<PAGE>
FILE NO. 1-3431
REGULATION BW
RULE 3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
REPORT OF
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
With respect to one or more proposed issues
of debt securities of the Bank
Filed pursuant to Rule 3 of Regulation BW
Dated: September 22, 1999
<PAGE>
The following information is being filed pursuant to Rule 3 of
Regulation BW with respect to one or more proposed issues of debt securities of
the International Bank for Reconstruction and Development. As authorized by Rule
4 of Regulation BW, certain information is to be provided in the form of an
Information Statement, attached as Exhibit A. Certain information specified in
Schedule A to Regulation BW is not available at the date of this Report.
Items 1-6. Not yet known. This information will be included in the
prospectus for a particular issue.
Item 7. Exhibit
Exhibit A: Information Statement dated September 16, 1999.
<PAGE>
INFORMATION STATEMENT
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
[WORLD BANK LOGO]
The International Bank for Reconstruction and Development (the Bank) intends
from time to time to issue its notes and bonds with maturities and on terms
determined by market conditions at the time of sale. The notes and bonds may be
sold to dealers or underwriters, who may resell them, or they may be sold by the
Bank directly or through agents.
The specific currency, aggregate principal amount, maturity, interest rate or
method for determining such rate, interest payment dates, if any, purchase price
to be paid to the Bank, any terms for redemption or other special terms, form
and denomination of such notes and bonds, information as to stock exchange
listing and the names of the dealers, underwriters or agents in connection with
the sale of such notes and bonds being offered at a particular time, as well as
any other information that may be required, will be set forth in a prospectus or
supplemental information statement.
Except as otherwise indicated, in this Information Statement (1) all amounts are
stated in current United States dollars translated as indicated in the Notes to
Financial Statements Translation of Currencies and (2) all information is given
as of June 30, 1999.
AVAILABILITY OF INFORMATION
This Information Statement will be filed with the U.S. Securities and Exchange
Commission electronically through the EDGAR system and will be available at the
Internet address: http://www.sec.gov/edgarhp.htm.
Upon request, the Bank will provide additional copies of this Information
Statement without charge. Written or telephone requests should be directed to
the Bank's main office at 1818 H Street, N.W., Washington, D.C. 20433,
Attention: Treasury Finance Department, tel: (202) 458-8800, or to the following
regional offices of the Bank: 66 Avenue d'Iena, 75116 Paris, France, tel: (331)
40-69-30-00; New Zealand House, 15th Floor, Haymarket, London SW1 Y4TE, England,
tel: (44171) 930-8511; and Fukoku Seimei Building 10F, 2-2-2 Uchisaiwai-cho,
Chiyoda-ku, Tokyo 100, Japan, tel: (813) 3597-6662.
RECIPIENTS OF THIS INFORMATION STATEMENT SHOULD RETAIN IT FOR FUTURE REFERENCE,
SINCE IT IS INTENDED THAT EACH PROSPECTUS AND ANY SUPPLEMENTAL INFORMATION
STATEMENT ISSUED AFTER THE DATE HEREOF WILL REFER TO THIS INFORMATION STATEMENT
FOR A DESCRIPTION OF THE BANK AND ITS FINANCIAL CONDITION, UNTIL A SUBSEQUENT
INFORMATION STATEMENT IS FILED.
September 16, 1999
<PAGE>
SUMMARY INFORMATION
AS OF JUNE 30, 1999, UNLESS OTHERWISE INDICATED
The International Bank for Reconstruction and Development (the Bank) is an
international organization established in 1945 and owned by its member
countries. The Bank's main goals are to promote economic development and to
reduce poverty. It pursues these goals primarily by providing loans and related
technical assistance for specific projects and programs of economic reform in
developing member countries. The five largest of the Bank's 181 shareholders are
the United States (with 16.5% of the total voting power), Japan (7.9%), Germany
(4.5%), France (4.3%) and the United Kingdom (4.3%).
The financial strength of the Bank is based on the support it receives from its
shareholders and on its array of financial policies and practices. Shareholder
support for the Bank is reflected in the capital backing it has received from
its members and in the record of its member country borrowers in meeting their
debt service obligations to the Bank. The Bank'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 market and credit
risk. In this environment, the Bank has achieved consistent profitability,
earning profits every year since 1948. Net income for the fiscal year ended June
30, 1999 was $1,518 million, which represented an annualized return of 1.05% on
average earning assets.
EQUITY AND BORROWINGS
EQUITY. The Bank's shareholders have subscribed to $188.2 billion of capital,
$11.4 billion of which has been paid in and the remainder of which is callable
if needed. The callable portion may be called only to meet the Bank's
obligations for borrowings or guarantees; it may not be used for making loans.
The Bank's equity also included $17.7 billion of retained earnings. The equity
capital-to-loans ratio was 20.65%.
BORROWINGS. The Bank diversifies its borrowings by currency, country, source and
maturity to provide flexibility and cost-effectiveness in funding. It has
borrowed in all of the world's major capital markets, as well as directly from
member governments and central banks. The Bank's outstanding borrowings of
$115.7 billion, before swaps, were denominated in 26 currencies or currency
units and included $5.3 billion of short-term borrowings.
ASSETS
LOANS. Most of the Bank's assets are loans, which totaled $117.2 billion
outstanding. According to its Articles of Agreement, the Bank may only make
loans directly to, or guaranteed by, a member country. The Bank's Articles also
limit the total amount of loans and guarantees the Bank can extend. Projects
financed by Bank loans are required to meet the Bank's standards for technical,
economic, financial, institutional and environmental soundness, and loans are
made only for countries deemed creditworthy. It is the Bank's practice not to
reschedule interest or principal payments on its loans, and it has never written
off a loan. A substantial portion of the Bank's lending for the fiscal year
ending June 30, 1999 consisted of adjustment loans and similar operations.
Loans in nonaccrual status totaled 1.8% of the Bank's loan portfolio and
represented loans made to or guaranteed by eight countries. The Bank's
accumulated loan loss provision was equivalent to 3.0% of its total loans
outstanding.
LIQUID INVESTMENTS. The Bank holds a portfolio of liquid investments to help
ensure that it can meet its financial commitments and to retain flexibility in
timing its market borrowings. Its liquid investments totaled $30.0 billion. The
Bank's policy is to hold liquid balances that meet or exceed a specified minimum
amount at all times during a fiscal year. The minimum amount is equivalent to
the highest six months of the Bank's expected debt service obligations plus
one-half of net loan disbursements, as projected for that year. For fiscal year
2000, the minimum amount was set at $18.0 billion.
RISK MANAGEMENT
The Bank seeks to avoid exchange rate risks by matching its liabilities in
various currencies with assets in those same currencies and by matching the
currency composition of its reserves to that of its outstanding loans. The Bank
also limits its interest rate risk in its loans and in its liquidity portfolio.
The Bank uses derivatives, including currency and interest rate swaps, in
connection with its operations in order to reduce borrowing costs, improve
investment returns and better manage balance sheet risks. The principal amount
payable under outstanding currency swaps totaled $82.0 billion, and the notional
principal amount of outstanding interest rate swaps totaled $68.6 billion.
Amounts receivable from currency swaps totaled $79.0 billion. The credit
exposures on swaps are controlled through specified credit-rating requirements
for counterparties, and increasingly through netting and collateralization
arrangements.
THE ABOVE INFORMATION IS QUALIFIED BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS INFORMATION STATEMENT.
2
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FINANCIAL OVERVIEW
The International Bank for Reconstruction and Development (the Bank) is an
international organization established in 1945 and owned by its member
countries. The Bank'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. The Bank'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. The Bank'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.
TABLE 1 presents selected financial data for the last five fiscal years:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
FOR THE YEAR (U.S. $ MILLIONS)
Loan Income (comprised of).............. 7,649 6,881 7,235 7,922 8,187
Interest.............................. 7,535 6,775 7,122 7,804 8,069
Commitment Charges.................... 114 106 113 118 118
Provision for Loan Losses............... (246) (251) (63) (42) (12)
Investment Income....................... 1,680 1,233 834 720 1,082
Borrowing Expenses...................... (6,846) (6,144) (5,952) (6,570) (6,944)
Net Noninterest Expense................. (719) (476) (769) (843) (959)
Net Income.............................. 1,518 1,243 1,285 1,187 1,354
PERFORMANCE RATIOS (%)
Net Return on Average Earning
Assets(a)............................. 1.05 0.96 1.02 0.89 1.00
Gross Return on:
Average Earning Assets(a)......... 6.47 6.29 6.41 6.50 6.82
Average Outstanding Loans(a)...... 6.58 6.43 6.62 6.78 6.98
Average Cash and Investments...... 6.01 5.63 5.02 4.47 5.78
Cost of Average Borrowings (after
swaps)............................ 5.92 6.01 6.06 6.31 6.48
Interest Coverage Ratio................. 1.22 1.20 1.22 1.18 1.19
Return on Equity........................ 6.16 5.29 5.21 4.61 5.41
Equity Capital-to-Loans Ratio........... 20.65 21.44 22.06 21.80 21.42
TOTAL AT YEAR-END (U.S. $ MILLIONS)
Total Assets............................ 230,808 205,042 161,945 152,004 168,579
Cash and Liquid Investments(b).......... 30,122 24,837 18,250 15,990 18,435
Loans Outstanding....................... 117,228 106,576 105,805 110,246 123,499
Accumulated Provision for Loan Losses... (3,560) (3,240) (3,210) (3,340) (3,740)
Borrowings Outstanding(c)............... 115,739 103,477 96,679 96,719 108,290
Total Equity............................ 28,021 26,514 27,228 28,300 30,461
- -------------------------------------------------------------------------------------
</TABLE>
a. Includes income from commitment and other loan charges.
b. Includes investments designated as held-to-maturity for fiscal years
1995-98.
c. Outstanding borrowings, before swaps, net of premium/discount.
3
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The financial strength of the Bank is based on the support it receives from its
shareholders and on its array of financial policies and practices. Shareholder
support for the Bank 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. The Bank'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.
The Bank's principal assets are its loans to member countries. The majority of
the Bank's outstanding loans are priced on a cost pass-through basis, in which
the cost of funding the loans, plus a lending spread, is passed through to the
borrower (see Section 2, Financial Terms of Loans for more details).
To raise funds the Bank issues debt securities in a variety of currencies to
both institutional and retail investors. These borrowings together with the
Bank's equity are used to fund its lending and investment activities as well as
general operations.
The Bank holds its assets and liabilities primarily in U.S. dollars, euro (and
national currency sub-units of the euro), and Japanese yen. The Bank mitigates
its exposure to exchange rate risks by matching the currencies of its assets
with those of its liabilities and reserves; however, the reported levels of its
assets, liabilities and income in the financial statements are affected by
exchange rate movements of major currencies compared to the Bank's reporting
currency, the U.S. dollar. This financial statement reporting effect does not
impact the Bank's risk-bearing capacity.
During the fiscal year ended June 30, 1999, the growth in the loan portfolio
continued at the unprecedented level of FY 1998 as the Bank continued to respond
to the financial crisis that had begun in East and South East Asia and spread to
other parts of the developing world. A portion of this loan growth took place in
the form of special structural adjustment loans (SSALs), which the Bank
introduced in the second quarter of FY 1999 as a new type of loan tailored to be
part of a broader financial support package for the borrowing country. SSALs
made up 18% of the Bank's total FY 1999 loan commitments of $22,182 million and
25% of its total FY 1999 net loan disbursements of $8,133 million. Relative to
the Bank's other loan terms, SSALs carry wider lending spreads and shorter
maturities (see Section 2, Adjustment Lending).
At the beginning of FY 1999 the Bank's Executive Directors took several actions
to augment the Bank's financial capacity. These measures included allocating
income to the Bank's reserves, increasing the contractual charges on new loans
and reducing the interest waiver from 25 basis points to 5 basis points on
outstanding loans to eligible borrowers negotiated prior to July 31, 1998. These
loans carry a lending spread of 50 basis points. The interest waiver on loans
for which the invitation to negotiate was issued on or after July 31, 1998
remained at 25 basis points. However, the lending spread was increased to 75
basis points. This pricing strategy effectively brought the net spread on loans
to 45 basis points for loans negotiated prior to July 31, 1998 and to 50 basis
points for loans negotiated on or after July 31, 1998.
FY 1999 net income increased $275 million from the preceding year, due in part
to the decisions taken on loan pricing and waivers. The largest contributing
factor, however, was the $237 million gain realized on liquidation of
investments that had been classified as held-to-maturity.
On July 29, 1999, the Executive Directors approved the allocation of $700
million of FY 1999 net income to reserves, and recommended to the Bank's Board
of Governors the transfer of $563 million from unallocated net income and $102
million from surplus for other development purposes and organizations. They also
approved the continuation of the FY 1999 level of loan interest and commitment
charge waivers through FY 2000.
The Bank introduced new loan and hedging products for its borrowers beginning
September 1, 1999. These products carry an additional charge to cover the
increased market risks inherent in providing them. From a longer-term
perspective, the Bank continues to evaluate alternative strategies to enhance
its risk-bearing capacity to ensure that it can respond to borrowers as needed,
while preserving its financial strength.
4
<PAGE>
DEVELOPMENT ACTIVITIES
The Bank offers loans and guarantees to its member countries to help meet their
development needs. It also provides technical assistance and other services to
support poverty reduction in these countries.
LOANS
From its establishment through June 30, 1999, the Bank had approved loans, net
of cancellations, totaling $302,840 million to borrowers in 128 countries. The
loans held by the Bank, including loans approved but not yet effective, at June
30, 1999 totaled $168,600 million, of which $117,228 million was outstanding and
$51,372 million was undisbursed. Cumulative loan repayments at June 30, 1999,
based on U.S. dollar equivalents at the time of receipt, were $131,036 million.
The amount of loans outstanding at June 30, 1999 was $10,652 million higher than
that at June 30, 1998. The increase is attributable to net disbursements of
$8,133 million and translation adjustments of $2,519, as a result of a
depreciation in the value of the U.S. dollar during the year against the other
currencies in which the Bank holds a portion of its loans.
During FY 1999 commitments of new loans reached a record of $22,182 million, up
from $21,086 million in FY 1998. Relative to the preceding fiscal year, the
regional composition of commitments and disbursements in FY 1999 increased
somewhat for Latin America and decreased somewhat for South Asia.
Under the Bank's Articles of Agreement (the Articles), as applied, the total
amount outstanding of direct loans made by the Bank, participation in loans and
callable guarantees may not exceed the statutory lending limit. At June 30,
1999, outstanding loans and callable guarantees (net of loan loss provisions)
totaled $114,134 million, equal to 56% of the statutory lending limit.
The Bank's lending operations have conformed generally to five principles
derived from its Articles. These principles, taken together, seek to ensure that
the Bank 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) The Bank 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 the Bank. A guarantee by the member itself has been
obtained in all such cases to date.
(ii) The Bank's loans are designed to promote the use of resources for
productive purposes in its member countries. Projects financed by Bank
loans are required to meet the Bank's standards for technical,
economic, financial, institutional and environmental soundness.
(iii) In making loans, the Bank must act prudently and pay due regard to the
prospects of repayment. Decisions to make loans are based upon, among
other things, studies by the Bank of a member country's economic
structure, including assessments of its resources and ability to
generate sufficient foreign exchange to meet debt-service obligations.
(iv) The Bank 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 the Bank, are reasonable for the
borrower. The Bank is intended to promote private investment, not to
compete with it.
(v) The use of loan proceeds is supervised. The Bank 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 the Bank's
satisfaction, that the expenditures
5
<PAGE>
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
the Bank judges to be likely to lead to cost-efficient procurement.
Within the scope permitted by the Articles, these policies must 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 the Bank's operational staff (engineers, financial analysts, economists
and other sector and country specialists). With minor exceptions, all loans must
be approved by the Bank's Executive Directors. Loan disbursements are subject to
the fulfillment of conditions set out in the loan agreement. During project
implementation, Bank staff with experience in the sector or the country involved
periodically visit project sites to review progress, monitor compliance with
Bank policies and assist in resolving any problems that may arise. After
completion, projects are evaluated by an independent unit and the findings
reported directly to the Executive Directors to determine the extent to which
its major objectives were met. Similar appraisal, approval, supervision and
evaluation procedures apply in the case of the Bank's adjustment and other
non-project loans.
LENDING INSTRUMENTS
The Bank's lending generally falls into one of two categories: investment or
adjustment lending.
INVESTMENT LENDING
The Bank has several lending instruments that support investment activities,
either discrete projects or programs of investments. TABLE 2 presents a
breakdown of the Bank's investment lending by instrument approved in FY 1999 and
in each of the two preceding fiscal years. These loans broadly fall into the
following categories:
- ADAPTABLE PROGRAM LOANS (APLs) are designed to provide funding for
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
under programs approved by the Executive Directors is with the Bank's
management, subject to oversight and review by the Executive Directors.
- 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 a member country's economy.
- 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 specific sectors or subsectors.
The primary objective of these loans is to improve the operational
efficiency of financial institutions in a competitive environment.
- LEARNING AND INNOVATION LOANS (LILs) 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 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.
- SECTOR INVESTMENT AND MAINTENANCE LOANS are designed to bring investments,
policies and performance in specific sectors or subsectors in line with
agreed economic priorities.
- SPECIFIC INVESTMENT LOANS fund the creation of new productive assets or
economic, social and institutional infrastructure or their rehabilitation
to full capacity.
6
<PAGE>
- 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.
<TABLE>
<CAPTION>
Table 2:
IN MILLIONS OF U.S. DOLLARS
- -----------------------------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
------------------------------ ------------------------------ ------------------------------
AS A % OF AS A % OF AS A % OF
INVESTMENT LENDING INSTRUMENTS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
- ----------------------------------- ----------- ----------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Adaptable Program Loans............ $ 502 2 $ 682 4 $ -- --
Emergency Recovery Loans........... 549 2 415 2 -- --
Financial Intermediary Loans....... 20 * 122 * 92 1
Learning and Innovation Loans...... 43 * 33 * -- --
Sector Investment & Maintenance
Loans............................ 120 1 599 3 545 4
Specific Investment Loans.......... 6,791 31 9,062 43 9,477 65
Technical Assistance Loans......... 220 1 238 1 273 2
-- -- --
----------- ----------- -----------
Total.............................. $ 8,245 37 $ 11,151 53 $ 10,387 72
-- -- --
-- -- --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* Indicates amounts less than 0.5%.
ADJUSTMENT LENDING
Historically, most Bank loans have been for investment projects or programs. The
Bank 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
conditioned on certain performance objectives. Current operating guidelines
state that adjustment lending, excluding debt and debt-service reduction loans,
will normally not exceed 25% of total Bank lending. This guideline was
established with the understanding that it was likely to be exceeded if world
economic conditions worsened. This guideline is not a rigid limit but rather a
trigger for a reevaluation of such lending. As a result of several large
adjustment loans made by the Bank during the fiscal year, 63% of the Bank's
lending in FY 1999 consisted of such loans (47% for FY 1998). The Executive
Directors are aware that, in light of the specific and unusual financial
circumstances in the world at present, the guideline has been exceeded for the
past two fiscal years, and may possibly be exceeded again in subsequent years.
TABLE 3 provides the details by instrument of the Bank's adjustment lending
approved in FY 1999 and each of the two preceding fiscal years. Adjustment loans
are broadly classified as follows:
- STRUCTURAL ADJUSTMENT LOANS (SAL) support specific policy changes and
institutional reforms. These loans require agreement on a satisfactory
macroeconomic framework and policy actions that can be monitored on a
specific schedule.
- 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 program that can be monitored.
- REHABILITATION LOANS support 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
member country in financing an approved debt and debt-service reduction
operation on its commercial debt that is designed to reduce the country's
total debt to a manageable level and contribute to a viable medium-term
financing plan and the attainment of medium-term growth objectives.
7
<PAGE>
- SPECIAL STRUCTURAL ADJUSTMENT LOANS (SSAL). These loans, introduced in the
second quarter of FY 1999, are fast-disbursing loans providing support to
countries facing a sectoral or economy-wide crisis with a substantial
structural dimension.
Adjustment lending committed for FY 1999 totaled $13,937 million, of which
$10,002 million has been disbursed at June 30, 1999. At June 30, 1999,
disbursements on SSALs committed during FY 1999 totaled $2,035 million,
representing 50% of FY 1999 SSAL commitments.
<TABLE>
<CAPTION>
Table 3:
IN MILLIONS OF U.S. DOLLARS
- -----------------------------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
------------------------------ ------------------------------ ------------------------------
AS A % OF AS A % OF AS A % OF
ADJUSTMENT LENDING INSTRUMENTS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
- ----------------------------------- ----------- ----------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Structural Adjustment Loans........ $ 7,690 35 $ 8,285(a) 39 $ 1,295 9
Sector Adjustment Loans............ 2,206 10 1,650 8 2,590 18
Rehabilitation Loans............... -- -- -- -- 70 *
Special Structural Adjustment
Loans............................ 4,041 18 -- -- -- --
-- -- --
----------- ----------- -----------
Sub-total........................ 13,937 63 9,935 47 3,955 27
Debt and Debt-Service
Reduction Loans.................. -- -- -- -- 183 1
-- -- --
----------- ----------- -----------
Total.............................. $ 13,937 63 $ 9,935 47 $ 4,138 28
-- -- --
-- -- --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
a. Includes a $3,000 million economic reconstruction loan.
* Indicates amounts less than 0.5%.
ENCLAVE LENDING
On rare occasions the Bank will lend for a large, foreign exchange generating
project in a member country usually eligible only for loans from the
International Development Association (IDA), generally referred to as enclave
lending. In these circumstances appropriate risk mitigation measures are
incorporated (including off-shore escrow accounts and debt-service reserves
acceptable to the Bank) to ensure that the risks to the Bank are minimized. At
June 30, 1999, the Bank had $171 million in outstanding loans for enclave
projects.
8
<PAGE>
LENDING BY SECTOR
A breakdown by sector of the Bank's loans outstanding at the end of FY 1999 and
loans approved in each of the last three fiscal years is provided in TABLE 4.
<TABLE>
<CAPTION>
TABLE 4:
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS
OUTSTANDING AT LOANS (A) APPROVED DURING
-----------------------------------------------------------
SECTORS JUNE 30, 1999 FY 1999 FY 1998 FY 1997
- -------------------------------------------- -------------------- ------------ ------------ -----------
USD M % USD M % USD M % USD M
--------- --- ----------- --- ----------- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Agriculture................................. $ 11,573 10 $ 1,788 8 $ 1,455 7 $ 2,811
Education................................... 5,314 5 804 4 1,928 9 762
Electric Power and Other Energy............. 13,864 12 340 2 1,115 5 1,613
Environment................................. 1,492 1 311 1 653 3 32
Finance..................................... 15,772 13 2,575 12 6,103 29 994
Health, Population and Nutrition............ 3,105 3 514 2 911 4 246
Industry.................................... 5,709 5 590 3 -- -- 145
Mining and Other Extractive................. 1,961 2 300 1 1,369 7 300
Multi-Sector................................ 22,545 19 8,812 40 1,188 6 1,373
Oil and Gas................................. 3,873 3 -- -- 130 1 114
Public Sector Management.................... 5,743 5 1,042 5 1,738 8 720
Social...................................... 3,239 3 2,236 10 934 4 1,304
Telecommunications and Informatics.......... 1,307 1 -- -- 68 * --
Transportation.............................. 13,367 11 2,041 9 2,285 11 3,225
Urban Development........................... 5,028 4 320 1 770 4 506
Water Supply and Sanitation................. 3,336 3 510 2 439 2 380
--------- --- ----------- --- ----------- --- -----------
Total**..................................... $ 117,228 100 $ 22,182 100 $ 21,086 100 $ 14,525
--------- --- ----------- --- ----------- --- -----------
--------- --- ----------- --- ----------- --- -----------
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TABLE 4:
- --------------------------------------------
SECTORS
- --------------------------------------------
%
---
<S> <C>
Agriculture................................. 19
Education................................... 5
Electric Power and Other Energy............. 11
Environment................................. *
Finance..................................... 7
Health, Population and Nutrition............ 2
Industry.................................... 1
Mining and Other Extractive................. 2
Multi-Sector................................ 9
Oil and Gas................................. 1
Public Sector Management.................... 5
Social...................................... 9
Telecommunications and Informatics.......... --
Transportation.............................. 22
Urban Development........................... 3
Water Supply and Sanitation................. 3
---
Total**..................................... 100
---
---
- --------------------------------------------
</TABLE>
a. Excludes loans to the International Finance Corporation.
* Indicates amounts less than 0.5%.
** May differ from sum of individual figures shown due to rounding.
FINANCIAL TERMS OF LOANS
Currently the Bank offers new loans with four types of financial terms:
multicurrency pool loans, LIBOR-based single currency loans, fixed-rate single
currency loans and fixed-spread loans. This choice of financial terms is
intended to provide borrowers with flexibility to select terms that are both
compatible with their debt management strategy and suited to their
debt-servicing capability. Most loans carry a three- to five-year grace period
for principal and are amortized over a period that ranges from 12 to 20 years.
For most products the Bank charges a lending rate composed of a spread plus its
average cost of borrowings. Until July 31, 1998, that spread was 50 basis
points. However, during the first quarter of fiscal year 1999, the lending
spread was increased to 75 basis points for loans where the invitation to
negotiate was issued on or after July 31, 1998. Also, a front-end fee of 100
basis points, payable for each such loan at the time it becomes effective, was
introduced. 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 determined
annually and have been in effect for each of the previous eight fiscal years.
Waivers of a portion of the commitment charge owed on the undisbursed portion of
loans are also determined annually and have been in effect for each of the last
ten fiscal years. For interest periods beginning during FY 2000, the interest
waiver for eligible borrowers is 5 basis points, except for loans with a 75
basis point lending spread, whose interest waiver is 25 basis points. The
commitment charge waiver for FY 2000 is 50 basis points. Both interest and
commitment charge waivers are unchanged from the level determined in July 1998.
Further details are provided in the Notes to Financial Statements--Note C.
9
<PAGE>
MULTICURRENCY POOL LOANS
Multicurrency pool loan (CPL) terms are available for new loans. The currency
composition of CPLs 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 to their periodic
review, at least 90% of the U.S. dollar equivalent value of the pool is in a
fixed ratio of one U.S. dollar to 125 Japanese yen to one euro.
The lending rate on these cost pass-through loans is variable, adjusted every
six months to reflect the previous semester's average cost of outstanding
borrowings allocated to fund these loans, weighted by the average currency
composition of the pool. The Bank adds its lending spread to that average cost.
For interest periods that commence on dates between July 1, 1999 and December
31, 1999, the applicable lending rate is 5.59% for loans where the invitation to
negotiate was issued before July 31, 1998 and 5.84% for loans where the
invitation to negotiate was issued on or after July 31, 1998.
LOAN CONVERSION OPTIONS
From 1996 to 1998 the Bank made available to borrowers an offer of currency
choice for all multicurrency pool loans for which the invitation to negotiate
was issued before September 1, 1996. Under that offer, 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). The
last conversion date was July 1, 1998. Those options have now expired and all
conversions under the offer have been completed.
CONVERSION TO SINGLE CURRENCY LOAN TERMS
Aggregate conversions of undisbursed balances to SCL terms were $21,115
million, with U.S. dollars comprising 79.7% of the total.
CONVERSION TO SINGLE CURRENCY POOLS
SCP terms are not available for new commitments. Aggregate conversions to
SCPs were $48,549 million, of which $615 million was undisbursed at the time of
conversion from the multicurrency pool to single currency pools. Conversions to
the U.S. dollar SCP loan pool accounted for 85.6% of the total. The U.S. dollar
SCP lending rates for interest periods commencing July 1, 1998 through December
31, 1998 and commencing in January 1, 1999 through June 30, 1999 were 7.54% and
7.97%, respectively. For the interest periods commencing on July 1, 1999 through
December 31, 1999, the lending rate for the U.S. dollar SCP is 8.53%.
SINGLE CURRENCY LOANS
For new loans, borrowers may also select LIBOR-based or fixed rate SCL terms.
The fixed rate SCL terms are being replaced by the new fixed spread loan that
has been introduced for loans whose invitations to negotiate are issued on or
after September 1, 1999 and accordingly, the fixed rate SCL product will only be
available for new loans if the invitation to negotiate has been issued before
December 1, 1999. The Bank currently offers SCLs in U.S. dollars, Japanese yen,
euro, pounds sterling and Swiss francs, and will consider borrower requests for
SCL 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 London interbank
offered rate (LIBOR) for the applicable currency plus a spread. The spread
consists of: (a) the Bank's weighted average cost margin for funding for the
preceding semester allocated to these loans relative to the base rate; and (b)
the Bank's lending spread. These variable rate loans are designed to pass the
Bank's funding spread to LIBOR through to its
10
<PAGE>
borrowers. This lending rate is set every six months, in January and July. At
June 30, 1999, the proportion of outstanding LIBOR-based SCLs denominated in
U.S. dollars was 92.3%, (97.3% at June 30, 1998).
The Bank has also approved and disbursed several large loans on non-standard SCL
terms. During FY 1999, the Bank approved and disbursed a structural adjustment
loan for $2,000 million. This loan carries a six-month U.S. dollar LIBOR
interest rate plus a fixed spread of 75 basis points and a front-end fee. During
FY 1998, the Bank had also approved and disbursed two LIBOR-based single
currency loans with non-standard SCL terms. The first, a $3,000 million economic
reconstruction loan, carries a six-month U.S. dollar LIBOR interest rate plus a
fixed spread of 100 basis points and a front-end fee. The second, a $2,000
million structural adjustment loan, carries a six-month U.S. dollar LIBOR
interest rate plus a fixed spread of 75 basis points and a front-end fee. None
of these loans is eligible for waivers of interest or commitment charges.
SSALs also carry non-standard SCL terms. SSAL terms include a six-month U.S.
dollar LIBOR interest rate plus a minimum fixed spread, currently set at 400
basis points, which may vary for new loans over time depending on the Bank's
overall risk-bearing capacity and market conditions. These loans have a maturity
of five years with a three-year grace period, a front-end fee of one percent of
the principal amount payable on effectiveness, and are not eligible for waivers
of interest or commitment charges.
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) the Bank's funding cost margin
relative to the base rate for these loans; (b) a risk premium to compensate the
Bank for market risks it incurs in funding these loans; and (c) the Bank's
lending spread.
NEW LOAN AND HEDGING PRODUCTS
During the third quarter of FY 1999, the Bank approved the introduction of new
loan and hedging products for its borrowers to respond to their needs for more
flexible financial products and better risk management tools. These products
have been introduced for loans whose invitation to negotiate is issued on or
after September 1, 1999.
The new financial products are:
- FIXED-SPREAD LOANS with an interest rate based on LIBOR, plus a spread
that would be fixed for the life of the loan. Borrowers selecting this
product have the flexibility to change the currency or interest rate basis
over the life of the loan and have more flexibility in selecting loan
maturities; and
- HEDGING PRODUCTS that would be linked to borrowers' existing Bank loans to
assist them in managing their currency, interest rate and, on a
case-by-case basis, commodity price risks.
Fixed-spread loans carry a lending spread above LIBOR that is fixed on the date
the loan agreement is signed. The lending spread, which is determined and
announced by the Bank from time to time, is currently 55 basis points. In
addition, the commitment charge for the first four years of each fixed-spread
loan is 10 basis points higher than that for other Bank loans.
11
<PAGE>
TABLE 5 presents a breakdown of the Bank's loan portfolio by loan product:
<TABLE>
<CAPTION>
Table 5:
IN MILLIONS OF U.S. DOLLARS
- ---------------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
---------------------------- -------------------------- --------------------------
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.................. $ 37,203 32 $ 56,274 53 $ 91,842 87
Undisbursed.................. 6,344 12 8,765 17 27,422 53
LIBOR-based single currency
loans(a)
Outstanding.................. 25,462 22 15,018 14 4,493 4
Undisbursed.................. 33,862 66 29,801 58 19,144 37
Fixed rate single currency
loans
Outstanding(b)............... 11,238 9 5,683 5 2,563 2
Undisbursed.................. 10,787 21 12,356 24 5,007 10
Single currency pool loans
Outstanding.................. 40,693 35 25,658 24 -- --
Undisbursed.................. 374 * 131 * -- --
Other loans
Outstanding.................. 2,631 2 3,943 4 6,907 7
Undisbursed.................. 5 * 12 * 3 *
--------- --- --------- --- --------- ---
Total **
Outstanding loans............ $ 117,228 100 $ 106,576 100 $ 105,805 100
Undisbursed loans............ $ 51,372 100 $ 51,065 100 $ 51,576 100
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
a. Of which SCLs with non-standard SCL terms represent $9,035 million
outstanding and $2,005 million undisbursed at June 30, 1999.
b. Includes fixed rate single currency loans whose rate had not yet been
fixed at fiscal year-end.
* 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.
GUARANTEES
The Bank offers guarantees to its members for loans from private investors to
members or other borrowers for projects in member countries, and in exceptional
cases, and subject to an aggregate limit of $300 million, will offer enclave
guarantees for projects in member countries usually eligible only for credits
from IDA. Bank guarantees are intended as flexible instruments that provide the
credit enhancement required to mobilize private sector financing for individual
projects through targeted and limited support, thus enhancing the Bank's impact
by catalyzing private sector participation. On a pilot basis guarantees are
being made available to support agreed-upon policies and reforms in member
countries. The Bank applies the same country creditworthiness and project
evaluation criteria to guarantees as it applies to loans. Projects in any member
country that is eligible for Bank lending are also eligible for Bank guarantees.
Bank 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 basic types of
guarantees are offered:
- PARTIAL RISK GUARANTEES cover debt-service defaults on a loan 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. A
12
<PAGE>
Bank 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 generally used for public sector projects
when there is a need to extend loan maturities, but not necessarily to
cover sovereign contractual obligations. Such guarantees cover a portion
of debt service on the particular loan. 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. Such partial credit guarantees help induce the market to extend
the term of the loan. The presence of the guarantee may also induce a
lower interest rate.
As part of the Bank's strategy of continuing to expand its range of instruments
in response to client demand, the Executive Directors approved the introduction
of a new guarantee instrument in April 1999. This guarantee is an extension of
the existing partial credit guarantee instrument for projects:
- POLICY-BASED GUARANTEES are partial credit guarantees that cover a portion
of debt service on a borrowing by an eligible member country from private
foreign creditors in support of agreed structural, institutional and
social policies and reforms. The guaranteed portion of the debt service
could consist of a combination of interest and principal payments, but the
actual structure is determined on a case-by-case basis. Eligibility for
the Bank adjustment lending is a necessary condition for eligibility for
this type of instrument. The terms of this instrument are the same as
project-based partial credit guarantees. Maturity, level of fees, and
possible waivers will be standard if the guarantee is made in situations
comparable to those under which a SAL would be made; however, if the
guarantee is made in connection with a SSAL, then it will be at
SSAL-equivalent terms. Initially, the Bank will proceed with a pilot
program of up to $2,000 million of Bank exposure. Once the $2,000 million
is reached, the Executive Directors will review the program. On September
16, 1999, the Executive Directors authorized the first such guarantee, in
the amount of $250 million in connection with a SSAL. In this case, a
charge of 75 basis points per annum will apply on the present value of the
guaranteed amount.
The Bank 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 the Bank determines that the
country will have adequate foreign exchange to meet its obligations under the
counter-guarantee if the guarantee is called. 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 the Bank--to minimize the Bank's exposure and the risk of a call
on the guarantee. The commitment of enclave guarantees is initially limited to
an aggregate guaranteed amount of $300 million.
Each guarantee requires the counter-guarantee of the 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
the Bank. Generally, the Bank has retained a fee of 25 basis points per annum on
its exposure on guarantees; however, on enclave guarantees the Bank would retain
a higher fee.
The Bank's exposure at June 30, 1999 on its guarantees (measured as their
present value in terms of their first call date) is $1,524 million. For
additional information, see the Notes to Financial Statements-- Note C.
OTHER ACTIVITIES
In addition to its financial operations, the Bank provides technical assistance
to its member countries, both in connection with, and independently of, loan
operations. Such assistance includes the assignment of qualified professionals
to survey development opportunities in member countries, analysis of their
fiscal, economic and other development problems, assistance to member countries
in drawing up development
13
<PAGE>
programs, appraisal of projects suitable for investment and assistance to member
countries in improving their asset and liability management techniques. To
assist its developing member countries, the Bank has also established the World
Bank Institute, which provides courses and other training activities related to
economic policy development and administration for governments and organizations
working closely with the Bank, and has made contributions for research and other
developmental activities. The Bank has on a number of occasions, at the request
of members concerned, facilitated efforts toward the settlement of international
economic and financial disputes. Additionally, the Bank, 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 the Bank. See the
Notes to Financial Statements--Note H.
RISK MANAGEMENT
The Bank assumes various kinds of risk 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. The Bank is also exposed to
operating risk.
The objective of Asset-Liability Management (ALM) for the Bank 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 lending product
in accordance with the particular requirements for that product and within
prescribed risk parameters.
The major inherent risk to the Bank is country credit risk, or loan portfolio
risk. The Bank is also subject to commercial credit risk, market (interest and
exchange rate), operating and liquidity risk. In a reorganization of the risk
managment function, the Bank established a Senior Vice President and Chief
Financial Officer (CFO) position with several units reporting to it, and vested
it with the overall responsibility for the financial and risk management of the
Bank. The Bank also established a Risk Management Department charged with
identifying, measuring and monitoring market risks, liquidity risks, and
counterparty credit risks in the Bank's financial operations.
The risk management governance structure also includes the Asset-Liability
Management Committee (ALCO) chaired by the CFO. ALCO makes decisions and
recommendations to senior management in the areas of financial policy, the
adequacy and allocation of risk capital, and oversight of financial reporting.
Among the standing subcommittees reporting to ALCO, the Market Risk and Currency
Management Subcommittee meets most frequently. This subcommittee develops and
monitors the policies under which market and commercial credit risks faced by
the Bank 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, the use of derivative instruments, and
monitoring matches between assets and their funding.
For the day-to-day management of risk, the Bank'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 the Bank 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 the Bank's risk profiles and performance as well as any significant
developments in risk management policies and controls.
CREDIT RISK
Credit risk, the risk of loss from default by a borrower or counterparty, is
inherent in the Bank's development activities. Under the direction of the ALCO,
policies and procedures for measuring and managing such risks are formulated,
approved and communicated throughout the Bank. 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 loan, investment and borrowing portfolios.
14
<PAGE>
COUNTRY CREDIT RISK
Country credit risk is the primary risk faced by the Bank. It has three
components as described below. Probable expected losses from all three
components are covered by the accumulated provision for loan losses, while
unexpected losses are covered by the Bank's income generating capacity and
risk-bearing capital. The Bank continuously reviews the creditworthiness of its
borrowing member countries and adjusts its overall country programs and lending
operations to reflect the results of these reviews.
(i) The first component is idiosyncratic risk. This is the risk that
individual countries will accumulate extended debt-service arrears--or
move closer to accumulating extended debt-service 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 external 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, which arises when
a small group of borrowers account for a large share of loans
outstanding. Portfolio concentration increases the potential financial
impact of idiosyncratic and covariance risk. Portfolio concentration
risk is managed using the portfolio concentration limit described
below.
In 1997 the Executive Directors approved an approach to portfolio concentration
under which the Bank'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 the
Bank's subscribed capital, reserves and unallocated surplus. The concentration
risk limit is based on the adequacy of the Bank's risk-bearing capacity relative
to its largest loan portfolio exposure to a single borrowing country. The
concentration risk limit takes into account not only current exposure (loans
outstanding, plus the present value of guarantees), but also projected exposure
over the ensuing three- to five-year period. The limit is determined by the
Executive Directors each year at the time they consider the Bank's reserves
adequacy and the allocation of its net income from the preceding fiscal year.
For FY 2000 the concentration risk limit is $13,500 million, unchanged from FY
1999. The equitable access limit is $20,529 million. The Bank's largest loan
portfolio exposure (including the present value of guarantees) to a single
borrowing country was $11,553 million at June 30, 1999.
OVERDUE AND NON-PERFORMING LOANS
It is the Bank's policy that if a payment of principal, interest or other
charges on a Bank 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 payment becomes 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 the Bank to place all loans
made to or guaranteed by a member of the Bank in nonaccrual status, if
principal, interest or other charges on any such loan are overdue by more than
six months, unless the Bank determines that the overdue amount will be collected
in the immediate future. The Bank maintains an accumulated provision for loan
losses to recognize the risk inherent in current and probable overdue payments.
The methodology for determining the accumulated provision for loan losses is
discussed in the following paragraphs. Additional information on the Bank's
provisioning policy and status of nonaccrual loans can be found in the Notes to
Financial Statements--Summary of Significant Accounting and Related Policies,
and Note C.
15
<PAGE>
In 1991 the Executive Directors adopted a policy to assist members with
protracted arrears to the Bank to mobilize sufficient resources to clear their
arrears and to support a sustainable growth-oriented adjustment program over the
medium term. Under this policy the Bank 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 the Bank;
(b) undertake a stabilization program, if necessary, endorsed, or financially
supported, by the International Monetary Fund; (c) agree to a financing plan to
clear all arrears to the Bank 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 the Bank loans during the performance period. The signing,
effectiveness and disbursement of such loans will not take place until the
member's arrears to the Bank have been fully cleared.
ACCUMULATED PROVISION FOR LOAN LOSSES
The Bank's accumulated provision for loan losses reflects the following:
- Management's assessment of the overall collectibility risk on accruing
loans (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 probable expected losses in the accrual
portfolio and losses inherent in the nonaccrual portfolio as of the balance
sheet date. The amount required to cover probable expected losses in the accrual
portfolio is related to the mean of the distribution of losses facing the
institution over the next three years, which has been developed to estimate the
probable losses inherent in the accrual portfolio at the balance sheet date.
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 probable expected losses is inherently uncertain and depends on many
factors, including general macroeconomic and political conditions, unexpected
correlations within the portfolio, and other external factors. The Bank
periodically reviews such factors and reassesses the adequacy of the accumulated
provision for loan losses accordingly.
COMMERCIAL CREDIT RISK
The Bank's commercial credit risk is concentrated in investments in debt
instruments issued by sovereigns, agencies, banks and corporate entities. The
majority of these investments are in instruments rated AAA and AA.
In the normal course of its business, the Bank utilizes various derivatives and
foreign exchange financial instruments to meet the financial needs of its
borrowers, to generate income through its investment activities and to manage
its exposure to fluctuations in interest and currency rates.
Derivative and foreign exchange transactions involve credit risk. The effective
management of credit risk is vital to the success of the Bank's funding,
investment and ALM activities. The monitoring and managing of these risks is a
continuous process due to changing market environments.
The Bank 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 counterparty creditworthiness, assigning
credit limits and determining the risk profile of specific transactions. Credit
limits are calculated and monitored
16
<PAGE>
on the basis of potential exposures, taking into consideration current market
values, estimates of potential future movements in those values and collateral
agreements with counterparties. If there is a collateral agreement with the
counterparty to reduce credit risk, then the amount of collateral obtained is
based on the credit rating of the counterparty. Collateral held includes cash
and government securities.
The Bank 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 contractual principal amount
is the most commonly used volume measure in the derivative and foreign exchange
markets, it is not a measure of credit or market risk.
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 the Bank and,
therefore, creates a replacement risk for the Bank. When the mark-to-market is
negative, the Bank owes the counterparty and does not have replacement risk.
When the Bank has more than one transaction outstanding with a counterparty, and
there exists a legally-enforceable master netting 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 the Bank's exposure to the counterparty is
considered to be zero. Net mark-to-market is, in the Bank's view, the best
measure of credit risk when there is a legally-enforceable master netting
agreement between the Bank and the counterparty. For the contractual value,
notional amounts and related credit risk exposure amounts by instrument, see the
Notes to Financial Statements-- Note E.
TABLE 6 provides details of the Bank's estimated credit exposure on its
investments and swaps, net of collateral held, by counterparty rating category.
<TABLE>
<CAPTION>
TABLE 6:
IN MILLIONS OF U.S. DOLLARS
- ---------------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1999
-----------------------------------------------------------------
AT JUNE 30,
INVESTMENTS AT JUNE 30, 1998 1997
------------------------ -------------------------- ---------------
AGENCIES, TOTAL EXPOSURE TOTAL EXPOSURE TOTAL EXPOSURE
COUNTERPARTY BANKS & SWAP ON INVESTMENTS % OF ON INVESTMENTS % OF ON INVESTMENTS
RATING SOVEREIGNS CORPORATES EXPOSURE AND SWAPS TOTAL AND SWAPS TOTAL AND SWAPS
- ----------- ----------- ----------- ----------- --------------- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA........ $ 4,459 $ 7,943 $ 111 $ 12,513 41 $ 9,740 37 $ 4,074
AA......... 1,815 13,543 91 15,449 51 14,725 56 12,889
A.......... -- 2,283 28 2,311 8 1,939 7 2,134
----------- ----------- ----------- ------- --------- ------- --------- -------
Total...... $ 6,274 $ 23,769 $ 230 $ 30,273 100 $ 26,404 100 $ 19,097
----------- ----------- ----------- ------- --------- ------- --------- -------
----------- ----------- ----------- ------- --------- ------- --------- -------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TABLE 6:
IN MILLIONS
- -----------
COUNTERPART % OF
RATING TOTAL
- ----------- -----
<S> <C>
AAA........ 21
AA......... 68
A.......... 11
---
Total...... 100
---
---
- -----------
</TABLE>
The FY 1999 increase in credit exposure parallels the increase in the size of
the investment portfolio. The credit exposure from swaps declined from FY 1998
to FY 1999 by $387 million to $230 million. The increase in the relative weight
of credit exposures to AAA rated entities was in part due to the increase of
investments in AAA rated asset-backed securities.
The FY 1998 increase in credit exposure over that of FY 1997 reflects the growth
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.
INTEREST RATE RISK
There are two potential sources of interest rate risk to the Bank. The first is
the interest rate sensitivity associated with the net spread between the rate
the Bank 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
17
<PAGE>
portion of the Bank assets with equity. The borrowing cost pass-through
formulation incorporated in the lending rates charged on most of the Bank's
existing 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 82% of the existing outstanding loan portfolio
(87% at the end of FY 1998). However, the majority of cost pass-through loans do
entail some residual interest rate risk, given the one-semester lag inherent in
the lending rate calculation. If new borrowings are at interest rates above the
average of those already in the debt pool, the higher average debt costs would
not be passed through to the lending rate charged to the borrowers and thus
would not affect the interest income generated on cost pass-through loans until
the following semester. The reverse is true when market interest rates decline.
Another potential risk arises because 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 the Bank's new borrowing costs. In particular, the
amount of "above market" debt allocated to the CPL debt pool exceeds the
outstanding CPL's beyond FY 2012, i.e. the pool is over-funded beyond FY 2012.
Over-funding reaches a maximum of approximately $4,396 million in FY 2015. In
the absence of new disbursements and additions to the multicurrency pool, the
Bank would be subject to some risk associated with potentially having to
redeploy these above-market borrowings, as the loans in the CPL pool repay.
Interest rate risk on non-cost pass-through products, which currently account
for 18% of the existing loan portfolio (13% at the end of FY 1998), is managed
by using interest rate swaps to closely align the rate sensitivity
characteristics of the loan portfolio with those of their underlying funding.
The interest rate risk on the Bank's liquid portfolio is managed within
specified duration-mismatch limits and is further limited by stop-loss limits.
Because equity funds a portion of outstanding loans, the Bank's level of net
income is sensitive to movements in the level of nominal interest rates. In
general, lower nominal interest rates result in lower lending rates which, in
turn, reduce the nominal earnings on the Bank'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 the
Bank's assets, liabilities and derivative financial instruments. On floating
rate assets and liabilities, the Bank is exposed to timing mismatches between
the re-set dates on its floating rate receivables and payables.
As part of its ALM process the Bank employs interest rate swaps to manage and
align the rate sensitivity characteristics of its assets and liabilities. The
Bank uses derivative instruments to adjust the interest rate repricing
characteristics of specific 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, the Bank
matches its borrowing obligations in any one currency (after swap activities)
with assets in the same currency, as prescribed by the Articles. In addition,
the Bank'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 the
Bank's ability to better absorb potential losses from arrears regardless of the
market environment.
18
<PAGE>
FIGURE 1 presents the currency composition of significant balance sheet
components at the end of FY 1999 and 1998.
FIGURE 1:
FY 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
USD EUR JPY OTHERS
<S> <C> <C> <C> <C>
Loans 37% 8% 5% 1%
Investments 8% 2% 2% 2%
C-Swaps (Rec.) 9% 10% 5% 11%
Equity 7% 2% 1% 2%
Borrowings 23% 11% 7% 11%
C-Swaps (Pay.) 24% 7% 4% 1%
Liabilities & Equity
Assets % %
Loans 51 Equity 12
Investments 14 Borrowings 52
C-swaps (Rec.) 35 C-Swaps (Pay.) 36
100 100
</TABLE>
FY 1998
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
USD EUR JPY OTHERS
<S> <C> <C> <C> <C>
Loans 32% 11% 8% 2%
Investments 6% 2% 4% 2%
C-Swaps (Rec.) 10% 10% 3% 10%
Equity 7% 2% 2% 2%
Borrowings 21% 13% 9% 10%
C-Swaps (Pay.) 20% 8% 4% 2%
Liabilities & Equity
Assets % %
Loans 53 Equity 13
Investments 14 Borrowings 53
C-swaps (Rec.) 33 C-Swaps (Pay.) 34
100 100
</TABLE>
For comparability, FY 1998 amounts have been restated to reflect the
introduction of the euro.
19
<PAGE>
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. The Bank, like all financial institutions, is exposed to many
types of operating risks, including the risk of fraud by staff or outsiders. The
Bank attempts to mitigate operating risk by maintaining a system of internal
controls that is designed to keep operating risk at appropriate levels in view
of the financial strength of the Bank and the characteristics of the activities
and markets in which the Bank operates. In the past the Bank 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 the Bank
will not suffer such losses in the future.
In FY 1996, the Bank adopted the COSO(a) control framework and a self-assessment
methodology to evaluate the effectiveness of its internal controls, and it has
an on-going program in place to assess all business units. In each of the last
three fiscal years, the Bank obtained an attestation report from its external
auditors that the Bank's assertion that as of June 30 of each of these fiscal
years, its "system of internal control over its financial reporting met the
criteria for effective internal control over financial reporting described in
COSO" is fairly stated in all material respects.
ECONOMIC AND MONETARY UNION IN EUROPE
Since January 1, 1999, in the normal course of business as a multicurrency
organization, the Bank has been conducting euro-denominated transactions in
paying and receiving, investments, bond issuance, loan disbursements, loan
billing and new lending commitments.
The Bank has adopted a gradual approach to redenominate national currency
balance sheet items and the Bank-administered donor trust funds to euro during
the transition period. However, recognizing the operational risks and
complexities of operating simultaneously in national currencies and euro, and
the resulting incremental transactions, accounts, and cash flows between these
currencies, it has been concluded that redenomination could improve operating
efficiency and operational control. Strategies of individual business areas have
been developed and integrated into an overall transition plan to ensure
sufficient flexibility for each unit to respond to its specific business needs.
There is no financial benefit foreseen, for either the Bank or its borrowers,
for an early redenomination of loans with national currency components before
their automatic conversion to euro on January 1, 2002. However, to reduce
on-going costs and operational control risks of operating in mixed currencies,
an early conversion of loans before December 2001 is being considered. Due to
the contractual nature of loan agreements, borrowers would have to consent to an
early redenomination. Furthermore, loan accounting systems will require
significant modification for national currency redenomination to euro.
The Bank is currently adopting new information technology systems that will
facilitate the redenomination of many national currency balances. One major new
system, SAP, has replaced numerous systems in areas including operations,
resource management, capital and trust funds. A new system for liability
management, called Summit, has recently been installed which will process the
redenomination of national currency bonds and derivatives, the timing of which
will be determined by the Bank based on international capital market
developments during the transition period.
Due to the ongoing information systems changes, the incremental cost of euro
conversion is being minimized. Past euro preparation costs were limited through
the redeployment of existing staff resources.
- ---------
(a). "COSO" refers to the INTERNAL CONTROL-INTEGRATED FRAMEWORK formulated by
the Committee of Sponsoring Organizations of the Treadway Commission, which was
convened by the U.S. Congress in response to the well-publicized irregularities
that occurred in the financial sector during the late 1980's.
20
<PAGE>
The Bank's direct euro preparation costs to date are under $5 million and have
been funded by the administrative budget.
YEAR 2000 ISSUES
GENERAL
The Year 2000 issue is the result of computer programs using two digits rather
than four to define the applicable year. Some of the Bank's legacy computer
programs have date-sensitive software that might 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. The Bank presently
believes that timely modifications to existing software and/or hardware, as well
as introducing new systems software, will mitigate its Year 2000 risks.
The Bank's Year 2000 Program has been in active operation for over two years.
The overall responsibility for the Program rests with the Bank's Chief
Information Officer (CIO). A parallel program of Year 2000 activities is
directed towards raising the awareness of the Bank's member countries, providing
limited grant funding for planning and remediation, and ensuring that
Bank-funded projects' Year 2000 risks are assessed and that appropriate actions
are taken.
The CIO has oversight and reporting responsibilities for both the information
technology (IT) and non-IT components (facilities, communications, equipment and
infrastructure) of the Program. The Bank's Year 2000 Program Office is staffed
with three full-time professionals. IT and non-IT staff working on Year 2000
activities reside in operating and support units of the Bank. These staff report
on Year 2000 work to the CIO and the Year 2000 Program Office as well as their
line managers. While work on the project is ongoing, there is a biweekly meeting
with the CIO and the Year 2000 Program Office, and once a month, representatives
of the responsible operating units meet to review progress and coordinate on
issues. A monthly report on the status of the Program is provided to the Bank's
President and Managing Directors. The Executive Directors are apprised of the
Program's status on a quarterly basis through a report and meeting with the
Audit Committee of the Executive Directors.
INTERNAL COMPUTER SYSTEMS
Early in the Program, the Bank adopted the following U.S. Government Accounting
Office five-phase approach for the Year 2000 issue (i.e., awareness, assessment,
renovation/remediation, validation (testing) and implementation):
(i) AWARENESS: As noted above, the Program is recognized as important not
only to the Bank internally but also to clients and partners. The
Bank's senior management has assigned overall accountability for the
Program to the CIO. A strategy, approach and timetable have been
defined and agreed upon and responsible organizational units and
individuals have been identified. Key milestone dates have been
established within the timetable, and these are being actively
monitored. Information and documentation have been distributed within
the Bank on the Year 2000 issue, how it affects the Bank and its
clients, and the program to address it. A series of briefings by
internal and outside experts has been conducted, and these briefings
continue to be run periodically. Year 2000 Program Office staff and
other key individuals in the Bank are actively coordinating with other
multilateral development banks, the International Monetary Fund, the
United Nations and other international organizations, U.S. government
officials, and private sector groups on areas of mutual interest. There
is also a continuing program of targeted information dissemination on
key Year 2000 topics, including status reporting, test platform
availability plus specific guidance on testing phases and using the
agreed institutional testing methodology for both unit and integration
testing.
21
<PAGE>
(ii) ASSESSMENT: The assessment phase of the Program has been completed.
The information resources (e.g. systems and infrastructure) have been
inventoried and categorized (i.e. compliant or non-compliant) to be
retained, decommissioned, or replaced. Where contingency plans are
required for business continuity purposes, they have been developed.
The resources for Year 2000 work are a part of the base budget
allocation of each unit; additional funding has been made available by
Bank management according to need;
(iii) RENOVATION/REMEDIATION: Work falling under this phase includes repair
of systems that are deemed non-compliant and are to be retained, as
well as a large Systems Renewal Project and implementation of Summit
Software solutions for several current financial systems. A
significant part of the Systems Renewal Project involves the
replacement of 60 information systems by new, Year 2000 compliant SAP
R/3 modules. The SAP project work was essentially completed and
implemented in July 1999. The Summit implementation was completed in
the third quarter of FY 1999. Project status and contingency plans for
remaining systems are reviewed weekly and discussed monthly with the
business units involved. The remaining eight applications under
remediation are judged to be on schedule for completion by September
15, 1999. Of 108 applications to be decommissioned before January
2000, 73% had been retired by June 30, 1999, with the remainder to be
retired by the end of December 1999.
(iv) VALIDATION (TESTING): This is the phase of the Program that is using
the most resources. It involves not only the actual testing and
re-testing at a unit and integration level, but also creating the test
environments and scheduling testing. Applications to be retained,
which total 133, are 87% Year 2000 tested as of June 30, 1999.
Completion of testing is scheduled for September 30, 1999.
(v) IMPLEMENTATION: the Bank's Year 2000 Program calls for completion of
preparation activities by the end of September 1999. Upon completion of
the testing of compliant systems, they will be implemented into
production status. SAP modules are certified to be Year 2000 compliant,
and this will be verified by the Bank's own Year 2000 testing, which
will be completed by the end of September 1999. As an additional safety
measure, systems slated to be replaced by SAP have been modified to
ensure that they will be able to operate through the first half of the
Bank's fiscal year 2000. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially
from these plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and costs
of personnel trained in this area, the ability to locate and correct
all relevant computer code and similar uncertainties.
The key Year 2000 milestone dates are set out in TABLE 7.
THIRD PARTY PROVIDERS
The Bank has identified its key vendors and service providers to determine the
extent of their Year 2000 compliance and has made appropriate inquiries and
investigations into the state of their readiness, where such readiness could
have a material impact on the Bank's operations. External financial entities
(e.g. correspondent banks, fund managers, swap counterparties) with whom the
Bank does business have been contacted to determine the status of their systems
compliance. Of the 82% responding, 81% expected to be compliant by June 30,
1999. The Bank is in the process of contacting those respondants that had not
indicated an expectation of compliance by June 30, 1999 and is evaluating on the
basis of its further inquiries whether to continue business relations with them.
CASH SETTLEMENTS
The majority of the Bank's financial transactions are executed through the SWIFT
global messaging system, which is already Year 2000 compliant. The Bank
completed the SWIFT Year 2000 Customer Program in May and June 1999, and is
using a Year 2000 compliant version of the SWIFT messaging
22
<PAGE>
system. Contingency plans to transmit transactions by alternate means are
already in place and tested as part of the normal on-going disaster recovery
planning.
MEMBER COUNTRIES
The initial focus of Year 2000 efforts in member countries was on raising
awareness, promoting education and encouraging preventive action and timely
contingency planning. Since the second quarter of FY 1999, operations staff have
focussed on an internal assessment of the Bank's portfolio of loan projects for
Year 2000 risks. Risks for member countries primarily relate to critical systems
in banking, telecommunications, power and water, health and government services.
Each project has been categorized as carrying high, medium, or low risk for
potential disruptions due to Year 2000 problems. Approximately one-third of the
projects are classified as high-risk. High Year 2000 risk, in this context,
means that the project includes components or depends on services that could be
vulnerable to the Year 2000 rollover. The Bank actively encourages mitigation
action on the part of the Project Implementing Agencies to avoid disruptions,
and offers financing of such work through new loans and reallocation of existing
loan funds. Should such efforts fail, projects may experience setbacks and
delays while problems are rectified. Serious disruptions to national
infrastructure and public administration due to Year 2000 problems could, in the
extreme, affect borrowers' ability to service Bank loans. No projections have
been attempted as to the magnitude of such risks, as there are too many
variables, and as information on Year 2000 readiness, in many cases, is scarce
and cursory at best.
ESTIMATED COSTS TO COMPLETE
The cost of completing the Bank's Year 2000 Program is estimated at
approximately $12 million. To date approximately $8 million of this amount has
been spent. Costs for the Information Systems Renewal project (SAP
implementation) and the Summit implementation are estimated at approximately $68
million. To date, $49 million of that amount has been spent. SAP and Summit
address a considerable part of the Bank's Year 2000 remediation requirements,
but since they would be implemented in any event, their costs are not considered
direct Year 2000 remediation expenses.
CONTINGENCY PLANS
Contingency plans are required for all critical systems needing repair or
replacement. For the Systems Renewal Project, the contingency plan is to repair
the legacy applications it will replace. Some of this work has already been
completed, some is scheduled to be performed in any case, and the remainder will
be triggered if scheduled reviews of the Systems Renewal Project reveal
unsatisfactory progress. The level of effort required has been assessed and the
required resources have been earmarked.
YEAR 2000 ACTION TIMELINE
<TABLE>
<CAPTION>
TABLE 7:
- ------------------------------------------------------------------------------------------------------
DATE SYSTEMS TO BE RETAINED SYSTEMS RENEWAL OTHER NEW SYSTEMS
- ------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
June 30, 1999........... Testing 97% Completed Production Transition Production
Implementation
September 30, 1999...... Testing 100% Completed In Production In Production
and in Production
<CAPTION>
- ------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
LIQUIDITY MANAGEMENT
Liquidity risk arises in the general funding of the Bank's activities and in the
management of its financial 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 the Bank's financial commitments.
Under the Bank'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 for a fiscal year plus one-half of net
loan disbursements as projected for a fiscal year based on commitments at the
beginning of that year. The FY 2000 prudential minimum liquidity level has been
set at $18,000 million, representing a $500 million decrease over that for FY
1999. The Bank also holds liquid assets over the specified minimum to provide
flexibility in timing its borrowing transactions and to meet working capital
needs.
The Bank's liquid assets 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.
Liquid assets are held in three distinct sub-portfolios: stable; operational;
and discretionary, each with different risk profiles, funding, structures and
performance benchmarks. The stable portfolio is principally an investment
portfolio holding the prudential minimum level of liquidity, which is set at the
beginning of each fiscal year. The operational portfolio provides working
capital for the Bank's day-to-day cash flow requirements. The discretionary
portfolio provides flexibility for the execution of the Bank's borrowing program
and can be used to take advantage of attractive market opportunities.
At the end of FY 1999, the aggregate size of the Bank's liquid asset portfolio
stood at $30,010 million, an increase of $5,224 million over FY 1998. This
increase over the prior year is in part a result of a decision to deliberately
pre-fund a portion of the FY 2000 borrowing program and create discretionary
liquidity. In the aggregate, the Bank's liquid asset portfolio is largely
composed of U.S. dollars, with the currency composition of the operational
portfolio varying the most as a result of the multicurrency cash flows generated
by disbursements, debt-service payments, new borrowings and reserves
conversions. FIGURE 2 represents the Bank's liquid asset portfolio size and
structure at the end of FY 1999 and FY 1998.
FIGURE 2:
<TABLE>
<S> <C>
EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
<CAPTION>
FY 1999
<S> <C>
Stable Portfolio USDeq 18,794m 63%
Operational Portfolio USDeq 7,620m 25%
Discretionary Portfolio USDeq
3,596m 12%
</TABLE>
24
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FY 1998
<S> <C>
Stable Portfolio USDeq 18,574m 75%
Operational Portfolio USDeq 4,765m 19%
Discretionary Portfolio USDeq
1,447m 6%
</TABLE>
25
<PAGE>
The cumulative performance of the liquid asset portfolio in FY 1999 compared to
FY 1998 is presented in TABLE 8.
<TABLE>
<CAPTION>
TABLE 8:
- --------------------------------------------------------------------------------------------
ANNUALIZED FINANCIAL
RETURN (%)
------------------------
FY 1999 FY 1998
----------- -----------
<S> <C> <C>
IBRD Overall Portfolio............................................ 6.00 5.62
Stable Portfolio of which:
Actively Managed.............................................. 5.35 5.62
Held-to-maturity Portfolio.................................... 82.96 8.44
Operational Portfolio........................................... 4.48 4.72
Discretionary Portfolio......................................... 5.23 5.68
<CAPTION>
- --------------------------------------------------------------------------------------------
</TABLE>
During the first quarter of FY 1999, the Bank decided to liquidate the sterling
UK government securities in the held-to-maturity portfolio. At the time of their
liquidation these securities in the held-to-maturity portfolio had fair and
carrying values of $1,389 million and $1,152 million, respectively. This
resulted in a realized gain of $237 million upon liquidation, for an FY 1999
annualized financial return of 82.96%. The underlying fixed rate debt which had
previously funded this held-to-maturity portfolio was simultaneously swapped
into floating rates.
For further information, refer to the Notes to Financial Statements-Note B.
FUNDING RESOURCES
EQUITY
Total shareholders' equity at June 30, 1999 was $28,021 million compared with
$26,514 million at June 30, 1998. The increase from FY 1998 primarily reflects
the increase in retained earnings of $976 million, the decrease in cumulative
translation adjustment of $323 million, and the increase in paid-in capital of
$107 million. TABLE 9 presents the composition of usable equity at June 30, 1999
and 1998.
The increase in shareholders' equity over FY 1998 did not keep up with the pace
of loan growth. As a result, the ratio of equity capital-to-loans fell to 20.65%
at June 30, 1999, from 21.44% one year earlier. Similarly, the reserves-to-loans
ratio declined from 14.06% to 13.69%. FIGURE 3 depicts these ratios over the
last five years.
During FY 1999, the Bank increased the emphasis it placed on the equity
capital-to-loans measure and de-emphasized the reserves-to-loans measure it had
used in the past. The equity capital-to-loans ratio is one method among multiple
approaches, such as cash flow analysis, by which the Bank measures its income
generating capacity and its capital adequacy. The Bank continues to consider
additional methodologies for evaluating its risk-bearing capacity.
<TABLE>
<CAPTION>
<S> <C> <C>
TABLE 9:
IN MILLIONS OF U.S. DOLLARS
<CAPTION>
- ------------------------------------------------------------------------------------------
FY 1999 FY 1998
--------- ---------
<S> <C> <C>
Usable Capital
Paid-in Capital................................................... $ 11,395 $ 11,288
Net Receivable for Maintenance of Value........................... (869) (944)
Restricted Paid-in Capital........................................ (2,509) (2,603)
--------- ---------
Total Usable Capital.............................................. 8,017 7,741
Retained Earnings and Cumulative Translation Adjustments
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
FY 1999 FY 1998
--------- ---------
<S> <C> <C>
Special Reserve................................................... 293 293
General Reserve................................................... 15,409 14,659
Pension Reserve................................................... 294 112
Surplus........................................................... 195 426
Unallocated Net Income............................................ 1,518 1,243
Cumulative Translation Adjustments (CTA).......................... (637) (960)
--------- ---------
Total Retained Earnings and CTA................................... 17,072 15,773
--------- ---------
Total Usable Equity................................................. $ 25,089 $ 23,514
--------- ---------
--------- ---------
<CAPTION>
- ------------------------------------------------------------------------------------------
</TABLE>
FIGURE 3:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EQUITY CAPITAL-TO-LOANS RESERVE-TO-LOANS
RATIO RATIO
<S> <C> <C>
Jun-94 21.68% 14.35%
21.65% 14.36%
21.21% 13.88%
21.22% 14.29%
Jun-95 21.42% 14.49%
21.62% 14.40%
21.47% 14.26%
21.57% 14.24%
Jun-96 21.80% 14.36%
21.73% 14.31%
21.69% 14.17%
21.83% 14.12%
Jun-97 22.06% 14.49%
22.08% 14.43%
21.02% 13.66%
20.67% 13.42%
Jun-98 21.45% 14.06%
21.35% 13.95%
20.67% 13.52%
20.32% 13.28%
Jun-99 20.65% 13.69%
</TABLE>
CAPITAL
The authorized capital of the Bank at June 30, 1999 was $190,811 million, of
which $188,220 million had been subscribed. Of the subscribed capital, $11,395
million had been paid in and $176,825 million was callable. Of the paid-in
capital, $7,946 million was available for lending and $3,449 million was not
available for lending. The terms of payment of the Bank's capital and the
restrictions on its use that are derived from the Articles and from resolutions
of the Bank's Board of Governors are:
(i) $2,521 million of the Bank'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 the Bank in its
operations.
(ii) $8,874 million of the Bank'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
27
<PAGE>
consents, $5,279 million of this amount had been used in the Bank's
lending operations at June 30, 1999.
(iii) $150,576 million of the Bank's capital may, under the Articles, be
called only when required to meet obligations of the Bank for funds
borrowed or on loans guaranteed by it. This amount is thus not
available for use by the Bank 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 the Bank for which the call is made.
(iv) $26,249 million of the Bank's capital is to be called only when
required to meet obligations of the Bank for funds borrowed or on
loans guaranteed by it, pursuant to resolutions of the Bank's Board of
Governors (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 the Bank in its lending activities or for administrative
purposes.
No call has ever been made on the Bank's callable capital. Any calls on unpaid
subscriptions are required to be uniform, but the obligations of the members of
the Bank 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 the Bank
for which the call is made, the Bank 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.
At June 30, 1999, $102,563 million (58%) of the uncalled capital was callable
from the member countries of the Bank that are also members of the Development
Assistance Committee of the Organization for Economic Cooperation and
Development. This amount was equal to 86% of the Bank's outstanding
28
<PAGE>
borrowings after swaps at June 30, 1999. TABLE 10 sets out the capital
subscriptions of those countries and the callable amounts.
<TABLE>
<CAPTION>
TABLE 10:
IN MILLIONS OF U.S. DOLLARS
- -------------------------------------------------------------------------------------
TOTAL UNCALLED
CAPITAL PORTION
MEMBER COUNTRY(A) SUBSCRIPTION OF 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. See details regarding the capital subscriptions of all members
of the Bank at June 30, 1999 in Financial Statements-Statement
of Subscriptions to Capital Stock and Voting Power.
The United States is the Bank's largest shareholder. Under the Bretton Woods
Agreements Act, the Par Value Modification Act and other U.S. legislation, the
Secretary of the U.S. Treasury is permitted to pay up to $7,663 million of the
uncalled portion of the subscription of the United States, if it were called by
the Bank, without any requirement of further congressional action. The balance
of the uncalled portion of the U.S subscription, $22,303 million, has been
authorized by the U.S. Congress but not appropriated. Further action by the U.S.
Congress would be required to enable the Secretary of the Treasury to pay any
portion of this balance. The General Counsel of the U.S Treasury has rendered an
opinion that the entire uncalled portion of the U.S. subscription is an
obligation backed by the full faith and credit of the United States,
notwithstanding that congressional appropriations have not been obtained with
respect to certain portions of the subscription.
For a further discussion of capital stock, restricted currencies, maintenance of
value and membership refer to the Notes to Financial Statements-Summary of
Significant Accounting and Related Policies and Note A.
BORROWINGS
SOURCE OF FUNDING AND AMOUNTS BORROWED
The Bank diversifies its sources of funding by offering its securities to
institutional and retail investors globally on terms acceptable to the Bank.
Under its Articles, the Bank 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.
29
<PAGE>
FUNDING OPERATIONS
In FY 1999 medium- and long-term debt raised directly in financial markets by
the Bank amounted to $22,443 million compared to $28,007 million in FY 1998.
TABLE 11 summarizes the Bank's funding operations for FY 1999 and FY 1998.
Funding raised in any given year is used for the Bank's general operations,
including loan disbursements, re-financing of maturing debt and prefunding of
future lending activities. All proceeds from new funding are initially invested
in the liquid asset portfolio and subsequently allocated to the different debt
pools funding loans as necessary in accordance with operating guidelines.
The Bank strategically repurchases or prepays its debt to reduce the cost of
borrowings and to reduce exposure to refunding requirements in a particular year
or meet other operational needs. During FY 1999 the Bank repurchased or prepaid
a total of $1,045 million of its outstanding borrowings.
<TABLE>
<CAPTION>
TABLE 11:
- --------------------------------------------------------------------------------------------
FY 1999 FY 1998
----------- -----------
<S> <C> <C>
Total Medium- and Long-term Borrowings(a) (USD million)........... $ 22,443 $ 28,007
Average Maturity (years)(b)....................................... 6.7 5.8
Number of Transactions............................................ 186 195
Number of Currencies.............................................. 12 21
- --------------------------------------------------------------------------------------------
</TABLE>
a. Includes one-year notes. All net proceeds on a trade date basis.
b. Based on first call.
USE OF DERIVATIVES
The Bank engages in a combination of interest rate and currency swaps to convert
direct borrowings into the desired interest rate structure and currency
composition. Interest rate and currency swaps are also used for ALM purposes to
match the pool of liabilities as closely as possible to the interest rate and
currency characteristics of liquid assets and loans.
In FY 1999 the majority of new funding continued to be initially swapped into
floating rate U.S. dollars, with conversion to other currencies or fixed rate
funding being carried out subsequently in accordance with funding requirements.
CURRENCY AND INTEREST RATE COMPOSITION OF BORROWINGS AFTER-SWAPS
Of the borrowings outstanding after swaps at June 30, 1999, 54% was at variable
rates (44% at June 30, 1998). The currency composition continues to be
concentrated in U.S. dollars, with its share at the end of June 30, 1999 rising
to 79% of the borrowing portfolio (66% at June 30, 1998). This reflects the
borrowers' preference for U.S. dollar-denominated loans and the corresponding
currency composition of the liquid asset portfolio.
A more detailed analysis of borrowings outstanding is provided in the Notes to
Financial Statements-Note D.
RESULTS OF OPERATIONS
The Bank'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. TABLE 12 shows a breakdown of income, net of funding
costs.
30
<PAGE>
FY 1999 VERSUS FY 1998
FY 1999 net income was $1,518 million, $275 million higher than FY 1998. This
increase is primarily attributable to:
- The $237 million gain realized upon liquidation of the held-to-maturity
portfolio during the first quarter of the fiscal year.
- The $214 million increase in loan interest income, net of funding costs,
resulting from the changes in loan pricing. During the year the Bank
reduced its interest waiver on existing loans, introduced a front-end fee
on new loans and earned higher loan spreads on the SSALs disbursed during
the year.
- An increase of $243 million in Net Noninterest Expense, which partially
offset increases in income. This increase in expense was due primarily to
a decrease in Pension and Postretirement Income.
FY 1998 VERSUS FY 1997
Net income for FY 1998 was $42 million lower than FY 1997. This slight decline
was primarily the result of:
- An increase of $188 million for loan loss provisions, reflecting the
significant growth in net loan disbursements and changes in the credit
quality of the portfolio.
- A decrease of $190 million in loan interest income, net of funding costs.
This decrease is mainly attributable to the lower income margin on debt
funded loans resulting from conversions of the multicurrency pool loans to
single currency pool terms. The SCP conversions reduced the loan spread
through the interaction of the change in currency composition, resulting
in a higher nominal rate, with a lag in the pass-through lending rate.
Effectively this raised debt costs before raising the lending rate on the
affected loans, resulting in reduced loan income margins.
- A decrease of $293 million in Net Noninterest Expense, resulting from
gains attributed to the Bank's pension and other postretirement benefit
accounts. This decrease in expense partially offset decreases in income.
NET INTEREST INCOME
The Bank's primary interest earning assets are its loans and liquid asset
investments. TABLE 13 provides a breakdown of the gross interest income on
earning assets (including other loan income). TABLE 14 provides a breakdown of
gross borrowing costs.
<TABLE>
<CAPTION>
TABLE 12:
IN MILLIONS OF U.S. DOLLARS
- -----------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
----------- ----------- -----------
<S> <C> <C> <C>
Loan interest income, net of funding costs
Debt funded......................................... $ 387 $ 374 $ 574
Equity funded....................................... 1,746 1,545 1,535
----------- ----------- -----------
Total loan interest income, net of funding costs...... 2,133 1,919 2,109
Other loan charges...................................... 59 22 (33)
Loan loss provision..................................... (246) (251) (63)
Investment income, net of funding costs................. 291 29 41
Net noninterest expense................................. (719) (476) (769)
----------- ----------- -----------
NET INCOME.............................................. $ 1,518 $ 1,243 $ 1,285
----------- ----------- -----------
----------- ----------- -----------
- -----------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
TABLE 13:
IN MILLIONS OF U.S. DOLLARS
- ----------------------------------------------------------------------------------------------------------------------------
FY 1997
FY 1999 FY 1998 ----------------------
----------------------------------- ----------------------------------- INTEREST
INTEREST INCOME INTEREST INCOME INCOME
AVERAGE ------------------------ AVERAGE ------------------------ AVERAGE -----------
VOLUME AMOUNT RETURN% VOLUME AMOUNT RETURN% VOLUME AMOUNT
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS BY PRODUCT
Multicurrency Pool...... $ 39,607 $ 2,361 5.96 $ 70,047 $ 4,335 6.19 $ 95,631 $ 6,222
Single Currency Pools... 43,687 3,199 7.32 18,136 1,250 6.89 -- --
LIBOR-based Single
Currency Loans........ 14,970 777 5.19 8,061 448 5.56 2,625 146
Fixed Rate Single
Currency Loans........ 7,468 468 6.27 3,330 218 6.55 1,999 132
Nonstandard LIBOR-based
SCLs.................. 6,833 477 6.98 2,165 158 7.30 -- --
Other Fixed Rate........ 3,618 308 8.51 5,323 450 8.45 9,005 768
Other Loan Income....... 59 22 (33)
--------- ----------- --- --------- ----------- --- --------- -----------
TOTAL LOANS............... 116,183 7,649 6.58 107,062 6,881 6.43 109,260 7,235
CASH AND INVESTMENTS...... 27,955 1,680 6.01 21,895 1,233 5.63 16,627 834
--------- ----------- --- --------- ----------- --- --------- -----------
TOTAL EARNING ASSETS.... $ 144,138 $ 9,329 6.47 $ 128,957 $ 8,114 6.29 $ 125,887 $ 8,069
--------- ----------- --- --------- ----------- --- --------- -----------
--------- ----------- --- --------- ----------- --- --------- -----------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TABLE 13:
IN MILLIONS OF U.S. DOLLAR
- --------------------------
RETURN %
-------------
<S> <C>
LOANS BY PRODUCT
Multicurrency Pool...... 6.51
Single Currency Pools... --
LIBOR-based Single
Currency Loans........ 5.56
Fixed Rate Single
Currency Loans........ 6.60
Nonstandard LIBOR-based
SCLs.................. --
Other Fixed Rate........ 8.53
Other Loan Income.......
---
TOTAL LOANS............... 6.62
CASH AND INVESTMENTS...... 5.02
---
TOTAL EARNING ASSETS.... 6.41
---
---
- --------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TABLE 14:
IN MILLIONS OF U.S. DOLLARS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
----------------------------------- ----------------------------------- ----------------------
BORROWING
BORROWING COST BORROWING COST COST
------------------------ ------------------------ -----------
AVERAGE COST AVERAGE COST AVERAGE
VOLUME AMOUNT % VOLUME AMOUNT % VOLUME AMOUNT
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BORROWING PORTFOLIO BY DEBT
POOLS
Multicurrency Pool........ $ 29,640 $ 1,514 5.11 $ 54,266 $ 3,092 5.70 $ 71,239 $ 4,245
Single Currency Pools..... 33,832 2,507 7.41 14,252 1,012 7.10 -- --
LIBOR-based Single
Currency Loans.......... 11,961 581 4.86 6,341 348 5.49 2,230 118
Fixed Rate Single Currency
Loans................... 6,143 367 5.97 2,767 169 6.11 1,699 106
Nonstandard LIBOR-based
SCLs.................... 5,578 284 5.09 2,164 117 5.41 -- --
Other Fixed Rate.......... -- -- -- -- -- -- 7,061 427
Other Debt Funding........ 28,541 1,593 5.58 22,382 1,406 6.28 15,966 1,056
--------- ----------- --- --------- ----------- --- --------- -----------
TOTAL BORROWINGS............ $ 115,695 $ 6,846 5.92 $ 102,172 $ 6,144 6.01 $ 98,195 $ 5,952
--------- ----------- --- --------- ----------- --- --------- -----------
--------- ----------- --- --------- ----------- --- --------- -----------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TABLE 14:
IN MILLIONS OF U.S. DOLLARS
- ----------------------------
COST
%
-----------
<S> <C>
BORROWING PORTFOLIO BY DEBT
POOLS
Multicurrency Pool........ 5.96
Single Currency Pools..... --
LIBOR-based Single
Currency Loans.......... 5.29
Fixed Rate Single Currency
Loans................... 6.24
Nonstandard LIBOR-based
SCLs.................... --
Other Fixed Rate.......... 6.05
Other Debt Funding........ 6.61
---
TOTAL BORROWINGS............ 6.06
---
---
- ----------------------------
</TABLE>
FY 1999 VERSUS FY 1998
The main factor contributing to the increase in loan interest income of $768
million was the higher average balance of loans outstanding in terms of U.S.
dollars. A higher volume of loans outstanding, representing $607 million of the
increased income, was the result of increased net disbursements and the effect
of translation into U.S. dollar terms for reporting purposes. Additionally,
increases in loan pricing contributed $161 million.
32
<PAGE>
Two significant factors contributed to the increase of $447 million in
investment income. In FY 1999 a gain of $237 million was realized upon
liquidation of the securities in the held-to-maturity portfolio. Additionally,
income increased by $210 million reflecting increases in the average investment
balance, offset by the effect of slightly lower market interest rates.
The cost of borrowings increased $702 million. While a falling interest rate
environment reduced the cost of borrowings from 6.01% to 5.92%, total costs
increased because of the higher average borrowings balance.
FY 1998 VERSUS FY 1997
The decrease in loan income of $354 million 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, $208 million was due to a decrease in the average interest rate of the
loan portfolio and $146 million was associated with the decrease in the balance
of average loans outstanding in terms of U.S. dollars.
During FY 1998 investment income increased by $399 million. Of this increase,
$101 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 $298
million.
The cost of borrowings increased by $192 million. 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 6.06% to
6.01%. This decrease was offset by a higher average borrowings balance.
NET NONINTEREST EXPENSE
The main components of net noninterest expense are presented in TABLE 15.
FY 1999 VERSUS FY 1998
Overall gross administrative expenses increased only slightly. From FY 1998 to
FY 1999 net noninterest expense increased by $243 million, generally returning
to FY 1997 levels. Staff costs increased 15%; however, the majority of the
increase in expense is attributable to the FY 1998 non-recurring reduction in
expense realized as a result of the change in accounting for other
postretirement benefits. See Notes to the Financial Statements-Note I for a
detailed discussion of those changes.
FY 1998 VERSUS FY 1997
Net noninterest expenses declined by $293 million. This decrease is primarily
attributable to the recognition of additional income from pension and other
postretirement benefit plans. See the Notes to Financial Statements-Note 1.
<TABLE>
<CAPTION>
TABLE 15:
IN MILLIONS OF U.S. DOLLARS
- -----------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
----------- ----------- -----------
<S> <C> <C> <C>
Gross Administrative Expenses
Staff Costs........................................... $ 538 $ 466 $ 472
Consultant Fees....................................... 97 91 71
Operational Travel.................................... 94 94 81
Other Expenses........................................ 325 293 277
----- ----- -----
Total Gross Administrative Expenses..................... 1,054 944 901
Less:
Reimbursements........................................ 76 69 67
Contribution to Special Programs...................... 129 112 120
----- ----- -----
Total Net Administrative Expenses....................... 849 763 714
Contribution to Special Programs...................... 129 112 120
Pension & Postretirement Benefit Income............... (249) (399) (63)
Net Other Income...................................... (10) -- (2)
----- ----- -----
Total Net Noninterest Expense....................... $ 719 $ 476 $ 769
----- ----- -----
----- ----- -----
<CAPTION>
- -----------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
AFFILIATED ORGANIZATIONS--IFC, IDA AND MIGA
The activities of the Bank are complemented by those of three affiliated
international organizations the International Finance Corporation (IFC), the
International Development Association (IDA) and the Multilateral Investment
Guarantee Agency (MIGA)--which work closely with the Bank in achieving common
objectives. Membership in these organizations is open only to members of the
Bank. Each of these organizations is legally and financially independent from
the Bank, with separate assets and liabilities, and the Bank is not liable for
their respective obligations. Executive Directors of the Bank serve EX OFFICIO
on the Board of Directors of IFC and as Executive Directors of IDA if they
represent at least one country which is a member of these organizations. As of
June 30, 1999, all of the Bank's Executive Directors also had been elected to
serve on MIGA's Board of Directors, and they constituted the entire Board. The
President of the Bank is also the President of IFC, IDA and MIGA. IDA and the
Bank have the same staff. While IFC and MIGA share some staff members with the
Bank, each employs its own management and staff. For information on fees that
IFC, IDA and MIGA pay the Bank for services and management, see the Notes to
Financial Statements Note G.
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 government's guarantee. One hundred seventy-four countries are members
of IFC. Under its Articles, the Bank is permitted to make loans to IFC without
guarantee by a member, subject to the limitation that the Bank may not lend IFC
any amount which would increase IFC's total outstanding debt beyond a certain
threshold, which at June 30, 1999 equaled $21,392 million. At that date, IFC's
total outstanding debt was $12,706 million comprising total borrowings of
$12,429 million and guarantees signed of $277 million. Of IFC's total
outstanding debt, $350 million was due to the Bank, and undrawn lending
commitments from the Bank to IFC were $5 million.
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. IDA is financed by capital subscriptions and contributions from its
members and may not borrow from the Bank. Under a statement of policy of the
Bank's Board of Governors, the Bank may make grants to IDA only out of net
income that (a) accrued during the fiscal year in respect of which the transfer
is made and (b) is not needed for allocation to reserves or otherwise required
to be retained in the Bank's business. Grants may also be made out of net income
previously transferred to surplus, upon the approval of the Board of Governors.
Grant approvals to IDA total $6,087 million to date; at August 31, 1999 $360
million remained payable to IDA. For additional information on transfers of the
Bank's net income to IDA, see Financial Overview on p. 3 of this Information
Statement and the Notes to Financial Statements Note F.
MIGA was established to encourage the flow of investments for productive
purposes by providing guarantees against noncommercial risks for foreign
investment in its developing member countries. The Bank may not lend to MIGA.
ADMINISTRATION OF THE BANK
The Bank's administration is composed of the Board of Governors, the Executive
Directors, the President, other officers and staff.
All the powers of the Bank are vested in the Board of Governors, which consists
of a Governor and an Alternate Governor appointed by each member of the Bank,
who exercise the voting power to which that member is entitled. Each member is
entitled to 250 votes plus one vote for each share held. The Board of Governors
holds regular annual meetings.
There are 24 Executive Directors. Five of these are appointed, one by each of
the five members having the largest number of shares of capital stock at the
time of such appointment (the United States, Japan, Germany, France and the
United Kingdom), and 19 are elected by the Governors representing the other
33
<PAGE>
members. The Board of Governors has delegated to the Executive Directors
authority to exercise all the powers of the Bank except those reserved to the
Governors under the Articles. The Executive Directors function as a board, and
each Executive Director is entitled to cast the number of votes of the member or
members by which such person is appointed or elected.
The following is an alphabetical list of the Executive Directors of the Bank and
the member countries by which they were appointed or elected:
<TABLE>
<S> <C>
Khalid M. Al-Saad............................ Bahrain, Arab Republic of Egypt, Jordan,
Kuwait, Lebanon, Libya, Maldives, Oman,
Qatar, Syrian Arab Republic, United Arab
Emirates, Republic of Yemen
Khalid H. Alyahya............................ Saudi Arabia
Ruth Bachmayer............................... Austria, Belarus, Belgium, Czech Republic,
Hungary, Kazakhstan, Luxembourg, Slovak
Republic, Slovenia, Turkey
Andrei Bugrov................................ Russian Federation
Federico Ferrer.............................. Costa Rica, El Salvador, Guatemala, Honduras,
Mexico, Nicaragua, Spain, Venezuela
Valeriano F. Garcia.......................... Argentina, Bolivia, Chile, Paraguay, Peru,
Uruguay
Godfrey Gaoseb............................... Angola, Botswana, Burundi, Eritrea, Ethiopia,
The Gambia, Kenya, Lesotho, Liberia, Malawi,
Mozambique, Namibia, Nigeria, Seychelles,
Sierra Leone, South Africa, Sudan, Swaziland,
Tanzania, Uganda, Zambia, Zimbabwe
Inaamul Haque................................ Algeria, Ghana, Islamic Republic of Iran,
Iraq, Morocco, Pakistan, Tunisia
Jannes Hutagalung............................ Brunei Darussalam, Fiji, Indonesia, Lao
People's Democratic Republic, Malaysia,
Myanmar, Nepal, Singapore, Thailand, Tonga,
Vietnam
Neil Hyden................................... Australia, Cambodia, Kiribati, Republic of
Korea, Marshall Islands, Federated States of
Micronesia, Mongolia, New Zealand, Palau,
Papua New Guinea, Samoa, Solomon Islands,
Vanuatu.
Matthias Meyer............................... Azerbaijan, Kyrgyz Republic, Poland,
Switzerland, Tajikistan, Turkmenistan,
Uzbekistan
Jean-Claude Milleron......................... France
Satoru Miyamura.............................. Japan
Ilkka Niemi.................................. Denmark, Estonia, Finland, Iceland, Latvia,
Lithuania, Norway, Sweden
Terrie O'Leary............................... Antigua and Barbuda, The Bahamas, Barbados,
Belize, Canada, Dominica, Grenada, Guyana,
Ireland, Jamaica, St. Kitts and Nevis, St.
Lucia, St. Vincent and the Grenadines
Franco Passacantando......................... Albania, Greece, Italy, Malta, Portugal
Stephen Pickford............................. United Kingdom
Jan Piercy................................... United States
Murilo Portugal.............................. Brazil, Colombia, Dominican Republic,
Ecuador, Haiti, Panama, Philippines,
Suriname, Trinidad and Tobago
Helmut Schaffer.............................. Germany
B.P. Singh................................... Bangladesh, Bhutan, India, Sri Lanka
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
Pieter Stek.................................. Armenia, Bosnia and Herzegovina, Bulgaria,
Croatia, Cyprus, Georgia, Israel, former
Yugoslav Republic of Macedonia, Moldova,
Netherlands, Romania, Ukraine
Bassary Toure................................ Benin, Burkina Faso, Cameroon, Cape Verde,
Central African Republic, Chad, Comoros,
Democratic Republic of Congo, Republic of
Congo, Cote d'Ivoire, Djibouti, Equatorial
Guinea, Gabon, Guinea, Guinea-Bissau,
Madagascar, Mali, Mauritania, Mauritius,
Niger, Rwanda, Sao Tome and Principe,
Senegal, Togo
Zhu Xian..................................... China
</TABLE>
The President is selected by the Executive Directors. Subject to their direction
on questions of policy, the President is responsible for the conduct of the
ordinary business of the Bank and for the organization, appointment and
dismissal of its officers and staff.
The following is a list of the principal officers of the Bank:
<TABLE>
<S> <C>
President.................................... James D. Wolfensohn
Managing Director............................ Jeffrey Goldstein
Managing Director............................ Sven Sandstrom
Managing Director............................ Peter Woicke
Managing Director............................ Shengman Zhang
Senior Vice President and Chief Financial
Officer.................................... Gary L. Perlin
Senior Vice President and Chief Economist.... Joseph E. Stiglitz
Vice President and Network Head, Poverty
Reduction and Economic Management.......... Masood Ahmed
Vice President, Financial Operations and
Network Head, Finance, Private Sector and
Infrastructure............................. Manuel Conthe
Vice President, Middle East and North Africa
Regional Office............................ Kemal Dervis
Vice President and Head, Human Development
Network.................................... Eduardo Doryan
Vice President and Corporate Secretary....... Cheikh Ibrahima Fall
Vice President, Latin America and the
Caribbean Regional Office.................. David de Ferranti
Vice President and Network Head,
Environmentally and Socially Sustainable
Development................................ Ian Johnson
Vice President, External Affairs............. Mats Karlsson
Vice President, Resource Mobilization and
Cofinancing................................ Motoo Kusakabe
Vice President, Europe and Central Asia
Regional Office............................ Johannes F. Linn
Vice President, Africa Regional Office....... Callisto E. Madavo
Vice President and Treasurer................. Afsaneh Mashayekhi Beschloss
Vice President and Controller................ Jules W. Muis
Vice President, South Asia Regional Office... Mieko Nishimizu
Vice President and General Counsel........... Andres Rigo Sureda (Acting)
Vice President, Europe, External Affairs..... Jean Francois Rischard
Vice President, Development Policy........... Jozef M. Ritzen
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
Vice President, Africa Regional Office....... Jean-Louis Sarbib
Vice President, Special Programs............. M. Ismail Serageldin
Vice President, East Asia and Pacific
Regional Office............................ Jean-Michel Severino
Vice President, Infrastructure and Private
Sector Development, and Network Head,
Finance, Private Sector and
Infrastructure............................. Nemat T. Shafik
Vice President and Head, Operational Core
Services Network........................... Katherine Sierra
Vice President, Strategy and Resource
Management................................. Anil Sood
Vice President, Human Resources.............. Richard D. Stern
Chief Information Officer, Information
Solutions Group and Head, Information
Solutions Network.......................... Mohamed V. Muhsin
Director-General, Operations Evaluation...... Robert Picciotto
</TABLE>
THE ARTICLES OF AGREEMENT
The Articles constitute the Bank's governing charter. They establish the status,
privileges and immunities of the Bank, prescribe the Bank's purposes, capital
structure and organization, authorize the operations in which it may engage and
impose limitations on the conduct of those operations. The Articles also
contain, among other things, provisions with respect to the admission of
additional members, the increase of the authorized capital stock of the Bank,
the terms and conditions under which the Bank may make or guarantee loans, the
use of currencies held by the Bank, the distribution of net income of the Bank
to its members, the withdrawal and suspension of members, and the suspension of
operations of the Bank.
The Articles provide that they may be amended (except for certain provisions the
amendment of which requires acceptance by all members) by consent of
three-fifths of the members having 85% of the total voting power. The Articles
further provide that questions of interpretation of provisions of the Articles
arising between any member and the Bank or between members of the Bank shall be
decided by the Executive Directors. Their decisions may be referred by any
member to the Board of Governors, whose decision is final. Pending the result of
such reference, the Bank may act on the basis of the decision of the Executive
Directors.
The Articles and the decisions made by the Executive Directors on questions of
interpretation may be obtained from the Bank.
LEGAL STATUS, PRIVILEGES AND IMMUNITIES
The Articles contain provisions which accord to the Bank, in the territories of
each of its members, legal status and certain privileges and immunities. The
following is a summary of the more important of these provisions.
The Bank has full juridical personality with capacity to make contracts, to
acquire and dispose of property and to sue and be sued. Actions may be brought
against the Bank in a court of competent jurisdiction in territories of any
member in which the Bank has an office, has appointed an agent for accepting
service or notice of process or has issued or guaranteed securities, but no
actions against the Bank may be brought by its members or persons acting for or
deriving claims from its members.
The Governors and Executive Directors, and their Alternates, and the officers
and employees of the Bank are immune from legal process for acts performed by
them in their official capacity, except when the Bank waives such immunity.
36
<PAGE>
The archives of the Bank are inviolable. The assets of the Bank are immune from
seizure, attachment or execution prior to delivery of final judgment against the
Bank.
The Bank, its assets, property and income, and its operations and transactions
authorized by the Articles, are immune from all taxation and from all customs
duties. The Bank is also immune from liability for the collection or payment of
any tax or duty.
The securities issued by the Bank and the interest thereon are not exempt from
taxation generally.
Under the Articles, securities issued by the Bank and the interest thereon are
not subject to any tax by a member (a) which tax discriminates against such
securities solely because they are issued by the Bank, or (b) if the sole
jurisdictional basis for the tax is the place or currency in which such
securities are issued, made payable or paid, or the location of any office or
place of business maintained by the Bank. Also, under the Articles, the Bank is
not under any obligation to withhold or pay any tax on any interest on such
securities.
FISCAL YEAR, ANNOUNCEMENTS AND ALLOCATION OF NET INCOME
FISCAL YEAR
The Bank's fiscal year runs from July 1 to June 30.
ANNOUNCEMENTS
Pursuant to the Articles, the Bank publishes an annual report containing its
audited financial statements and distributes quarterly financial statements to
its members.
ALLOCATION OF NET INCOME
The Board of Governors determines annually what part of the Bank's net income,
after making provisions for reserves, shall be allocated to surplus and what
part, if any, shall be distributed. Since its inception, the Bank has neither
declared nor paid any dividend to its member countries. However, the Bank has
periodically transferred as a grant a portion of its net income to IDA or to
other uses that promote the purposes of the Bank, see Financial Overview on p. 3
of this Information Statement and the Notes to Financial Statements Note F.
GLOSSARY OF TERMS
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.
CROSS-CURRENCY INTEREST RATE SWAPS: Cross-currency interest rate swaps are
currency swaps where one set of cash flows reflects a fixed rate of interest and
the other reflects a floating rate of interest.
CURRENCY SWAPS: Currency swaps are agreements between two parties to
exchange cash flows denominated in different currencies at one or more certain
times in the future. The cash flows are based on a predetermined formula
reflecting rates of interest and an exchange of principal.
EQUITY CAPITAL-TO-LOANS: This ratio is the sum of the special and general
reserves, cumulative translation adjustment and the proposed transfer from
unallocated net income to general reserves divided by the sum of loans
outstanding, the present value of guarantees, net of loan loss provisions.
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.
FUTURES AND FORWARDS: Futures and forward contracts are contracts for
delivery of securities or money market instruments in which the seller agrees to
make delivery at a specified future date of a specified
37
<PAGE>
instrument at a specified price or yield. Futures contracts are traded on U.S.
and international regulated exchanges.
GOVERNMENT AND AGENCY OBLIGATIONS: These obligations include marketable
bonds, notes and other obligations issued by governments.
INTEREST RATE SWAPS: Interest rate swaps are agreements involving the
exchange of periodic interest payments of differing character, based on an
underlying notional principal amount for a specified time.
MAINTENANCE OF VALUE: Agreements with members provide for the maintenance
of the value, from the time of subscription, of certain restricted currencies.
Additional payments to (or from) the Bank are required in the event the par
value of the currency is reduced (or increased) to a significant extent, in the
opinion of the Bank.
NET DISBURSEMENTS: Loan disbursements net of repayments and prepayments.
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.
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. A resale
agreement involves the purchase of securities with a simultaneous agreement to
sell back the same securities at a stated price on a stated date. Securities
loans are contracts under which securities are lent for a specified period of
time at a fixed price.
RETURN ON EQUITY: This return in computed as net income divided by the
average equity balance during the year.
RISK BEARING CAPACITY: The ability to absorb risks in the balance sheet
while continuing normal operations without having to call on callable capital.
SHORT SALES: Short sales are sales of securities not held in the seller's
portfolio at the time of the sale. The seller 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.
STATUTORY LENDING LIMIT: Under the Bank's Articles of Agreement, as
applied, the total amount outstanding of loans, participations in loans, and
callable guarantees may not exceed the sum of subscribed capital, reserves and
surplus.
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.
TIME DEPOSITS: Time deposits include certificates of deposit, bankers'
acceptances, and other obligations issued or unconditionally guaranteed by banks
and other financial institutions.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... 40
Balance Sheet June 30, 1999 and June 30, 1998.............................................................. 41
Statement of Income for the three fiscal years ended June 30, 1999......................................... 43
Statement of Comprehensive Income for the three fiscal years ended June 30, 1999........................... 44
Statement of Changes in Retained Earnings for the three fiscal years ended June 30, 1999................... 44
Statement of Cash Flows for the three fiscal years ended June 30, 1999..................................... 45
Summary Statement of Loans June 30, 1999................................................................... 46
Statement of Subscriptions to Capital Stock and Voting Power June 30, 1999................................. 49
Notes to Financial Statements.............................................................................. 53
</TABLE>
INFORMATION CONCERNING CERTAIN EVENTS THAT OCCURRED SUBSEQUENT TO JUNE 30, 1999
IS NOT REFLECTED IN THE FINANCIAL STATEMENTS BUT IS INCLUDED ELSEWHERE IN THIS
INFORMATION STATEMENT.
39
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
[LOGO]
President and Board of Governors
International Bank for Reconstruction and Development
We have audited the accompanying balance sheets of the International Bank for
Reconstruction and Development as of June 30, 1999 and 1998, including the
summary statement of loans and the statement of subscriptions to capital stock
and voting power as of June 30, 1999, and the related statements of income,
comprehensive income, changes in retained earnings, and cash flows for each of
the two fiscal years in the period ended June 30, 1999. 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 audits. The financial statements of the
International Bank for Reconstruction and Development for the fiscal year ended
June 30, 1997 were audited by other auditors whose report, dated July 28, 1997,
expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America and 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 audits provide 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, 1999 and 1998, and the results of its operations
and its cash flows for each of the two fiscal years in the period ended June 30,
1999 in conformity with generally accepted accounting principles in the United
States of America and International Accounting Standards.
[Deloitte Touche Tohmatsu (International Firm)]
[Washington, D.C.]
July 28, 1999
______________________________________
Beijing London Mexico City Moscow New
York
Paris Tokyo Toronto
40
<PAGE>
- --------------------------------------------------------------------------------
Balance Sheet
June 30, 1999 and June 30, 1998
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
DUE FROM BANKS
Unrestricted currencies......................................................... $ 33 $ 55
Currencies subject to restrictions--Note A...................................... 664 712
--------- ---------
697 767
--------- ---------
INVESTMENTS
Trading--Notes B and E.......................................................... 30,345 23,441
Held-to-maturity--Notes B and E................................................. -- 2,673
--------- ---------
30,345 26,114
--------- ---------
ASSETS DESIGNATED FOR OTHER POSTRETIREMENT BENEFITS PLANS-- Notes B and I......... -- 1,456
SECURITIES PURCHASED UNDER RESALE AGREEMENTS--Trading--Note B..................... 6 467
NONNEGOTIABLE, NONINTEREST-BEARING DEMAND OBLIGATIONS ON ACCOUNT OF SUBSCRIBED
CAPITAL......................................................................... 1,846 1,890
AMOUNTS RECEIVABLE FROM CURRENCY SWAPS
Investments--Trading--Notes B and E............................................. 11,420 10,579
Borrowings--Notes D and E....................................................... 67,592 55,767
--------- ---------
79,012 66,346
--------- ---------
AMOUNTS RECEIVABLE TO MAINTAIN VALUE OF CURRENCY HOLDINGS ON ACCOUNT OF SUBSCRIBED
CAPITAL......................................................................... 527 392
OTHER RECEIVABLES
Amounts receivable from investment securities traded............................ 88 262
Accrued interest on investments--Held-to-maturity............................... -- 33
Accrued income on loans......................................................... 2,100 1,963
--------- ---------
2,188 2,258
--------- ---------
LOANS OUTSTANDING (see Summary Statement of Loans, Notes C and E)
Total loans..................................................................... 168,600 157,641
Less undisbursed balance........................................................ 51,372 51,065
--------- ---------
Loans outstanding............................................................. 117,228 106,576
Less accumulated provision for loan losses...................................... 3,560 3,240
--------- ---------
Loans outstanding net of accumulated provision................................ 113,668 103,336
--------- ---------
OTHER ASSETS
Unamortized issuance costs of borrowings........................................ 712 652
Miscellaneous--Note I........................................................... 1,807 1,364
--------- ---------
2,519 2,016
--------- ---------
TOTAL ASSETS...................................................................... $ 230,808 $ 205,042
--------- ---------
--------- ---------
</TABLE>
41
<PAGE>
- --------------------------------------------------------------------------------
BALANCE SHEET
June 30, 1999 and June 30, 1998
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
LIABILITIES
BORROWINGS--Notes D and E
Short-term...................................................................... $ 5,328 $ 6,729
Medium- and long-term........................................................... 110,411 96,748
--------- ---------
115,739 103,477
--------- ---------
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND PAYABLE FOR CASH COLLATERAL
RECEIVED--Note B
Trading......................................................................... 102 862
Held-to-maturity................................................................ -- 1,374
--------- ---------
102 2,236
--------- ---------
AMOUNTS PAYABLE FOR CURRENCY SWAPS
Investments--Trading--Notes B and E............................................. 11,501 10,182
Borrowings--Notes D and E....................................................... 70,484 57,867
--------- ---------
81,985 68,049
--------- ---------
AMOUNTS PAYABLE TO MAINTAIN VALUE OF CURRENCY HOLDINGS ON ACCOUNT OF SUBSCRIBED
CAPITAL......................................................................... 111 2
LIABILITIES UNDER OTHER POSTRETIREMENT BENEFITS PLANS--Note I..................... 103 717
OTHER LIABILITIES
Amounts payable for investment securities purchased............................. 167 255
Accrued charges on borrowings................................................... 3,012 2,519
Payable for Board of Governors-approved transfers--Note F....................... 607 122
Accounts payable and miscellaneous liabilities.................................. 961 1,151
--------- ---------
4,747 4,047
--------- ---------
TOTAL LIABILITIES................................................................. 202,787 178,528
--------- ---------
EQUITY
CAPITAL STOCK (see Statement of Subscriptions to Capital Stock and Voting Power,
Note A)
Authorized capital (1,581,724 shares--June 30, 1999 and June 30, 1998)
Subscribed capital (1,560,243 shares--June 30, 1999; 1,545,457 shares--June
30, 1998).................................................................... 188,220 186,436
Less uncalled portion of subscriptions........................................ 176,825 175,148
--------- ---------
11,395 11,288
AMOUNTS TO MAINTAIN VALUE OF CURRENCY HOLDINGS--Note A............................ (453) (554)
PAYMENTS ON ACCOUNT OF PENDING SUBSCRIPTIONS--Note A.............................. 7 7
RETAINED EARNINGS (see Statement of Changes in Retained Earnings, Note F)......... 17,709 16,733
ACCUMULATED OTHER COMPREHENSIVE INCOME--Note K.................................... (637) (960)
--------- ---------
TOTAL EQUITY...................................................................... 28,021 26,514
--------- ---------
TOTAL LIABILITIES AND EQUITY...................................................... $ 230,808 $ 205,042
--------- ---------
--------- ---------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
42
<PAGE>
- --------------------------------------------------------------------------------
Statement of Income
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
INCOME
Income from loans--Note C
Interest................................................................. $ 7,535 $ 6,775 $ 7,122
Commitment charges....................................................... 114 106 113
Income from investments--Note B
Trading
Interest............................................................... 1,419 1,107 718
Net (losses) gains
Realized............................................................. (17) (10) 47
Unrealized........................................................... 15 1 (43)
Held-to-maturity
Interest............................................................... 47 176 103
Realized gains......................................................... 237 -- --
Income from securities purchased under resale agreements--Note B........... 15 59 53
Income from assets designated for other postretirement benefits
plans--Notes B and I..................................................... 4 107 --
Income from Staff Retirement Plan--Note I.................................. 255 182 63
Other income............................................................... 18 10 12
--------- --------- ---------
Total income............................................................. 9,642 8,513 8,188
--------- --------- ---------
EXPENSES
Borrowing expenses--Note D
Interest................................................................. 6,703 6,000 5,827
Prepayment losses (gains)................................................ 1 (7) 16
Amortization of issuance and other borrowing costs....................... 142 151 109
Interest on securities sold under repurchase agreements and payable for
cash collateral received--Note B......................................... 36 100 44
Administrative expenses--Notes G and H..................................... 849 763 714
Other postretirement benefits expense--Note I.............................. 10 50 --
Provision for loan losses--Note C.......................................... 246 251 63
Other expenses............................................................. 8 10 10
--------- --------- ---------
Total expenses........................................................... 7,995 7,318 6,783
--------- --------- ---------
OPERATING INCOME............................................................. 1,647 1,195 1,405
Effect of accounting change--Note I........................................ -- 160 --
Contributions to special programs--Note G.................................. (129) (112) (120)
--------- --------- ---------
NET INCOME................................................................... $ 1,518 $ 1,243 $ 1,285
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
43
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF COMPREHENSIVE INCOME
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income................................................................... $ 1,518 $ 1,243 $ 1,285
Other comprehensive income--Note K
Currency translation adjustments........................................... 323 (1,045) (971)
--------- --------- ---------
Total other comprehensive income (loss).................................. 323 (1,045) (971)
--------- --------- ---------
Comprehensive income......................................................... $ 1,841 $ 198 $ 314
--------- --------- ---------
--------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN RETAINED EARNINGS
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Retained earnings at beginning of the fiscal year......................... $ 16,733 $ 16,194 $ 16,099
Board of Governors-approved transfers to--Note F
International Development Association................................. (352) (304) (600)
Trust Fund for Gaza and West Bank..................................... (90) -- (90)
Heavily Indebted Poor Countries Debt Initiative Trust Fund............ (100) (250) (500)
Multilateral Investment Guarantee Agency.............................. -- (150) --
Net income for the fiscal year.......................................... 1,518 1,243 1,285
--------- --------- ---------
Retained earnings at end of the fiscal year............................... $ 17,709 $ 16,733 $ 16,194
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
44
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from lending and investing activities
Loans
Disbursements............................................................................. $ (18,215) $ (19,283) $ (14,009)
Principal repayments...................................................................... 9,988 10,146 10,710
Principal prepayments..................................................................... 94 1,372 1,311
Investments: Held-to-maturity
Purchases of securities and repayments of securities sold under repurchase agreements..... (13,266) (33,202) (8,911)
Maturities of securities and proceeds from securities sold under repurchase agreements.... 13,426 33,184 8,895
Proceeds from sale of held-to-maturity portfolio net of securities sold under repurchase
agreements............................................................................... 1,389 -- --
--------- --------- ---------
Net cash used in lending and investing activities....................................... (6,584) (7,783) (2,004)
--------- --------- ---------
Cash flows from Board of Governors-approved transfers to
International Development Association......................................................... -- (298) (599)
Debt Reduction Facility for IDA-Only Countries................................................ -- (18) (1)
Trust Fund for Gaza and West Bank............................................................. (62) (60) (91)
Heavily Indebted Poor Countries Debt Initiative Trust Fund.................................... -- (250) (500)
Multilateral Investment Guarantee Agency...................................................... -- (150) --
--------- --------- ---------
Net cash used in Board of Governors-approved transfers.................................. (62) (776) (1,191)
--------- --------- ---------
Cash flows from financing activities
Medium- and long-term borrowings
New issues.................................................................................. 21,846 27,748 14,928
Retirements................................................................................. (10,034) (13,569) (14,137)
Net short-term borrowings..................................................................... (1,512) (1,009) 3,277
Net currency swaps--Borrowings................................................................ (340) (300) (266)
Net capital stock transactions................................................................ 175 217 71
--------- --------- ---------
Net cash provided by financing activities............................................... 10,135 13,087 3,873
--------- --------- ---------
Cash flows from operating activities
Net income.................................................................................... 1,518 1,243 1,285
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization............................................................... 819 855 541
Provision for loan losses................................................................... 246 251 63
Gain on sale of held-to-maturity portfolio.................................................. (237) -- --
Changes in other assets and liabilities
(Increase) decrease in accrued income on loans and held-to-maturity investments........... (46) (157) 68
(Increase) decrease in miscellaneous assets............................................... (385) 8 (153)
Increase in net assets associated with other postretirement benefits...................... -- (739) --
Increase (decrease) in accrued charges on borrowings...................................... 470 448 (49)
(Decrease) increase in accounts payable and miscellaneous liabilities..................... (131) 335 35
--------- --------- ---------
Net cash provided by operating activities............................................... 2,254 2,244 1,790
--------- --------- ---------
Effect on liquid investments due to decrease in net assets associated with other postretirement
benefits...................................................................................... $ 650 $ -- $ --
Effect of exchange rate changes on unrestricted cash and liquid investments..................... 224 (207) (320)
--------- --------- ---------
Net increase in unrestricted cash and liquid investments........................................ 6,617 6,565 2,148
Unrestricted cash and liquid investments at beginning of the fiscal year........................ 23,505 16,940 14,792
--------- --------- ---------
Unrestricted cash and liquid investments at end of the fiscal year.............................. $ 30,122 $ 23,505 $ 16,940
--------- --------- ---------
--------- --------- ---------
Composition of unrestricted cash and liquid investments:
Investments held in trading portfolio......................................................... $ 30,345 $ 23,441 $ 17,323
Unrestricted currencies....................................................................... 33 55 26
Net (payable) receivable for investment securities traded/purchased--Trading.................. (79) 7 (106)
Net (payable) receivable from currency swaps--Investments..................................... (81) 397 (123)
Net payable for securities purchased/sold under resale/repurchase agreements and payable for
cash collateral received.................................................................... (96) (395) (180)
--------- --------- ---------
$ 30,122 $ 23,505 $ 16,940
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure
Increase (decrease) in ending balances resulting from exchange rate fluctuations
Loans outstanding........................................................................... $ 2,519 $ (6,994) $ (6,429)
Investments--Held-to-maturity............................................................... 13 2 94
Borrowings.................................................................................. 1,010 (7,239) (4,701)
Currency swaps--Borrowings.................................................................. 1,244 1,632 (495)
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
45
<PAGE>
- --------------------------------------------------------------------------------
Summary Statement of Loans
June 30, 1999
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.............................................. $ 2,144 $ -- $ 537 $ 1,607 1.37%
Argentina............................................ 12,045 701 4,025 7,319 6.24
Armenia.............................................. 9 -- -- 9 0.01
Bahamas, The......................................... 5 -- -- 5 *
Bangladesh........................................... 32 -- -- 32 0.03
Barbados............................................. 23 -- 6 17 0.01
Belarus.............................................. 145 -- 22 123 0.10
Belize............................................... 49 -- 7 42 0.04
Bolivia.............................................. 18 -- -- 18 0.02
Bosnia and Herzegovina............................... 566 -- -- 566 0.48
Botswana............................................. 29 -- -- 29 0.02
Brazil............................................... 10,387 1,022 2,511 6,854 5.85
Bulgaria............................................. 937 74 209 654 0.56
Cameroon............................................. 307 -- 1 306 0.26
Chile................................................ 1,152 161 83 908 0.77
China................................................ 19,014 2,024 7,199 9,791 8.35
Colombia............................................. 2,314 -- 619 1,695 1.45
Congo, Democratic Republic of........................ 82 -- -- 82 0.07
Congo, Republic of................................... 68 -- -- 68 0.06
Costa Rica........................................... 184 -- 26 158 0.13
Cote d'Ivoire........................................ 781 -- -- 781 0.67
Croatia.............................................. 680 7 353 320 0.27
Cyprus............................................... 57 -- 9 48 0.04
Czech Republic....................................... 346 -- 8 338 0.29
Dominica............................................. 7 -- 6 1 *
Dominican Republic................................... 463 -- 239 224 0.19
Ecuador.............................................. 1,089 -- 235 854 0.73
Egypt, Arab Republic of.............................. 1,187 345 81 761 0.65
El Salvador.......................................... 564 88 186 290 0.25
Estonia.............................................. 99 -- 19 80 0.07
Fiji................................................. 30 -- 2 28 0.02
Gabon................................................ 94 5 18 71 0.06
Ghana................................................ 19 -- -- 19 0.02
Grenada.............................................. 4 -- 4 -- --
Guatemala............................................ 513 54 242 217 0.19
Guyana............................................... 13 -- -- 13 0.01
Honduras............................................. 207 -- -- 207 0.18
Hungary.............................................. 1,033 -- 362 671 0.57
India................................................ 11,324 190 3,314 7,820 6.67
Indonesia............................................ 15,657 684 3,420 11,553 9.86
Iran, Islamic Republic of............................ 673 -- 251 422 0.36
Iraq................................................. 41 -- -- 41 0.03
Jamaica.............................................. 484 -- 117 367 0.31
Jordan............................................... 1,055 35 192 828 0.71
Kazakhstan........................................... 1,597 176 562 859 0.73
</TABLE>
46
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY STATEMENT OF LOANS (Continued)
June 30, 1999
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>
Kenya................................................ $ 118 $ -- $ -- $ 118 0.10%
Korea, Republic of................................... 8,504 -- 196 8,308 7.09
Latvia............................................... 280 29 67 184 0.16
Lebanon.............................................. 579 -- 367 212 0.18
Lesotho.............................................. 104 45 4 55 0.05
Liberia.............................................. 133 -- -- 133 0.11
Lithuania............................................ 277 20 79 178 0.15
Macedonia, former Yugoslav Republic of............... 187 28 56 103 0.09
Madagascar........................................... 1 -- -- 1 *
Malawi............................................... 20 -- -- 20 0.02
Malaysia............................................. 1,388 -- 466 922 0.79
Mauritania........................................... 3 -- -- 3 *
Mauritius............................................ 127 -- 25 102 0.09
Mexico............................................... 14,497 800 2,581 11,116 9.48
Moldova.............................................. 246 -- 55 191 0.16
Morocco.............................................. 3,890 85 500 3,305 2.82
Nicaragua............................................ 12 -- -- 12 0.01
Nigeria.............................................. 2,114 -- 93 2,021 1.72
Oman................................................. 7 -- -- 7 0.01
Pakistan............................................. 3,667 -- 404 3,263 2.78
Panama............................................... 471 85 103 283 0.24
Papua New Guinea..................................... 288 -- 43 245 0.21
Paraguay............................................. 356 -- 197 159 0.14
Peru................................................. 2,983 -- 614 2,369 2.02
Philippines.......................................... 5,398 307 1,137 3,954 3.37
Poland............................................... 3,122 291 807 2,024 1.73
Romania.............................................. 2,677 325 926 1,426 1.22
Russian Federation................................... 10,991 430 4,268 6,293 5.37
St. Kitts and Nevis.................................. 13 -- 12 1 *
St. Lucia............................................ 13 3 5 5 *
St. Vincent and the Grenadines....................... 2 -- 2 * *
Senegal.............................................. 6 -- -- 6 0.01
Seychelles........................................... 4 -- 1 3 *
Sierra Leone......................................... 1 -- -- 1 *
Slovak Republic...................................... 226 -- 6 220 0.19
Slovenia............................................. 136 14 3 119 0.10
South Africa......................................... 24 -- 24 -- --
Sri Lanka............................................ 22 -- -- 22 0.02
Sudan................................................ 6 -- -- 6 0.01
Swaziland............................................ 31 -- 22 9 0.01
Syrian Arab Republic................................. 50 -- -- 50 0.04
Tanzania............................................. 18 -- -- 18 0.02
Thailand............................................. 3,657 -- 1,006 2,651 2.26
Trinidad and Tobago.................................. 152 15 55 82 0.07
Tunisia.............................................. 2,110 35 703 1,372 1.17
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY STATEMENT OF LOANS (Continued)
June 30, 1999
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>
Turkey............................................... $ 4,617 $ 155 $ 1,518 $ 2,944 2.51%
Turkmenistan......................................... 74 -- 65 9 0.01
Ukraine.............................................. 2,687 17 867 1,803 1.54
Uruguay.............................................. 751 -- 277 474 0.40
Uzbekistan........................................... 398 25 193 180 0.15
Venezuela............................................ 1,623 80 357 1,186 1.01
Yugoslavia, Federal Republic of
(Serbia/Montenegro)(3)............................. 1,107 -- -- 1,107 0.94
Zambia............................................... 37 -- -- 37 0.03
Zimbabwe............................................. 501 -- 39 462 0.39
--------- ----------- ----------- ----------- ------
Subtota1(5).......................................... 168,233 8,355 43,008 116,870 99.69
Caribbean Development Bank(4 )....................... 12 -- 4 8 0.01
International Finance Corporation.................... 355 -- 5 350 0.30
--------- ----------- ----------- ----------- ------
Total--June 30, 19995................................ $ 168,600 $ 8,355 $ 43,017 $ 117,228 100.00%
--------- ----------- ----------- ----------- ------
--------- ----------- ----------- ----------- ------
Total--June 30, 1998................................. $ 157,641 $ 11,711 $ 39,354 $ 106,576
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
* Indicates amount less than $0.5 million or less than 0.005 percent.
NOTES
1. Loans totaling $4,371 million ($8,930 million--June 30, 1998) have been
approved by IBRD, but the related agreements have not been signed. Loan
agreements totaling $3,984 million ($2,781 million--June 30, 1998) 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 $1,301 million ($1,215 million--June 30, 1998).
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.
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
48
<PAGE>
- --------------------------------------------------------------------------------
Statement of Subscriptions to
Capital Stock and Voting Power
June 30, 1999
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VOTING
SUBSCRIPTIONS POWER
------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
AMOUNTS
PERCENTAGE SUBJECT NUMBER
OF TOTAL AMOUNTS TO OF
MEMBER SHARES TOTAL AMOUNTS PAID IN(1) CALL(1,2) VOTES
- ----------------------------------------------- --------- ----------- ----------- ----------- ----------- ---------
Afghanistan.................................... 300 0.02% $ 36.2 $ 3.6 $ 32.6 550
Albania........................................ 830 0.05 100.1 3.6 96.5 1,080
Algeria........................................ 9,252 0.59 1,116.1 67.1 1,049.0 9,502
Angola......................................... 2,676 0.17 322.8 17.5 305.4 2,926
Antigua and Barbuda............................ 520 0.03 62.7 1.3 61.5 770
Argentina...................................... 17,911 1.15 2,160.7 132.2 2,028.4 18,161
Armenia........................................ 1,139 0.07 137.4 5.9 131.5 1,389
Australia...................................... 24,464 1.57 2,951.2 181.8 2,769.5 24,714
Austria........................................ 11,063 0.71 1,334.6 80.7 1,253.9 11,313
Azerbaijan..................................... 1,646 0.11 198.6 9.7 188.8 1,896
Bahamas, The................................... 1,071 0.07 129.2 5.4 123.8 1,321
Bahrain........................................ 1,103 0.07 133.1 5.7 127.4 1,353
Bangladesh..................................... 4,854 0.31 585.6 33.9 551.6 5,104
Barbados....................................... 948 0.06 114.4 4.5 109.9 1,198
Belarus........................................ 3,323 0.21 400.9 22.3 378.5 3,573
Belgium........................................ 28,983 1.86 3,496.4 215.8 3,280.6 29,233
Belize......................................... 586 0.04 70.7 1.8 68.9 836
Benin.......................................... 868 0.06 104.7 3.9 100.8 1,118
Bhutan......................................... 479 0.03 57.8 1.0 56.8 729
Bolivia........................................ 1,785 0.11 215.3 10.8 204.5 2,035
Bosnia and Herzegovina......................... 549 0.04 66.2 5.8 60.4 799
Botswana....................................... 615 0.04 74.2 2.0 72.2 865
Brazil......................................... 33,287 2.13 4,015.6 245.5 3,770.1 33,537
Brunei Darussalam.............................. 2,373 0.15 286.3 15.2 271.1 2,623
Bulgaria....................................... 5,215 0.33 629.1 36.5 592.6 5,465
Burkina Faso................................... 868 0.06 104.7 3.9 100.8 1,118
Burundi........................................ 716 0.05 86.4 3.0 83.4 966
Cambodia....................................... 214 0.01 25.8 2.6 23.2 464
Cameroon....................................... 1,527 0.10 184.2 9.0 175.2 1,777
Canada......................................... 44,795 2.87 5,403.8 334.9 5,068.9 45,045
Cape Verde..................................... 508 0.03 61.3 1.2 60.1 758
Central African Republic....................... 862 0.06 104.0 3.9 100.1 1,112
Chad........................................... 862 0.06 104.0 3.9 100.1 1,112
Chile.......................................... 6,931 0.44 836.1 49.6 786.6 7,181
China.......................................... 44,799 2.87 5,404.3 335.0 5,069.3 45,049
Colombia....................................... 6,352 0.41 766.3 45.2 721.1 6,602
Comoros........................................ 282 0.02 34.0 0.3 33.7 532
Congo, Democratic Republic of.................. 2,643 0.17 318.8 25.4 293.5 2,893
Congo, Republic of............................. 927 0.06 111.8 4.3 107.5 1,177
Costa Rica..................................... 233 0.01 28.1 1.9 26.2 483
Cote d'Ivoire.................................. 2,516 0.16 303.5 16.4 287.1 2,766
Croatia........................................ 2,293 0.15 276.6 17.3 259.3 2,543
Cyprus......................................... 1,461 0.09 176.2 8.4 167.9 1,711
Czech Republic................................. 6,308 0.40 761.0 45.9 715.0 6,558
Denmark........................................ 10,251 0.66 1,236.6 74.6 1,162.0 10,501
Djibouti....................................... 559 0.04 67.4 1.6 65.9 809
Dominica....................................... 504 0.03 60.8 1.1 59.7 754
Dominican Republic............................. 2,092 0.13 252.4 13.1 239.3 2,342
Ecuador........................................ 2,771 0.18 334.3 18.2 316.1 3,021
Egypt, Arab Republic of........................ 7,108 0.46 857.5 50.9 806.6 7,358
<CAPTION>
<S> <C>
PERCENTAGE
OF
MEMBER TOTAL
- ----------------------------------------------- -----------
Afghanistan.................................... 0.03%
Albania........................................ 0.07
Algeria........................................ 0.59
Angola......................................... 0.18
Antigua and Barbuda............................ 0.05
Argentina...................................... 1.13
Armenia........................................ 0.09
Australia...................................... 1.54
Austria........................................ 0.70
Azerbaijan..................................... 0.12
Bahamas, The................................... 0.08
Bahrain........................................ 0.08
Bangladesh..................................... 0.32
Barbados....................................... 0.07
Belarus........................................ 0.22
Belgium........................................ 1.82
Belize......................................... 0.05
Benin.......................................... 0.07
Bhutan......................................... 0.05
Bolivia........................................ 0.13
Bosnia and Herzegovina......................... 0.05
Botswana....................................... 0.05
Brazil......................................... 2.09
Brunei Darussalam.............................. 0.16
Bulgaria....................................... 0.34
Burkina Faso................................... 0.07
Burundi........................................ 0.06
Cambodia....................................... 0.03
Cameroon....................................... 0.11
Canada......................................... 2.81
Cape Verde..................................... 0.05
Central African Republic....................... 0.07
Chad........................................... 0.07
Chile.......................................... 0.45
China.......................................... 2.81
Colombia....................................... 0.41
Comoros........................................ 0.03
Congo, Democratic Republic of.................. 0.18
Congo, Republic of............................. 0.07
Costa Rica..................................... 0.03
Cote d'Ivoire.................................. 0.17
Croatia........................................ 0.16
Cyprus......................................... 0.11
Czech Republic................................. 0.41
Denmark........................................ 0.65
Djibouti....................................... 0.05
Dominica....................................... 0.05
Dominican Republic............................. 0.15
Ecuador........................................ 0.19
Egypt, Arab Republic of........................ 0.46
</TABLE>
49
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF SUBSCRIPTIONS TO
CAPITAL STOCK AND VOTING POWER (Continued)
June 30, 1999
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VOTING
SUBSCRIPTIONS POWER
------------------------------------------------------------- ---------
AMOUNTS
PERCENTAGE SUBJECT NUMBER
OF TOTAL AMOUNTS TO OF
MEMBER SHARES TOTAL AMOUNTS PAID IN(1) CALL(1,2) VOTES
- ----------------------------------------------- --------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
El Salvador.................................... 141 0.01% $ 17.0 $ 1.7 $ 15.3 391
Equatorial Guinea.............................. 715 0.05 86.3 2.7 83.5 965
Eritrea........................................ 593 0.04 71.5 1.8 69.7 843
Estonia........................................ 923 0.06 111.3 4.3 107.1 1,173
Ethiopia....................................... 978 0.06 118.0 4.7 113.3 1,228
Fiji........................................... 987 0.06 119.1 4.8 114.3 1,237
Finland........................................ 8,560 0.55 1,032.6 61.9 970.8 8,810
France......................................... 69,397 4.45 8,371.7 520.4 7,851.3 69,647
Gabon.......................................... 987 0.06 119.1 5.1 113.9 1,237
Gambia, The.................................... 543 0.03 65.5 1.5 64.0 793
Georgia........................................ 1,584 0.10 191.1 9.3 181.8 1,834
Germany........................................ 72,399 4.64 8,733.9 542.9 8,190.9 72,649
Ghana.......................................... 1,525 0.10 184.0 12.7 171.2 1,775
Greece......................................... 1,684 0.11 203.1 14.1 189.1 1,934
Grenada........................................ 531 0.03 64.1 1.4 62.7 781
Guatemala...................................... 2,001 0.13 241.4 12.4 229.0 2,251
Guinea......................................... 1,292 0.08 155.9 7.1 148.8 1,542
Guinea-Bissau.................................. 540 0.03 65.1 1.4 63.7 790
Guyana......................................... 1,058 0.07 127.6 5.3 122.3 1,308
Haiti.......................................... 1,067 0.07 128.7 5.4 123.3 1,317
Honduras....................................... 641 0.04 77.3 2.3 75.0 891
Hungary........................................ 8,050 0.52 971.1 58.0 913.1 8,300
Iceland........................................ 1,258 0.08 151.8 6.8 144.9 1,508
India.......................................... 44,795 2.87 5,403.8 333.7 5,070.1 45,045
Indonesia...................................... 14,981 0.96 1,807.2 110.3 1,697.0 15,231
Iran, Islamic Republic of...................... 23,686 1.52 2,857.4 175.8 2,681.5 23,936
Iraq........................................... 2,808 0.18 338.7 27.1 311.6 3,058
Ireland........................................ 5,271 0.34 635.9 37.1 598.8 5,521
Israel......................................... 4,750 0.30 573.0 33.2 539.8 5,000
Italy.......................................... 44,795 2.87 5,403.8 334.8 5,069.0 45,045
Jamaica........................................ 2,578 0.17 311.0 16.8 294.2 2,828
Japan.......................................... 127,000 8.14 15,320.6 944.0 14,376.7 127,250
Jordan......................................... 1,388 0.09 167.4 7.8 159.6 1,638
Kazakhstan..................................... 2,985 0.19 360.1 19.8 340.3 3,235
Kenya.......................................... 2,461 0.16 296.9 15.9 281.0 2,711
Kiribati....................................... 465 0.03 56.1 0.9 55.2 715
Korea, Republic of............................. 15,817 1.01 1,908.1 114.5 1,793.5 16,067
Kuwait......................................... 13,280 0.85 1,602.0 97.4 1,504.6 13,530
Kyrgyz Republic................................ 1,107 0.07 133.5 5.7 127.9 1,357
Lao People's Democratic Republic............... 178 0.01 21.5 1.5 20.0 428
Latvia......................................... 1,384 0.09 167.0 7.8 159.2 1,634
Lebanon........................................ 340 0.02 41.0 1.1 39.9 590
Lesotho........................................ 663 0.04 80.0 2.3 77.6 913
Liberia........................................ 463 0.03 55.9 2.6 53.3 713
Libya.......................................... 7,840 0.50 945.8 57.0 888.8 8,090
Lithuania...................................... 1,507 0.10 181.8 8.7 173.1 1,757
Luxembourg..................................... 1,652 0.11 199.3 9.8 189.5 1,902
Macedonia, former Yugoslav Republic of......... 427 0.03 51.5 3.2 48.3 677
Madagascar..................................... 1,422 0.09 171.5 8.1 163.5 1,672
Malawi......................................... 1,094 0.07 132.0 5.6 126.4 1,344
<CAPTION>
PERCENTAGE
OF
MEMBER TOTAL
- ----------------------------------------------- -----------
<S> <C>
El Salvador.................................... 0.02%
Equatorial Guinea.............................. 0.06
Eritrea........................................ 0.05
Estonia........................................ 0.07
Ethiopia....................................... 0.08
Fiji........................................... 0.08
Finland........................................ 0.55
France......................................... 4.34
Gabon.......................................... 0.08
Gambia, The.................................... 0.05
Georgia........................................ 0.11
Germany........................................ 4.53
Ghana.......................................... 0.11
Greece......................................... 0.12
Grenada........................................ 0.05
Guatemala...................................... 0.14
Guinea......................................... 0.10
Guinea-Bissau.................................. 0.05
Guyana......................................... 0.08
Haiti.......................................... 0.08
Honduras....................................... 0.06
Hungary........................................ 0.52
Iceland........................................ 0.09
India.......................................... 2.81
Indonesia...................................... 0.95
Iran, Islamic Republic of...................... 1.49
Iraq........................................... 0.19
Ireland........................................ 0.34
Israel......................................... 0.31
Italy.......................................... 2.81
Jamaica........................................ 0.18
Japan.......................................... 7.93
Jordan......................................... 0.10
Kazakhstan..................................... 0.20
Kenya.......................................... 0.17
Kiribati....................................... 0.04
Korea, Republic of............................. 1.00
Kuwait......................................... 0.84
Kyrgyz Republic................................ 0.08
Lao People's Democratic Republic............... 0.03
Latvia......................................... 0.10
Lebanon........................................ 0.04
Lesotho........................................ 0.06
Liberia........................................ 0.04
Libya.......................................... 0.50
Lithuania...................................... 0.11
Luxembourg..................................... 0.12
Macedonia, former Yugoslav Republic of......... 0.04
Madagascar..................................... 0.10
Malawi......................................... 0.08
</TABLE>
50
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF SUBSCRIPTIONS TO
CAPITAL STOCK AND VOTING POWER (Continued)
June 30, 1999
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VOTING
SUBSCRIPTIONS POWER
------------------------------------------------------------- ---------
AMOUNTS
PERCENTAGE SUBJECT NUMBER
OF TOTAL AMOUNTS TO OF
MEMBER SHARES TOTAL AMOUNTS PAID IN(1) CALL(1,2) VOTES
- ----------------------------------------------- --------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Malaysia....................................... 8,244 0.53% $ 994.5 $ 59.5 $ 935.0 8,494
Maldives....................................... 469 0.03 56.6 0.9 55.7 719
Mali........................................... 1,162 0.07 140.2 6.1 134.1 1,412
Malta.......................................... 1,074 0.07 129.6 5.4 124.1 1,324
Marshall Islands............................... 469 0.03 56.6 0.9 55.7 719
Mauritania..................................... 900 0.06 108.6 4.1 104.4 1,150
Mauritius...................................... 1,242 0.08 149.8 6.7 143.1 1,492
Mexico......................................... 18,804 1.21 2,268.4 139.0 2,129.4 19,054
Micronesia, Federated States of................ 479 0.03 57.8 1.0 56.8 729
Moldova........................................ 1,368 0.09 165.0 7.6 157.4 1,618
Mongolia....................................... 466 0.03 56.2 2.3 53.9 716
Morocco........................................ 4,973 0.32 599.9 34.8 565.1 5,223
Mozambique..................................... 930 0.06 112.2 4.8 107.4 1,180
Myanmar........................................ 2,484 0.16 299.7 16.1 283.6 2,734
Namibia........................................ 1,523 0.10 183.7 8.8 174.9 1,773
Nepal.......................................... 968 0.06 116.8 4.6 112.1 1,218
Netherlands.................................... 35,503 2.28 4,282.9 264.8 4,018.1 35,753
New Zealand.................................... 7,236 0.46 872.9 51.9 821.0 7,486
Nicaragua...................................... 608 0.04 73.3 2.1 71.3 858
Niger.......................................... 852 0.05 102.8 3.8 99.0 1,102
Nigeria........................................ 12,655 0.81 1,526.6 92.7 1,433.9 12,905
Norway......................................... 9,982 0.64 1,204.2 72.6 1,131.6 10,232
Oman........................................... 1,561 0.10 188.3 9.1 179.2 1,811
Pakistan....................................... 9,339 0.60 1,126.6 67.8 1,058.9 9,589
Palau, Republic of............................. 16 * 1.9 0.2 1.8 266
Panama......................................... 385 0.02 46.4 3.2 43.2 635
Papua New Guinea............................... 1,294 0.08 156.1 7.1 149.0 1,544
Paraguay....................................... 1,229 0.08 148.3 6.6 141.6 1,479
Peru........................................... 5,331 0.34 643.1 37.5 605.6 5,581
Philippines.................................... 6,844 0.44 825.6 48.9 776.7 7,094
Poland......................................... 10,908 0.70 1,315.9 79.6 1,236.3 11,158
Portugal....................................... 5,460 0.35 658.7 38.5 620.2 5,710
Qatar.......................................... 1,096 0.07 132.2 9.0 123.3 1,346
Romania........................................ 4,011 0.26 483.9 30.5 453.4 4,261
Russian Federation............................. 44,795 2.87 5,403.8 333.9 5,070.0 45,045
Rwanda......................................... 1,046 0.07 126.2 5.2 120.9 1,296
St. Kitts and Nevis............................ 275 0.02 33.2 0.3 32.9 525
St. Lucia...................................... 552 0.04 66.6 1.5 65.1 802
St. Vincent and the Grenadines................. 278 0.02 33.5 0.3 33.2 528
Samoa.......................................... 531 0.03 64.1 1.4 62.7 781
Sao Tome and Principe.......................... 495 0.03 59.7 1.1 58.6 745
Saudi Arabia................................... 44,795 2.87 5,403.8 335.0 5,068.9 45,045
Senegal........................................ 2,072 0.13 250.0 13.0 237.0 2,322
Seychelles..................................... 263 0.02 31.7 0.2 31.6 513
Sierra Leone................................... 718 0.05 86.6 3.0 83.6 968
Singapore...................................... 320 0.02 38.6 3.9 34.7 570
Slovak Republic................................ 3,216 0.21 388.0 23.0 365.0 3,466
Slovenia....................................... 1,261 0.08 152.1 9.5 142.6 1,511
Solomon Islands................................ 513 0.03 61.9 1.2 60.7 763
Somalia........................................ 552 0.04 66.6 3.3 63.3 802
<CAPTION>
PERCENTAGE
OF
MEMBER TOTAL
- ----------------------------------------------- -----------
<S> <C>
Malaysia....................................... 0.53%
Maldives....................................... 0.04
Mali........................................... 0.09
Malta.......................................... 0.08
Marshall Islands............................... 0.04
Mauritania..................................... 0.07
Mauritius...................................... 0.09
Mexico......................................... 1.19
Micronesia, Federated States of................ 0.05
Moldova........................................ 0.10
Mongolia....................................... 0.04
Morocco........................................ 0.33
Mozambique..................................... 0.07
Myanmar........................................ 0.17
Namibia........................................ 0.11
Nepal.......................................... 0.08
Netherlands.................................... 2.23
New Zealand.................................... 0.47
Nicaragua...................................... 0.05
Niger.......................................... 0.07
Nigeria........................................ 0.80
Norway......................................... 0.64
Oman........................................... 0.11
Pakistan....................................... 0.60
Palau, Republic of............................. 0.02
Panama......................................... 0.04
Papua New Guinea............................... 0.10
Paraguay....................................... 0.09
Peru........................................... 0.35
Philippines.................................... 0.44
Poland......................................... 0.69
Portugal....................................... 0.36
Qatar.......................................... 0.08
Romania........................................ 0.27
Russian Federation............................. 2.81
Rwanda......................................... 0.08
St. Kitts and Nevis............................ 0.03
St. Lucia...................................... 0.05
St. Vincent and the Grenadines................. 0.03
Samoa.......................................... 0.05
Sao Tome and Principe.......................... 0.05
Saudi Arabia................................... 2.81
Senegal........................................ 0.14
Seychelles..................................... 0.03
Sierra Leone................................... 0.06
Singapore...................................... 0.04
Slovak Republic................................ 0.22
Slovenia....................................... 0.09
Solomon Islands................................ 0.05
Somalia........................................ 0.05
</TABLE>
51
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF SUBSCRIPTIONS TO
CAPITAL STOCK AND VOTING POWER (Continued)
June 30, 1999
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VOTING
SUBSCRIPTIONS POWER
------------------------------------------------------------- ---------
AMOUNTS
PERCENTAGE SUBJECT NUMBER
OF TOTAL AMOUNTS TO OF
MEMBER SHARES TOTAL AMOUNTS PAID IN(1) CALL(1,2) VOTES
- ----------------------------------------------- --------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
South Africa................................... 13,462 0.86% $ 1,624.0 $ 98.8 $ 1,525.2 13,712
Spain.......................................... 23,686 1.52 2,857.4 175.6 2,681.7 23,936
Sri Lanka...................................... 3,817 0.24 460.5 26.1 434.3 4,067
Sudan.......................................... 850 0.05 102.5 7.2 95.3 1,100
Suriname....................................... 412 0.03 49.7 2.0 47.7 662
Swaziland...................................... 440 0.03 53.1 2.0 51.1 690
Sweden......................................... 14,974 0.96 1,806.4 110.2 1,696.2 15,224
Switzerland.................................... 26,606 1.71 3,209.6 197.2 3,012.4 26,856
Syrian Arab Republic........................... 2,202 0.14 265.6 14.0 251.7 2,452
Tajikistan..................................... 1,060 0.07 127.9 5.3 122.5 1,310
Tanzania....................................... 1,295 0.08 156.2 10.0 146.2 1,545
Thailand....................................... 6,349 0.41 765.9 45.2 720.7 6,599
Togo........................................... 1,105 0.07 133.3 5.7 127.6 1,355
Tonga.......................................... 494 0.03 59.6 1.1 58.5 744
Trinidad and Tobago............................ 2,664 0.17 321.4 17.6 303.7 2,914
Tunisia........................................ 719 0.05 86.7 5.7 81.1 969
Turkey......................................... 7,379 0.47 890.2 52.9 837.2 7,629
Turkmenistan................................... 526 0.03 63.5 2.9 60.5 776
Uganda......................................... 617 0.04 74.4 4.4 70.1 867
Ukraine........................................ 10,908 0.70 1,315.9 79.3 1,236.6 11,158
United Arab Emirates........................... 2,385 0.15 287.7 22.6 265.1 2,635
United Kingdom................................. 69,397 4.45 8,371.7 539.5 7,832.2 69,647
United States.................................. 264,969 16.98 31,964.5 1,998.4 29,966.2 265,219
Uruguay........................................ 2,812 0.18 339.2 18.6 320.7 3,062
Uzbekistan..................................... 2,493 0.16 300.7 16.1 284.7 2,743
Vanuatu........................................ 586 0.04 70.7 1.8 68.9 836
Venezuela...................................... 20,361 1.30 2,456.2 150.8 2,305.5 20,611
Vietnam........................................ 968 0.06 116.8 8.1 108.7 1,218
Yemen, Republic of............................. 2,212 0.14 266.8 14.0 252.8 2,462
Zambia......................................... 2,810 0.18 339.0 20.0 319.0 3,060
Zimbabwe....................................... 3,325 0.21 401.1 22.4 378.7 3,575
--------- ----------- ----------- ----------- ----------- ---------
Total--June 30, 1999(2)........................ 1,560,243 100.00% $ 188,220 $ 11,395 $ 176,825 1,605,493
--------- ----------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ----------- ---------
Total--June 30, 1998........................... 1,545,457 100.00% $ 186,436 $ 11,288 $ 175,148 1,590,707
--------- ----------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ----------- ---------
<CAPTION>
PERCENTAGE
OF
MEMBER TOTAL
- ----------------------------------------------- -----------
<S> <C>
South Africa................................... 0.85%
Spain.......................................... 1.49
Sri Lanka...................................... 0.25
Sudan.......................................... 0.07
Suriname....................................... 0.04
Swaziland...................................... 0.04
Sweden......................................... 0.95
Switzerland.................................... 1.67
Syrian Arab Republic........................... 0.15
Tajikistan..................................... 0.08
Tanzania....................................... 0.10
Thailand....................................... 0.41
Togo........................................... 0.08
Tonga.......................................... 0.05
Trinidad and Tobago............................ 0.18
Tunisia........................................ 0.06
Turkey......................................... 0.48
Turkmenistan................................... 0.05
Uganda......................................... 0.05
Ukraine........................................ 0.69
United Arab Emirates........................... 0.16
United Kingdom................................. 4.34
United States.................................. 16.52
Uruguay........................................ 0.19
Uzbekistan..................................... 0.17
Vanuatu........................................ 0.05
Venezuela...................................... 1.28
Vietnam........................................ 0.08
Yemen, Republic of............................. 0.15
Zambia......................................... 0.19
Zimbabwe....................................... 0.22
-----------
Total--June 30, 1999(2)........................ 100.00%
-----------
-----------
Total--June 30, 1998...........................
</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.
52
<PAGE>
- --------------------------------------------------------------------------------
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).
IBRD, IDA, IFC, and MIGA are collectively known as the World Bank Group. Each of
these other organizations in the World Bank Group 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 income and the present value of benefit
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,
53
<PAGE>
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 Accumulated Other Comprehensive Income.
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 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 (SRP) and the SRP's accounting income for the fiscal years
1997 and 1998. This Pension Reserve would be
54
<PAGE>
reduced if in any future fiscal year pension accounting expenses were to exceed
the actual funding of the SRP.
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 after an assessment by the Executive Directors
of IBRD's reserve needs. Upon recommendation by the Executive Directors, the
Board of Governors, consisting of one Governor appointed by each member,
periodically approves transfers out of unallocated Net Income and Surplus to
various entities for development purposes consistent with IBRD's Articles of
Agreement.
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 based on
specific currencies. IBRD also offers multicurrency loans which have repayment
obligations in various currencies determined on the basis of a currency pooling
system.
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 addition 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 management's
intention on the date of purchase. Securities which management has the intention
and ability to hold until maturity are included in the
55
<PAGE>
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 investment securities and related 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 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
56
<PAGE>
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
ADOPTION OF NEW ACCOUNTING STANDARDS. In fiscal year 1999, IBRD adopted
Statements of Financial Accounting Standards (SFAS) issued by the Financial
Accounting Standards Board (FASB) and International Accounting Standards (IAS)
issued by the International Accounting Standards Committee (IASC) as follows:
SFAS No. 130 "Reporting Comprehensive Income" (see Note K);
SFAS No. 131, "Disclosures about Segments of an enterprise and Related
Information" and IAS 14 (revised) "Segment Reporting" (see Note J);
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" and IAS 19 (revised) "Employee Benefits" (see Note I); and
IAS 1 (revised) "Presentation of Financial Statements".
Prior year amounts have been provided or reclassified as required. Adoption of
these standards required new disclosures only and did not impact IBRD's results
of operations or financial position.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998 the 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 balance sheet and to measure those instruments at
fair value. This standard was effective for fiscal years beginning after June
15, 1999; however, the FASB has delayed the effective date for one year, to
fiscal years beginning after June 15, 2000 by issuing SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133--an amendment of FASB Statement No. 133." In
addition, in December 1998, the IASC issued IAS 39 "Financial Instruments:
Recognition and Measurement". This standard also requires that all financial
assets and liabilities, including derivatives, be included on the balance sheet
and is effective for fiscal years beginning on or after January 1, 2001. Since
these standards significantly change the accounting treatment for derivative
instruments and hedging activities, IBRD is in the process of evaluating the
potential impact of these standards on its financial position and results of
operations.
NOTE A--CAPITAL STOCK, RESTRICTED CURRENCIES, MAINTENANCE OF VALUE, AND
MEMBERSHIP
CAPITAL STOCK: At June 30, 1999, IBRD's capital comprised 1,581,724
(1,581,724--June 30, 1998) authorized shares, of which 1,560,243
(1,545,457--June 30, 1998) 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, $11,395 million ($11,288 million--June 30, 1998) has
been paid in, and the remaining $176,825 million ($175,148 million--June 30,
1998) is subject to call only when required to meet the obligations of IBRD
created by borrowing or guaranteeing loans.
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 $453 million ($554 million--June
30, 1998) included in Amounts to Maintain Value of Currency Holdings, which has
been deducted from equity, $87 million ($86 million--June 30, 1998) represents
MOV receivables for countries that have amounts in arrears for
57
<PAGE>
two years or more. IBRD still considers these MOV receivables in arrears as
obligations due from the members concerned. The remaining $366 million ($468
million--June 30, 1998) represents net MOV amounts relating to restricted
currencies out on loan that become payable under the same terms as other MOV
obligations 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, repurchase
agreements, securities loans, resale agreements 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.
For government and agency obligations, IBRD may 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 may 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. For asset-backed securities, IBRD may only invest in securities
with a AAA credit rating.
With respect to futures and forwards, 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.
For options, 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.
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LIQUID PORTFOLIO: A summary of IBRD's position in trading and other liquid
portfolio instruments at June 30, 1999 and June 30, 1998 is as follows:
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER
EURO(A) JAPANESE YEN U.S. DOLLARS CURRENCIES
-------------------- -------------------- -------------------- --------------------
1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRADING:
Government and agency obligations:
Carrying value........................ 1,593 1,894 4,406 4,560 1,344 1,540 64 113
Average balance during fiscal year.... 1,569 2,113 4,618 1,958 1,618 2,564 294 84
Net gains (losses) for the fiscal
year.................................. (39) (1) (19) (11) 13 38 * (2)
Average yield (%)..................... 4.03 4.81 0.14 0.67 5.44 5.65 7.67 6.27
Average maturity (years).............. 1.31 3.20 1.62 1.44 1.31 2.62 1.23 2.53
Time deposits:
Carrying value........................ 3,071 2,920 1,119 1,677 14,397 7,998 1,216 1,052
Average balance during fiscal year.... 3,046 2,502 1,772 2,841 11,439 7,717 1,363 842
Net gains (losses) for the fiscal
year.................................. -- -- -- -- -- -- -- --
Average yield (%)..................... 2.73 3.83 0.05 0.44 5.42 5.74 2.95 2.97
Average maturity (years).............. 0.18 0.11 0.11 0.15 0.04 0.09 0.20 0.15
Asset-backed securities:
Carrying value........................ -- -- -- -- 3,041 1,687 -- --
Average balance during fiscal year.... -- -- -- -- 2,398 598 -- --
Net gains (losses) for the fiscal
year.................................. -- -- -- -- (6) * -- --
Average yield (%)..................... -- -- -- -- 5.39 7.08 -- --
Average maturity (years).............. -- -- -- -- 6.21 7.91 -- --
Options, futures and forwards:
Carrying value........................ * * * * -- -- * --
Average balance during fiscal year.... * 1 * 1 (*) * * (5)
Net gains (losses) for the fiscal
year.................................. (*) (1) * (3) 1 (29) * 1
TOTAL TRADING INVESTMENTS**
Carrying value........................ 4,664 4,814 5,525 6,237 18,782 11,225 1,280 1,165
Average balance during fiscal year.... 4,615 4,616 6,390 4,800 15,456 10,879 1,657 921
Net gains (losses) for the fiscal
year(c)............................. (39) (2) (19) (14) 8 9 * (1)
REPURCHASE AGREEMENTS & SECURITIES
LOANS:
Carrying value........................ -- (329) -- -- (102) (339) -- (194)
Average balance during fiscal year.... (26) (173) -- (2) (272) (391) (12) (89)
Average cost (%)...................... -- 3.39 -- -- 4.91 5.68 -- 7.34
Average maturity (years).............. -- 0.05 -- -- * 0.02 -- 0.03
RESALE AGREEMENTS:
Carrying value........................ -- 294 -- -- 6 -- -- 173
Average balance during fiscal year.... 39 209 -- 1 265 852 11 64
Average yield (%)..................... -- 3.25 -- -- 4.10 -- -- 7.27
Average maturity (years).............. -- 0.06 -- -- * -- -- 0.03
SHORT SALES:(b)
Carrying value........................ -- (99) -- -- (46) -- -- (52)
Average balance during fiscal year.... (*) (4) -- -- (1) (2) (*) (1)
CURRENCY SWAPS RECEIVABLE:
Carrying value........................ -- 49 -- 144 5,087 5,451 -- --
Average balance during fiscal year.... 3 5 10 45 5,017 5,206 26 5
Average yield (%)..................... -- 3.43 -- 0.47 5.02 5.62 -- --
Average maturity (years).............. -- 0.41 -- 0.01 0.19 0.15 -- --
CURRENCY SWAPS PAYABLE:
Carrying value........................ (2,942) (1,998) (1,002) (2,302) -- (148) (990) (977)
Average balance during fiscal year.... (2,413) (1,678) (1,485) (2,688) (31) (13) (1,135) 246
Average cost (%)...................... 2.70 3.92 0.05 0.45 -- 5.63 2.56 2.79
Average maturity (years).............. 0.18 0.15 0.16 0.16 -- 0.01 0.25 0.16
<CAPTION>
ALL
CURRENCIES
--------------------
1999 1998
--------- ---------
<S> <C> <C>
TRADING:
Government and agency obligations:
Carrying value........................ 7,407 8,107
Average balance during fiscal year.... 8,099 6,719
Net gains (losses) for the fiscal
year.................................. (45) 24
Average yield (%)..................... 1.98 2.65
Average maturity (years).............. 1.54 2.09
Time deposits:
Carrying value........................ 19,803 13,647
Average balance during fiscal year.... 17,620 13,902
Net gains (losses) for the fiscal
year.................................. -- --
Average yield (%)..................... 4.51 4.46
Average maturity (years).............. 0.08 0.11
Asset-backed securities:
Carrying value........................ 3,041 1,687
Average balance during fiscal year.... 2,398 598
Net gains (losses) for the fiscal
year.................................. (6) *
Average yield (%)..................... 5.39 7.08
Average maturity (years).............. 6.21 7.91
Options, futures and forwards:
Carrying value........................ * *
Average balance during fiscal year.... * (3)
Net gains (losses) for the fiscal
year.................................. 1 (32)
TOTAL TRADING INVESTMENTS**
Carrying value........................ 30,251(5) 23,441
Average balance during fiscal year.... 28,118 21,216
Net gains (losses) for the fiscal
year(c)............................. (50 (b) (8)
REPURCHASE AGREEMENTS & SECURITIES
LOANS:
Carrying value........................ (102) (862)
Average balance during fiscal year.... (310) (655)
Average cost (%)...................... 4.91 5.18
Average maturity (years).............. * 0.03
RESALE AGREEMENTS:
Carrying value........................ 6 467
Average balance during fiscal year.... 315 1,126
Average yield (%)..................... 4.10 4.74
Average maturity (years).............. * 0.05
SHORT SALES:(b)
Carrying value........................ (46) (151)
Average balance during fiscal year.... (1) (7)
CURRENCY SWAPS RECEIVABLE:
Carrying value........................ 5,087 5,644
Average balance during fiscal year.... 5,056 5,261
Average yield (%)..................... 5.02 5.47
Average maturity (years).............. 0.19 0.15
CURRENCY SWAPS PAYABLE:
Carrying value........................ (4,934) (5,425)
Average balance during fiscal year.... (5,064) (4,133)
Average cost (%)...................... 2.14 2.28
Average maturity (years).............. 0.19 0.15
</TABLE>
59
<PAGE>
- --------------------------------------------------------------------------------
LIQUID PORTFOLIO (CONTINUED)
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER
EURO(A) JAPANESE YEN U.S. DOLLARS CURRENCIES
-------------------- -------------------- -------------------- --------------------
1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CROSS-CURRENCY INTEREST RATE SWAPS
RECEIVABLE:(e)
Carrying value........................ -- -- 245 -- 6,088 4,935 -- --
Average balance during fiscal year.... -- -- 38 -- 5,863 2,922 -- --
Net gains (losses) for the fiscal
year(c)............................... -- -- (2) -- 5 2 -- --
Average yield (%)..................... -- -- 0.48 -- 5.12 5.75 -- --
Average maturity (years).............. -- -- 1.68 -- 1.53 2.16 -- --
CROSS-CURRENCY INTEREST RATE SWAPS
PAYABLE:(e)
Carrying value........................ (1,593) (1,806) (4,651) (2,888) (238) -- (67) (47)
Average balance during fiscal year.... (1,590) (1,338) (4,234) (1,612) (112) -- (283) (27)
Net gains (losses) for the fiscal
year(c)............................... 39 (5) 22 10 * -- (*) (*)
Average cost (%)...................... 4.03 5.12 0.19 0.67 5.07 -- 7.67 7.56
Average maturity (years).............. 1.33 2.11 1.63 2.20 1.64 -- 1.23 1.69
NET INTEREST RATE SWAPS:(e)
Carrying value........................ -- -- -- -- (18) (16) -- --
Average balance during fiscal year.... -- -- -- -- (47) (2) -- --
Net gains (losses) for the fiscal
year(c)............................... -- -- -- -- (18) (8) -- --
Average cost (%)...................... -- -- -- -- (0.09) 0.04 -- --
Average maturity (years).............. -- -- -- -- 1.66 2.18 -- --
<CAPTION>
ALL
CURRENCIES
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CROSS-CURRENCY INTEREST RATE SWAPS
RECEIVABLE:(e)
Carrying value........................ 6,333 4,935
Average balance during fiscal year.... 5,901 2,922
Net gains (losses) for the fiscal
year(c)............................... 3 2
Average yield (%)..................... 4.94 5.75
Average maturity (years).............. 1.54 2.16
CROSS-CURRENCY INTEREST RATE SWAPS
PAYABLE:(e)
Carrying value........................ (6,549) (4,741)
Average balance during fiscal year.... (6,219) (2,977)
Net gains (losses) for the fiscal
year(c)............................... 61 5
Average cost (%)...................... 1.37 2.41
Average maturity (years).............. 1.55 2.16
NET INTEREST RATE SWAPS:(e)
Carrying value........................ (18) (16)
Average balance during fiscal year.... (47) (2)
Net gains (losses) for the fiscal
year(c)............................... (18) (8)
Average cost (%)...................... (0.09) 0.04
Average maturity (years).............. 1.66 2.18
</TABLE>
- --------------------------------------------------------------------------------
a. Effective January 1, 1999, the euro was introduced. For reporting purposes,
amounts in the eleven national currencies that are considered sub-units of
the euro have been aggregated with the euro and reported as euro in both the
current and prior year.
b. Amount does not include $94 million of assets transferred from Assets
Designated for Other Postretirement Benefits Plans to trading investments or
$2 million of net gains on these investments.
c. Included in Net gains (losses) on the Trading portfolio in the income
statement.
d. Included in Amounts Payable for Investment Securities Purchased on the
balance sheet.
e. Included in Currency SwapsTrading on the balance sheet.
* Less than $0.5 million, 0.005 percent, or 0.05 years.
** May differ from the sum of individual figures due to rounding.
60
<PAGE>
HELD-TO-MATURITY PORTFOLIO: In 1994 IBRD purchased long-term
sterling-denominated UK government securities for the purpose of matching the
duration of several sterling-denominated long-term liabilities. IBRD intended to
hold these securities until maturity and use their proceeds to liquidate the
sterling liabilities as they became due.
During the first quarter of fiscal year 1999, IBRD decided to take advantage of
unusually favorable market conditions by executing swap agreements that
effectively transformed the sterling liabilities into floating rate obligations.
At the same time, the sterling UK government securities in the held-to-maturity
portfolio were liquidated and the proceeds reinvested in floating rate
securities.
At the time of their liquidation, the sterling UK government securities in the
held-to-maturity portfolio had fair and carrying values of $1,389 million and
$1,152 million, respectively. This resulted in a realized gain of $237 million
upon liquidation.
The carrying and fair values of investment securities in the Held-to-maturity
portfolio at June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN MILLIONS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
-----------------------------------------------------------------------
AVERAGE GROSS GROSS
YIELD UNREALIZED UNREALIZED
CARRYING VALUE (%) GAINS LOSSES FAIR VALUE
--------------- ----------- ------------- ------------- -----------
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.
At June 30, 1998, the Held-to-maturity portfolio comprised investments in pounds
sterling only.
The expected maturities of investment securities in the Held-to-maturity
portfolio at June 30, 1998 are summarized below:
<TABLE>
<CAPTION>
IN MILLIONS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998(A)
-------------------------------------
NET
CARRYING FAIR UNREALIZED
VALUE VALUE GAINS
----------- --------- -------------
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.
ASSETS DESIGNATED FOR OTHER POSTRETIREMENT BENEFITS PLANS: At June 30, 1998,
the balance sheet included $1,456 million in assets related to the Retired Staff
Benefits Plan (RSBP). During the first quarter of fiscal year 1999, the plan was
modified so that some of the assets designated for other postretirement benefits
61
<PAGE>
met the requirements for plan assets as prescribed in SFAS 106 "Employer's
Accounting for Postretirement Benefits Other than Pensions" (see Note I).
Accordingly, the assets and liabilities designated for the health and life
insurance accounts were removed from the balance sheet and as a result, the
assets on the balance sheet that were designated for other postretirement
benefits were reduced by $806 million. The $650 million of assets that remained
on the balance sheet were then incorporated into Trading investments. During the
second quarter of fiscal year 1999, IBRD paid a combined total of $132 million
to IDA, IFC, and MIGA which represented their shares of the remaining net assets
previously designated to satisfy postretirement benefits. The following are the
asset values at June 30, 1998:
<TABLE>
<CAPTION>
IN MILLIONS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
-------------------------------------------
AVERAGE BALANCE
CARRYING DURING FISCAL NET
VALUE YEAR GAINS
----------- ----------------- -----
Equity Securities
U.S....................................................... $ 474 $ 415 $ 77
Non-U.S................................................... 587 550 36
Other Securities............................................ 395 378 21
----------- ------ -----
Total....................................................... $ 1,456 $ 1,343 $ 134
----------- ------ -----
----------- ------ -----
</TABLE>
______________________________________
62
<PAGE>
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 lending spread(b),
resulting in a pass-through of its average borrowing costs to those members that
benefit from IBRD loans.
SINGLE CURRENCY POOL LOANS
In fiscal year 1997 IBRD offered its borrowers the opportunity to convert their
existing multicurrency pool loans to single currency pool loans. These loans
were available in four currencies (U.S. dollar, Japanese yen, Deutsche mark, or
Swiss franc). All adjustable rate multicurrency pool loans that were converted
to single currency pools carry the applicable pool's adjustable 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 a spread of 50 basis points. Any fixed rate multicurrency pool
loans that were converted to single currency pools continued to carry their
fixed rate.
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 applicable for such interim period. The fixed lending rate
comprises a base rate reflecting medium- to long-term market rates on the
semi-annual rate-fixing date for loan amounts disbursed during the preceding
six-month period, plus a total spread consisting of (a) IBRD's funding cost
margin for these loans in the loan currency, (b) a market risk premium (intended
to compensate IBRD for market risks incurred in funding these loans), and (c) a
lending spread.
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) IBRD's lending
spread.
- ---------
b. Until July 31, 1998, the lending spread was 50 basis points. However, during
the first quarter of fiscal year 1999, the lending spread charged by IBRD to
its borrowes was increased by 25 basis points to 75 basis points for loans
where the invitation to negotiate was issued on or after July 31, 1998. In
addition, a front-end fee of 100 basis points, payable for each such loan at
the time it becomes effective, was introduced.
During fiscal year 1999 IBRD approved and disbursed a structural adjustment loan
for $2,000 million with non-standard terms. This loan carries a 6-month LIBOR
interest rate plus a fixed spread of 75 basis points and a front-end fee, and is
not eligible for waivers of interest or commitment charges.
During fiscal year 1998 IBRD also approved and disbursed two LIBOR-based single
currency loans with non-standard 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
63
<PAGE>
points. Both loans have front-end fees. Neither loan is eligible for waivers of
interest or commitment charges.
During the second quarter of fiscal year 1999, IBRD established a new lending
instrument, the Special Structural Adjustment Loan (SSAL), in order to respond
to the needs of borrowers experiencing significant economic difficulties from
recent financial market crises throughout the world. SSAL terms include a
six-month U.S. dollar LIBOR equivalent interest rate plus a minimum fixed
spread, currently set at 400 basis points, but which may vary over time for new
loans depending on IBRD's overall risk-bearing capacity and market conditions.
These loans have a maturity of five years with a three-year grace period, a
front-end fee of one percent of the principal amount payable on effectiveness,
and are not eligible for waivers of interest or commitment charges.
WAIVERS OF LOAN INTEREST AND COMMITMENT CHARGES
For payment periods beginning during the fiscal year ended June 30, 1999, an
interest waiver of five basis points on disbursed and outstanding loans to
eligible borrowers was in effect, except that for new loans where the invitation
to negotiate was issued on or after July 31, 1998, which carry a 75 basis points
lending spread, the interest waiver was 25 basis points. A waiver of 25 basis
points was in effect for the fiscal years ended June 30, 1998 and June 30, 1997.
For the fiscal year ended June 30, 1999, the combined effect of these waivers
was to reduce Net Income by $102 million ($241 million--June 30, 1998, $259
million-- June 30, 1997).
A one-year commitment charge waiver of 50 basis points was in effect on
undisbursed loans to all borrowers for all payment periods commencing in the
fiscal year ending June 30, 1999. A similar waiver of 50 basis points was in
effect for the fiscal years ended June 30, 1998 and June 30, 1997. For the
fiscal year ended June 30, 1999, the effect of the commitment charge waiver was
to reduce Net Income by $229 million ($211 million--June 30, 1998, $226
million--June 30, 1997).
64
<PAGE>
A summary of IBRD's outstanding loans by currency and product at June 30, 1999
and June 30, 1998 follows:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- ---------------------------------------------------------------------------------------------------------------------------------
1999
-----------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
RATE RATE RATE MATURITY RATE
CURRENCY/RATE TYPE AMOUNT (%)(C) AMOUNT (%)(C) AMOUNT (%)(C) (YEARS) AMOUNT (%)(C)
- -------------------------------------- ------- -------- ------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MULTICURRENCY) SINGLE)CURRENCY
LOANS(A POOLS(B
---- --- SINGLE CURRENCY LOANS TOTAL LOANS
---------------------------- ------------------
Euro(d)
Fixed $ 786 8.81 $ 18 10.83 $ 360 5.30 5.63 $ 1,164 7.76
Adjustable 11,815 6.04 5,067 6.45 719 2.92 6.60 17,601 6.03
Japanese yen
Fixed 661 8.85 -- -- -- -- -- 661 8.85
Adjustable 11,756 6.04 74 5.42 132 0.33 8.62 11,962 5.97
Swiss francs
Fixed 362 7.98 -- -- -- -- -- 362 7.98
Adjustable 914 6.05 -- -- 3 1.27 4.61 917 6.03
U.S. dollars
Fixed 774 8.46 149 10.54 8,759 6.45 5.85 9,682 6.67
Adjustable 11,949 6.06 35,385 7.97 26,727 5.70 7.26 74,061 6.84
Others
Fixed 28 9.84 -- -- -- -- -- 28 9.84
Adjustable 790 6.04 -- -- -- -- -- 790 6.04
------- --- ------- -------- ------- --- --- -------- ---
Loans outstanding
Fixed 2,611 8.61 167 10.58 9,119 6.41 5.84 11,897 6.95
Adjustable 37,224 6.05 40,526 7.78 27,581 5.60 7.24 105,331 6.60
------- --- ------- -------- ------- --- --- -------- ---
Total $39,835 6.21 $40,693 7.79 $36,700 5.80 6.90 117,228 6.63
------- --- ------- -------- ------- --- --- ---
------- --- ------- -------- ------- --- --- ---
Less accumulated provision for loan losses 3,560
--------
Loans outstanding net of accumulated provision $113,668
--------
--------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
a. See footnote a. in table of outstanding loans at June 30, 1998 on following
page.
b. See footnote b. in table of outstanding loans at June 30, 1998 on following
page.
c. See footnote c. in table of outstanding loans at June 30, 1998 on following
page.
65
<PAGE>
d. Effective January 1, 1999, the euro was introduced. For reporting purposes,
amounts in the eleven national currencies that are considered sub-units of
the euro have been aggregated with the euro and reported as euro in both the
current and prior year.
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- --------------------------------------------------------------------------------------------------------------------------------
1998
----------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED AVERAGE
AVERAGE AVERAGE AVERAGE MATURITY
CURRENCY/RATE TYPE AMOUNT RATE (%)(C) AMOUNT RATE (%)(C) AMOUNT RATE (%)(C) (YEARS) AMOUNT
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MULTICURRENCY)LOANS(A SINGLE CURRENCY)POOLS(B
TOTAL
----- ----- SINGLE CURRENCY LOANS LOANS
------------------------------------- ---------
Euro(d)
Fixed $ 1,322 8.76 $ 13 11.42 $ 195 6.09 6.07 $ 1,530
Adjustable 19,724 6.36 1,792 7.04 422 3.87 8.08 21,938
Japanese yen
Fixed 910 8.85 -- -- -- -- -- 910
Adjustable 15,802 6.36 -- -- 61 0.86 6.94 15,863
Swiss francs
Fixed 586 7.96 -- -- -- -- -- 586
Adjustable 1,450 6.36 -- -- -- -- -- 1,450
U.S. dollars
Fixed 1,068 8.56 228 9.93 4,374 6.82 6.06 5,670
Adjustable 18,510 6.37 23,625 8.37 15,649 6.10 8.24 57,784
Others
Fixed 27 9.64 -- -- -- -- -- 27
Adjustable 818 6.36 -- -- -- -- -- 818
----------- --- ----------- ----- ----------- --- --- ---------
Loans outstanding
Fixed 3,913 8.61 241 10.01 4,569 6.79 6.06 8,723
Adjustable 56,304 6.36 25,417 8.28 16,132 6.03 8.23 97,853
----------- --- ----------- ----- ----------- --- --- ---------
Total $ 60,217 6.51 $ 25,658 8.29 $ 20,701 6.20 7.75 106,576
----------- --- ----------- ----- ----------- --- ---
----------- --- ----------- ----- ----------- --- ---
Less accumulated provision for loan losses 3,240
---------
Loans outstanding net of accumulated provision $ 103,336
---------
---------
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U.S. DOLLAR
- --------------------------
WEIGHTED
AVERAGE
CURRENCY/RATE TYPE RATE (%)(C)
- -------------------------- -----------
<S> <C>
Euro(d)
Fixed 8.44
Adjustable 6.37
Japanese yen
Fixed 8.85
Adjustable 6.34
Swiss francs
Fixed 7.96
Adjustable 6.36
U.S. dollars
Fixed 7.27
Adjustable 7.11
Others
Fixed 9.64
Adjustable 6.36
---
Loans outstanding
Fixed 7.70
Adjustable 6.80
---
Total 6.88
---
---
Less accumulated provision
Loans outstanding net of a
- --------------------------
</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 one euro. These three major currencies
comprise at least 90% of the multicurrency loans' U.S. dollar equivalent
value, with the remainder in other currencies. This ratio was changed in
January 1999 as a result of the introduction of the euro. 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.
b. AVERAGE MATURITY--SINGLE CURRENCY POOLS. Each single currency pool reflected
the composition of the multicurrency pool at inception, but at June 30, 1999
all of the Single Currency Pools had reached a level of at least 90% in the
designated currency. 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 currency
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.
66
<PAGE>
d. Effective January 1, 1999, the euro was introduced. For reporting purposes,
amounts in the eleven national currencies that are considered sub-units of
the euro have been aggregated with the euro and reported as euro in both the
current and prior year.
The maturity structure of IBRD's loans at June 30, 1999 and June 30, 1998 is as
follows:
<TABLE>
<CAPTION>
IN MILLIONS
- -----------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------
MULTICURRENCY LOANS SINGLE CURRENCY POOLS SINGLE CURRENCY LOANS
ALL LOANS
RATE ---------------------- ------------------------ ---------------------- ----------------------
PERIOD TYPE: FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE
- -------------------- --- --------- ----------- ----- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July 1, 1999 through
June 30, 2000..... $ 1,452 $ 4,283 $ 97 $ 4,823 $ 178 $ 395 $ 1,727 $ 9,501
July 1, 2000 through
June 30, 2004..... 1,041 15,072 70 17,496 3,660 8,543 4,771 41,111
July 1, 2004 through
June 30, 2009..... 117 13,546 -- 14,307 4,623 12,495 4,740 40,348
Thereafter.......... 1 4,323 -- 3,900 658 6,148 659 14,371
--------- ----------- ----- ----------- --------- ----------- --------- -----------
Loans outstanding... $ 2,611 $ 37,224 $ 167 $ 40,526 $ 9,119 $ 27,581 $ 11,897 $ 105,331
--------- ----------- ----- ----------- --------- ----------- --------- -----------
--------- ----------- ----- ----------- --------- ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS
PERIOD TOTAL
- -------------------- ---------
<S> <C>
July 1, 1999 through
June 30, 2000..... $ 11,228
July 1, 2000 through
June 30, 2004..... 45,882
July 1, 2004 through
June 30, 2009..... 45,088
Thereafter.......... 15,030
---------
Loans outstanding... $ 117,228
---------
---------
- --------------------
</TABLE>
<TABLE>
<CAPTION>
IN MILLIONS
- ------------------------------------------------------------------------------------------------------------------------------------
1998
------------------------------------------------------------------------------------------------
MULTICURRENCY LOANS SINGLE CURRENCY POOLS SINGLE CURRENCY LOANS
ALL LOANS
RATE ---------------------- ------------------------ ---------------------- ----------------------
PERIOD TYPE: FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE
- --------------------- --- --------- ----------- ----- ----------- --------- ----------- --------- -----------
<S> <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
July 1, 1999 through
June 30, 2003...... 1,876 22,298 92 10,108 1,721 2,577 3,689 34,983
July 1, 2003 through
June 30, 2008...... 180 20,421 -- 9,280 2,518 9,182 2,698 38,883
Thereafter........... 3 7,495 -- 3,482 288 4,240 291 15,217
--------- ----------- ----- ----------- --------- ----------- --------- -----------
Loans outstanding.... $ 3,913 $ 56,304 $ 241 $ 25,417 $ 4,569 $ 16,132 $ 8,723 $ 97,853
--------- ----------- ----- ----------- --------- ----------- --------- -----------
--------- ----------- ----- ----------- --------- ----------- --------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS
PERIOD TOTAL
- --------------------- ---------
<S> <C>
July 1, 1998 through
June 30, 1999...... $ 10,815
July 1, 1999 through
June 30, 2003...... 38,672
July 1, 2003 through
June 30, 2008...... 41,581
Thereafter........... 15,508
---------
Loans outstanding.... $ 106,576
---------
---------
- ---------------------
</TABLE>
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, 1999 plus a 50 basis point lending 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.
67
<PAGE>
SINGLE CURRENCY LOANS: The estimated value of 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, 1999.
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, 1999 and June 30, 1998:
<TABLE>
<CAPTION>
IN MILLIONS
- --------------------------------------------------------------------------------------------------
1999 1998
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE VALUE VALUE VALUE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Multicurrency loans
Fixed................... $ 2,611 $ 2,763 $ 3,913 $ 4,286
Adjustable.............. 37,224 39,940 56,304 60,915
Single currency pools
Fixed................... 167 174 241 261
Adjustable.............. 40,526 43,646 25,417 27,861
Single currency loans
Fixed................... 9,119 8,873 4,569 4,746
Adjustable(a)........... 27,581 27,547 16,132 16,530
--------- ----------- --------- -----------
Total loans
Fixed................... 11,897 11,810 8,723 9,293
Adjustable.............. 105,331 111,133 97,853 105,306
--------- ----------- --------- -----------
117,228 122,943 106,576 114,599
Less accumulated provision for loan losses...... 3,560 3,560 3,240 3,240
--------- ----------- --------- -----------
Loans outstanding net of accumulated
provision..................................... $ 113,668 $ 119,383 $ 103,336 $ 111,359
--------- ----------- --------- -----------
--------- ----------- --------- -----------
- --------------------------------------------------------------------------------------------------
</TABLE>
a. Amount includes carrying value of $9,035 million ($5,000
million--June 30, 1998) and estimated value of $9,024 million
($5,000 million--June 30, 1998) for non-standard SCLs.
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 $1,973 million at June 30, 1999 ($2,047
million--June 30, 1998) were not included in reported loan balances. At June 30,
1999, $466 million of these guarantees were subject to call ($371 million--June
30, 1998).
OVERDUE AMOUNTS
At June 30, 1999, no loans payable to IBRD other than those referred to in the
following paragraphs were overdue by more than three months.
At June 30, 1999, the loans made to or guaranteed by certain member countries
and the FRY with an aggregate principal balance outstanding of $2,053 million
($2,044 million--June 30, 1998), of which $1,249 million ($1,142 million--June
30, 1998) was overdue, were in nonaccrual status. At such date, overdue interest
and other charges in respect of these loans totaled $1,011 million ($948
million--June 30,
68
<PAGE>
1998). If these loans had not been in nonaccrual status, income from loans for
the fiscal year ended June 30, 1999 would have been higher by $55 million ($84
million--June 30, 1998, $146 million--June 30, 1997).
A summary of countries with loans or guarantees in nonaccrual status follows:
<TABLE>
<CAPTION>
IN MILLIONS
- -------------------------------------------------------------------------------------------------
1999
----------------------------------------------
PRINCIPAL PRINCIPAL AND NONACCRUAL
BORROWER OUTSTANDING CHARGES OVERDUE SINCE
- ------------------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C>
WITH OVERDUES
Congo, Democratic Republic of.................. $ 82 $ 100 November 1993
Congo, Republic of............................. 68 39 November 1997
Iraq........................................... 41 69 December 1990
Liberia........................................ 133 276 June 1987
Sudan.......................................... 6 6 January 1994
Syrian Arab Republic........................... 50 180(a) February 1987
Yugoslavia, Federal Republic of (Serbia/
Montenegro).................................. 1,107 1,590 September 1992
------ ------
Total.......................................... 1,487 2,260
WITHOUT OVERDUES
Bosnia and Herzegovina......................... 566 -- September 1992
------ ------
TOTAL............................................ $ 2,053 $ 2,260
------ ------
------ ------
- -------------------------------------------------------------------------------------------------
</TABLE>
a. Represents interest and charges overdue.
During fiscal year 1998 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.
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.
The average recorded investment in nonaccruing loans during the fiscal year
ended June 30, 1999 was $2,084 million ($2,138 million--June 30, 1998, $2,430
million--June 30, 1997).
69
<PAGE>
During the fiscal year ended June 30, 1999, no loans came out of non-accrual
status. During the fiscal year ended June 30, 1998, Sierra Leone paid off all
its arrears and, as a result, its loans came out of nonaccrual status.
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 discounted present value of expected
payments for interest and charges according to the related loan's contractual
terms and the actual 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 $3,560 million ($3,240 million--June
30, 1998), $700 million is attributable to the nonaccruing loan portfolio at
June 30, 1999 ($1,000 million--June 30, 1998).
Changes to the Accumulated Provision for Loan Losses for the fiscal years ended
June 30, 1999, June 30, 1998 and June 30, 1997 are summarized below:
<TABLE>
<CAPTION>
IN MILLIONS
- ----------------------------------------------------------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of the fiscal year........................ $ 3,240 $ 3,210 $ 3,340
Provision for loan losses.................................... 246 251 63
Translation adjustment....................................... 74 (221) (193)
--------- --------- ---------
Balance, end of the fiscal year.............................. $ 3,560 $ 3,240 $ 3,210
--------- --------- ---------
--------- --------- ---------
- ----------------------------------------------------------------------------------------------
</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 situation 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, 1999, IDA had approved credits
of $1,623 million ($1,590 million--June 30, 1998) under this program from
inception, of which $1,604 million ($1,531 million--June 30, 1998) had been
disbursed to the eligible countries.
70
<PAGE>
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 counterparty. Swaps
include currency swaps, interest rate swaps, forward interest rate swaps, and
swaptions.
A summary of IBRD's borrowings portfolio at June 30, 1999 and June 30, 1998
follows:
MEDIUM- AND LONG-TERM BORROWINGS AND SWAPS AT JUNE 30, 1999
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- -------------------------------------------------------------------------------------------------------------------------
INTEREST
RATE
CURRENCY SWAP SWAP
DIRECT BORROWINGS AGREEMENTS(A) AGREEMENTS
----------------------------------- ------------------------------------- -----------
WGTD. WGTD. NOTIONAL
AVG. AVERAGE AMOUNT AVG. AVERAGE AMOUNT
CURRENCY/ COST MATURITY PAYABLE COST MATURITY PAYABLE
RATE TYPE AMOUNT (%) (YEARS) (RECEIVABLE) (%) (YEARS) (RECEIVABLE)
- -------------------------------- --------- ----- ----------- ----------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Euro(c)
Fixed......................... $ 19,054 6.85 5.39 $ 3,550 7.70 1.80 $ 3,445
(15,106) 6.91 5.47 (2,838)
Adjustable.................... 6,840 7.00 9.89 7,172 2.87 2.58 2,867
(7,720) 6.36 9.11 (3,463)
Japanese yen
Fixed......................... 15,119 4.97 4.16 63 5.15 2.43 2,811
(8,894) 5.14 4.03 (2,792)
Adjustable.................... 1,969 3.42 8.09 2,780 (0.11) 1.31 2,792
(1,629) 0.97 9.90 (2,811)
U. S. dollars
Fixed......................... 42,239 6.45 5.61 16,431 9.15 3.60 10,149
(1,802) 6.97 1.50 (32,292)
Adjustable.................... 1,430 4.99 6.08 37,298 4.94 6.65 32,977
(7,062) 4.91 1.60 (10,862)
Others
Fixed......................... 23,283 7.50 5.06 1,641 5.66 1.49 416
(24,078) 7.38 4.50 (159)
Adjustable.................... 355 6.51 1.42 417 0.01 2.23 159
(450) 7.07 3.44 (416)
--------- --- --- ----------- -----------
Total
Fixed......................... 99,695 6.55 5.22 21,685 16,821
(49,880) (38,081)
Adjustable.................... 10,594 6.05 8.76 47,667 38,795
(16,861) (17,552)
--------- --- --- ----------- -----------
Principal at face value......... 110,289 6.50 5.56 2,611 (17)
Net unamortized premium......... 122 167 157
--------- --- --- ----------- -----------
Total........................... $ 110,411 6.50 5.56 $ 2,778 $ 140
--------- --- --- ----------- -----------
--------- --- --- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUI
- --------------------------------
NET CURRENCY OBLIGATIONS
-----------------------------------------
WGTD. WGTD.
AVG. AVERAGE AMOUNT AVG. AVERAGE
CURRENCY/ COST MATURITY PAYABLE COST MATURITY(B)
RATE TYPE (%) (YEARS) (RECEIVABLE) (%) (YEARS)
- -------------------------------- ----- ----------- ----------- ----- ---------------
<S> <C> <C> <C> <C> <C>
Euro(c)
Fixed......................... 7.20 3.23 $ 26,049 7.01 4.62
5.56 2.95 (17,944) 6.70 5.07
Adjustable.................... 2.66 2.90 16,879 4.51 5.60
3.06 3.22 (11,183) 5.34 7.29
Japanese yen
Fixed......................... 1.01 1.88 17,993 4.35 3.80
2.72 5.34 (11,686) 4.56 4.34
Adjustable.................... 0.14 5.34 7,541 0.90 4.57
0.15 1.88 (4,440) 0.45 4.82
U. S. dollars
Fixed......................... 6.18 7.88 68,819 7.05 5.46
5.84 5.08 (34,094) 5.90 4.89
Adjustable.................... 4.94 5.20 71,705 4.94 5.97
5.18 8.07 (17,924) 5.07 5.52
Others
Fixed......................... 7.08 2.30 25,340 7.37 4.78
6.66 7.26 (24,237) 7.38 4.52
Adjustable.................... 4.82 7.26 931 3.31 2.78
1.25 2.30 (866) 4.27 2.89
----------- --- ---
Total
Fixed......................... 138,201 6.75 4.96
(87,961) 6.29 4.75
Adjustable.................... 97,056 4.54 5.77
(34,413) 4.54 5.94
----------- ---
Principal at face value......... 112,883 5.88
Net unamortized premium......... 446
----------- ---
Total........................... $ 113,329 5.88
----------- ---
----------- ---
- --------------------------------
</TABLE>
a. Currency swap agreements include cross-currency interest rate swaps.
b. At June 30, 1999, the average repricing period of the net currency
obligations for adjustable rate borrowings was three months.
c. Effective January 1, 1999, the euro was introduced. For reporting purposes,
amounts in the eleven national currencies that are considered sub-units of
the euro have been aggregated with the euro and reported as euro in both the
current and prior year.
71
<PAGE>
MEDIUM- AND LONG-TERM BORROWINGS AND SWAPS AT JUNE 30, 1998
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- -------------------------------------------------------------------------------------------------------------------------------
CURRENCY SWAP INTEREST RATE
DIRECT BORROWINGS AGREEMENTS(A) SWAP AGREEMENTS
------------------------------------- ----------------------------------- ------------------------
WGTD. WGTD. NOTIONAL WGTD.
AVG. AVERAGE AVG. AVERAGE AMOUNT AVG.
CURRENCY/ COST MATURITY AMOUNT COST MATURITY PAYABLE COST
RATE TYPE AMOUNT (%) (YEARS) PAYABLE (%) (YEARS) (RECEIVABLE) (%)
- ------------------------- ----------- ----- ----------- --------- ----- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Euro(c)
Fixed.................. $ 20,479 6.95 5.66 $ 3,763 7.34 2.25 $ 4,736 6.83
(13,298) 7.25 5.83 (3,470) 5.45
Adjustable............. 5,305 5.80 7.49 8,375 3.64 2.31 3,651 3.59
(6,442) 5.26 6.18 (4,917) 3.68
Japanese yen
Fixed.................. 14,717 5.01 4.53 1,961 1.34 0.44 1,520 3.30
(5,625) 5.39 4.55 (3,083) 2.84
Adjustable............. 2,319 3.14 5.24 1,484 0.26 0.62 3,083 0.53
(899) 1.08 8.63 (1,520) 1.16
U. S. dollars
Fixed.................. 33,057 6.80 6.14 11,020 9.37 4.27 10,526 6.42
(3,096) 6.67 1.28 (22,183) 5.92
Adjustable............. 1,055 5.90 5.05 27,226 5.42 5.93 22,520 5.53
(5,885) 5.46 1.24 (10,863) 5.51
Others
Fixed.................. 19,587 7.90 4.39 2,108 5.53 2.01 423 7.07
(19,047) 7.51 3.56 (159) 6.43
Adjustable............. 223 9.68 1.58 424 0.29 3.24 159 5.26
(315) 9.02 9.52 (423) 1.51
----------- --- --- --------- -----------
Total
Fixed.................. 87,840 6.78 5.37 18,852 17,205
(41,066) (28,895)
Adjustable............. 8,902 5.21 6.47 37,509 29,413
(13,541) (17,723)
----------- --- --- --------- -----------
Principal at face
value.................. 96,742 6.63 5.47 1,754 --
Net unamortized
premium................ 6 128 112
----------- --- --- --------- -----------
Total.................... $ 96,748 6.63 5.47 $ 1,882 $ 112
----------- --- --- --------- -----------
----------- --- --- --------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U.S. DOLLA
- -------------------------
NET CURRENCY OBLIGATIONS
---------------------------------------
WGTD.
AVERAGE AMOUNT AVG. AVERAGE
CURRENCY/ MATURITY PAYABLE COST MATURITY(B)
RATE TYPE (YEARS) (RECEIVABLE) (%) (YEARS)
- ------------------------- ----------- ----------- ----- -------------
<S> <C> <C> <C> <C>
Euro(c)
Fixed.................. 2.95 $ 28,978 6.98 4.78
3.79 (16,768) 6.88 5.40
Adjustable............. 3.72 17,331 4.29 4.19
2.94 (11,359) 4.58 4.78
Japanese yen
Fixed.................. 1.02 18,198 4.47 3.79
4.94 (8,708) 4.49 4.69
Adjustable............. 4.94 6,886 1.34 4.11
1.02 (2,419) 1.13 3.85
U. S. dollars
Fixed.................. 2.88 54,603 7.25 5.14
5.25 (25,279) 6.01 4.76
Adjustable............. 5.33 50,801 5.47 5.65
3.14 (16,748) 5.49 2.47
Others
Fixed.................. 2.11 22,118 7.66 4.12
8.27 (19,206) 7.50 3.60
Adjustable............. 8.27 806 3.87 3.77
2.11 (738) 4.71 5.27
----------- --- ---
Total
Fixed.................. 123,897 6.85 4.67
(69,961) 6.44 4.58
Adjustable............. 75,824 4.81 5.15
(31,264) 4.81 3.48
----------- ---
Principal at face
value.................. 98,496 6.22
Net unamortized
premium................ 246
----------- ---
Total.................... $ 98,742 6.22
----------- ---
----------- ---
- -------------------------
</TABLE>
a. Currency swap agreements include cross-currency interest rate swaps.
b. At June 30, 1998, the average repricing period of the net currency
obligations for adjustable rate borrowings was three months.
c. Effective January 1, 1999, the euro was introduced. For reporting purposes,
amounts in the eleven national currencies that are considered sub-units of
the euro have been aggregated with the euro and reported as euro in both the
current and prior year.
72
<PAGE>
SHORT-TERM BORROWINGS AND SWAPS AT JUNE 30, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------- -------------------------------------
CURRENCY INTEREST WGTD. CURRENCY INTEREST
SWAP RATE SWAP NET AVG. SWAP RATE SWAP
CURRENCY/ PRINCIPAL PAYABLE PAYABLE CURRENCY COST PRINCIPAL PAYABLE PAYABLE
RATE TYPE OUTSTANDING (RECEIVABLE) (RECEIVABLE) OBLIGATIONS(A) (%) OUTSTANDING (RECEIVABLE) (RECEIVABLE)
- ---------------------- ----------- ----------- ----------- ----------- ----- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Czech koruny
Fixed............... $ -- $ -- $ -- $ -- -- $ 335 $ -- $ --
(335) --
Euro(b)
Fixed............... -- 281 -- 281 4.71 -- -- --
Adjustable.......... -- -- -- -- -- 42 319 --
(42) --
Hong Kong dollars
Fixed............... 451 -- -- 451 12.33 -- -- --
(451) -- (451) 12.33
Japanese yen
Fixed............... -- 12 -- 12 1.83 -- -- --
(278) -- (278) 5.29
Adjustable.......... -- -- -- -- -- -- 25 --
New Zealand dollars
Fixed............... -- -- -- -- -- 25 -- --
(25) --
Polish zlotys
Fixed............... -- -- -- -- -- 29 -- --
(29) --
U. S. dollars
Fixed............... 3,606 289 -- 3,895 5.31 3,985 -- --
(332) -- (332) 6.06 -- (100)
Adjustable.......... 1,188 536 -- 1,724 4.71 1,709 1,126 100
(333) --
South African rand
Fixed............... 83 -- -- 83 15.96 600 -- --
(83) -- (83) 15.96 (600) --
----------- ----------- ----------- ----------- ----- ----------- ----------- -----
Total
Fixed............... 4,140 582 -- 4,722 6.12 4,974 -- --
(1,144) -- (1,144) 9.06 (989) (100)
Adjustable.......... 1,188 536 -- 1,724 4.71 1,751 1,470 100
(375) --
----------- ----------- ----------- ----------- ----- ----------- ----------- -----
Principal at face
value............... 5,328 (26) -- 5,302 5.02 6,725 106 --
Net unamortized
premium............. -- -- 4
----------- ----------- ----------- ----------- ----- ----------- ----------- -----
Total................. $ 5,328 $ (26) $ -- $ 5,302 5.02 $ 6,729 $ 106 $ --
----------- ----------- ----------- ----------- ----- ----------- ----------- -----
----------- ----------- ----------- ----------- ----- ----------- ----------- -----
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U.S. DO
- ----------------------
WGTD.
NET AVG.
CURRENCY/ CURRENCY COST
RATE TYPE OBLIGATIONS (%)
- ---------------------- ----------- -----
<S> <C> <C>
Czech koruny
Fixed............... $ 335 14.45
(335) 14.45
Euro(b)
Fixed............... -- --
Adjustable.......... 361 2.82
(42) 0.78
Hong Kong dollars
Fixed............... -- --
Japanese yen
Fixed............... -- --
Adjustable.......... 25 0.09
New Zealand dollars
Fixed............... 25 7.94
(25) 7.94
Polish zlotys
Fixed............... 29 20.12
(29) 20.12
U. S. dollars
Fixed............... 3,985 5.45
(100) 5.72
Adjustable.......... 2,935 5.15
(333) 5.13
South African rand
Fixed............... 600 13.98
(600) 13.98
----------- -----
Total
Fixed............... 4,974 7.19
(1,089) 13.39
Adjustable.......... 3,321 4.85
(375) 4.64
----------- -----
Principal at face
value............... 6,831 5.20
Net unamortized
premium............. 4
----------- -----
Total................. $ 6,835 5.20
----------- -----
----------- -----
- ----------------------
</TABLE>
a. At June 30, 1999, the average repricing period of the net currency
obligations for short-term borrowings was less than one month (less than one
month--June 30, 1998.)
b. Effective January 1, 1999, the euro was introduced. For reporting purposes,
amounts in the eleven national currencies that are considered sub-units of
the euro have been aggregated with the euro and reported as euro in both the
current and prior year.
73
<PAGE>
The maturity structure of IBRD's Medium-and Long-term borrowings outstanding at
June 30, 1999 and June 30, 1998 is as follows:
<TABLE>
<CAPTION>
IN MILLIONS
- ---------------------------------------------------------------------------------------
PERIOD 1999
- ---------------------------------------------------------------------------- ---------
<S> <C>
July 1, 1999 through June 30, 2000.......................................... $ 17,900
July 1, 2000 through June 30, 2001.......................................... 14,319
July 1, 2001 through June 30, 2002.......................................... 14,682
July 1, 2002 through June 30, 2003.......................................... 15,000
July 1, 2003 through June 30, 2004.......................................... 8,644
July 1, 2004 through June 30, 2009.......................................... 25,016
Thereafter.................................................................. 14,728
---------
Total....................................................................... $ 110,289
---------
---------
- ---------------------------------------------------------------------------------------
</TABLE>
<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>
The following table reflects the carrying and estimated fair values of the
borrowings portfolio at June 30, 1999 and June 30, 1998:
<TABLE>
<CAPTION>
IN MILLIONS
- ---------------------------------------------------------------------------------------
1999 1998
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Short-term............................. $ 5,328 $ 5,338 $ 6,729 $ 6,793
Medium- and long-term.................. 110,411 117,858 96,748 105,102
Swaps
Currency
Payable............................ 70,467 73,736 57,755 60,073
Receivable......................... (67,715) (72,371) (55,767) (58,911)
Interest rate........................ 140 458 112 (201)
--------- ----------- --------- -----------
Total.................................. $ 118,631 $ 125,019 $ 105,577 $ 112,856
--------- ----------- --------- -----------
--------- ----------- --------- -----------
- ---------------------------------------------------------------------------------------
</TABLE>
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.
74
<PAGE>
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 equity including
reserves in 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.
The contract value/notional amounts and credit risk exposure, as applicable, of
these financial instruments at June 30, 1999 and June 30, 1998 are given below:
<TABLE>
<CAPTION>
IN MILLIONS
- -----------------------------------------------------------------------------------
1999 1998
--------- ---------
<S> <C> <C>
INVESTMENTS--TRADING PORTFOLIO
Options, futures and forwards
- Long position............................................ $ 3,433 $ 6,205
- Short position........................................... 3,653 3,282
- Credit exposure due to potential nonperformance by
counterparties........................................... 1 2
Currency Swaps
- Credit exposure due to potential nonperformance by
counterparties........................................... 182 255
Cross Currency Interest Rate Swaps
- Credit exposure due to potential nonperformance by
counterparties........................................... 72 15
Interest Rate Swaps
- Notional principal....................................... 12,924 7,453
- Credit exposure due to potential nonperformance by
counterparties........................................... 2 *
BORROWING PORTFOLIO
Currency swaps
- Credit exposure due to potential nonperformance by
counterparties........................................... 2,051 1,964
Interest rate swaps
- Notional principal....................................... 55,633 46,718
- Credit exposure due to potential nonperformance by
counterparties........................................... 731 1,043
- -----------------------------------------------------------------------------------
</TABLE>
* Less than $0.5 million.
75
<PAGE>
NOTE F--RETAINED EARNINGS, ALLOCATIONS AND TRANSFERS
RETAINED EARNINGS: Retained Earnings comprises the following elements at June
30, 1999 and June 30, 1998:
<TABLE>
<CAPTION>
IN MILLIONS
- -----------------------------------------------------------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Special reserve.............................................. $ 293 $ 293
General reserve.............................................. 15,409 14,659
Pension reserve.............................................. 294 112
Surplus...................................................... 195 426
Unallocated net income....................................... 1,518 1,243
--------- ---------
Total........................................................ $ 17,709 $ 16,733
--------- ---------
--------- ---------
<CAPTION>
- -----------------------------------------------------------------------------------
</TABLE>
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.
On July 31, 1998, the Executive Directors allocated $750 million of the net
income earned in the fiscal year ended June 30, 1998 to the General Reserve and
$182 million to the Pension Reserve, representing the difference between actual
funding of the Staff Retirement Plan (SRP) and the SRP's accounting expenses for
the fiscal year 1998. This Pension Reserve would be reduced if, in any future
fiscal year, pension accounting expenses were to exceed the actual funding of
the SRP. On October 8, 1998, the Board of Governors approved the following
transfers out of unallocated Net Income: an amount equivalent to $210 million in
SDRs (valued at June 30, 1998) to IDA by way of grant, and a grant of $100
million to the Heavily Indebted Poor Countries Debt Initiative Trust Fund. In
addition, the Board of Governors approved the transfer of $142 million in SDRs
(valued at June 30, 1998) to IDA from Surplus by way of grant. The total amount
of these transfers by IBRD to IDA ($352 million in SDRs valued at June 30, 1998)
will be drawn down by IDA after all other resources available to IDA for the
purposes of IDA's Eleventh Replenishment have been drawn down.
TRANSFERS TO INTERNATIONAL DEVELOPMENT ASSOCIATION: The Board of Governors had
approved aggregate transfers through June 30, 1998 to IDA totaling $5,735
million from unallocated Net Income. On October 8, 1998, the Board of Governors
approved transfers to IDA, by way of grant, of $352 million in an equivalent
amount in SDRs--$210 million from unallocated Net Income and $142 million from
Surplus. At June 30, 1999, $354 million remained payable. At June 30, 1998,
there were no amounts payable to IDA.
TRANSFERS TO DEBT REDUCTION FACILITY FOR IDA-ONLY COUNTRIES: The Board of
Governors had approved aggregate transfers through June 30, 1998 to the Debt
Reduction Facility for IDA-Only Countries totaling $300 million. At June 30,
1999, $100 million ($100 million--June 30, 1998) remained payable.
TRANSFER TO TRUST FUND FOR GAZA AND WEST BANK: The Board of Governors had
approved aggregate transfers through June 30, 1998 to the Trust Fund for Gaza
and West Bank, totaling $230 million. 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. At June 30, 1999, $53 million ($22
million--June 30, 1998) remained payable.
TRANSFERS TO THE HEAVILY INDEBTED POOR COUNTRIES DEBT INITIATIVE TRUST FUND: At
June 30, 1998, the Board of Governors had approved aggregate transfers to the
HIPC Debt Initiative Trust Fund totaling $750 million. On October 8, 1998, the
Board of Governors approved a transfer to the HIPC Debt Initiative Trust Fund,
by way of grant, of $100 million out of unallocated Net Income. At June 30,
1999, $100 million remained payable. At June 30, 1998, there were no amounts
payable to the HIPC Debt Initiative Trust Fund.
76
<PAGE>
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, 1999 and June 30, 1998, there
were no amounts 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 fiscal year 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 was taken back
into income as a reduction of administrative expenses, for fiscal year 1998, of
which $10 million had been allocated to IDA as a reduction of the management fee
charged to IDA. At June 30, 1999, $86 million ($82 million--June 30, 1998, $64
million-- June 30, 1997) 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,
1999, 475 staff had been identified for separation at a cumulative cost of $78
million. Included in the total charge of $78 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 $78
million, $30 million has been charged to IDA. Of the total fiscal year charge of
$30 million, $11 million has been charged to IDA for the fiscal year ended June
30, 1999, consistent with normal cost apportionment procedures applied in the
calculation of the management fee.
The total number of IBRD employees at June 30, 1999 was 7,859 (8,089--June 30,
1998, 8,020--June 30, 1997).
Administrative Expenses for the fiscal years ended June 30, 1999, June 30, 1998,
and June 30, 1997 are net of the following amounts:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
IN MILLIONS
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Management fee charged to IDA..................................... $ 518 $ 474 $ 488
Amounts charged to reimbursable programs.......................... 116 104 108
--------- --------- ---------
Total reduction of Administrative Expenses........................ $ 634 $ 578 $ 596
--------- --------- ---------
--------- --------- ---------
Amounts charged to reimbursable programs include the following:
Charges allocated to IFC........................................ $ 17 $ 14 $ 21
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.
77
<PAGE>
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 trust fund assets by executing agent at June 30, 1999 and June 30,
1998 are summarized below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1999 1998
-------------------------- --------------------------
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......................... $ 605 1,503 $ 401 1,223
Recipient executed.................... 1,635 1,287 1,512 1,035
------ ----- ------ -----
Total................................. $ 2,240 2,790 $ 1,913 2,258
------ ----- ------ -----
------ ----- ------ -----
- ----------------------------------------------------------------------------------------------
</TABLE>
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, 1999, IBRD received $19 million ($14 million--June 30, 1998
and $15 million--June 30, 1997) as fees for administering trust funds. These
fees have been recorded as a reduction of Administrative Expenses.
NOTE I--PENSION AND OTHER POSTRETIREMENT BENEFITS
IBRD has a defined benefit Staff Retirement Plan (SRP) that covers substantially
all of its staff. The SRP also covers substantially all the staff of IFC and
MIGA. In addition, IBRD provides other postretirement benefits for eligible
active and retired staff through a Retired Staff Benefits Plan (RSBP) and a
Post-Employment Benefits Plan (PEBP).
During the fiscal year ended June 30, 1998, IBRD reviewed the status of the RSBP
and PEBP accounts and determined that the assets and liabilities did not qualify
for off-balance sheet accounting. At June 30, 1998, the assets and liabilities
were recorded on IBRD's balance sheet, resulting in net 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.
During the first quarter of fiscal year 1999, the plan was modified so that some
of the assets designated for other postretirement benefits met the requirements
for plan assets prescribed under SFAS 106 "Employer's Accounting for
Postretirement Benefits Other than Pensions". Accordingly, the plan assets and
liabilities were removed from the balance sheet. As a result, the assets and
liabilities designated on the balance sheet for other postretirement benefits
were reduced by $806 million and $620 million, respectively. The $650 million of
assets that remained on the balance sheet were incorporated into Trading
investments. Liabilities of $103 million for the PEBP shown on the balance sheet
represent pension benefits administered outside the SRP.
The difference between the RSBP assets and liabilities represents a prepaid
postretirement benefits cost. The portion of this asset that is attributable to
IBRD has been included in Other Assets on the balance sheet.
78
<PAGE>
The following table summarizes the benefit costs associated with the SRP, RSBP,
and PEBP for IBRD and IDA:
<TABLE>
<CAPTION>
IN MILLIONS
- ------------------------------------------------------------------------------------------------------------------------------
SRP RSBP PEBP
-------------------- ----------- -----------
1999 1998 1999 1998 1999 1998
--------- --------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Benefit Cost
Service cost...................................... $ 186 $ 184 $ 25 $ 24 $ 5 $ --
Interest cost..................................... 324 353 36 37 7 6
Expected return on plan assets.................... (738) (669) (65) -- -- --
Amortization of prior service cost................ 7 7 -- (2) -- --
Amortization of unrecognized net (loss) gain...... (175) (161) -- -- 3 12
Amortization of Transition Asset.................. (11) (11) -- -- -- --
--------- --------- --- --- --- ---
Net periodic pension (income) cost.................. $ (407) $ (297) $ (4) $ 59 $ 15 $ 18
--------- --------- --- --- --- ---
--------- --------- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The portion of the SRP income related to IBRD that has been included in income
for the fiscal year ended June 30, 1999 is $255 million ($182 million--June 30,
1998). The balance has been included as a payable to IDA. The portion of the
cost for the RSBP and PEBP related to IBRD that has been included in income for
the fiscal year ended June 30, 1999 is $10 million ($50 million--June 30, 1998).
The balance has been included as a receivable from IDA.
The following table summarizes the benefit obligations, plan assets, funded
status and rate assumptions associated with the SRP, RSBP, and PEBP for the
World Bank Group.
<TABLE>
<CAPTION>
IN MILLIONS
- --------------------------------------------------------------------------------------------------------------------
SRP RSBP PEBP
-------------------- -------------------- ------------
1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Benefit Obligation
Beginning of year............................. $ 5,890 $ 5,516 $ 627 $ 739 $ 90 $ 75
Service cost.................................. 217 213 28 28 6 --
Interest cost................................. 378 406 40 55 8 5
Employee contributions........................ 61 58 5 5 -- --
Amendments.................................... -- -- -- 18 -- --
Benefits paid................................. (231) (206) (18) (17) (5) (5)
Actuarial (gain) loss......................... 168 (97) (20) (201) 43 15
--------- --------- --------- --------- --------- ---
End of year................................... 6,483 5,890 662 627 142 90
--------- --------- --------- --------- --------- ---
Fair value of plan assets
Beginning of year............................. 9,608 8,613 -- -- -- --
Assets transfered to the Plan................. -- -- 806 -- -- --
Employee contributions........................ 61 58 5 -- -- --
Actual return on assets....................... 788 1,143 53 -- -- --
Employer contributions........................ -- -- -- -- -- --
Benefits paid................................. (231) (206) (18) -- -- --
--------- --------- --------- --------- --------- ---
End of year................................... 10,226 9,608 846 -- -- --
--------- --------- --------- --------- --------- ---
Funded status
Plan assets in excess of projected benefit
obligation.................................. 3,743 3,718 184 (627) (142) (90)
Unrecognized net gain from past experience
different from that assumed and from changes
in assumptions.............................. (2,713) (3,158) 6 -- 39 --
Unrecognized prior service cost............... 50 58 -- -- -- --
Remaining unrecognized net transition asset... (52) (65) -- -- -- --
--------- --------- --------- --------- --------- ---
Prepaid (accrued) pension cost................ $ 1,028 $ 553 $ 190 $ (627) $ (103) $ (90)
--------- --------- --------- --------- --------- ---
--------- --------- --------- --------- --------- ---
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
Of the $1,028 million prepaid SRP cost at June 30, 1999 ($553 million--June 30,
1998), $546 million was attributable to IBRD ($295 million--June 30, 1998) and
is included in Miscellaneous Assets on the balance sheet. The remainder has been
attributed to IDA, IFC and MIGA.
Of the $190 million prepaid RSBP cost at June 30, 1999 (nil--June 30, 1998),
$105 million was attributable to IBRD and is included in Miscellaneous Assets on
the balance sheet. The remainder has been attributed to IDA, IFC and MIGA.
ASSUMPTIONS
The actuarial assumptions used are based on financial market interest rates,
past experience, and management's best estimate of future benefit changes and
economic conditions. Changes in these assumptions will impact future benefit
costs and obligations. The weighted-average assumptions used in determining
expense and benefit obligations are as follows:
<TABLE>
<CAPTION>
IN PERCENT
- ------------------------------------------------------------------------------------------------------------------
SRP RSBP PEBP
-------------------- ----------- -----------
1999 1998 1999 1998 1999 1998
--------- --------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Discount rate........................... 7.25 6.50 7.25 6.50 7.25 6.50
Expected return on plan assets.......... 9 9 9
Rate of compensation increase(a)........ 5.25-11.75 4.50-11.00
Health care growth rates at end of
fiscal year........................... 6.25 5.00
- -to year 2011 and thereafter............ 5.25 4.50
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
a. 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 11.75% (11.0%--June 30, 1998) at age 20 and
decreasing to 5.25% (4.5%--June 30, 1998) at age 64.
The medical cost trend rate can significantly affect the reported postretirement
benefit costs and benefit obligations. The following table shows the effects of
a one-percentage-point change in the assumed healthcare cost trend rate:
<TABLE>
<CAPTION>
IN MILLIONS
- -------------------------------------------------------------------------------------
ONE PERCENTAGE POINT ONE PERCENTAGE POINT
INCREASE DECREASE
--------------------------- ---------------------------
<S> <C> <C>
Effect on total service and
interest cost............ $ 16 $ (12)
Effect on postretirement
benefit obligation....... 128 (101)
- -------------------------------------------------------------------------------------
</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 was attributable to IDA, IFC, and MIGA.
NOTE J--SEGMENT REPORTING
In fiscal year 1999, IBRD adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" and IAS 14 (revised) "Segment Reporting".
After evaluating IBRD's operations, management determined that IBRD had only one
reportable segment since IBRD does not manage its operations by allocating
resources based on a determination of the contribution to net income from
individual borrowers. In addition, given the nature of IBRD, the risk and return
profiles are sufficiently
80
<PAGE>
similar among borrowers that IBRD does not differentiate between the nature of
the products or services provided, the preparation process, or the method for
providing the services among individual countries.
For fiscal year 1999, loans to two countries individually generated in excess of
10% of loan income. Loan income from these two countries was $816 million and
$815 million respectively.
NOTE K--COMPREHENSIVE INCOME
During the first quarter of fiscal year 1999, IBRD adopted SFAS No. 130,
"Reporting Comprehensive Income", which defines and establishes the standards
for reporting comprehensive income. Under SFAS No. 130 certain items which
historically were not recognized in the calculation of net income are now
included in the broader definition of comprehensive income. For IBRD,
comprehensive income comprises currency translation adjustments and net income.
These items are presented in the Statement of Comprehensive Income. The
following table presents the changes in Accumulated Other Comprehensive Income
balances for the years ended June 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
IN MILLIONS
- ----------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME(A)
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of the fiscal year.................. $ (960) $ 85 $ 1,056
Changes from period activity........................... 323 (1,045) (971)
--------- --------- ---------
Balance, end of the fiscal year........................ $ (637) $ (960) $ 85
--------- --------- ---------
--------- --------- ---------
- ----------------------------------------------------------------------------------------
</TABLE>
a. The total accumulated other comprehensive income represents the
cumulative translation adjustment.
81
<PAGE>
INFORMATION STATEMENT
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
[World Bank Logo]
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS INFORMATION STATEMENT, ANY SUPPLEMENTAL INFORMATION
STATEMENT OR ANY PROSPECTUS; AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BANK OR BY ANY
DEALER, UNDERWRITER OR AGENT OF THE BANK. NEITHER THIS INFORMATION STATEMENT NOR
ANY SUPPLEMENTAL INFORMATION STATEMENT OR PROSPECTUS CONSTITUTES AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION.
------------------------
THIS INFORMATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE
BANK'S OPERATIONS. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS AT THE TIME SUCH STATEMENTS
WERE MADE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Availability of Information................................................................. 1
Summary Information......................................................................... 2
Financial Overview.......................................................................... 3
Development Activities...................................................................... 5
Risk Management............................................................................. 14
Liquidity Management........................................................................ 24
Funding Resources........................................................................... 25
Results of Operations....................................................................... 29
Affiliated Organizations & IFC, IDA and MIGA................................................ 33
Administration of the Bank.................................................................. 33
The Articles of Agreement................................................................... 36
Legal Status, Privileges and Immunities..................................................... 36
Fiscal Year, Announcements and Allocation of Net Income..................................... 37
Glossary of Terms........................................................................... 37
Index to Financial Statements............................................................... 39
</TABLE>
