion of these countries into
account in its review of the adequacy of the Accumulated Provision for Loan
Losses.
Fifth Dimension Program
Under IDA's Fifth Dimension program established in September 1988, a portion
of principal repayments to IDA are allocated on an annual basis to provide
supplementary IDA credits to IDA-eligible countries that are no longer able
to borrow on IBRD terms, but have outstanding IBRD loans approved prior to
September 1988 and have in place an IDA-supported structural adjustment
program. Such supplementary IDA credits are allocated to countries that meet
specified conditions, in proportion to each country's interest payments due
that year on its pre-September 1988 IBRD loans. To be eligible for such IDA
supplemental credits, a member country must meet IDA's eligibility criteria
for lending, must be ineligible for IBRD lending and must not have had an
IBRD loan approved within the last twelve months. To receive a supplemental
credit from the program, a member country cannot be more than 60 days overdue
on its debt-service payments to IBRD or IDA. At June 30, 1998, IDA had
approved credits of $1,590 million ($1,526 million--June 30, 1997) under this
program from inception, of which $1,531 million ($1,435 million--June 30,
1997) had been disbursed to the eligible countries.
<PAGE>
IBRD Financial Statements 61
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
Note D--Borrowings
Providing liquidity and minimizing the cost of funds are key objectives to
IBRD's overall borrowing strategy. IBRD uses swaps in its borrowing strategy
to lower the overall cost of its borrowings for those members who benefit
from IBRD loans. IBRD undertakes swap transactions with a list of authorized
counterparties. Credit limits have been established for each coun-terparty.
Currency swaps: Currency swaps are agreements between two parties to exchange
cashflows denominated in different currencies at one or more certain times in
the future. The cashflows are based on a predetermined formula reflecting
rates of interest and an exchange of principal.
Interest rate swaps: Interest rate swaps are agreements which transform a
fixed rate payment obligation in a particular currency into a floating rate
obligation in that currency or vice-versa.
Forward interest rate swaps: A forward interest rate swap is an agreement
under which the cash flow exchanges of the underlying interest rate swaps
would begin to take effect from a specified date.
Swaptions: A swaption is an option that gives the holder the right to enter
into an interest rate or currency swap at a certain future date.
<PAGE>
62 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
A summary of IBRD's borrowings portfolio at June 30, 1998 and June 30, 1997
follows:
Medium- and Long-term Borrowings and Swaps at June 30, 1998
<TABLE>
<CAPTION>
In millions of U.S. dollars equivalent
- -----------------------------------------------------------------------------------------------------------------------------------
Currency Interest rate
Direct borrowings swap agreements swap agreements
---------------------------------------------------------------------------------------------------------
Wgtd. Wgtd. Notional Wgtd.
avg. Average Amount avg. Average amount avg. Average
Rate cost maturity payable cost maturity payable cost maturity
Currency type Amount (%) (years) (receivable) (%) (years) (receivable) (%) (years)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deutsche
mark Fixed $12,014 6.45 4.78 $ 3,720 7.35 2.19 $ 4,617 6.86 2.76
(5,281) 6.72 4.25 (3,349) 5.18 3.79
Adjustable 195 7.21 5.12 8,231 3.60 2.24 3,405 3.62 3.82
(1,412) 3.52 2.16 (4,673) 3.72 2.80
Japanese
yen Fixed 16,200 4.92 4.76 1,958 1.34 0.44 1,520 3.30 1.02
(5,758) 5.35 5.19 (3,083) 2.84 4.94
Adjustable 836 1.63 1.99 1,484 0.26 0.62 3,083 0.53 4.94
(759) 0.63 4.51 (1,520) 1.16 1.02
Netherlands
guilders Fixed 1,199 7.10 3.73 -- -- -- -- -- --
(904) 7.43 2.59
Swiss
francs Fixed 3,671 5.61 5.15 1,611 5.19 2.22 423 7.08 3.30
(4,070) 5.46 2.66
Adjustable -- -- -- 423 0.28 3.23 -- -- --
(423) 1.50 3.30
U. S.
dollars Fixed 33,287 6.81 6.16 11,020 9.37 4.27 10,526 6.42 2.88
(3,082) 6.67 1.27 (22,495) 5.95 5.34
Adjustable 825 5.24 4.12 27,226 5.42 5.93 22,520 5.53 5.33
(5,891) 5.46 1.24 (10,551) 5.44 2.88
Others Fixed 25,753 8.22 5.70 576 6.71 2.75 119 5.70 6.20
(24,174) 7.99 5.51 (405) 7.13 4.69
Adjustable 2,762 3.75 4.88 36 3.60 7.41 405 4.01 4.69
(3,072) 3.98 4.88 (119) 3.75 6.20
------------------------------------------- ----------
Total Fixed 92,124 6.78 5.53 18,885 17,205
(43,269) (29,332)
Adjustable 4,618 3.77 4.23 37,400 29,413
(11,134) (17,286)
------------------------------------------- ----------
Principal at face value 96,742 6.63 5.47 1,882 --
Net unamortized premium 118 --
------------------------------------------- ----------
Total $96,860 6.63 5.47 $ 1,882 $ --
------------------------------------------- ----------
------------------------------------------- ----------
<CAPTION>
-------------------------------------
Net currency obligations
-------------------------------------
Wgtd.
Amount avg. Average
Rate payable cost maturity(a)
Currency type (receivable) (%) (years)
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutsche
mark Fixed $ 20,351 6.71 3.85
(8,630) 6.12 4.07
Adjustable 11,831 3.67 2.74
(6,085) 3.67 2.65
Japanese
yen Fixed 19,678 4.43 4.04
(8,841) 4.47 5.10
Adjustable 5,403 0.62 3.30
(2,279) 0.98 2.18
Netherlands
guilders Fixed 1,199 7.10 3.73
(904) 7.43 2.59
Swiss
francs Fixed 5,705 5.60 4.19
(4,070) 5.46 2.66
Adjustable 423 0.28 3.23
(423) 1.50 3.30
U. S.
dollars Fixed 54,833 7.25 5.15
(25,577) 6.04 4.85
Adjustable 50,571 5.46 5.63
(16,442) 5.45 2.29
Others Fixed 26,448 8.17 5.63
(24,579) 7.98 5.50
Adjustable 3,203 3.78 4.88
(3,191) 3.97 4.93
--------------------------------
Total Fixed 128,214 6.85 4.82
(72,601) 6.50 4.85
Adjustable 71,431 4.69 4.93
(28,420) 4.49 2.67
--------------------------------
Principal at face value 98,624 6.22
Net unamortized premium 118
--------------------
Total $98,742 6.22
--------------------
--------------------
</TABLE>
a - At June 30, 1998, the average repricing period of the net currency
obligations for adjustable rate borrowings was three months.
<PAGE>
IBRD Financial Statements 63
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Medium- and Long-term Borrowings and Swaps at June 30, 1997
<TABLE>
<CAPTION>
In millions of U.S. dollars equivalent
- -----------------------------------------------------------------------------------------------------------------------------------
Currency Interest rate
Direct borrowings swap agreements swap agreements
---------------------------------------------------------------------------------------------------------
Wgtd. Wgtd. Notional Wgtd.
avg. Average Amount avg. Average amount avg. Average
Rate cost maturity payable cost maturity payable cost maturity
Currency type Amount (%) (years) (receivable) (%) (years) (receivable) (%) (years)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deutsche
mark Fixed $12,468 6.58 5.43 $ 3,071 7.47 2.33 $ 6,800 6.93 2.74
(393) 5.93 14.05 (2,878) 5.25 4.48
Adjustable 203 7.54 6.12 8,921 3.05 2.98 2,936 3.24 4.53
(22) 5.58 0.99 (6,858) 3.35 2.78
Japanese
yen Fixed 24,501 5.15 4.48 529 5.63 2.39 2,148 3.60 1.87
(1,251) 5.99 6.07 (3,123) 3.02 4.39
Adjustable 1,223 1.83 2.66 506 0.05 1.20 3,123 0.57 4.39
(44) 4.45 14.98 (2,148) 1.34 1.87
Netherlands
guilders Fixed 1,873 7.25 3.28 80 6.31 0.19 -- -- --
(1,123) 7.62 2.05
Swiss
francs Fixed 3,916 6.02 5.63 1,862 5.20 2.94 780 7.11 2.77
(3,050) 5.79 2.84
Adjustable -- -- -- 780 0.74 2.70
(780) 1.73 2.77
U. S.
dollars Fixed 23,725 7.49 6.63 178 8.98 2.99 6,095 6.81 3.67
(1,023) 9.19 3.12 (10,518) 6.29 5.69
Adjustable 1,213 5.14 3.59 12,111 5.49 6.26 10,646 5.77 5.64
(2,511) 5.57 2.31 (6,223) 5.78 3.62
Others Fixed 18,112 8.71 4.80 157 8.34 2.09 113 5.77 7.17
(16,029) 8.59 4.43 (424) 7.12 5.73
Adjustable 1,798 5.92 4.95 13 10.85 0.32 424 3.35 5.73
(2,149) 5.61 5.08 (113) 3.46 7.17
------------------------------------------- ----------
Total Fixed 84,595 6.86 5.32 5,877 15,936
(22,869) (16,943)
Adjustable 4,437 4.65 4.00 22,331 17,129
(4,726) (16,122)
------------------------------------------- ----------
Principal at face value 89,032 6.75 5.25 613 --
Net unamortized discount (1) --
------------------------------------------- ----------
Total $89,031 6.75 5.25 $ 613 $ --
------------------------------------------- ----------
------------------------------------------- ----------
<CAPTION>
-------------------------------------
Net currency obligations
-------------------------------------
Wgtd.
Amount avg. Average
Rate payable cost maturity(a)
Currency type (receivable) (%) (years)
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutsche
mark Fixed $ 22,339 6.81 4.19
(3,271) 5.33 5.63
Adjustable 12,060 3.17 3.41
(6,880) 3.35 2.77
Japanese
yen Fixed 27,178 5.04 4.23
(4,374) 3.85 4.86
Adjustable 4,852 0.83 3.62
(2,192) 1.41 2.13
Netherlands
guilders Fixed 1,953 7.21 3.15
(1,123) 7.62 2.05
Swiss
francs Fixed 6,558 5.91 4.52
Adjustable (3,050) 5.79 2.84
780 0.74 2.70
(780) 1.73 2.77
U. S.
dollars Fixed 29,998 7.36 6.01
(11,541) 6.55 5.46
Adjustable 23,970 5.59 5.85
(8,734) 5.72 3.24
Others Fixed 18,382 8.68 4.79
(16,453) 8.55 4.46
Adjustable 2,235 5.46 5.07
(2,262) 5.50 5.18
---------------------------------
Total Fixed 106,408 6.79 4.82
(39,812) 6.95 4.70
Adjustable 43,897 4.31 4.83
(20,848) 4.31 3.16
---------------------------------
Principal at face value 89,645 6.07
Net unamortized discount (1)
---------------------
Total $ 89,644 6.07
---------------------
---------------------
</TABLE>
a - At June 30, 1998, the average repricing period of the net currency
obligations for adjustable rate borrowings was three months.
<PAGE>
64 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Short-term Borrowings and Swaps at June 30, 1998 and June 30, 1997
<TABLE>
<CAPTION>
In millions of U.S. dollars equivalent
- ----------------------------------------------------------------------------------------------------
1998
--------------------------------------------------------------------
Interest
Currency rate Wgtd.
swap swap Net avg.
Rate Principal payable payable currency cost
Currency type Outstanding (receivable) (receivable) obligations (%)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Czech koruny Fixed $ 335 $ -- $ -- $ 335 14.45
(335) -- (335) 14.45
Deutsche mark Adjustable -- 319 -- 319 3.09
Italian lire Fixed -- -- -- -- --
-- -- -- --
Adjustable 42 -- -- 42 0.78
(42) -- (42) 0.78
Japanese yen Fixed -- -- -- --
Adjustable -- 25 -- 25 0.09
New Zealand Fixed 25 -- -- 25 7.94
dollars (25) -- (25) 7.94
Slovak koruny Fixed -- -- -- -- --
Polish zlotys Fixed 29 -- -- 29 20.12
(29) -- (29) 20.12
U. S. dollars Fixed 3,985 -- -- 3,985 5.45
-- (100) (100) 5.72
Adjustable 1,709 1,126 100 2,935 5.15
(333) -- (333) 5.13
South African Fixed 600 -- -- 600 13.98
rand (600) -- (600) 13.98
-----------------------------------------------------------------
Total Fixed 4,974 -- -- 4,974 7.19
(989) (100) (1,089) 13.39
Adjustable 1,751 1,470 100 3,321 4.85
(375) (375) 4.64
-----------------------------------------------------------------
Principal at face value 6,725 106 -- 6,831 5.20
Net unamortized premium 4 4
-----------------------------------------------------------------
Total $6,729 $ 106 $ -- $ 6,835 5.20
-----------------------------------------------------------------
-----------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------
1997
-------------------------------------------------------------
Interest
Currency rate Wgtd
swap swap Net avg.
Principal payable payable currency cost
outstanding (receivable) (receivable) obligations (%)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Czech koruny Fixed $ 220 $ -- $ -- $ 220 10.88
(220) -- (220) 10.88
Deutsche mark Adjustable -- 394 -- 394 2.80
Italian lire Fixed 148 -- -- 148 6.80
(148) -- (148) 6.80
Adjustable -- -- -- -- --
Japanese yen Fixed 95 88 -- 183 3.16
(95) -- (95) 5.93
Adjustable -- -- -- -- --
New Zealand Fixed 137 -- -- 137 7.96
dollars (137) -- (137) 7.96
Slovak koruny Fixed 67 -- -- 67 12.65
(67) -- (67) 12.65
Polish zlotys Fixed -- -- -- -- --
-- -- -- --
U. S. dollars Fixed 4,115 120 -- 4,235 5.46
(900) (900) 4.65
Adjustable 2,200 877 900 3,977 5.31
(112) -- (112) 5.40
South African Fixed 657 -- -- 657 15.07
rand (657) -- (657) 15.07
----------------------------------------------------------------
Total Fixed 5,439 208 -- 5,647 6.90
(1,324) (900) (2,224) 8.99
Adjustable 2,200 1,271 900 4,371 5.09
(112) (112) 5.40
----------------------------------------------------------------
Principal at face value 7,639 43 -- 7,682 5.28
Net unamortized premium 9 9
----------------------------------------------------------------
Total $7,648 $ 43 $ -- $7,691 5.28
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
a - At June 30, 1998, the average repricing period of the net currency
obligations for short-term borrowings was less than one month
(three months--June 30, 1997).
<PAGE>
IBRD Financial Statements 65
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
The maturity structure of IBRD's Medium-and Long-term borrowings outstanding
at June 30, 1998 and June 30, 1997 is as follows:
<TABLE>
<CAPTION>
In millions
- ------------------------------------------------------------------
Period 1998
- ------ --------
<S> <C>
July 1, 1998 through June 30, 1999..................... $ 8,573
July 1, 1999 through June 30, 2000..................... 17,107
July 1, 2000 through June 30, 2001..................... 13,466
July 1, 2001 through June 30, 2002..................... 9,785
July 1, 2002 through June 30, 2003..................... 14,153
July 1, 2003 through June 30, 2008..................... 22,987
Thereafter............................................. 10,671
---------
Total.................................................. $96,742
---------
---------
</TABLE>
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
In millions
- ------------------------------------------------------------------
Period 1997
- ------ --------
<S> <C>
July 1, 1997 through June 30, 1998...................... $13,185
July 1, 1998 through June 30, 1999...................... 9,492
July 1, 1999 through June 30, 2000...................... 17,430
July 1, 2000 through June 30, 2001...................... 8,173
July 1, 2001 through June 30, 2002...................... 9,498
July 1, 2002 through June 30, 2007...................... 21,806
Thereafter.............................................. 9,448
-------
Total................................................... $89,032
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
66 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
The following table reflects the carrying and estimated fair values of the
borrowings portfolio at June 30, 1998 and June 30, 1997:
<TABLE>
<CAPTION>
In millions
- ------------------------------------------------------------------------------
1998 1997
-------------------- ---------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Short-term..................... $ 6,729 $ 6,793 $ 7,648 $ 7,699
Medium- and long-term.......... 96,860 105,102 89,031 96,310
Swaps
Currency
Payable................... 57,755 60,073 29,687 30,098
Receivable................ (55,767) (58,911) (29,031) (30,375)
Interest rate............... -- (201) -- 654
Swaptions................... -- * -- 1
-------- -------- -------- --------
Total.......................... $105,577 $112,856 $ 97,335 $104,387
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------------------------------------------------------------------
Note: * Less than $0.5 million.
The estimated fair values are based on quoted market prices where such prices
are available. Where no quoted market price is available, the fair value is
estimated based on the cost at which IBRD could currently undertake
borrowings with similar terms and remaining maturities, using the secondary
market yield curve. The fair value of swaps represents the estimated cost of
replacing these contracts on that date.
Note E--Credit Risk
Country Credit Risk: This risk includes potential losses arising from
protracted arrears on payments from borrowers. IBRD manages country credit
risk through individual country exposure limits according to
creditworthiness. These exposure limits are tied to performance on
macroeconomic and structural policies. In addition, IBRD establishes absolute
limits on the share of outstanding loans to any individual borrower. The
country credit risk is further managed by financial incentives such as
pricing loans using IBRD's own cost of borrowing and partial interest charge
waivers conditioned on timely payment that give borrowers self-interest in
IBRD's continued strong intermediation capacity. Collectibility risk is
covered by the Accumulated Provision for Loan Losses. IBRD also uses a
simulation model to assess the adequacy of its reserves in the case a major
borrower, or group of borrowers, stops servicing its loans for an extended
period of time.
Commercial Credit Risk: For the purpose of risk management, IBRD is party to
a variety of financial instruments, certain of which involve elements of
credit risk in excess of the amount recorded on the balance sheet. Credit
risk exposure represents the maximum potential accounting loss due to
possible nonperformance by obligors and counterparties under the terms of the
contracts. Additionally, the nature of the instruments involve contract value
and notional principal amounts that are not reflected in the basic financial
statements. For both on- and off-balance sheet securities, IBRD limits
trading to a list of authorized dealers and counterparties. Credit risk is
controlled through application of eligibility criteria and volume limits for
transactions with individual counterparties and through the use of
mark-to-market collateral arrangements for swap transactions. IBRD may
require collateral in the form of cash or other approved liquid securities
from individual counterparties in order to mitigate its credit exposure.
<PAGE>
IBRD Financial Statements 67
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
The contract value/notional amounts and credit risk exposure, as applicable,
of these financial instruments at June 30, 1998 and June 30, 1997 are given
below:
<TABLE>
<CAPTION>
In millions
- ------------------------------------------------------------------------------
1998 1997
----- ------
<S> <C> <C>
INVESTMENTS - TRADING PORTFOLIO
Futures and forwards
- Long position................................... $ 6,205 $ 6,620
- Short position.................................. 3,282 6,675
- Credit exposure due to potential nonperformance
by counterparties............................. 2 1
Options
- Long position.................................... -- 134
Currency Swaps
- Credit exposure due to potential nonperformance
by counterparties.............................. 255 36
Cross Currency Interest Rate Swaps
- Credit exposure due to potential nonperformance
by counterparties.............................. 15 --
Interest Rate Swaps
- Notional principal............................... 7,453 --
- Credit exposure due to potential nonperformance
by counterparties.............................. * --
BORROWINGS PORTFOLIO
Currency swaps
- Credit exposure due to potential nonperformance
by counterparties.............................. 1,964 1,255
Interest rate swaps
- Notional principal............................... 46,718 33,965
- Credit exposure due to potential nonperformance
by counterparties.............................. 1,043 393
Swaptions
- Notional principal............................... 30 74
- Credit exposure due to potential nonperformance
by counterparties.............................. * --
</TABLE>
- ------------------------------------------------------------------------------
Note: * Less than $0.5 million.
Note F--Retained Earnings, Allocations and Transfers
Retained Earnings: Retained Earnings comprises the following elements at
June 30, 1998 and June 30, 1997:
<TABLE>
<CAPTION>
In millions
- ------------------------------------------------------------------------------
1998 1997
----- ------
<S> <C> <C>
Special reserve.............................. $ 293 $ 293
General reserve.............................. 14,659 14,159
Pension reserve.............................. 112 --
Surplus...................................... 426 457
Unallocated net income....................... 1,243 1,285
------- -------
Total........................................ $16,733 $16,194
------- -------
------- -------
</TABLE>
- ------------------------------------------------------------------------------
<PAGE>
68 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
On July 31, 1997, the Executive Directors allocated $500 million of the net
income earned in the fiscal year ended June 30, 1997 to the General Reserve
and $112 million to the Pension Reserve, representing the difference between
actual funding of the Staff Retirement Plan (the Plan) and the Plan's
accounting expenses for the fiscal year 1997. This Pension Reserve would be
reduced if in any future fiscal year pension accounting expenses were to
exceed the actual funding of the Plan. On September 25, 1997, the Board of
Governors approved the following transfers out of unallocated Net Income: an
amount equivalent to $304 million in SDRs (valued at June 30, 1997) to IDA by
way of grant, an immediate grant of $250 million to the Heavily Indebted Poor
Countries Debt Initiative Trust Fund, and $119 million to Surplus. On April
6, 1998, the Board of Governors approved a transfer from Surplus, by way of
grant, in the amount of $150 million to MIGA to be used as part of MIGA's
capital resources to strengthen its financial position. On July 13, 1998,
the Board of Governors approved a transfer from Surplus, by way of grant, in
the amount of $90 million to the Trust Fund for Gaza and West Bank. As this
transfer had not been approved by the Board of Governors at June 30, 1998, no
payable had been recognized at that date.
Transfers to International Development Association: The Board of Governors
had approved aggregate transfers through June 30, 1997 to IDA totaling $5,431
million from unallocated Net Income. On September 25, 1997, the Board of
Governors approved a transfer to IDA, by way of grant, of $304 million in an
equivalent amount in SDRs out of unallocated Net Income. At June 30, 1998
and June 30, 1997, there were no payables to IDA.
Transfers to Debt Reduction Facility for IDA-Only Countries: The Board of
Governors had approved aggregate transfers through June 30, 1997 to the Debt
Reduction Facility for IDA-Only Countries totaling $300 million. At June 30,
1998, $100 million ($118 million--June 30, 1997) remained payable.
Transfer to Trust Fund for Gaza and West Bank: The Board of Governors had
approved aggregate transfers through June 30, 1997 to the Trust Fund for Gaza
and West Bank, totaling $230 million. At June 30, 1998, $22 million ($83
million--June 30, 1997) remained payable.
Transfers to the Heavily Indebted Poor Countries Debt Initiative Trust Fund:
At June 30, 1997, the Board of Governors had approved aggregate transfers to
the HIPC Debt Initiative Trust Fund totaling $500 million. On September 25,
1997, the Board of Governors approved a transfer to the HIPC Debt Initiative
Trust Fund, by way of grant, of $250 million out of unallocated Net Income.
At June 30, 1998 and June 30, 1997, there were no payables to the HIPC Debt
Initiative Trust Fund.
Transfers to Multilateral Investment Guarantee Agency: On April 6, 1998, the
Board of Governors approved a transfer from Surplus, by way of grant, in the
amount of $150 million to MIGA to be used as part of MIGA's capital resources
to strengthen its financial position. At June 30, 1998, there was no payable
to MIGA.
Note G--Administrative Expenses and Contributions to Special Programs
In fiscal year 1995 the Executive Directors authorized expenditures for costs
associated with planned staff reductions. The cost of this program charged
through fiscal year 1997 was $112 million, of which $45 million was allocated
to IDA. During the fiscal year ended June 30, 1998, all remaining staff
previously identified for separation under this program began receiving
severance payments. The total cost under this program was $87 million. The
difference of $25 million has been taken back into income as a reduction of
administrative expenses, of which $10 million had been allocated to IDA as a
reduction of the management fee charged to IDA. At June 30, 1998, $82
million ($64 million--June 30, 1997, $26 million--June 30, 1996) has been
charged against the accrual of $87 million. This accrual included costs
associated with job search assistance, training, outplacement consulting,
pension plan contributions, medical insurance contributions and related tax
allowances.
In March 1997 the Executive Directors approved a multiyear program of
institutional renewal to improve IBRD's and IDA's business processes,
products and services, strengthen their human resources through more skilled
and better trained staff, and achieve a higher level of development
effectiveness. Implementation of this program is expected to result in costs
associated with staff reductions during the fiscal years 1997 through 1999.
Through June 30, 1998, 299 staff had been identified for sep-
<PAGE>
IBRD Financial Statements 69
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
aration at a cumulative cost of $48 million. Included in the total charge of
$48 million are costs associated with outplacement consulting, job search
assistance, training, medical insurance plan contributions and related tax
allowances. Of the total cumulative charge of $48 million, $19 million has
been charged to IDA. Of the total fiscal year charge of $38 million, $15
million has been charged to IDA for the fiscal year ended June 30, 1998,
consistent with normal cost apportionment procedures applied in the
calculation of the management fee.
Administrative Expenses for the fiscal years ended June 30, 1998, June 30,
1997, and June 30, 1996 are net of the following amounts:
In millions
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ------
<S> <C> <C> <C>
Management fee charged to IDA................... $360 $416 $508
Amounts charged to reimbursable programs........ 104 108 102
---- ---- ----
Total reduction of Administrative Expenses...... $464 $524 $610
---- ---- ----
---- ---- ----
Amounts charged to reimbursable programs
include the following:
Charges allocated to IFC.................... $ 14 $ 21 $ 22
Charges allocated to MIGA................... 1 1 1
</TABLE>
- ------------------------------------------------------------------------------
Contributions to special programs represent grants for agricultural research,
the control of onchocerciasis, and other developmental activities.
Note H--Trust Funds
IBRD, alone or jointly with IDA, administers on behalf of donors, including
members, their agencies and other entities, funds restricted for specific
uses which include the cofinancing of IBRD lending projects, debt reduction
operations, technical assistance for borrowers including feasibility studies
and project preparation, global and regional programs and research and
training programs. These funds are placed in trust and are not included in
the assets of IBRD. The distribution of trust fund assets by executing agent
at June 30, 1998 and June 30, 1997 is as follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Total Total
fiduciary Number of fiduciary Number of
assets trust fund assets trust fund
(In millions) accounts (In millions) accounts
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
IBRD executed............. $ 401 1,223 $ 552 1,622
Recipient executed........ 1,512 1,035 1,513 1,236
-------- ------- ------ -------
Total..................... $1,913 2,258 $2,065 2,858
-------- ------- ------ -------
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
70 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
The responsibilities of IBRD under these arrangements vary and range from
services normally provided under its own lending projects to full project
implementation including procurement of goods and services. During the fiscal
year ended June 30, 1998, IBRD received $14 million ($15 million--June 30,
1997 and 1996) as fees for administering trust funds. These fees have been
recorded as a reduction of Administrative Expenses.
Note I--Staff Retirement Plan
IBRD has a defined benefit retirement plan (the Plan) covering substantially
all of its staff. The Plan also covers substantially all the staff of IFC and
MIGA. Under the Plan, benefits are based on the years of contributory service
and the highest three-year average of pensionable remuneration as defined in
the Plan, with the staff contributing a fixed percentage of pensionable
remuneration, and IBRD contributing the remainder of the
actuarially-determined cost of future Plan benefits. The actuarial present
values of Plan obligations throughout the fiscal year are determined at the
beginning of the fiscal year by the Plan's actuary. All contributions to the
Plan and all other assets and income held for the purposes of the Plan are
held by IBRD separately from the other assets and income of IBRD, IDA, IFC
and MIGA and can be used only for the benefit of the participants in the Plan
and their beneficiaries, until all liabilities to them have been paid or
provided for. Plan assets consist primarily of equity and fixed income
securities, with smaller holdings of cash, real estate and other investments.
Net periodic pension income for the fiscal years ended June 30, 1998, June
30, 1997 and June 30, 1996 consisted of the following components:
In millions
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the fiscal year....... $ 184 $ 189 $ 215
Interest cost on projected benefit obligation.............. 353 339 356
Actual return on plan assets............................... (991) (1,452) (908)
Net amortization and deferral.............................. 157 821 433
-------- --------- -------
Net periodic pension (income) cost......................... $(297) $ (103) $ 96
-------- ---------- -------
-------- ---------- -------
</TABLE>
- -------------------------------------------------------------------------------
The portion of this pension income related to IBRD that has been included in
income for the fiscal year ended June 30, 1998 is $182 million ($63
million--June 30, 1997, $60 million cost--June 30, 1996). The balance has
been included as a reduction to the management fee charged to IDA.
<PAGE>
IBRD Financial Statements 71
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
The following table sets forth the Plan's funded status at June 30, 1998 and
June 30, 1997:
In millions
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations
Accumulated benefit obligation
Vested.......................................... $ (4,029) $(3,684)
Nonvested....................................... (58) (49)
----------- ----------
Subtotal..................................... (4,087) (3,733)
Effect of projected compensation levels........... (1,803) (1,783)
----------- ----------
Projected benefit obligation.................... (5,890) (5,516)
Plan assets at fair value......................... 9,608 8,613
----------- ----------
Plan assets in excess of projected benefit
obligation..................................... 3,718 3,097
Remaining unrecognized net transition asset....... (65) (78)
Unrecognized prior service cost................... 58 66
Unrecognized net gain from past experience
different from that assumed and from changes
in assumptions................................ (3,158) (2,872)
----------- ----------
Prepaid pension cost.............................. $ 553 $ 213
----------- ----------
----------- ----------
</TABLE>
- -------------------------------------------------------------------------------
Of the $553 million prepaid at June 30, 1998 ($213 million--June 30, 1997),
$295 million is attributable to IBRD ($112 million--June 30, 1997) and is
included in Miscellaneous Assets on the balance sheet. The remainder has
been attributed to IDA, IFC and MIGA.
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 6.5 percent (7.5 percent--June
30, 1997). The effect of projected compensation levels was calculated based
on a scale that provides for a decreasing rate of salary increase depending
on age, beginning with 11.0 percent (11.0 percent--June 30, 1997) at age 20
and decreasing to 4.5 percent (5.5 percent--June 30, 1997) at age 64. The
expected long-term rate of return on assets was 9 percent (9 percent--June
30, 1997).
Note J--Other Postretirement Benefits
IBRD provides other postretirement benefits for eligible active and retired
staff through a Retired Staff Benefits Plan (RSBP) that has several accounts.
These benefits can be grouped in accounts under the RSBP of two major types,
i.e., health insurance and life insurance benefits and pension benefits
administered outside the Staff Retirement Plan (discussed in Note I). IBRD
has designated assets to fund these liabilities (see Note B).
Health Insurance and Life Insurance Accounts (HILI): IBRD funds certain
health insurance and life insurance benefits to retirees under the HILI
accounts of the RSBP. All staff who are enrolled in the insurance programs
while in active service and who meet certain requirements are eligible for
benefits when they reach early or normal retirement age while working for
IBRD.
Retirees contribute a level amount toward life insurance based on the amount
of coverage. Retiree contributions toward health care are based on length of
service and age at retirement. The actuarial present values of HILI
obligations throughout the fiscal year are determined at the beginning of the
fiscal year.
<PAGE>
72 IBRD Financial Statements
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Supplemental Staff Retirement Plan Accounts (SSRP): IBRD has Supplemental
Staff Retirement Plan Accounts which cover pensions payable in addition to
those under the Staff Retirement Plan to eligible retirees.
All contributions to the HILI and the SSRP and all other assets and income
held for purposes of the HILI and SSRP are held by IBRD separately from the
other assets and income of IBRD, IDA, IFC and MIGA. HILI and SSRP assets
consist primarily of fixed income and equity securities. The assets are
designated to be utilized to meet IBRDs liabilities under the HILI and SSRP.
The value of the assets at June 30, 1998, is $1,456 million (see Note B).
During the fiscal year ended June 30, 1998, IBRD reviewed the status of the
HILI and SSRP accounts and determined that the assets and liabilities did not
qualify for off-balance sheet accounting under SFAS 106 or SFAS 87. At June
30, 1998, the assets and liabilities were recorded on IBRDs balance sheet
resulting in income to IBRD of $113 million, of which $56 million related to
the cumulative effect of prior periods on retained earnings at June 30, 1997,
and has been included in Effect of Accounting Change on the income statement.
The portions of the net assets attributable to IDA ($138 million--June 30,
1998), IFC ($72 million--June 30, 1998) and MIGA ($2 million--June 30, 1998)
have been included in Accounts Payable and Miscellaneous Liabilities on the
balance sheet. For the fiscal year ended June 30, 1998, the management fee
charged to IDA was reduced by $67 million representing IDA's share of the
income.
The following table sets forth the HILI's and SSRP's status at June 30, 1998
and June 30, 1997:
In millions
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HILI
-------------------------
1998 1997
------ -----
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees.................................. $263 $320
Active employees eligible to retire....... 137 142
Other active plan participants............ 227 277
---- ----
Total Liability........................... $627 $739
---- ----
---- ----
</TABLE>
- -------------------------------------------------------------------------------
In millions
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SSRP
-------------------------
1998 1997
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation
Vested.................................... $ 90 $ 75
Nonvested................................. -- --
------ -----
Total Liability............................... $ 90 $ 75
------ -----
------ -----
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
IBRD Financial Statements 73
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
Major Assumptions
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HILI SSRP
--------------- ------------------
1998 1997 1998 1997
---- ----- ----- ------
<S> <C> <C> <C> <C>
Health care cost trend rates
From end of the fiscal year...... 5.0% 13.7%
To year 2010 and thereafter...... 4.5% 5.5%
Discount rate 6.5% 7.5% 6.5% 7.5%
Effect of 1% increase in health
care mcost trend rates
(in millions)
On APBO.......................... $121 $139
</TABLE>
- -------------------------------------------------------------------------------
During the fiscal year ended June 30, 1998, health care cost trend rates were
reduced after completing a five years' experience study, reducing the accrued
liability at June 30, 1998, from $808 million to $619 million. This change in
the health care cost trend rate resulted in income of $104 million for IBRD,
which has been included in Effect of Accounting Change on the income
statement. The balance is attributable to IDA, IFC, and MIGA.
<PAGE>
74 IBRD Financial Statements
- ------------------------------------------------------------------------------
Report of Independent Accountants
- ------------------------------------------------------------------------------
[letterhead]
President and Board of Governors
International Bank for Reconstruction and Development
We have audited the accompanying balance sheet of the International Bank for
Reconstruction and Development, including the summary statement of loans and
the statement of subscriptions to capital stock and voting power, as of June
30, 1998, and the related statements of income, changes in retained earnings,
changes in cumulative translation adjustment, and cash flows for the year
then ended. These financial statements are the responsibility of the
International Bank for Reconstruction and Development's management. Our
responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of the International Bank for
Reconstruction and Development for the years ended June 30, 1997 and 1996
were audited by other auditors whose report, dated July 28, 1997, expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America and with International Standards on
Auditing. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the International Bank for Reconstruction
and Development as of June 30, 1998, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles in the United States of America and with International
Accounting Standards.
/s/ Deloitte Touche Tohmatsu (International Firm)
July 29, 1998
Washington, D.C.
[Letterhead]
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
NEW BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Bond Amount US$ Equivalent Settlement Date
- ----------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Czech Koruna
- ------------
CZK 1 BIL. 20% EURO NOTES DUE 681 CZK 1 1,000,000,000 29,231,219 16-APR-1998
AUGUST 16, 1999
Pounds Sterling
- ---------------
GBP 50 million 6.152% due April 17, 2001 684 GBP 1 50,000,000 83,700,220 14-APR-1998
GBP 500 million 6.875% Notes of 1998, due
July 14, 2000 686 GBP 1 500,000,000 837,002,195 14-APR-1998
GBP 90 MILLION EURONOTE DUE NOVEMBER 20,
2000 693 GBP 1 90,000,000 146,025,000 20-MAY-1998
GBP 50 MILLION EURONOTE DUE JULY 11, 2000 706 GBP 1 50,000,000 81,715,000 11-JUN-1998
GBP 40 MILLION EURONOTE DUE JULY 3, 2000 713 GBP 1 40,000,000 66,672,000 29-JUN-1998
-------------
** Total By Currency 1,215,114,415
-------------
-------------
Greek drachmas
- --------------
GRD 20 billion step down coupon euronotes,
due 4/3/2001 683 GRD 1 20,000,000,000 62,111,801 01-APR-1998
GRD 20 4-year Euronote due May 15, 2002 695 GRD 1 20,000,000,000 64,624,531 15-MAY-1998
GRD 15 BILLION REOPENING OF 4 YEAR EURONOTES
DUE 5/15/2002 695 GRD 2 15,000,000,000 49,376,214 29-JUN-1998
GRD 10 BILLION 3-YEAR EURONOTE DUE
JUNE 5, 2001 707 GRD 1 10,000,000,000 33,046,927 05-JUN-1998
-------------
** Total By Currency 209,159,473
-------------
-------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
NEW BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Bond Amount US$ Equivalent Settlement Date
- ----------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Hong Kong dollars
- -----------------
HKD 1 BILLION 9.75% NOTES DUE 700 HKD 1 1,000,000,000 129,053,906 30-JUN-1998
JUNE 30, 2000
HKD 315 MILLION 9.78% NOTES DUE 705 HKD 1 315,000,000 40,647,784 16-JUN-1998
JUNE 16, 2003
HKD 1.5 billion 10.20% NOTES DUE 709 HKD 1 1,500,000,000 193,580,859 30-JUN-1998
JUNE 30, 2000
HKD 1.0 BILLION INCREASE OF 709 HKD 2 1,000,000,000 129,053,906 30-JUN-1998
10.20% NOTES DUE JUNE 30, 2000
-----------
**Total By Currency 492,336,455
-----------
Italian lire
- ------------
ITL 250 BILLION CALLABLE REVERSE-FLOATER 58 ITL 1 250,000,000,000 141,055,661 29-APR-1998
BOND DUE 4/29/2013
ITL 150 BILLION FIXED/REVERSE FLOATER 58 ITL 2 150,000,000,000 84,633,396 29-APR-1998
BONDS DUE APR. 29, 2013
ITL 100 BIL. INC. 15YR FIXED/REVERSE 58 ITL 3 100,000,000,000 56,422,264 29-APR-1998
FLOATER DUE APR. 29, 2013
ITL 150 BIL. 10-YEAR FIXED/REVERSE FLOATER 60 ITL 1 150,000,000,000 85,438,442 04-JUN-1998
DUE JUNE 4, 2008
ITL 75 BIL. 10-YEAR FIXED/REVERSE FLOATER 60 ITL 2 75,000,000,000 42,719,221 04-JUN-1998
DUE JUNE 4, 2008
ITL 150 Billion Callable Equity-linked 62 ITL 1 150,000,000,000 85,834,454 05-JUN-1998
Notes due June 5, 2003
ITL 100 Billion 10 year Fixed/Range 64 ITL 1 100,000,000,000 56,903,537 19-JUN-1998
Floater Bonds due 2008
ITL 250 BIL. 12YEAR FIXED/REV. FLOATER DUE 65 ITL 1 250,000,000,000 141,065,212 29-JUN-1998
JUNE 29, 2010
-------------
** Total By Currency 694,072,187
-------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
NEW BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Bond Amount US$ Equivalent Settlement Date
- ----------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
New Zealand Dollars
- -------------------
NZD 150 Million 7.0% Global Notes of 613 NZD 4 150,000,000 83,069,817 14-APR-1998
1998, due Sept. 18, 2000
NZD 500 MIL. 7.25% GLOBAL NOTES DUE 687 NZD 1 500,000,000 273,750,000 09-APR-1998
APRIL 9, 2001
NZD 250 million 7.25% Global Notes due 696 NZD 1 250,000,000 133,250,000 27-MAY-1998
May 27, 2003
NZD 100 MILLION 7.25% GLOBAL NOTES DUE 696 NZD 2 100,000,000 53,300,000 27-MAY-1998
MAY 27, 2003
-----------
543,369,817
-----------
Polish Zlotys
- -------------
PLN 3.5 BIL. INCREASE OF 30YR NON-CALL 53 PLN 3 3,500,000,000 1,028,957,813 16-APR-1998
5YR DUE MAR. 20, 2028
Portuguese escudos
- ------------------
PTE 7.5 BILLION 5.435% 15 YR Non-Call 61 PTE 1 7,500,000,000 41,405,810 28-MAY-1998
due May 28, 2013
United States dollars
- ---------------------
USD 50 MIL. 5-YEAR DOMESTIC CALLABLE NOTE 57 USD 1 50,000,000 50,000,000 07-APR-1998
DUE APR. 7, 2003
USD 100 MILLION, 10 YR FIXED/REVERSE FLOATER 59 USD 1 100,000,000 100,000,000 06-MAY-1998
DUE MAY 6, 2008
USD 100 million 3 year Euronote Due 689 USD 1 100,000,000 100,000,000 23-APR-1998
April, 23, 2001
IBRD USD 1 BILLION 3 YEAR EUROBOND DUE 690 USD 1 1,000,000,000 1,000,000,000 23-APR-1998
23-APRIL 2001
USD 80 MILLION 3-YEAR 3-MONTH EURONOTE DUE 691 USD 1 80,000,000 80,000,000 28-APR-1998
AUGUST 7, 2001
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report On Changes in Borrowings
NEW BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Bond Amount US$ Equivalent Settlement Date
- ----------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
USD 50 MILLION 3-YEAR EURONOTE DUE
MAY 10, 2001 694 USD 1 50,000,000 50,000,000 12-MAY-1998
USD 30 MILLION INCREASE OF 3-YEAR EURONOTES
DUE MAY 10, 2001 694 USD 2 30,000,000 30,000,000 12-MAY-1998
-------------
** Total By Currency 1,410,000,000
-------------
European currency units
- -----------------------
Euro 300 million 30-yr. Callable Zero Coupon
due Apr. 3, 2028 55 XEU 1 300,000,000 321,957,000 03-APR-1998
South African Rand
- ------------------
ZAR 3 BIL. ZERO-CPN 30YR NON-CALL 10YR DUE
DEC. 29, 2028 56 ZAR 1 3,000,000,000 595,533,510 14-APR-1998
ZAR 2 BILLION ZERO CPN 30 YR NON-CALL 10YR DUE
DEC. 29, 2028 56 ZAR 2 2,000,000,000 397,022,340 14-APR-1998
ZAR 1 BIL. IBRD ZERO COUPON EURONOTES DUE
APRIL 4, 2017 572 ZAR 6 1,000,000,000 196,097,660 20-MAY-1998
Increase ZAR 1 billion zero coupon notes due
May 14, 2012 587 ZAR 3 1,000,000,000 198,196,410 03-APR-1998
ZAR 2 Billion Zero Coupon Notes of 1998, due
Dec. 29, 2028 638 ZAR 6 2,000,000,000 396,078,820 30-APR-1998
ZAR 300 Million 33.00% Notes of 1998, due
April 7, 2003 680 ZAR 1 300,000,000 57,506,098 07-APR-1998
ZAR 2 BIL. ZERO COUPON GLOBAL NOTES DUE
DEC. 31, 2025 692 ZAR 1 2,000,000,000 393,584,580 15-MAY-1998
ZAR 2 BIL. INCREASE OF ZERO CPN GLBL NOTES DUE
DEC. 31, 2025 692 ZAR 2 2,000,000,000 393,584,580 15-MAY-1998
ZAR 100 million 12.875% 10 year Euro-notes due
May 28, 2008 701 ZAR 1 100,000,000 19,536,974 28-MAY-1998
ZAR 250 million 17% notes due 10/27/1999 702 ZAR 1 250,000,000 48,463,700 10-JUN-1998
ZAR 100 MILLION 13% EURO-NOTE DUE
JUNE 10, 2003 704 ZAR 1 100,000,000 19,385,480 10-JUN-1998
-------------
** Total By Currency 2,716,990,152
-------------
-------------
** Total By Source 8,702,594,341
-------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
NEW BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Private
Description Issue # Currency Tranche Bond Amount US$ Equivalent Settlement Date
- ----------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Hong Kong dollars
- -----------------
HKD 320 mil. 8.79% Notes due May 11, 2001 697 HKD 1 320,000,000 41,291,655 11-MAY-1998
HKD 300 MILLION 8.65% NOTES DUE JUNE 5, 2001 699 HKD 1 300,000,000 38,714,673 05-JUN-1998
HKD 300 MILLION 9.05% NOTES DUE JUNE 12, 2001 703 HKD 1 300,000,000 38,714,923 12-JUN-1998
-------------
** Total By Currency 118,721,251
-------------
-------------
** Total By Source 118,721,251
-------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
MATURED BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Redemption Amount US$ Equivalent Redemption Date
- ------------------------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Canadian dollars
- ----------------
6.75% 5-YEAR EUROBONDS OF 1993, DUE 36 CAD 1 250,000,000 173,695,546 16-APR-1998
APRIL 16, 1998
5.6% CAD NOTES OF 1996, DUE JUNE 25, 1998 538 CAD 1 58,500,000 39,804,042 25-JUN-1998
-------------
** Total By Currency 213,499,588
-------------
Spanish pesetas
- ---------------
10.35% Spanish Pesetas Bonds of 1993 due 13 ESP 1 10,000,000,000 65,599,580 25-JUN-1998
June 25, 1998
Italian lire
- ------------
11-5/8% ITL BONDS OF 1991 DUE APRIL 23, 1998 16 ITL 1 600,000,000,000 338,516,395 23-APR-1998
ITL 250 BILLION 11% 3-YEAR BONDS OF 1995, 509 ITL 1 250,000,000,000 143,278,792 08-JUN-1998
DUE JUNE 8, 1998
ITL 200 billion ZERO COUPON BOND DUE 532 ITL 1 200,000,000,0O0 112,833,796 30-APR-1998
APRIL 30, 1998
-------------
** Total By Currency 594,626,983
-------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
MATURED BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Redemption Amount US$ Equivalent Redemption Date
- ------------------------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
New Zealand dollars
- --------------------
6.65% NZD Notes of 1996, due June 16, 1998 563 NZD 1 100,000,000 50,000,000 16-JUN-1998
-------------
** Total By Source 923,726,151
-------------
</TABLE>
* Indicates Partial Maturity
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
MATURED BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Private
Description Issue # Currency Tranche Redemption Amount US$ Equivalent Redemption Date
- ---------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Swiss francs
- ------------
7.375% CHP Notes of 1990, Due April 30, 1998 220 CHP 1 100,000,000 67,195,269 30-APR-1998
Netherlands guilders
- --------------------
8.125% NLG Private Placement of '85,
Due '91-2000 71 NLG 1 10,000,000 4,990,767 24-MAY-1998 *
-------------
** Total By Source 72,186,036
-------------
</TABLE>
* Indicates Partial Maturity
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
MATURED BORROWINGS (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Loans
Description Issue # Currency Tranche Redemption Amount US$ Equivalent Redemption Date
- ------------------------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Japanese yen
- ------------
5.80% JPY Loan of 1987, due 1995/2000 124 JPY 1 3,600,000,000 26,431,718 22-JUN-1998
JAPANESE YEN LOAN OF 1987, DUE 1994-1999 129 JPY 1 2,700,000,000 19,823,789 22-JUN-1998
(Ref. #29)
JAPANESE YEN LOAN OF 1987, DUE 1994-1999 129 JPY 2 3,600,000,000 26,431,718 22-JUN-1998
(Ref. #29)
JAPANESE YEN LOAN OF 1987, DUE 1994-1999 130 JPY 1 5,000,000,000 37,023,325 20-MAY-1998
JAPANESE YEN LOAN OF 1987, DUE 1995-2000 132 JPY 1 2,700,000,000 20,905,923 17-APR-1998
JAPANESE YEN LOAN OF 1987, DUE 1993-1998 134 JPY 1 6,300,000,000 46,979,866 09-APR-1998
-------------
** Total By Currency 177,596,339
-------------
Netherlands guilders
- --------------------
9.125% f. Loan of 1984, due 1990-2004 54 NLG 1 6,500,000 3,214,798 04-MAY-1998
-------------
** Total By Source 180,811,137
-------------
</TABLE>
* Indicates Partial Maturity
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
MATURED BORROWINGS (COLTS) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Redemption Amount US$ Equivalent Redemption Date
- ------------------------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
United States dollars
- ---------------------
9.15% COLTS DUE 15-APR-1998 101 USD 1 160,000 160,000 15-APR-1998
10.1% COLTS DUE 01-APR-1998 141 USD 1 150,000 150,000 01-APR-1998
7.9% COLTS DUE 01-APR-1998 253 USD 1 18,500,000 18,500,000 01-APR-1998
7.5% COLTS DUE 01-MAY-1998 296 USD 1 4,000,000 4,000,000 01-MAY-1998
7.425% COLTS DUE 15-MAY 1998 298 USD 1 5,000,000 5,000,000 15-MAY-1998
9.47% COLTS DUE 11-MAY-1998 305 USD 1 1,000,000 1,000,000 11-MAY-1998
8.5% COLTS DUE 15-MAY-1998 317 USD 1 600,000 600,000 15-MAY-1998
9.42% COLTS DUE 13-MAY-1998 329 USD 1 700,000 700,000 13-MAY-1998
9.56% COLTS DUE 18-MAY-1998 339 USD 1 500,000 500,000 18-MAY-1998
9.6% COLTS DUE 16-MAY-1998 342 USD 1 100,000 100,000 18-MAY-1998
9.62% COLTS DUE 20-MAY-1998 344 USD 1 3,000,000 3,000,000 20-MAY-1998
9.56% COLTS DUE 21-MAY-1998 367 USD 1 500,000 500,000 21-MAY-1998
9.58% COLTS DUE 20-MAY-1998 369 USD 1 8,000,000 8,000,000 20-MAY-1998
9.56% COLTS DUE 18-MAY-1998 384 USD 1 500,000 500,000 18-MAY-1998
9.71% COLTS DUE 26-MAY-1998 386 USD 1 75,000 75,000 26-MAY-1998
9.76% COLTS DUE 01-JUN-1998 388 USD 1 10,000,000 10,000,000 01-JUN-1998
9.77% COLTS DUE 27-MAY-1998 392 USD 1 6,220,000 6,220,000 27-MAY-1998
9.77% COLTS DUE 27-MAY-1998 393 USD 1 8,500,000 8,500,000 27-MAY-1998
9.76% COLTS DUE 29-MAY-1998 397 USD 1 1,500,000 1,500,000 29-MAY-1998
7.9% COLTS DUE 01-APR-1998 398 USD 1 5,000,000 5,000,000 01-APR-1998
9.75% COLTS DUE 29-MAY-1998 399 USD 1 4,500,000 4,500,000 29-MAY-1998
9.73% COLTS DUE 02-JUN-1998 405 USD 1 8,500,000 8,500,000 02-JUN-1998
9.73% COLTS DUE 05-JUN-1998 406 USD 1 505,000 505,000 05-JUN-1998
9.73% COLTS DUE 05-JUN-1998 407 USD 1 11,655,000 11,655,000 05-JUN-1998
9.72% COLTS DUE 28-MAY-1998 412 USD 1 2,000,000 2,000,000 28-MAY-1998
9.75% COLTS DUE 02-JUN-1998 417 USD 1 9,215,000 9,215,000 02-JUN-1998
9.75% COLTS DUE 05-JUN-1998 418 USD 1 15,000,000 15,000,000 05-JUN-1998
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
MATURED BORROWINGS (COLTS) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Redemption Amount US$ Equivalent Redemption Date
- ------------------------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
9.77% COLTS DUE 02-JUN-1998 422 USD 1 10,000,000 10,000,000 02-JUN-1998
9.625% COLTS DUE 01-JUN-1998 425 USD 1 50,000 50,000 01-JUN-1998
9.63% COLTS DUE 03-JUN-1998 426 USD 1 350,000 350,000 03-JUN-1998
9.6% COLTS DUE 18-MAY-1998 433 USD 1 50,000 50,000 18-MAY-1998
9.63% COLTS DUE 03-JUN-1998 438 USD 1 550,000 550,000 03-JUN-1998
9.37% COLTS DUE 17-JUN-1998 470 USD 1 25,000 25,000 17-JUN-1998
9.19% COLTS DUE 23-JUN-1998 477 USD 1 18,000,000 18,000,000 23-JUN-1998
9.35% COLTS DUE 30-JUN-1998 481 USD 1 75,000 75,000 30-JUN-1998
9.35% COLTS DUE 30-JUN-1998 482 USD 1 50,000 50,000 30-JUN-1998
9.35% COLTS DUE 24-JUN-1998 483 USD 1 150,000 150,000 24-JUN-1998
9.35% COLTS DUE 30-JUN-1998 484 USD 1 100,000 100,000 30-JUN-1998
9.4% COLTS DUE 24-JUN-1998 486 USD 1 775,000 775,000 24-JUN-1998
9.46% COLTS DUE 17-JUN-1998 487 USD 1 100,000 100,000 17-JUN-1998
0% COLTS DUE 29-MAY-1998 522 USD 1 1,600,000 1,600,000 29-MAY-1998
9.4% COLTS DUE 24-JUN-1998 954 USD 1 50,000 50,000 24-JUN-1998
9.4% COLTS DUE 24-JUN-1998 971 USD 1 25,000 25,000 24-JUN-1998
0% COLTS DUE 01-MAY-1998 1007 USD 1 1,000,000 1,000,000 01-MAY-1998
0% COLTS DUE 01-JUN-1998 1013 USD 1 1,000,000 1,000,000 01-JUN-1998
9.2% COLTS DUE 27-MAY-1998 1101 USD 1 50,000 50,000 27-MAY-1998
9.2% COLTS DUE 27-MAY-1998 1102 USD 1 25,000 25,000 27-MAY-1998
8.625% COLTS DUE 15-JUN-1998 1269 USD 1 200,000 200,000 15-JUN-1998
7.375% COLTS DUE 10-MAY-1998 1419 USD 1 365,000 365,000 10-MAY-1998
8% COLTS DUE 01-JUN-1998 1505 USD 1 300,000 300,000 01-JUN-1998
8.15% COLTS DUE 23-APR-1998 1536 USD 1 60,000 60,000 23-APR-1998
8.2% COLTS DUE 15-MAY-1998 1543 USD 1 100,000 100,000 15-MAY-1998
8.28% COLTS DUE 15-MAY-1998 1544 USD 1 100,000 100,000 15-MAY-1998
-------------
** Total By Currency 160,530,000
-------------
-------------
** Total By Source 160,530,000
-------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
PREPAYMENT ADVICES (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Public
Description Issue # Currency Tranche Prepayment Amount US$ Equivalent Prepayment Date
- ------------------------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Italian lire
- ------------
ITL 50 BIL 7.45% CALLABLE BONDS DUE
MAY 20, 2002 31 ITL 1 150,000,000,000 85,133,916 20-MAY-1998
Increase of ITL 50 billion 7.45% Callable
Bonds due 2002 31 ITL 2 50,000,000,000 28,377,972 20-MAY-1998
--------------
** Total By Currency 113,511,888
--------------
--------------
** Total By Source 113,511,888
--------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
LIABILITIES MANAGEMENT SYSTEM
SEC Report on Changes in Borrowings
PREPAYMENT ADVICES (MLT) 01-APR-1998 thru 30-JUN-1998
<TABLE>
<CAPTION>
Source : Loans
Description Issue # Currency Tranche Prepayment Amount US$ Equivalent Prepayment Date
- ------------------------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Japanese yen
- ------------
JPY 2.825% Callable Double-up Issue,
due May 21, 2007 220 JPY 1 1,000,000,000 7,476,636 19-MAY-1998
</TABLE>