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International Bank for Reconstruction and
Development
[LOGO]
Management's Discussion & Analysis
and
Financial Statements
June 30, 1999
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TABLE OF CONTENTS
JUNE 30, 1999
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MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<S> <C> <C>
SECTION 1. FINANCIAL OVERVIEW . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 2. DEVELOPMENT ACTIVITIES . . . . . . . . . . . . . . . . . . . . .4
LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . 10
OTHER ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3. RISK MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . 12
CREDIT RISK. . . . . . . . . . . . . . . . . . . . . . . . . . 12
INTEREST RATE RISK . . . . . . . . . . . . . . . . . . . . . . 14
EXCHANGE RATE RISK . . . . . . . . . . . . . . . . . . . . . . 15
OPERATING RISK . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4. LIQUIDITY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5. FUNDING RESOURCES. . . . . . . . . . . . . . . . . . . . . . . 21
EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6. RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . 24
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
IBRD FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
STATEMENT OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
STATEMENT OF COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . 33
STATEMENT OF CHANGES IN RETAINED EARNINGS . . . . . . . . . . . . . . . . . 33
STATEMENT OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SUMMARY STATEMENT OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . 36
STATEMENT OF SUBSCRIPTIONS TO CAPITAL STOCK AND VOTING POWER . . . . . . . 39
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 43
REPORT OF INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
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CERTAIN FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO RISKS
AND UNCERTAINTIES. IBRD'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS.
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2 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
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1. FINANCIAL OVERVIEW
The International Bank for Reconstruction and Development (IBRD) is an
international organization established in 1945 and owned by its member
countries. IBRD's main goals are promoting sustainable economic development and
reducing poverty. It pursues these goals primarily by providing loans,
guarantees and related technical assistance for projects and programs in its
developing member countries. IBRD's ability to intermediate funds from
international capital markets for lending to its developing member countries is
an important element in achieving its development goals. IBRD's objective is not
to maximize profit, but to earn adequate net income to ensure its financial
strength and to sustain its development activities on an ongoing basis.
TABLE 1 presents selected financial data for the last five fiscal years:
TABLE 1:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ----------- ------------ -----------
FOR THE YEAR (U.S. $ MILLIONS)
- -------------------------------------------
<S> <C> <C> <C> <C> <C>
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 5.92 6.01 6.06 6.31 6.48
swaps)
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
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</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.
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 3
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The financial strength of IBRD is based on the support it receives from its
shareholders and on its array of financial policies and practices. Shareholder
support for IBRD is reflected in the capital backing it has received from its
members and in the record of its borrowing members in meeting their debt-service
obligations to it. IBRD's financial policies and practices have led it to build
reserves, to diversify its funding sources, to hold a large portfolio of liquid
investments and to limit a variety of risks, including credit, market and
liquidity risks.
IBRD's principal assets are its loans to member countries. The majority of
IBRD's outstanding loans are priced on a cost pass-through basis, in which the
cost of funding the loans, plus a lending spread,(a) is passed through to the
borrower.
To raise funds IBRD issues debt securities in a variety of currencies to both
institutional and retail investors. These borrowings together with IBRD's equity
are used to fund its lending and investment activities as well as general
operations.
IBRD holds its assets and liabilities primarily in U.S. dollars, euro (and
national currency sub-units of the euro), and Japanese yen. IBRD 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 IBRD's reporting
currency, the U.S. dollar. This financial statement reporting effect does not
impact IBRD'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 IBRD 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 IBRD 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 IBRD'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 other IBRD
loan terms, SSALs carry wider lending spreads and shorter maturities.(b)
At the beginning of FY 1999 IBRD's Executive Directors took several actions to
augment its financial capacity. These measures included allocating income to
IBRD's reserves, increasing the contractual charges on new IBRD 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 IBRD'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.
IBRD has scheduled the introduction of new loan and hedging products for its
borrowers beginning September 1, 1999. These products will carry an additional
charge to cover the increased market risks inherent in providing them. From a
longer-term perspective, IBRD 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.
2. DEVELOPMENT ACTIVITIES
IBRD 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, IBRD had approved loans, net of
cancellations, totaling $302,840 million to borrowers in 128 countries. The
loans held by IBRD, 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.
a. SEE SECTION 2, FINANCIAL TERMS OF LOANS FOR MORE DETAILS.
b. SEE SECTION 2, ADJUSTMENT LENDING.
4 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
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dollar during the year against the other currencies in which IBRD 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 shifted more
toward Latin America and somewhat away from South Asia.
Under IBRD's Articles of Agreement (the Articles), as applied, the total amount
outstanding of direct loans made by IBRD, 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.
IBRD's lending operations have conformed generally to five principles derived
from its Articles. These principles, taken together, seek to ensure that IBRD
loans are made to member countries for financially and economically sound
purposes to which those countries have assigned high priority, and that funds
lent are utilized as intended. The five principles are:
(i) IBRD makes loans to governments, governmental authorities or private
enterprises in the territories of member countries. A loan that is not made
directly to the member in whose territories the project is located must be
guaranteed as to principal, interest and other charges by the member or its
central bank or a comparable agency of the member acceptable to IBRD. A
guarantee by the member itself has been obtained in all such cases to date.
(ii) IBRD's loans are designed to promote the use of resources for productive
purposes in its member countries. Projects financed by IBRD loans are
required to meet IBRD's standards for technical, economic, financial,
institutional and environmental soundness.
(iii)In making loans, IBRD must act prudently and pay due regard to the
prospects of repayment. Decisions to make loans are based upon, among other
things, studies by IBRD of a member country's economic structure, including
assessments of its resources and ability to generate sufficient foreign
exchange to meet debt-service obligations.
(iv) IBRD must be satisfied that in the prevailing market conditions (taking
into account the member's overall external financing requirements), the
borrower would be unable to obtain financing under conditions which, in the
opinion of IBRD, are reasonable for the borrower. IBRD is intended to
promote private investment, not to compete with it.
(v) The use of loan proceeds is supervised. IBRD makes arrangements to ensure
that funds loaned are used only for authorized purposes and, where
relevant, with due attention to considerations of cost-effectiveness. This
policy is enforced primarily by requiring borrowers (a) to submit
documentation establishing, to IBRD's satisfaction, that the expenditures
financed with the proceeds of loans are made in conformity with the
applicable lending agreements and (b) to procure goods and services through
procedures, including international competitive bidding, which IBRD judges
to be likely to lead to cost-efficient procurement.
Within the scope permitted by the Articles, these policies must be developed and
adjusted in light of experience and changing conditions.
The process of identifying and appraising a project and approving and disbursing
a loan often extends over several years. The appraisal of projects is carried
out by IBRD's operational staff (engineers, financial analysts, economists and
other sector and country specialists). With minor exceptions, all loans must be
approved by IBRD's Executive Directors. Loan disbursements are subject to the
fulfillment of conditions set out in the loan agreement. During project
implementation, IBRD staff with experience in the sector or the country involved
periodically visit project sites to review progress, monitor compliance with
IBRD policies and assist in resolving any problems that may arise. 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 IBRD adjustment and other non-project
loans.
LENDING INSTRUMENTS
IBRD lending generally falls into one of two categories: investment or
adjustment lending.
INVESTMENT LENDING
IBRD has several lending instruments that support investment activities, either
discrete projects or programs of investments. TABLE 2 presents a breakdown of
IBRD'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
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 5
<PAGE>
approved by the Executive Directors is with IBRD'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.
- - 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>
IN MILLIONS OF U.S. DOLLARS
- -----------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
---------------------- ----------------------------------------------
INVESTMENT LENDING INSTRUMENT AMOUNT AS A % OF AMOUNT AS A % OF AMOUNT AS A % OF
TOTAL TOTAL LOANS TOTAL
LOANS 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 120 1 599 3 545 4
Loans
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
--------- ----------- --------- ------------ --------- ------------
--------- ----------- --------- ------------ --------- ------------
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</TABLE>
* INDICATES AMOUNTS LESS THAN 0.5%.
ADJUSTMENT LENDING
Historically, most IBRD loans have been for investment projects or programs.
IBRD also makes adjustment loans designed to support the introduction of basic
changes in economic, financial and other policies of key importance for the
economic development of member countries. Disbursements on these loans are
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 IBRD 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 IBRD during the fiscal year, 63% of IBRD'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 IBRD'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 imple-
6 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
mentation, 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.
- - 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 sectorial 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 3:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
- ------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY1997
---------------------- ----------------------- -----------------------
ADJUSTMENT LENDING INSTRUMENT AMOUNT AS A % OF AMOUNT AS A % OF AMOUNT AS A % OF
TOTAL TOTAL TOTAL LOANS
LOANS 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 IBRD will lend for a large, foreign exchange generating
project in a member country usually eligible only for loans from the
International Development Association (IDA). In these circumstances appropriate
risk mitigation measures are incorporated (including off- shore escrow accounts
and debt-service reserves acceptable to IBRD) to ensure that the risks to IBRD
are minimized. At June 30, 1999, IBRD had $171 million in outstanding loans for
enclave projects.
LENDING BY SECTOR
A breakdown by sector of IBRD'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.
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 7
<PAGE>
TABLE 4:
<TABLE>
<CAPTION>
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TOTAL LOANS LOANS APPROVED DURING
OUTSTANDING
-------------------------------------------------------
AT JUNE 30, 1999 FY 1999 FY 1998 FY 1997
----------------------------------------------------------------------------
SECTORS USD M % USD M % USD M % USD M %
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture $11,573 10 $1,788 8 $1,455 7 $2,811 19
Education 5,314 5 804 4 1,928 9 762 5
Electric Power and Other 13,864 12 340 2 1,115 5 1,613 11
Energy
Environment 1,492 1 311 1 653 3 32 *
Finance 15,772 13 2,575 12 6,103 29 994 7
Health, Population and 3,105 3 514 2 911 4 246 2
Nutrition
Industry 5,709 5 590 3 - - 145 1
Mining and Other Extractive 1,961 2 300 1 1,369 7 300 2
Multi-Sector 22,545 19 8,812 40 1,188 6 1,373 9
Oil and Gas 3,873 3 - - 130 1 114 1
Public Sector Management 5,743 5 1,042 5 1,738 8 720 5
Social 3,239 3 2,236 10 934 4 1,304 9
Telecommunications and 1,307 1 - - 68 * - -
Informatics
Transportation 13,367 11 2,041 9 2,285 11 3,225 22
Urban Development 5,028 4 320 1 770 4 506 3
Water Supply and Sanitation 3,336 3 510 2 439 2 380 3
------------ ------ ---------- ----- ---------- ------ ---------- -----
Total (a)** $117,228 100 $22,183 100 $21,086 100 $14,525 99
------------ ------ ---------- ----- ---------- ------ ---------- -----
------------ ------ ---------- ----- ---------- ------ ---------- -----
- -----------------------------------------------------------------------------------------------------------
</TABLE>
a. EXCLUDES LOANS TO THE INTERNATIONAL FINANCE CORPORATION.
* INDICATES AMOUNTS LESS THAN 0.5%.
** MAY DIFFER FROM SUM OF INDIVIDUAL FIGURES DUE TO ROUNDING.
FINANCIAL TERMS OF LOANS
Currently IBRD offers new loans with three types of financial terms:
multicurrency pool loans, LIBOR-based single currency loans, and fixed rate
single currency loans. This 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 twelve to twenty years.
For most products IBRD 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 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.
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. IBRD adds its lending spread to that average cost. For
interest
8 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
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 thereafter.
LOAN CONVERSION OPTIONS
In FY 1997 in response to borrower demand for broader currency choice, the
Executive Directors approved the offer of currency choice for all IBRD
multicurrency pool loans for which the invitation to negotiate was issued before
September 1, 1996. The purpose of this invitation was to provide borrowers the
flexibility to amend the terms of their existing multicurrency pool loans to
reflect their choice of the offered currencies. Under this offer, from 1996 to
1998 borrowers had three options: (a) retain the terms of their existing
multicurrency pool loans; (b) convert undisbursed loan amounts to single
currency loan (SCL) terms; and (c) convert disbursed loan balances and
undisbursed loan amounts (to the extent not converted to SCL terms) to one of
four new single currency pools (SCPs). 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. Among the
single currency pool choices, conversions to the U.S. dollar SCP loan pool
accounted for 85.6%. Conversions to Deutsche mark and Japanese yen SCPs
accounted for 14.2% and 0.2%, respectively. To accommodate this preference for
the U.S. dollar, IBRD borrowings in other currencies, which generally carried
lower nominal interest rates, were converted to U.S. dollar terms. This increase
in nominal funding costs is reflected in higher average lending rates, although
the lending spread remaining at 50 basis points. 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, compared to the corresponding CPL lending rates of 6.18% and 6.03%
(6.28% for loans for which the invitation to negotiate was issued on or after
July 31, 1998) for the same periods. 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. In
general, the fixed rate SCL terms will be replaced by the new fixed spread loan
scheduled to be 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. IBRD 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) IBRD's weighted average cost margin for funding for the
preceding semester allocated to these loans relative to the base rate; and (b)
IBRD's lending spread. These variable rate loans are designed to pass IBRD's
funding spread to LIBOR through to its 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).
Recently, IBRD approved and disbursed several large loans on non-standard SCL
terms. During FY 1999, IBRD 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,
IBRD 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 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.
Fixed rate SCLs carry lending rates that are set on specified semi-annual rate
fixing dates for amounts disbursed during the preceding six months. The lending
rate consists of a base rate, which reflects market interest rates for the
applicable currency on the rate-fixing date for the equivalent loan maturity,
plus a spread. The spread consists of: (a) IBRD's funding cost margin relative
to the base rate for these loans;
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 9
<PAGE>
(b) a risk premium to compensate IBRD for market risks it incurs in funding
these loans; and (c) IBRD's lending spread.
NEW LOAN AND HEDGING PRODUCTS
During the third quarter of FY 1999 IBRD 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 are
scheduled to be 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
would 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 IBRD loans to
assist them in managing their currency, interest rate and, on a
case-by-case basis, commodity price risks.
TABLE 5 presents a breakdown of IBRD's loan portfolio by loan product: TABLE 2:
TABLE 5
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
- -------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
---------------------- ----------------------- ----------------------
LOAN PRODUCT PRINCIPAL AS A % OF PRINCIPAL AS A % OF PRINCIPAL AS A % OF
BALANCE TOTAL BALANCE TOTAL LOANS BALANCE TOTAL LOANS
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 $117,227 100 $106,576 100 $105,805 100
Undisbursed loans $51,372 99 $51,065 99 $51,576 100
---------- ---------- ------------ ---------- ------------ ---------
---------- ---------- ------------ ---------- ------------ ---------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
a. OF WHICH, SCLS WITH NON-STANDARD SCL ARREAR EXPENSES $9,035 MILLION
OUTSTANDING AND $2,005 MILLION UNDISBURSED AT JUNE 30, 1999.
B. INCLUDES FIXED RATE CURRENCY LOANS WHOSE RATE HAS 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
IBRD offers guarantees to its members, and in exceptional cases will offer
enclave guarantees in a member country usually eligible only for credits from
IDA, subject to a limit of $300 million. IBRD 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 IBRD'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. IBRD 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 IBRD
lending are also eligible for IBRD guarantees.
10 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
IBRD guarantees can be customized to suit varying country and project
circumstances. They can be targeted to mitigate specific risks, generally risks
relating to political, regulatory and government performance, which the private
sector is not normally in a position to absorb or manage. Two 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.
The IBRD guarantee is limited to backing the government's obligations; the
obligations of the private company contained in the project agreements are
not covered and thus the private lenders assume the risk of nonperformance
by the private company.
- - PARTIAL CREDIT GUARANTEES are used for public sector projects when there is
a need to extend loan maturities, but not necessarily to cover sovereign
contractual obligations. This approach may be most appropriate when the
lenders are not willing to accept the sovereign risk of the host government
for a term long enough to meet the needs of the project. By guaranteeing
later maturities, such partial credit guarantees help induce the market to
extend the term to the maximum risk it can bear. The presence of the
guarantee may also induce a lower interest rate.
As part of IBRD'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 IBRD
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, IBRD will proceed with a pilot program of up to $2,000 million.
Once the $2,000 million is reached the Executive Directors will review the
program.
IBRD may also provide partial risk guarantees for export- oriented projects in
an IDA-only country (enclave guarantees) if the project is expected to generate
foreign exchange outside the country, and IBRD determines that the country will
have adequate foreign exchange to meet its obligations under the
counter-guarantee if the guarantee is called. The government is expected to use
revenue accruing to it from any such project for productive development
purposes. A project covered by an enclave guarantee includes security
arrangements with appropriate risk mitigation measures--such as offshore revenue
escrow accounts and debt-service reserves acceptable to IBRD--to minimize
IBRD's exposure and the risk of a call on the guarantee. The 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
IBRD. Generally, IBRD has retained a fee of 25 basis points per annum on its
exposure on guarantees; however, on enclave guarantees IBRD would retain a
higher fee.
IBRD'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, IBRD 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 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, IBRD
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 IBRD, and has made
contributions for research and other developmental activities. IBRD has on a
number of occasions, at the request of members concerned, facilitated efforts
toward the settlement of international economic and financial disputes.
Additionally, IBRD, alone or jointly with IDA, administers on behalf of donors,
funds restricted for specific uses. These funds are held in trust and are not
included in the assets of IBRD. See the Notes to Financial Statements-Note H.
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 11
<PAGE>
3. RISK MANAGEMENT
IBRD 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. IBRD is also exposed to operating
risk.
The objective of Asset-Liability Management (ALM) for IBRD is to ensure adequate
funding for each product at the most attractive available cost, and to manage
the currency composition, maturity profile and interest rate sensitivity
characteristics of the portfolio of liabilities supporting each lending product
in accordance with the particular requirements for that product and within
prescribed risk parameters.
The major inherent risk to IBRD is country credit risk, or loan portfolio risk.
IBRD is also subject to commercial credit risk, market (interest and exchange
rate), operating and liquidity risk. In a reorganization of the risk management
function, IBRD 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 IBRD. IBRD also
established a Risk Management Department charged with identifying, measuring and
monitoring market risks, liquidity risks, and counterparty credit risks in
IBRD'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
IBRD are measured, reported and managed. The subcommittee also monitors
compliance with policies governing commercial credit exposure and currency
management. Specific areas of activity include establishing guidelines for
limiting balance sheet and market risks, the use of derivative instruments, and
monitoring matches between assets and their funding.
For the day-to-day management of risk, IBRD's risk management structure extends
into its business units. Risk management processes have been established to
facilitate, control and monitor risk-taking. These processes are built on a
foundation of initial identification and measurement of risks by each of the
business units.
The processes and procedures by which IBRD manages its risk profile continually
evolve as its activities change in response to market, credit, product, and
other developments. The Executive Directors periodically review trends in IBRD's
risk profiles and performance as well as any significant developments in risk
management policies and controls.
CREDIT RISK
Credit risk, the risk of loss from default by a borrower or counterparty, is
inherent in IBRD's development activities. Under the direction of the ALCO,
policies and procedures for measuring and managing such risks are formulated,
approved and communicated throughout IBRD. Senior managers represented on ALCO
are responsible for maintaining sound credit assessments, addressing transaction
and product risk issues, providing an independent review function and monitoring
the loans, investments and borrowings portfolios.
COUNTRY CREDIT RISK
Country credit risk is the primary risk faced by IBRD. 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 IBRD's income generating capacity and risk-bearing capital. IBRD
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 IBRD's largest loan portfolio exposure to a single borrowing country
is restricted to the lower of an equitable access limit or a concentration risk
limit. The equitable access limit is equal to 10% of IBRD's subscribed capital,
reserves and unallocated surplus. The concentration risk limit is based on the
adequacy of
12 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
IBRD'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 IBRD'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.
IBRD'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 IBRD's policy that if a payment of principal, interest or other charges on
an IBRD loan or IDA credit becomes 30 days overdue, no new loans to that member
country, or to any other borrower in that country, will be presented to the
Executive Directors for approval, nor will any previously approved loan be
signed, until payment for all amounts 30 days overdue or longer has been
received. In addition, if such 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 IBRD to place all loans made to
or guaranteed by a member of IBRD in nonaccrual status, if principal, interest
or other charges on any such loan are overdue by more than six months, unless
IBRD determines that the overdue amount will be collected in the immediate
future. IBRD maintains an accumulated provision for loan losses to recognize the
risk inherent in current and probable overdue payments. The methodology for
determining the accumulated provision for loan losses is discussed in the
following paragraphs. Additional information on IBRD'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.
In 1991 the Executive Directors adopted a policy to assist members with
protracted arrears to IBRD to mobilize sufficient resources to clear their
arrears and to support a sustainable growth-oriented adjustment program over the
medium term. Under this policy IBRD will develop a lending strategy and will
process loans, but not sign or disburse such loans, during a pre-clearance
performance period with respect to members that: (a) agree to and implement a
medium-term, growth-oriented structural adjustment program endorsed by IBRD; (b)
undertake a stabilization program, if necessary, endorsed, or financially
supported, by the International Monetary Fund; (c) agree to a financing plan to
clear all arrears to IBRD and other multilateral creditors in the context of a
medium-term structural adjustment program; and (d) make debt-service payments as
they fall due on IBRD loans during the performance period. The signing,
effectiveness and disbursement of such loans will not take place until the
member's arrears to IBRD have been fully cleared.
ACCUMULATED PROVISION FOR LOAN LOSSES
IBRD's accumulated provision for loan losses reflects the following:
- - Management's assessment of the overall collectibility risk 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. IBRD periodically
reviews such factors and reassesses the adequacy of the accumulated provision
for loan losses accordingly.
COMMERCIAL CREDIT RISK
IBRD's commercial credit risk is concentrated in investments in debt instruments
issued by sovereigns, agencies, banks and corporate entities. The majority of
these investments are in AAA and AA rated instruments.
In the normal course of its business, IBRD utilizes various derivatives and
foreign exchange financial instruments to meet the financial needs of its
borrowers, to generate income through its investment activities and to manage
its exposure to fluctuations in interest and currency rates.
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 13
<PAGE>
Derivative and foreign exchange transactions involve credit risk. The effective
management of credit risk is vital to the success of IBRD's funding, investment
and ALM activities. The monitoring and managing of these risks is a continuous
process due to changing market environments.
IBRD seeks to control the credit risk arising from derivatives and foreign
exchange transactions through its credit approval process, the use of collateral
agreements and risk control limits and monitoring procedures. The credit
approval process involves evaluating counterparty creditworthiness, assigning
credit limits and determining the risk profile of specific transactions. Credit
limits are calculated and monitored 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.
IBRD 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 IBRD and,
therefore, creates a replacement risk for IBRD. When the mark-to-market is
negative, IBRD owes the counterparty and does not have replacement risk.
When IBRD has more than one transaction outstanding with a counterparty, and
there exists a legally-enforceable master 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 IBRD's exposure to the counterparty is
considered to be zero. Net mark-to- market is, in IBRD's view, the best measure
of credit risk when there is a legally-enforceable master netting agreement
between IBRD and the counterparty. For the 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 IBRD's estimated credit exposure on its investments
and swaps, net of collateral held, by counterparty rating category.
TABLE 6:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S.
DOLLARS
- ------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1999 AT JUNE 30, 1998 AT JUNE 30, 1997
--------------------------------------------------- ------------------- --------------------
INVESTMENTS SWAP
EXPOSURE
----------------------
COUNTERPARTY SOVEREIGNS AGENCIES, TOTAL % OF TOTAL % OF TOTAL % OF
RATING BANKS & EXPOSURE ON TOTAL EXPOSURE ON TOTAL EXPOSURE ON TOTAL
CORPORATES INVESTMENTS INVESTMENTS INVESTMENTS
AND SWAPS AND SWAPS AND SWAPS
- ------------ --------- ------------- ------- ----------- ----- ----------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AAA $4,459 $7,943 $111 $12,513 41 $9,740 37 $4,074 21
AA 1,815 13,543 91 15,449 51 14,725 56 12,889 68
A 2,283 28 2,311 8 1,939 7 2,134 11
--------- ------------- ------- ----------- ----- ----------- ----- ------------ -----
Total $6,274 $23,769 $230 $30,273 100 $26,404 100 $19,097 100
--------- ------------- ------- ----------- ----- ----------- ----- ------------ -----
--------- ------------- ------- ----------- ----- ----------- ----- ------------ -----
- ------------------------------------------------------------------------------------------------------------
</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 IBRD. The first is the
interest rate sensitivity associated with the net spread between the rate IBRD
earns on its assets and the cost of borrowings which fund those assets. The
second is the interest rate sensitivity of the income earned from funding a
portion of IBRD assets with equity. The borrowing cost pass-through formulation
incorporated in the lending rates charged on most of IBRD's 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
14 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
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 IBRD'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, IBRD 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 IBRD'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, IBRD'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 IBRD's equity.
Interest rate risk also arises from a variety of other factors, including
differences in the timing between the contractual maturity or repricing of
IBRD's assets, liabilities and derivative financial instruments. On floating
rate assets and liabilities, IBRD is exposed to timing mismatches between the
re-set dates on its floating rate receivables and payables.
As part of its ALM process IBRD employs interest rate swaps to manage and align
the rate sensitivity characteristics of its assets and liabilities. IBRD uses
derivative instruments to adjust the interest rate repricing characteristics of
specific balance sheet assets and liabilities, or groups of assets and
liabilities with similar repricing characteristics.
EXCHANGE RATE RISK
In order to minimize exchange rate risk in a multicurrency environment, IBRD
matches its borrowing obligations in any one currency (after swap activities)
with assets in the same currency, as prescribed by the Articles. In addition,
IBRD's policy is to minimize the exchange rate sensitivity of its
reserves-to-loans ratio. It carries out this policy by undertaking currency
conversions periodically to align the currency composition of its reserves to
that of its outstanding loans. This policy is designed to minimize the impact of
market rate fluctuations on the reserves-to-loans ratio, thereby preserving
IBRD's ability to better absorb potential losses from arrears regardless of the
market environment.
FIGURE 1 presents the currency composition of significant balance sheet
components at the end of FY 1999 and 1998.
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 15
<PAGE>
FIGURE 1:
FY 1999
[GRAPHIC]
FY 1998
For comparability, FY 1998 amounts have been restated to reflect the
introduction of the euro.
[GRAPHIC]
16 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<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. IBRD, like all financial institutions, is exposed to many
types of operating risks, including the risk of fraud by staff or outsiders.
IBRD attempts to mitigate operating risk by maintaining a system of internal
controls that is designed to keep operating risk at appropriate levels in view
of the financial strength of IBRD and the characteristics of the activities and
markets in which IBRD operates. In the past IBRD has suffered certain immaterial
losses from operating risk and while it maintains an adequate system of internal
controls, there can be no absolute assurance that IBRD will not suffer such
losses in the future.
In FY 1996, IBRD 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, IBRD obtained an attestation report from its external
auditors that IBRD'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, IBRD has been conducting euro-denominated transactions in paying
and receiving, investments, bond issuance, loan disbursements, loan billing and
new lending commitments.
IBRD has adopted a gradual approach to redenominate national currency balance
sheet items and IBRD-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 IBRD 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.
IBRD is currently adopting new information technology systems which 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 IBRD 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. IBRD'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 IBRD'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. IBRD presently believes that timely
modifications to existing software and/or hardware, as well as introducing new
systems software, will mitigate its Year 2000 risks.
IBRD's Year 2000 Program has been in active operation for over two years. The
overall responsibility for the Program rests with IBRD's Chief Information
Officer (CIO). A parallel program of Year 2000 activities is directed towards
raising the awareness of IBRD's member countries, providing limited grant
funding for planning and remediation, and ensuring that IBRD-funded projects'
Year 2000 risks are assessed and that appropriate actions are taken.
- ----------------------
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.
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 17
<PAGE>
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. IBRD'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 IBRD. 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 IBRD'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, IBRD 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 IBRD internally but also to clients and partners. IBRD'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 IBRD on the Year 2000 issue, how it affects IBRD 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 IBRD 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.
(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 IBRD 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: IBRD'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 IBRD'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 IBRD'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.
18 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
THIRD PARTY PROVIDERS
IBRD 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 IBRD's operations. External financial entities (e.g.
correspondent banks, fund managers, swap counterparties) with whom IBRD 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. Follow up activities have included the statement that IBRD will be unable
to continue business relations with any banking correspondent not expected to be
Year 2000 compliant by June 30, 1999.
CASH SETTLEMENTS
The majority of IBRD's financial transactions are executed through the SWIFT
global messaging system, which is already Year 2000 compliant. IBRD completed
the SWIFT Year 2000 Customer Program in May and June 1999, and is using a Year
2000 compliant version of the SWIFT messaging 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 IBRD'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. IBRD 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 IBRD 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 IBRD'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 IBRD's Year 2000 remediation requirements, but since they would be
implemented anyway, 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.
TABLE 7: YEAR 2000 ACTION TIMELINE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------
</TABLE>
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 19
<PAGE>
4. LIQUIDITY MANAGEMENT
Liquidity risk arises in the general funding of IBRD'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 IBRD's financial commitments.
Under IBRD's liquidity management policy, aggregate liquid asset holdings should
be kept at or above a specified prudential minimum. That minimum is equal to the
highest six months of debt-service 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. IBRD also holds liquid assets over the specified minimum to provide
flexibility in timing its borrowing transactions and to meet working capital
needs.
IBRD's liquid 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 IBRD's day-to-day cash flow requirements. The discretionary
portfolio provides flexibility for the execution of IBRD'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 IBRD 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 IBRD 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 IBRD's liquid asset portfolio size and structure at the end
of FY 1999 and FY 1998.
Figure 2:
[GRAPHIC]
* of which $1,381m (5%) was Held-to-maturity.
20 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
The cumulative performance of the liquid asset portfolio in FY 1999 compared to
FY 1998 is presented in TABLE 8.
TABLE 8:
- -----------------------------------------------------
ANNUALIZED
FINANCIAL RETURN (%)
--------------------
FY 1999 FY 1998
- -------------------------------- --------- ---------
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
- ------------------------------------------------------
During the first quarter of FY 1999 IBRD 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. 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.
5. 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 IBRD 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 IBRD measures its income
generating capacity and its capital adequacy. IBRD continues to consider
additional methodologies for evaluating its risk-bearing capacity.
TABLE 9:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998
--------------- ---------------
USABLE CAPITAL
<S> <C> <C>
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
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
--------------- ---------------
--------------- ---------------
------------------------------------------------------------------------------------------------------------
</TABLE>
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 21
<PAGE>
FIGURE 3:
[GRAPHIC]
CAPITAL
The authorized capital of IBRD 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 IBRD's capital and the restrictions on its
use that are derived from the Articles and from resolutions of IBRD's Board of
Governors are:
(i) $2,521 million of IBRD's capital was initially paid in gold or
U.S. dollars or was converted by the subscribing members into
U.S. dollars. This amount may, under the Articles, be freely used by
IBRD in its operations.
(ii) $8,874 million of IBRD's capital was paid in the currencies of the
subscribing members. Under the Articles this amount is subject to
maintenance-of-value obligations and may be loaned only with the consent
of the member whose currency is involved. In accordance with such
consents, $5,279 million of this amount had been used in IBRD's lending
operations at June 30, 1999.
(iii) $150,576 million of IBRD's capital may, under the Articles, be called only
when required to meet obligations of IBRD for funds borrowed or on loans
guaranteed by it. This amount is thus not available for use by IBRD in
making loans. Payment on any such call may be made, at the option of the
particular member, either in gold, in U.S. dollars or in the currency
required to discharge the obligations of IBRD for which the call is made.
(iv) $26,249 million of IBRD's capital is to be called only when required to
meet obligations of IBRD for funds borrowed or on loans guaranteed by it,
pursuant to resolutions of IBRD'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 IBRD in its lending
activities or for administrative purposes.
No call has ever been made on IBRD's callable capital. Any calls on unpaid
subscriptions are required to be uniform, but the obligations of the members of
IBRD to make payment on such calls are independent of each other. If the amount
received on a call is insufficient to meet the obligations of IBRD for which the
call is made, IBRD has the right and is bound to make further calls until the
amounts received are sufficient to meet such obligations. However, no member may
be required on any such call or calls to pay more than the unpaid balance of its
capital subscription.
At June 30, 1999, $102,563 million (58%) of the uncalled capital was callable
from the member countries of IBRD that are also members of the Development
Assistance Committee of the Organization for Economic Cooperation and
Development. This amount was equal to 86% of IBRD's outstanding borrowings after
swaps at June 30, 1999. TABLE 10 sets out the capital subscriptions of those
countries and the callable amounts.
22 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
TABLE 10:
IN MILLIONS OF U.S. DOLLARS
- ----------------------------------------------------
MEMBER COUNTRY(a) TOTAL CAPITAL UNCALLED
SUBSCRIPTION PORTION OF
SUBSCRIPTION
- ------------------- --------------------------------
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
------------- -----------------
------------- -----------------
- ----------------------------------------------------
a. SEE DETAILS REGARDING THE CAPITAL SUBSCRIPTIONS OF ALL MEMBERS OF IBRD AT
JUNE 30, 1999 IN FINANCIAL STATEMENTS- STATEMENT OF SUBSCRIPTIONS TO
CAPITAL STOCK AND VOTING POWER.
The United States is IBRD'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
IBRD, 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
IBRD diversifies its sources of funding by offering its securities to
institutional and retail investors globally on terms acceptable to IBRD. Under
its Articles, IBRD may borrow only with the approval of the member in whose
markets the funds are raised and the member in whose currency the borrowing is
denominated, and only if each such member agrees that the proceeds may be
exchanged for the currency of any other member without restriction.
FUNDING OPERATIONS
In FY 1999 medium- and long-term debt raised directly in financial markets by
IBRD amounted to $22,443 million compared to $28,007 million in FY 1998. TABLE
11 summarizes IBRD's funding operations for FY 1999 and FY 1998. Funding raised
in any given year is used for IBRD's general operations, including loan
disbursements, refinancing 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.
IBRD 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 IBRD repurchased or prepaid a
total of $1,045 million of its outstanding borrowings.
TABLE 11:
- -----------------------------------------------------
FY 1999 FY 1998
------------------------
Total Medium- and Long-term $22,443 $28,007
Borrowings(a) (USD million)
Average Maturity (years) 6.7 5.8
Number of Transactions 186 195
Number of Currencies 12 21
- -----------------------------------------------------
a. INCLUDES ONE-YEAR NOTES. ALL NET PROCEEDS ON A TRADE DATE BASIS.
USE OF DERIVATIVES
IBRD 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.
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 23
<PAGE>
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 IBRD
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.
6. RESULTS OF OPERATIONS
IBRD's net income can be seen as broadly comprising a spread on earning assets,
plus the contribution of equity, less provisions for loan losses and
administrative expenses. TABLE 12 shows a breakdown of income, net of funding
costs.
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 IBRD 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.
- - Offset in part by an increase of $243 million in Net Noninterest Expense
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.
- - These decreases in income were offset by a decrease of $293 million in Net
Noninterest Expense, resulting from gains attributed to IBRD's pension and
other postretirement benefit accounts.
NET INTEREST INCOME
IBRD'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 12:
<TABLE>
<CAPTION>
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>
24 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
TABLE 13:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
------------------------------------------------------------------------------------
INTEREST INCOME INTEREST INCOME INTEREST INCOME
------------------ ----------------- ------------------
AVERAGE AMOUNT RETURN AVERAGE AMOUNT RETURN AVERAGE AMOUNT RETURN
VOLUME % VOLUME % VOLUME %
- --------------------------------------------------------------------------------------------------------------
<S> <C> <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 6.51
Single Currency Pools 43,687 3,199 7.32 18,136 1,250 6.89 -- -- --
LIBOR-based Single 14,970 777 5.19 8,061 448 5.56 2,625 146 5.56
Currency Loans
Fixed Rate Single 7,468 468 6.27 3,330 218 6.55 1,999 132 6.60
Currency Loans
Nonstandard 6,833 477 6.98 2,165 158 7.30 -- -- --
LIBOR-based SCLs
Other Fixed Rate 3,618 308 8.51 5,323 450 8.45 9,005 768 8.53
Other Loan Income 59 22 (33)
------------------------------------------------------------------------------------
TOTAL LOANS 116,183 7,649 6.58 107,062 6,881 6.43 109,260 7,235 6.62
CASH AND INVESTMENTS 27,955 1,680 6.01 21,895 1,233 5.63 16,627 834 5.02
------------------------------------------------------------------------------------
TOTAL EARNING ASSETS $144,138 $9,329 6.47 $128,957 $8,114 6.29 $125,887 $8,069 6.41
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 14:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S.
DOLLARS
- -------------------------------------------------------------------------------------------------------------
FY 1999 FY 1998 FY 1997
------------------------------------------------------------------------------------
BORROWING COST BORROWING COST BORROWING COST
----------------- ----------------- ----------------
AVERAGE AMOUNT COST AVERAGE AMOUNT COST AVERAGE AMOUNT COST
VOLUME % VOLUME % VOLUME %
- -------------------------------------------------------------------------------------------------------------
BORROWING PORTFOLIO BY DEBT POOLS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multicurrency Pool $29,640 $1,514 5.11 $54,266 $3,092 5.70 $71,239 $4,245 5.96
Single Currency Pools 33,832 2,507 7.41 14,252 1,012 7.10 -- -- --
LIBOR-based Single 11,961 581 4.86 6,341 348 5.49 2,230 118 5.29
Currency Loans
Fixed Rate Single 6,143 367 5.97 2,767 169 6.11 1,699 106 6.24
Currency Loans
Nonstandard LIBOR- 5,578 284 5.09 2,164 117 5.41 -- -- --
based SCLs
Other Fixed Rate -- -- -- -- -- -- 7,061 427 6.05
Other Debt Funding 28,541 1,593 5.58 22,382 1,406 6.28 15,966 1,056 6.61
-----------------------------------------------------------------------------------
TOTAL BORROWINGS $115,695 $6,846 5.92 $102,172 $6,144 6.01 $98,195 $5,952 6.06
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 25
<PAGE>
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.
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 I.
TABLE 15:
<TABLE>
<CAPTION>
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
--------------- --------------- --------------
--------------- --------------- --------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
26 IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 1999
<PAGE>
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 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) IBRD are required in the event the par value of
the currency is reduced (or increased) to a significant extent, in the opinion
of IBRD.
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 IBRD'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.
IBRD MANAGEMENT'S DISCUSSION AND ANALYSIS 27
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
<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 SUB 1,846 1,890
SCRIBED CAPITAL
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 527 392
SUBSCRIBED CAPITAL
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>
30 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
BALANCE SHEET
JUNE 30, 1999 AND JUNE 30, 1998
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<TABLE>
<CAPTION>
1999 1998
----------- ----------
LIABILITIES
<S> <C> <C>
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 111 2
SUBSCRIBED CAPITAL
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; 1,545,457 188,220 186,436
shares--June 30, 1998)
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.
IBRD FINANCIAL STATEMENTS 31
<PAGE>
<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 4 107 --
benefits plans--Notes B and I
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 36 100 44
cash collateral received--Note B
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.
32 IBRD FINANCIAL STATEMENTS 1999
<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.
IBRD FINANCIAL STATEMENTS 1999 33
<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 (13,266) (33,202) (8,911)
repurchase agreements
Maturities of securities and proceeds from securities sold under 13,426 33,184 8,895
repurchase agreements
Proceeds from sale of held-to-maturity portfolio net of securities 1,389 -- --
sold under repurchase agreements
---------- ------------- ----------
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 (46) (157) 68
investments
(Increase) decrease in miscellaneous assets (385) 8 (153)
Increase in net assets associated with other postretirement -- (739) --
benefits
Increase (decrease) in accrued charges on borrowings 470 448 (49)
(Decrease) increase in accounts payable and miscellaneous (131) 335 35
liabilities
------------- ------------ -----------
Net cash provided by operating activities 2,254 2,244 1,790
------------- ------------ -----------
</TABLE>
34 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---------- ------------ -----------
<S> <C> <C> <C>
Effect on liquid investments due to decrease in net assets associated with $ 650 $ -- $ --
other postretirement benefits
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 (79) 7 (106)
traded/purchased--Trading
Net (payable) receivable from currency swaps--Investments (81) 397 (123)
Net payable for securities purchased/sold under resale/repurchase (96) (395) (180)
agreements and payable for cash collateral received
------------- ------------ -----------
$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)
IBRD FINANCIAL STATEMENTS 1999 35
</TABLE>
<PAGE>
SUMMARY STATEMENT OF LOANS
JUNE 30, 1999
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<TABLE>
<CAPTION>
TOTAL LOANS LOANS APPROVED UNDISBURSED LOANS PERCENTAGE OF
BUT NOT YET BALANCE OF OUTSTANDING TOTAL LOANS
BORROWER OR GUARANTOR EFFECTIVE(1) EFFECTIVE LOANS(2) 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
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
</TABLE>
36 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
<TABLE>
<CAPTION>
TOTAL LOANS LOANS APPROVED UNDISBURSED LOANS PERCENTAGE OF
BUT NOT YET BALANCE OF OUTSTANDING TOTAL LOANS
BORROWER OR GUARANTOR EFFECTIVE(1) EFFECTIVE LOANS(2) OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
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
</TABLE>
IBRD FINANCIAL STATEMENTS 1999 37
<PAGE>
SUMMARY STATEMENT OF LOANS (CONTINUED)
JUNE 30, 1999
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<TABLE>
<CAPTION>
TOTAL LOANS LOANS APPROVED UNDISBURSED LOANS PERCENTAGE OF
BUT NOT YET BALANCE OF OUTSTANDING TOTAL LOANS
BORROWER OR GUARANTOR EFFECTIVE(1) EFFECTIVE LOANS(2) OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Uzbekistan $ 398 $ 25 $ 193 $ 180 0.15%
Venezuela 1,623 80 357 1,186 1.01
Yugoslavia, Federal Republic of 1,107 -- -- 1,107 0.94
(Serbia/Montenegro)3
Zambia 37 -- -- 37 0.03
Zimbabwe 501 -- 39 462 0.39
---------------- --------------- ------------ ------------- -----------
Subtotal5 168,233 8,355 43,008 116,870 99.69
Caribbean Development Bank4 12 -- 4 8 0.01
International Finance Corporation 355 -- 5 350 0.30
---------------- --------------- ------------ ------------- -----------
TotalJune 30, 19995 $168,600 $8,355 $43,017 $117,228 100.00%
---------------- --------------- ------------ ------------- -----------
---------------- --------------- ------------ ------------- -----------
TotalJune 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
38 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
STATEMENT OF SUBSCRIPTIONS TO
CAPITAL STOCK AND VOTING POWER (CONTINUED)
JUNE 30, 1999
<TABLE>
<CAPTION>
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- -----------------------------------------------------------------------------------------------------------------------------
SUBSCRIPTIONS VOTING POWER
------------------------------------------------------------ -----------------------
MEMBER SHARES PERCENTAGE TOTAL AMOUNTS AMOUNTS NUMBER PERCENTAGE
OF TOTAL AMOUNTS PAID IN(1) SUBJECT OF OF TOTAL
TO CALL(1,2) VOTES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Afghanistan 300 0.02% $ 36.2 $ 3.6 $ 32.6 550 0.03%
Albania 830 0.05 100.1 3.6 96.5 1,080 0.07
Algeria 9,252 0.59 1,116.1 67.1 1,049.0 9,502 0.59
Angola 2,676 0.17 322.8 17.5 305.4 2,926 0.18
Antigua and Barbuda 520 0.03 62.7 1.3 61.5 770 0.05
Argentina 17,911 1.15 2,160.7 132.2 2,028.4 18,161 1.13
Armenia 1,139 0.07 137.4 5.9 131.5 1,389 0.09
Australia 24,464 1.57 2,951.2 181.8 2,769.5 24,714 1.54
Austria 11,063 0.71 1,334.6 80.7 1,253.9 11,313 0.70
Azerbaijan 1,646 0.11 198.6 9.7 188.8 1,896 0.12
Bahamas, The 1,071 0.07 129.2 5.4 123.8 1,321 0.08
Bahrain 1,103 0.07 133.1 5.7 127.4 1,353 0.08
Bangladesh 4,854 0.31 585.6 33.9 551.6 5,104 0.32
Barbados 948 0.06 114.4 4.5 109.9 1,198 0.07
Belarus 3,323 0.21 400.9 22.3 378.5 3,573 0.22
Belgium 28,983 1.86 3,496.4 215.8 3,280.6 29,233 1.82
Belize 586 0.04 70.7 1.8 68.9 836 0.05
Benin 868 0.06 104.7 3.9 100.8 1,118 0.07
Bhutan 479 0.03 57.8 1.0 56.8 729 0.05
Bolivia 1,785 0.11 215.3 10.8 204.5 2,035 0.13
Bosnia and Herzegovina 549 0.04 66.2 5.8 60.4 799 0.05
Botswana 615 0.04 74.2 2.0 72.2 865 0.05
Brazil 33,287 2.13 4,015.6 245.5 3,770.1 33,537 2.09
Brunei Darussalam 2,373 0.15 286.3 15.2 271.1 2,623 0.16
Bulgaria 5,215 0.33 629.1 36.5 592.6 5,465 0.34
Burkina Faso 868 0.06 104.7 3.9 100.8 1,118 0.07
Burundi 716 0.05 86.4 3.0 83.4 966 0.06
Cambodia 214 0.01 25.8 2.6 23.2 464 0.03
Cameroon 1,527 0.10 184.2 9.0 175.2 1,777 0.11
Canada 44,795 2.87 5,403.8 334.9 5,068.9 45,045 2.81
Cape Verde 508 0.03 61.3 1.2 60.1 758 0.05
Central African Republic 862 0.06 104.0 3.9 100.1 1,112 0.07
Chad 862 0.06 104.0 3.9 100.1 1,112 0.07
Chile 6,931 0.44 836.1 49.6 786.6 7,181 0.45
China 44,799 2.87 5,404.3 335.0 5,069.3 45,049 2.81
Colombia 6,352 0.41 766.3 45.2 721.1 6,602 0.41
Comoros 282 0.02 34.0 0.3 33.7 532 0.03
Congo, Democratic Republic of 2,643 0.17 318.8 25.4 293.5 2,893 0.18
Congo, Republic of 927 0.06 111.8 4.3 107.5 1,177 0.07
Costa Rica 233 0.01 28.1 1.9 26.2 483 0.03
Cote d'Ivoire 2,516 0.16 303.5 16.4 287.1 2,766 0.17
Croatia 2,293 0.15 276.6 17.3 259.3 2,543 0.16
Cyprus 1,461 0.09 176.2 8.4 167.9 1,711 0.11
Czech Republic 6,308 0.40 761.0 45.9 715.0 6,558 0.41
Denmark 10,251 0.66 1,236.6 74.6 1,162.0 10,501 0.65
Djibouti 559 0.04 67.4 1.6 65.9 809 0.05
Dominica 504 0.03 60.8 1.1 59.7 754 0.05
Dominican Republic 2,092 0.13 252.4 13.1 239.3 2,342 0.15
Ecuador 2,771 0.18 334.3 18.2 316.1 3,021 0.19
Egypt, Arab Republic of 7,108 0.46 857.5 50.9 806.6 7,358 0.46
</TABLE>
39 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SUBSCRIPTIONS VOTING POWER
------------------------------------------------------------ -----------------------
MEMBER SHARES PERCENTAGE TOTAL AMOUNTS AMOUNTS NUMBER PERCENTAGE
OF TOTAL AMOUNTS PAID IN(1) SUBJECT OF OF TOTAL
TO CALL(1,2) VOTES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
El Salvador 141 0.01% $ 17.0 $ 1.7 $ 15.3 391 0.02%
Equatorial Guinea 715 0.05 86.3 2.7 83.5 965 0.06
Eritrea 593 0.04 71.5 1.8 69.7 843 0.05
Estonia 923 0.06 111.3 4.3 107.1 1,173 0.07
Ethiopia 978 0.06 118.0 4.7 113.3 1,228 0.08
Fiji 987 0.06 119.1 4.8 114.3 1,237 0.08
Finland 8,560 0.55 1,032.6 61.9 970.8 8,810 0.55
France 69,397 4.45 8,371.7 520.4 7,851.3 69,647 4.34
Gabon 987 0.06 119.1 5.1 113.9 1,237 0.08
Gambia, The 543 0.03 65.5 1.5 64.0 793 0.05
Georgia 1,584 0.10 191.1 9.3 181.8 1,834 0.11
Germany 72,399 4.64 8,733.9 542.9 8,190.9 72,649 4.53
Ghana 1,525 0.10 184.0 12.7 171.2 1,775 0.11
Greece 1,684 0.11 203.1 14.1 189.1 1,934 0.12
Grenada 531 0.03 64.1 1.4 62.7 781 0.05
Guatemala 2,001 0.13 241.4 12.4 229.0 2,251 0.14
Guinea 1,292 0.08 155.9 7.1 148.8 1,542 0.10
Guinea-Bissau 540 0.03 65.1 1.4 63.7 790 0.05
Guyana 1,058 0.07 127.6 5.3 122.3 1,308 0.08
Haiti 1,067 0.07 128.7 5.4 123.3 1,317 0.08
Honduras 641 0.04 77.3 2.3 75.0 891 0.06
Hungary 8,050 0.52 971.1 58.0 913.1 8,300 0.52
Iceland 1,258 0.08 151.8 6.8 144.9 1,508 0.09
India 44,795 2.87 5,403.8 333.7 5,070.1 45,045 2.81
Indonesia 14,981 0.96 1,807.2 110.3 1,697.0 15,231 0.95
Iran, Islamic Republic of 23,686 1.52 2,857.4 175.8 2,681.5 23,936 1.49
Iraq 2,808 0.18 338.7 27.1 311.6 3,058 0.19
Ireland 5,271 0.34 635.9 37.1 598.8 5,521 0.34
Israel 4,750 0.30 573.0 33.2 539.8 5,000 0.31
Italy 44,795 2.87 5,403.8 334.8 5,069.0 45,045 2.81
Jamaica 2,578 0.17 311.0 16.8 294.2 2,828 0.18
Japan 127,000 8.14 15,320.6 944.0 14,376.7 127,250 7.93
Jordan 1,388 0.09 167.4 7.8 159.6 1,638 0.10
Kazakhstan 2,985 0.19 360.1 19.8 340.3 3,235 0.20
Kenya 2,461 0.16 296.9 15.9 281.0 2,711 0.17
Kiribati 465 0.03 56.1 0.9 55.2 715 0.04
Korea, Republic of 15,817 1.01 1,908.1 114.5 1,793.5 16,067 1.00
Kuwait 13,280 0.85 1,602.0 97.4 1,504.6 13,530 0.84
Kyrgyz Republic 1,107 0.07 133.5 5.7 127.9 1,357 0.08
Lao People's Democratic Republic 178 0.01 21.5 1.5 20.0 428 0.03
Latvia 1,384 0.09 167.0 7.8 159.2 1,634 0.10
Lebanon 340 0.02 41.0 1.1 39.9 590 0.04
Lesotho 663 0.04 80.0 2.3 77.6 913 0.06
Liberia 463 0.03 55.9 2.6 53.3 713 0.04
Libya 7,840 0.50 945.8 57.0 888.8 8,090 0.50
Lithuania 1,507 0.10 181.8 8.7 173.1 1,757 0.11
Luxembourg 1,652 0.11 199.3 9.8 189.5 1,902 0.12
Macedonia, former Yugoslav Republic of 427 0.03 51.5 3.2 48.3 677 0.04
Madagascar 1,422 0.09 171.5 8.1 163.5 1,672 0.10
Malawi 1,094 0.07 132.0 5.6 126.4 1,344 0.08
</TABLE>
40 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SUBSCRIPTIONS VOTING POWER
------------------------------------------------------------ -----------------------
MEMBER SHARES PERCENTAGE TOTAL AMOUNTS AMOUNTS NUMBER PERCENTAGE
OF TOTAL AMOUNTS PAID IN(1) SUBJECT OF OF TOTAL
TO CALL(1,2) VOTES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Malaysia 8,244 0.53% $ 994.5 $ 59.5 $ 935.0 8,494 0.53%
Maldives 469 0.03 56.6 0.9 55.7 719 0.04
Mali 1,162 0.07 140.2 6.1 134.1 1,412 0.09
Malta 1,074 0.07 129.6 5.4 124.1 1,324 0.08
Marshall Islands 469 0.03 56.6 0.9 55.7 719 0.04
Mauritania 900 0.06 108.6 4.1 104.4 1,150 0.07
Mauritius 1,242 0.08 149.8 6.7 143.1 1,492 0.09
Mexico 18,804 1.21 2,268.4 139.0 2,129.4 19,054 1.19
Micronesia, Federated States of 479 0.03 57.8 1.0 56.8 729 0.05
Moldova 1,368 0.09 165.0 7.6 157.4 1,618 0.10
Mongolia 466 0.03 56.2 2.3 53.9 716 0.04
Morocco 4,973 0.32 599.9 34.8 565.1 5,223 0.33
Mozambique 930 0.06 112.2 4.8 107.4 1,180 0.07
Myanmar 2,484 0.16 299.7 16.1 283.6 2,734 0.17
Namibia 1,523 0.10 183.7 8.8 174.9 1,773 0.11
Nepal 968 0.06 116.8 4.6 112.1 1,218 0.08
Netherlands 35,503 2.28 4,282.9 264.8 4,018.1 35,753 2.23
New Zealand 7,236 0.46 872.9 51.9 821.0 7,486 0.47
Nicaragua 608 0.04 73.3 2.1 71.3 858 0.05
Niger 852 0.05 102.8 3.8 99.0 1,102 0.07
Nigeria 12,655 0.81 1,526.6 92.7 1,433.9 12,905 0.80
Norway 9,982 0.64 1,204.2 72.6 1,131.6 10,232 0.64
Oman 1,561 0.10 188.3 9.1 179.2 1,811 0.11
Pakistan 9,339 0.60 1,126.6 67.8 1,058.9 9,589 0.60
Palau, Republic of 16 * 1.9 0.2 1.8 266 0.02
Panama 385 0.02 46.4 3.2 43.2 635 0.04
Papua New Guinea 1,294 0.08 156.1 7.1 149.0 1,544 0.10
Paraguay 1,229 0.08 148.3 6.6 141.6 1,479 0.09
Peru 5,331 0.34 643.1 37.5 605.6 5,581 0.35
Philippines 6,844 0.44 825.6 48.9 776.7 7,094 0.44
Poland 10,908 0.70 1,315.9 79.6 1,236.3 11,158 0.69
Portugal 5,460 0.35 658.7 38.5 620.2 5,710 0.36
Qatar 1,096 0.07 132.2 9.0 123.3 1,346 0.08
Romania 4,011 0.26 483.9 30.5 453.4 4,261 0.27
Russian Federation 44,795 2.87 5,403.8 333.9 5,070.0 45,045 2.81
Rwanda 1,046 0.07 126.2 5.2 120.9 1,296 0.08
St. Kitts and Nevis 275 0.02 33.2 0.3 32.9 525 0.03
St. Lucia 552 0.04 66.6 1.5 65.1 802 0.05
St. Vincent and the Grenadines 278 0.02 33.5 0.3 33.2 528 0.03
Samoa 531 0.03 64.1 1.4 62.7 781 0.05
Sao Tome and Principe 495 0.03 59.7 1.1 58.6 745 0.05
Saudi Arabia 44,795 2.87 5,403.8 335.0 5,068.9 45,045 2.81
Senegal 2,072 0.13 250.0 13.0 237.0 2,322 0.14
Seychelles 263 0.02 31.7 0.2 31.6 513 0.03
Sierra Leone 718 0.05 86.6 3.0 83.6 968 0.06
Singapore 320 0.02 38.6 3.9 34.7 570 0.04
Slovak Republic 3,216 0.21 388.0 23.0 365.0 3,466 0.22
Slovenia 1,261 0.08 152.1 9.5 142.6 1,511 0.09
Solomon Islands 513 0.03 61.9 1.2 60.7 763 0.05
Somalia 552 0.04 66.6 3.3 63.3 802 0.05
</TABLE>
41 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SUBSCRIPTIONS VOTING POWER
------------------------------------------------------------ -----------------------
MEMBER SHARES PERCENTAGE TOTAL AMOUNTS AMOUNTS NUMBER PERCENTAGE
OF TOTAL AMOUNTS PAID IN(1) SUBJECT OF OF TOTAL
TO CALL(1,2) VOTES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
South Africa 13,462 0.86% $ 1,624.0 $ 98.8 $1,525.2 13,712 0.85%
Spain 23,686 1.52 2,857.4 175.6 2,681.7 23,936 1.49
Sri Lanka 3,817 0.24 460.5 26.1 434.3 4,067 0.25
Sudan 850 0.05 102.5 7.2 95.3 1,100 0.07
Suriname 412 0.03 49.7 2.0 47.7 662 0.04
Swaziland 440 0.03 53.1 2.0 51.1 690 0.04
Sweden 14,974 0.96 1,806.4 110.2 1,696.2 15,224 0.95
Switzerland 26,606 1.71 3,209.6 197.2 3,012.4 26,856 1.67
Syrian Arab Republic 2,202 0.14 265.6 14.0 251.7 2,452 0.15
Tajikistan 1,060 0.07 127.9 5.3 122.5 1,310 0.08
Tanzania 1,295 0.08 156.2 10.0 146.2 1,545 0.10
Thailand 6,349 0.41 765.9 45.2 720.7 6,599 0.41
Togo 1,105 0.07 133.3 5.7 127.6 1,355 0.08
Tonga 494 0.03 59.6 1.1 58.5 744 0.05
Trinidad and Tobago 2,664 0.17 321.4 17.6 303.7 2,914 0.18
Tunisia 719 0.05 86.7 5.7 81.1 969 0.06
Turkey 7,379 0.47 890.2 52.9 837.2 7,629 0.48
Turkmenistan 526 0.03 63.5 2.9 60.5 776 0.05
Uganda 617 0.04 74.4 4.4 70.1 867 0.05
Ukraine 10,908 0.70 1,315.9 79.3 1,236.6 11,158 0.69
United Arab Emirates 2,385 0.15 287.7 22.6 265.1 2,635 0.16
United Kingdom 69,397 4.45 8,371.7 539.5 7,832.2 69,647 4.34
United States 264,969 16.98 31,964.5 1,998.4 29,966.2 265,219 16.52
Uruguay 2,812 0.18 339.2 18.6 320.7 3,062 0.19
Uzbekistan 2,493 0.16 300.7 16.1 284.7 2,743 0.17
Vanuatu 586 0.04 70.7 1.8 68.9 836 0.05
Venezuela 20,361 1.30 2,456.2 150.8 2,305.5 20,611 1.28
Vietnam 968 0.06 116.8 8.1 108.7 1,218 0.08
Yemen, Republic of 2,212 0.14 266.8 14.0 252.8 2,462 0.15
Zambia 2,810 0.18 339.0 20.0 319.0 3,060 0.19
Zimbabwe 3,325 0.21 401.1 22.4 378.7 3,575 0.22
----------- ---------- ------------- ----------- ------------ ----------- ---------
TotalJune 30, 19992 1,560,243 100.00% $188,220 $11,395 $176,825 1,605,493 100.00%
----------- ---------- ------------- ----------- ------------ ----------- ---------
----------- ---------- ------------- ----------- ------------ ----------- ---------
TotalJune 30, 1998 1,545,457 100.00% $186,436 $11,288 $175,148 1,590,707
----------- ---------- ------------- ----------- ------------ -----------
</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.
42 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
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, 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 to its territories and (2) IBRD
to reimburse the member in the event that the par value of its currency is
increased.
IBRD FINANCIAL STATEMENTS 43
<PAGE>
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 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
44 IBRD FINANCIAL STATEMENTS
<PAGE>
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
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 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.
IBRD FINANCIAL STATEMENTS 45
<PAGE>
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 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.
46 IBRD FINANCIAL STATEMENTS
<PAGE>
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.
IBRD FINANCIAL STATEMENTS 47
<PAGE>
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:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ALL
EURO(a) JAPANESE YEN U.S. DOLLARS CURRENCIES CURRENCIES
------------- ------------ -------------- ---------------- ------------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <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 7,407 8,107
Average balance during fiscal year 1,569 2,113 4,618 2,958 1,618 2,564 294 84 8,099 6,719
Net gains (losses) for the fiscal year (39) (1) (19) (11) 13 38 * (2) (45) 24
Average yield (%) 4.03 4.81 0.14 0.67 5.44 5.65 7.67 6.27 1.98 2.65
Average maturity (years) 1.31 3.20 1.62 1.44 1.31 2.62 1.23 2.53 1.54 2.09
Time deposits:
Carrying value 3,071 2,920 1,119 1,677 14,397 7,998 1,216 1,052 19,803 13,647
Average balance during fiscal year 3,046 2,502 1,772 2,841 11,439 7,717 1,363 842 17,620 13,902
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 4.51 4.46
Average maturity (years) 0.18 0.11 0.11 0.15 0.04 0.09 0.20 0.15 0.08 0.11
Asset-backed securities:
Carrying value -- -- 3,041 1,687 -- 3,041 1,687
Average balance during fiscal year -- -- 2,398 598 -- 2,398 598
Net gains (losses) for the fiscal year -- -- (6) * -- (6) *
Average yield (%) -- -- 5.39 7.08 -- 5.39 7.08
Average maturity (years) -- -- 6.21 7.91 -- 6.21 7.91
Options, futures and forwards:
Carrying value * * * * -- -- * *
Average balance during fiscal year * 1 * 1 (*) * * (5) * (3)
Net gains (losses) for the fiscal year (*) (1) (*) (3) 1 (29) * 1 1 (32)
TOTAL TRADING INVESTMENTS**
Carrying value 4,664 4,814 5,525 6,237 18,782 11,225 1,280 1,165 30,251b 23,441
Average balance during fiscal year 4,615 4,616 6,390 4,800 15,456 10,879 1,657 921 28,118 21,216
Net gains (losses) for the fiscal year (39) (2) (19) (14) 8 9 * (1) (50)b (8)
REPURCHASE AGREEMENTS AND SECURITIES
LOANS:
Carrying value -- (329) -- -- (102) (339) -- (194) (102) (862)
Average balance during fiscal year (26) (173) -- (2) (272) (391) (12) (89) (310) (655)
Average cost (%) -- 3.39 -- -- 4.91 5.68 -- 7.34 4.91 5.16
Average maturity (years) -- 0.05 -- -- * 0.02 -- 0.03 * 0.03
RESALE AGREEMENTS:
Carrying value -- 294 -- -- 6 -- -- 173 6 467
Average balance during fiscal year 38 209 -- 1 265 852 11 64 315 1,126
Average yield (%) -- 3.25 -- -- 4.10 -- -- 7.27 4.10 4.74
Average maturity (years) -- 0.06 -- -- * -- -- 0.03 * 0.05
</TABLE>
48 IBRD Financial Statements 1999
<PAGE>
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ALL
EURO(a) JAPANESE YEN U.S. DOLLARS CURRENCIES CURRENCIES
------------- ------------ -------------- ---------------- -------------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT SALES:(d)
Carrying value -- (99) -- -- (46) -- -- (52) (46) (151)
Average balance during fiscal year (*) (4) -- -- (1) (2) (*) (1) (1) (7)
CURRENCY SWAPS RECEIVABLE:
Carrying value -- 49 -- 144 5,087 5,451 -- -- 5,087 5,644
Average balance during fiscal year 3 5 10 45 5,017 5,206 26 5 5,056 5,261
Average yield (%) -- 3.43 -- 0.47 5.02 5.62 -- -- 5.02 5.47
Average maturity (years) -- 0.41 -- 0.01 0.19 0.15 -- -- 0.19 0.15
CURRENCY SWAPS PAYABLE:
Carrying value (2,942) (1,998) (1,002) (2,302) -- (148) (990) (977) (4,934) (5,425)
Average balance during fiscal year (2,413) (1,678) (1,485) (2,688) (31) (13) (1,135) 246 (5,064) (4,133)
Average cost (%) 2.70 3.92 0.05 0.45 -- 5.63 2.56 5.79 2.14 2.28
Average maturity (years) 0.18 0.15 0.16 0.16 -- 0.01 0.25 0.16 0.19 0.15
CROSS-CURRENCY INTEREST RATE SWAPS
RECEIVABLE:
Carrying value -- -- 245 -- 6,088 4,935 -- -- 6,333 4,935
Average balance during fiscal year -- -- 38 -- 5,863 2,922 -- -- 5,901 2,922
Net gains (losses) for the fiscal year(a) -- -- (2) -- 5 2 -- -- 3 2
Average yield (%) -- -- 0.48 -- 5.12 5.75 -- -- 4.94 5.75
Average maturity (years) -- -- 1.68 -- 1.53 2.16 -- -- 1.54 2.16
CROSS-CURRENCY INTEREST RATE SWAPS
PAYABLE:(c)
Carrying value (1,593) (1,806) (4,651) (2,888) (238) -- (67) (47) (6,549) (4,741)
Average balance during fiscal year (1,590) (1,338) (4,234) (1,612) (112) -- (283) (27) (6,219) (2,977)
Net gains (losses) for the fiscal
year(a) 39 (5) 22 10 * -- (*) (*) 61 5
Average cost (%) 4.03 5.12 0.19 0.67 5.07 -- 7.67 7.56 1.37 2.41
Average maturity (years) 1.33 2.11 1.63 2.20 1.64 -- 1.23 1.69 1.55 2.16
NET INTEREST RATE SWAPS:(c)
Carrying value -- -- -- -- (18) (16) -- -- (18) (16)
Average balance during fiscal year -- -- -- -- (47) (2) -- -- (47) (2)
Net gains (losses) for the fiscal year(a) -- -- -- -- (18) (8) -- -- (18) (8)
Average cost (%) -- -- -- -- (0.09) 0.04 -- -- (0.09) 0.04
Average maturity (years) -- -- -- -- 1.66 2.18 -- -- 1.66 2.18
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
a. EFFECTIVE JANUARY 1, 1999, THE EURO WAS INTRODUCED. FOR REPORTing
PURPOSES, HOLDINGS 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.
b. INCLUDED IN AMOUNTS PAYABLE FOR INVESTMENT SECURITIES PURCHASED ON THE
BALANCE SHEET.
c. INCLUDED IN CURRENCY SWAPS--TRADING 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.
IBRD Financial Statements 49
<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
- ----------------------------------------------------------------------------------------------------------------
1998
------------------------------------------------------------------
AVERAGE GROSS GROSS
CARRYING YIELD UNREALIZED UNREALIZED FAIR
VALUE (%) GAINS LOSSES VALUE
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government and agency obligations $ 1,138 8.74 $175 $-- $ 1,313
Time deposits 1,535 7.52 1,535
------- ---- ---- ------- --------
Subtotal 2,673 8.04 175 -- 2,848
Repurchase Agreements (1,374) 7.39 * -- (1,374)
------- ---- ---- ------- --------
Total $ 1,299 8.73 $175 $-- $ 1,474
------- ---- ---- ------- --------
------- ---- ---- ------- --------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* LESS THAN $0.5 MILLION.
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
- ---------------------------------------------------------------------------------
1998(a)
-----------------------------------
NET
CARRYING FAIR UNREALIZED
VALUE VALUE GAINS
-----------------------------------
<S> <C> <C> <C>
July 1, 1998 through June 30, 1999 $ 330 $ 331 $ 1
July 1, 1999 through June 30, 2003 90 99 9
July 1, 2003 through June 30, 2008 742 870 128
Thereafter 137 174 37
Total $1,299 $1,474 $175
------- ------- --------
------- ------- --------
- --------------------------------------------------------------------------------
</TABLE>
a. INCLUDES REPURCHASE AGREEMENTS.
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 met the requirements for plan assets as prescribed in
SFAS 106 "Employer's Accounting for Postretirement Benefits Other than
Pensions" (see Note 1). 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
50 IBRD Financial Statements 1999
<PAGE>
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
- --------------------------------------------------------------------------------------
1998
-------------------------------------------
NET
CARRYING AVERAGE BALANCES GAINS
VALUE DURING FISCAL YEAR (LOSSES)
-------------------------------------------
<S> <C> <C> <C>
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>
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(a), 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.
- ---------------
a. 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 BORROWERS 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.
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.
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
IBRD Financial Statements 51
<PAGE>
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 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 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).
52 IBRD Financial Statements 1999
<PAGE>
A summary of IBRD's outstanding loans by currency and product at June 30, 1999
and June 30, 1998 follows:
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------------------------------------
MULTICURRENCY LOANS(a) SINGLE CURRENCY POOLS(b) SINGLE CURRENCY LOANS TOTAL LOANS
------------------- --------------------- ----------------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE AVERAGE AVERAGE MATURITY AVERAGE
CURRENCY/RATE TYPE AMOUNT RATE (%)(c) AMOUNT RATE (%) c AMOUNT RATE (%)c (YEARS) AMOUNT RATE (%)(c)
- ----------------- ------ --------- ------- --------- ------ ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 AS JUNE 30, 1998 ON
FOLLOWING PAGE.
(b) SEE FOOTNOTE b. IN TABLE OF OUTSTANDING LOANS AS JUNE 30, 1998 ON
FOLLOWING PAGE.
(c) SEE FOOTNOTE a. IN TABLE OF OUTSTANDING LOANS AS JUNE 30, 1998 ON
FOLLOWING PAGE.
(d) EFFECTIVE JANUARY 1, 1999, THE EURO WAS INTRODUCED. FOR REPORTING
PURPOSES, AMOUNTS TO THE ELEVEN NATIONAL CURRENCIES THAT ARE CONSIDERED
SUBUNITS OF THE EURO HAVE BEEN AGGREGATED WITH THE EURO AND REPORTED
AS EURO IN BOTH THE CURRENT AND PRIOR YEAR.
IBRD FINANCIAL STATEMENTS 53
<PAGE>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------------------------------------
MULTICURRENCY LOANS(a) SINGLE CURRENCY POOLS SINGLE CURRENCY LOANS(b) TOTAL LOANS
------------------- --------------------- ----------------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE AVERAGE AVERAGE MATURITY AVERAGE
CURRENCY/RATE TYPE AMOUNT RATE (%)(c) AMOUNT RATE (%)(c) AMOUNT RATE (%)c (YEARS) AMOUNT RATE (%)(c)
- ----------------- ------ --------- ------- --------- ------ ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Euro (d)
Fixed $ 1,322 8.76 $ 13 11.42 $ 195 6.09 6.07 $ 1,530 8.44
Adjustable 19,724 6.36 1,792 7.04 422 3.87 8.08 21,938 6.37
Japanese yen
Fixed 910 8.85 -- -- -- -- -- 910 8.85
Adjustable 15,802 6.36 -- -- 61 0.86 6.94 15,863 6.34
Swiss francs
Fixed 586 7.96 -- -- -- -- -- 586 7.96
Adjustable 1,450 6.36 -- -- -- -- -- 1,450 6.36
U.S. dollars
Fixed 1,068 8.56 228 9.93 4,374 6.82 6.06 5,670 7.27
Adjustable 18,510 6.37 23,625 8.37 15,649 6.10 8.24 57,784 7.11
Others
Fixed 27 9.64 -- -- -- -- -- 27 9.64
Adjustable 818 6.36 -- -- -- -- -- 818 6.36
--------- ------ --------- ------- ------- ------- ------ ------ -----
Loans
outstanding
Fixed 3,913 8.61 241 10.01 4,569 6.79 6.06 8,723 7.70
Adjustable 56,304 6.36 25,417 8.28 16,132 6.03 8.23 97,853 6.80
--------- ------ --------- ------- ------- ------- ------ -------- -----
Total $60,217 6.51 $ 25,658 8.29 $20,701 6.20 7.75 $106,576 6.88
--------- ------ --------- ------- ------- ------- ------ -----
--------- ------ --------- ------- ------- ------- ------ -----
Less accumulated provision for loan losses 3,240
--------
Loans outstanding net of accumulated provision $103,336
--------
--------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 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% OF 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.
(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.
54 IBRD FINANCIAL STATEMENTS
<PAGE>
The maturity structure of IBRD's loans at June 30, 1999 and June 30, 1998 is
as follows:
<TABLE>
<CAPTION>
IN MILLIONS
- ---------------------------------------------------------------------------------------------------------------------------------
1999
--------------------------------------------------------------------------------------------------
SINGLE CURRENCY SINGLE CURRENCY
MULTICURRENCY LOANS POOLS LOANS ALL LOANS
-------------------- ------------------- ------------------- -------------------------------
RATE
PERIOD TYPE: FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July 1, 1999 through
June 30, 2000 $1,452 $ 4,283 $ 97 $ 4,823 $ 178 $ 395 $ 1,727 $ 9,501 $ 11,228
July 1, 2000 through
June 30, 2004 1,041 15,072 70 17,496 3,660 8,543 4,771 41,111 45,882
July 1, 2004 through
June 30, 2009 117 13,546 -- 14,307 4,623 12,495 4,740 40,348 45,088
Thereafter 1 4,323 -- 3,900 658 6,148 659 14,371 15,030
------- -------- ---- -------- ------- ------- ------- -------- --------
Loans outstanding $2,611 $37,224 $167 $40,526 $9,119 $27,581 $11,897 $105,331 $117,228
------- -------- ---- -------- ------- ------- ------ ------- --------
------- -------- ---- -------- ------- ------- ------ ------- --------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
IN MILLIONS
- ---------------------------------------------------------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------------------------------
SINGLE CURRENCY SINGLE CURRENCY
MULTICURRENCY LOANS POOLS LOANS ALL LOANS
-------------------- ------------------- ------------------- -------------------------------
RATE
PERIOD TYPE: FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July 1, 1998 through
June 30, 1999 $1,854 $ 6,090 $149 $ 2,547 $ 42 $ 133 $2,045 $ 8,770 $ 10,815
July 1, 1999 through
June 30, 2003 1,876 22,298 92 10,108 1,721 2,577 3,689 34,983 38,672
July 1, 2003 through
June 30, 2008 180 20,421 -- 9,280 2,518 9,182 2,698 38,883 41,581
Thereafter 3 7,495 -- 3,482 288 4,240 291 15,217 15,508
------- -------- ---- -------- ------- ------- ------ ------- --------
Loans outstanding $3,913 $56,304 $241 $25,417 $4,569 $16,132 $8,723 $97,853 $106,576
------- -------- ---- -------- ------- ------- ------ ------- --------
------- -------- ---- -------- ------- ------- ------ ------- --------
</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, 1998 plus a 50 basis point spread. The
estimated value of adjustable rate multicurrency loans and single currency
pools is based on the relationship of the fair value to the carrying value of
the underlying qualified borrowings, since the interest rate for such loans
is based on the interest rate of the qualified borrowings.
SINGLE CURRENCY LOANS: The estimated value of 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.
IBRD FINANCIAL STATEMENTS 55
<PAGE>
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
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:
IN MILLIONS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE VALUE VALUE VALUE
---------- ----------- ----------- ----------
<S> <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 ACCUMULATED VALUES OF $9,024 MILLION ($5,000 MILLION
--JUNE 30, 1998) FOR NON-TRANSLATED 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, 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).
56 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
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).
During the fiscal year ended June 30, 1999, no loans came out of non-accrual
status. During the fiscal year ended June 30, 1998, Sierre Leone paid off all
its arrears and, as a result, its loans came out of nonaccrual status.
IBRD FINANCIAL STATEMENTS 57
<PAGE>
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 documented present value of
expected payments for interest and charges made 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, 1998, 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.
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.
58 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
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
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENCY INTEREST RATE
DIRECT BORROWINGS SWAP AGREEMENTS(a) SWAP AGREEMENTS
---------------------------------------------------------------------------------------------------------------------
WGTD. WGTD. NOTIONAL WGTD.
AVG. AVERAGE AMOUNT AVG. AVERAGE AMOUNT AVG. AVERAGE
CURRENCY/ COST MATURITY PAYABLE COST MATURITY PAYABLE COST MATURITY
RATE TYPE AMOUNT (%) (YEARS) (RECEIVABLE) (%) (YEARS) (RECEIVABLE) (%) (YEARS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Euro(c)
Fixed $19,054 6.85 $5.39 $ 3,550 7.70 1.80 $ 3,445 7.20 3.23
(15,106) 6.91 5.47 (2,838) 5.56 2.95
Adjustable 6,840 7.00 9.89 7,172 2.87 2.58 2,867 2.66 2.90
(7,720) 6.36 9.11 (3,463) 3.06 3.22
Japanese yen
Fixed 15,119 4.97 4.16 63 5.15 2.43 2,811 1.01 1.88
(8,894) 5.14 4.03 (2,792) 2.72 5.34
Adjustable 1,969 3.42 8.09 2,780 (0.11) 1.31 2,792 0.14 5.34
(1,629) 0.97 9.90 (2,811) 0.15 1.88
U.S. dollars
Fixed 42,239 6.45 5.61 16,431 9.15 3.60 10,149 6.18 7.88
(1,802) 6.97 1.50 (32,292) 5.84 5.08
Adjustable 1,430 4.99 6.08 37,298 4.84 6.65 32,977 4.94 5.20
(7,062) 4.91 1.60 (10,862) 5.18 8.07
Others
Fixed 23,283 7.50 5.06 1,641 5.66 1.49 416 7.08 2.30
(24,078) 7.38 4.50 (159) 6.66 7.26
Adjustable 355 6.51 1.42 417 0.01 2.23 159 4.82 7.26
(450) 7.07 3.44 (416) 1.25 2.30
------------------------------------------- ----------
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
fiscal value 110,289 6.50 5.56 2,611 (17)
Net unamor-
tized premium 122 167 157
------------------------------------------- ----------
Total $110,411 6.50 5.56 $ 2,778 $ 140
------------------------------------------- ----------
------------------------------------------- ----------
<CAPTION>
- ----------------------------------------------------
NET CURRENCY OBLIGATIONS
--------------------------------------
WGTD.
AMOUNT AVG. AVERAGE
CURRENCY/ PAYABLE COST MATURITY(b)
RATE TYPE (RECEIVABLE) (%) (YEARS)
- ----------------------------------------------------
<S> <C> <C> <C>
Euro(c)
Fixed $ 26,049 7.01 4.62
(17,944) 6.70 5.07
Adjustable 16,879 4.51 5.60
(11,183) 5.34 7.29
Japanese yen
Fixed 17,993 4.35 3.80
(11,686) 4.56 4.34
Adjustable 7,541 0.90 4.57
(4,440) 0.45 4.82
U.S. dollars
Fixed 68,819 7.05 5.46
(34,094) 5.90 4.89
Adjustable 71,705 4.94 5.97
(17,924) 5.07 5.52
Others
Fixed 25,340 7.37 4.78
(24,237) 7.38 4.52
Adjustable 931 3.31 2.78
(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 unamor-
tized premium 446
--------------------
Total $113,329 5.88
--------------------
--------------------
</TABLE>
a - CURRENCY USAGE 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.
59 IBRD FINANCIAL STATEMENTS
<PAGE>
Medium- and Long-term Borrowings and Swaps at June 30, 1998
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENCY INTEREST RATE
DIRECT BORROWINGS SWAP AGREEMENTS(a) SWAP AGREEMENTS
---------------------------------------------------------------------------------------------------------
WGTD. WGTD. NOTIONAL WGTD.
AVG. AVERAGE AMOUNT AVG. AVERAGE AMOUNT AVG. AVERAGE
CURRENCY/ COST MATURITY PAYABLE COST MATURITY PAYABLE COST MATURITY
RATE TYPE AMOUNT (%) (YEARS) (RECEIVABLE) (%) (YEARS) (RECEIVABLE) (%) (YEARS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 2.95
(13,298) 7.25 5.83 (3,470) 5.45 3.79
Adjustable 5,305 5.80 7.49 8,375 3.64 2.31 3,651 3.59 3.72
(6,442) 5.26 6.18 (4,917) 3.68 2.94
Japanese yen
Fixed 14,717 5.01 4.53 1,961 1.34 0.44 1,520 3.30 1.02
(5,625) 5.39 4.55 (3,083) 2.84 4.94
Adjustable 2,319 3.14 5.24 1,484 0.26 0.62 3,083 0.53 4.94
(899) 1.08 8.63 (1,520) 1.16 1.02
U.S. dollars
Fixed 33,057 6.80 6.14 11,020 9.37 4.27 10,526 6.42 2.88
(3,096) 6.67 1.28 (22,183) 5.92 5.25
Adjustable 1,055 5.90 5.05 27,226 5.42 5.93 22,520 5.53 5.33
(5,885) 5.46 1.24 (10,863) 5.51 3.14
Others
Fixed 19,587 7.90 4.39 2,108 5.53 2.01 423 7.07 2.11
(19,047) 7.51 3.56 (159) 6.43 8.27
Adjustable 223 9.68 1.58 424 0.29 3.24 159 5.26 8.27
(315) 9.02 9.52 (423) 1.51 2.11
----------------------------------------- ---------
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 unamor-
tized premium 6 128 112
----------------------------------------- ---------
Total $96,748 6.63 5.47 $ 1,882 $ 112
----------------------------------------- ---------
----------------------------------------- ---------
<CAPTION>
-------------------------------------
NET CURRENCY OBLIGATIONS
-------------------------------------
WGTD.
AMOUNT AVG. AVERAGE
CURRENCY/ PAYABLE COST MATURITY(b)
RATE TYPE (RECEIVABLE) (%) (YEARS)
- ---------------------------------------------------
<S> <C> <C> <C>
Euro(c)
Fixed $ 28,978 6.98 4.78
(16,768) 6.88 5.40
17,331 4.29 4.10
(11,359) 4.58 4.78
Japanese yen
Fixed 18,198 4.47 3.79
(8,708) 4.49 4.69
Adjustable 6,886 1.34 4.11
(2,419) 1.13 3.85
U.S. dollars
Fixed 54,603 7.25 5.14
(25,279) 6.01 4.76
50,801 5.47 5.65
(16,748) 5.49 2.47
Others
Fixed 22,118 7.66 4.12
(19,206) 7.50 3.60
806 3.87 3.77
(738) 4.71 5.27
--------------------------------
Total
Fixed 123,897 6.85 4.57
(69,961) 6.44 4.58
75,824 4.81 5.15
(31,264) 4.81 3.48
---------------------------------
Principal at
face value 98,496 6.22
Net unamor-
tized premium 246
----------------------
Total $ 98,742 6.22
----------------------
----------------------
</TABLE>
a - CURRENCY USAGE 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 HAS BEEN AGGREGATED WITH THE EURO AND REPORTED
AS EURO IN BOTH THE CURRENT AND PRIOR YEAR.
60 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
Short-term Borrowings and Swaps at June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
- -------------------------------------------------------------------------------------
1999
--------------------------------------------------------------------
INTEREST
CURRENCY RATE WGTD.
SWAP SWAP NET AVG.
CURRENCY/ PRINCIPAL PAYABLE PAYABLE CURRENCY COST
RATE TYPE OUTSTANDING (RECEIVABLE) (RECEIVABLE) OBLIGATIONS(a) (%)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Czech koruny
Fixed $ -- $ -- $ -- $ -- --
Euro(b)
Fixed -- 281 -- 281 4.71
Adjustable -- -- -- -- --
Hong Kong
dollars
Fixed 451 -- -- 451 12.33
(451) -- (451) 12.33
Japanese yen
Fixed -- 12 -- 12 1.83
(278) -- (278) 5.29
Adjustable -- -- -- -- --
New Zealand
dollars
Fixed -- -- -- -- --
Polish zlotys
Fixed -- -- -- -- --
U.S. dollars
Fixed 3,606 289 -- 3,895 5.31
(332) -- (332) 6.06
Adjustable 1,188 536 -- 1,724 4.71
South African
rand
Fixed 83 -- -- 83 15.96
(83) -- (83) 15.96
-------------------------------------------------------------------
Total
Fixed 4,140 582 -- 4,722 6.12
(1,144) -- (1,144) 9.06
Adjustable 1,188 536 -- 1,724 4.71
-------------------------------------------------------------------
Principal at
face value 5,328 (26) -- 5,302 5.02
Net unamortized
premium -- --
-------------------------------------------------------------------
Total $5,328 $ (26) $ -- $ 5,302 5.02
-------------------------------------------------------------------
-------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------
1998
-----------------------------------------------------------------
INTEREST
CURRENCY RATE WGTD.
SWAP SWAP NET AVG.
CURRENCY/ PRINCIPAL PAYABLE PAYABLE CURRENCY COST
RATE TYPE OUTSTANDING (RECEIVABLE) (RECEIVABLE) OBLIGATIONS(a) (%)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Czech koruny
Fixed $ 335 $ -- $ -- $ 335 14.45
(335) (335) 14.45
Euro(b)
Fixed -- -- -- -- --
Adjustable 42 319 -- 361 2.82
(42) -- (42) 0.78
Hong Kong
dollars
Fixed -- -- -- -- --
Japanese yen
Fixed -- -- -- -- --
Adjustable -- 25 -- 25 0.09
New Zealand
dollars
Fixed 25 -- -- 25 7.94
(25) -- (25) 7.94
Polish zlotys
Fixed 29 -- -- 29 20.12
(29) (29) 20.12
U.S. dollars
Fixed 3,985 -- -- 3,985 5.45
-- (100) (100) 5.72
Adjustable 1,709 1,126 100 2,935 5.15
(333) -- (333) 5.13
South African
rand
Fixed 600 -- -- 600 13.98
(600) -- (600) 13.98
-------------------------------------------------------------------
Total
Fixed 4,974 -- -- 4,974 7.19
(989) (100) (1,089) 13.39
Adjustable 1,751 1,470 100 3,321 4.85
(375) -- (375) 4.64
-------------------------------------------------------------------
Principal at
face value 6,725 106 -- 6,831 5.20
Net unamortized
premium 4 4
-------------------------------------------------------------------
Total $6,729 $ 106 $ -- $ 6,835 5.20
-------------------------------------------------------------------
-------------------------------------------------------------------
</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.
IBRD FINANCIAL STATEMENTS 61
<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.
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.
62 IBRD FINANCIAL STATEMENTS 1999
<PAGE>
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 *
BORROWINGS PORTFOLIO
Currency swaps
- Credit exposure due to potential nonperformance
by counterparties 2,051 1,964
Interest rate swaps
- Notional principal 55,633 46,716
- Credit exposure due to potential nonperformance
by counterparties 731 1,043
</TABLE>
- ------------------------------------------------------------------------------
* LESS THAN $0.5 MILLION.
IBRD FINANCIAL STATEMENTS 63
<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
------- -------
------- -------
</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 purpose 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 $5,736
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.
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, 1998, $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
64 IBRD FINANCIAL STATEMENTS
<PAGE>
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:
IN MILLIONS
- ------------------------------------------------------------------------------
<TABLE>
<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.
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).
IBRD FINANCIAL STATEMENTS 65
<PAGE>
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.
The following table summarizes the benefit coss associated with the SRP,
RSBP, and PEBP for IBRD and IDA:
IN MILLIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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.
66 IBRD FINANCIAL STATEMENTS
<PAGE>
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.
IN MILLIONS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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 benefits
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 to 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>
- ------------------------------------------------------------------------------
Of the $1,028 million prepaid SRP cost at June 30, 1999 ($553 million--June
30, 1998), and $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 attributable to IDA, IFC and
MIGA.
IBRD FINANCIAL STATEMENTS 67
<PAGE>
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 and obligations. The weighted-average assumptions used in
determining expense and benefit obligations are as follows:
IN MILLIONS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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(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 DECREASE 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 effect 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:
IN MILLIONS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ONE PERCENTAGE POINT INCREASE ONE PERCENTAGE POINT 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 LAS 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 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.
68 IBRD FINANCIAL STATEMENTS
<PAGE>
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:
IN MILLIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED OTHER COMPRENSIVE 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.
IBRD FINANCIAL STATEMENTS 69
<PAGE>
[LETTERHEAD]
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.
/s/ DELOITTE TOUCHE TOHMATSU (INTERNATIONAL FIRM)
July 28, 1999
Washington, D.C.
70 IBRD FINANCIAL STATEMENTS
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TREASURY ASSET LIABILITY RISK SYSTEM (TALRS)
SEC REPORT -- CHANGES IN BORROWINGS
BORROWINGS (MLT) APRIL 01, 1999 THRU JUNE 30, 1999
<TABLE>
<CAPTION>
Borrowing type Description Trade Currency External Currency US$ Settlement Maturity
ID ID Amount Equivalent Date Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW BORROWINGS
MTBOC
AUSTRALIAN DOLLAR
BOND/SELL AUD/IBRD/0602AUD09.04 0000003810 AUD AUD0799GDI01 23,000,000 14,984,500 24-Jun-1999 24-Jun-2002
------------
Total By Currency 14,984,500
------------
CZECH KECUNA
BOND/SELL CZK/IBRD/0506CZK7.375 0000003713 CZK CZK0787GDI01 1,000,000,000 27,981,420 26-May-1999 26-May-2006
------------
Total By Currency 27,981,420
------------
POUND STERLING
BOND/SELL GBP/IBRD/0621GBP05.40 0000003164 GBP GBP0735GDI04 75,000,000 120,491,250 07-Jun-1999 07-Jun-2021
------------
Total By Currency 120,491,250
------------
GREEK DRACHMA
BOND/SELL GRD/IBRD/0601GRD06.25 0000003754 GRD GRD0790GDI01 20,000,000,000 64,524,457 01-Jun-1999 01-Jun-2001
BOND/SELL GRD/IBRD/0601GRD06.25 0000003794 GRD GRD0790GDI02 20,000,000,000 64,759,495 15-Jun-1999 01-Jun-2001
------------
Total By Currency 129,283,952
------------
HONG KONG DOLLARS
BOND/SELL HKD/IBRD/0402HKDSTR 0000003027 HKD 500,000,000 38,768,821 14-Apr-1999 14-Apr-2002
BOND/SELL HKD/IBRD/0502HKD06.88 0000003749 HKD HKD0789GDI01 150,000,000 19,343,357 28-May-1999 28-May-2002
BOND/SELL HKD/IBRD/0804HKD07.36 0000003603 HKD 100,000,000 12,890,668 17-Jun-1999 17-Jun-2004
------------
Total By Currency 70,950,947
------------
JAPANESE YEN
BOND/SELL JPY/IBRD/0519JPYSTR 0000003702 JPY JPY0111GDI01 1,000,000,000 8,281,231 10-May-1999 10-May-2019
BOND/SELL JPY/IBRD/0600JPYSTR01 0000003766 JPY 12,500,000,000 101,882,794 27-May-1999 06-Jun-2000
BOND/SELL JPY/IBRD/6000JPYSTR 0000003763 JPY 2,500,000,000 20,567,668 02-Jun-1999 02-Jun-2000
BOND/SELL JPY/IBRD/0629JPYSTR01 0000003774 JPY JPY0112GDI01 1,800,000,000 10,677,180 08-Jun-1999 08-Jun-2029
BOND/SELL JPY/IBRD/0619JPYSTR02 0000003788 JPY JPY0120GDI01 2,000,000,000 16,778,523 14-Jun-1999 14-Jun-2019
BOND/SELL JPY/IBRD/0609JPYSTR02 0000003797 JPY JPY0128GDI01 1,000,000,000 8,448,087 15-Jun-1999 15-Jun-2009
BOND/SELL JPY/IBRD/0609JPYSTR03 0000003799 JPY 1,300,000,000 10,982,512 15-Jun-1999 15-Jun-2009
BOND/SELL JPY/IBRD/0609JPYSTR 0000003777 JPY 1,000,000,000 8,310,134 16-Jun-1999 16-Jun-2009
BOND/SELL JPY/IBRD/0619JPYSTR01 0000003779 JPY JPY0121GDI01 1,600,000,000 13,296,215 16-Jun-1999 17-Jun-2019
BOND/SELL JPY/IBRD/0614JPYSTR01 0000003762 JPY JPY0123GDI01 1,500,000,000 12,470,901 18-Jun-1999 18-Jun-2014
BOND/SELL JPY/IBRD/0619JPYSTR 0000003792 JPY JPY0124GDI01 1,000,000,000 8,340,631 21-Jun-1999 21-Jun-2019
BOND/SELL JPY/IBRD/0609JPYSTR04 0000003608 JPY 1,000,000,000 8,395,248 22-Jun-1999 22-Jun-2009
BOND/SELL JPY/IBRD/0614JPYSTR 0000003768 JPY JPY0126GDI01 1,000,000,000 8,193,028 23-Jun-1999 23-Jun-2014
BOND/SELL JPY/IBRD/0609JPYSTR01 0000003604 JPY JPY0130GDI01 5,200,000,000 42,740,312 24-Jun-1999 24-Jun-2009
BOND/SELL JPY/IBRD/0619JPYSTR05 0000003817 JPY 1,000,000,000 9,041,220 24-Jun-1999 24-Jun-2009
BOND/SELL JPY/IBRD/0619JPYSTR09 0000003801 JPY JPY0132GDI01 1,000,000,000 8,195,378 28-Jun-1999 28-Jun-2019
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TREASURY ASSET LIABILITY RISK SYSTEM (TALRS)
SEC REPORT -- CHANGES IN BORROWINGS
BORROWINGS (MLT) APRIL 01, 1999 THRU JUNE 30, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CURRENCY/ US$ SETTLEMENT MATURITY
BORROWING TYPE DESCRIPTION TRADE ID CURRENCY EXTERNAL ID AMOUNT EQUIVALENT DATE DATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL BY CURRENCY 296,601,061
-------------
NEW ZEALAND DOLLAR
- ------------------
BOND/SELL NZD/IBRD/0503NZD09.14 0000003709 NZD NZD0765GDI01 15,000,000 8,409,000 17-May-1999 10-May-2003
BOND/SELL NZD/IBRD/1100NZD05.50 0000003709 NZD NZD0739GDI03 100,000,000 53,595,000 02-Jun-1999 03-Nov-2008
BOND/SELL NZD/IBRD/1108NZD05.50 0000003910 NZD 100,000,000 53,270,000 16-Jun-1999 03-Nov-2008
-------------
TOTAL BY CURRENCY 115,274,000
-------------
UNITED STATES DOLLAR
- --------------------
BOND/SET USD/IBRD/0406USD05.50 0000003681 USD USD0788GDI01 500,000,000 500,000,000 19-Apr-1999 19-Apr-2006
BOND/SET USD/IBRD/0414USDSTR 0000003704 USD USD110GDIF01 100,000,000 100,000,000 30-Apr-1999 30-Apr-2014
BOND/SET USD/IBRD/0604USDSTR03 0000003761 USD USD0116GDI01 200,000,000 200,000,000 04-Jun-1999 04-Jun-2004
BOND/SET USD/IBRD/0601USDSTR 0000003775 USD USD0793GDI01 100,000,000 100,000,000 09-Jun-1999 11-Jun-2001
BOND/SET USD/IBRD/0604USDSTR 0000003758 USD USD0115GDI01 50,000,000 50,000,000 11-Jun-1999 11-Jun-2004
BOND/SET USD/IBRD/0614USDSTR 0000003784 USD USD0125GDI01 100,000,000 100,000,000 15-Jun-1999 15-Jun-2014
BOND/SET USD/IBRD/0604USDSTR02 0000003755 USD USD0114GDI01 150,000,000 150,000,000 21-Jun-1999 21-Jun-2004
BOND/SET USD/IBRD/0804USDSTR01 0000003756 USD USD0113GDI01 100,000,000 100,000,000 21-Jun-1999 21-Jun-2004
BOND/SET USD/IBRD/0604USD00.01 0000003807 USD USD0798GDI01 40,000,000 40,000,000 21-Jun-1999 21-Jun-2004
BOND/SET USD/IBRD/0604USDSTR04 0000003825 USD USD0137GDI01 15,000,000 15,000,000 23-Jun-1999 23-Jun-2004
-------------
TOTAL BY CURRENCY 1,355,000,000
-------------
SOUTH AFRICAN RAND
- ------------------
BOND/SELL ZAR/IBRD/0404ZAR13.75 0000003625 ZAR ZAR0779GDI01 100,000,000 16,433,854 19-Apr-1999 19-Apr-2004
BOND/SELL ZAR/IBRD/0505ZAR13.00 0000003711 ZAR ZAR0784GDI01 100,000,000 16,433,854 04-May-1999 03-May-2006
BOND/SELL ZAR/IBRD/0403ZAR13.00 0000003705 ZAR ZAR0680GDI02 100,000,000 16,494,845 06-May-1999 07-Apr-2003
BOND/SELL ZAR/IBRD/0404ZAR13.75 0000003714 ZAR ZAR0779GDI02 100,000,000 16,220,600 20-May-1999 19-Apr-2004
BOND/SELL ZAR/IBRD/0403ZAR13.00 0000003790 ZAR ZAR0680GDI03 100,000,000 16,454,946 10-Jun-1999 07-Apr-2003
-------------
TOTAL BY CURRENCY 82,038,099
-------------
-------------
TOTAL 2,212,605,229
-------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TREASURY ASSET LIABILITY RISK SYSTEM (TALRS)
SEC REPORT -- CHANGES IN BORROWINGS
BORROWINGS (MLT) APRIL 01, 1999 THRU JUNE 30, 1999
<TABLE>
<CAPTION>
Borrowing Type Description Trade Currency External Currency US$ Settlement Maturity
ID ID Amount Equivalent Date Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MATURING BORROWINGS
- --------------
MTBOC
-----
AUSTRALIAN DOLLAR
- -----------------
BOND/SELL AUD/IBRD/0499AUD07.60 0000000041 AUD AUD0529GMT01 122,535,000 79,568,102 22-Apr-1996 22-Apr-1999
BOND/SELL AUD/IBRD/0699AUD07.65 0000000042 AUD AUD0534GMT01 215,588,000 140,509,479 30-May-1996 01-Jun-1999
------------
Total By Currency 220,077,581
------------
SWISS FRANC
- -----------
BOND/SELL CHF/IBRD/0499CHF05.50 0000000068 CHF CHF0214MLT01 125,000,000 82,726,671 26-Apr-1989 26-Apr-1999
------------
Total By Currency 82,726,671
------------
CZECH KECUNA
- ------------
BOND/SELL CZK/IBRD/0499CZK10.38 0000000095 CZK CZK0581GMT01 1,000,000,000 28,138,102 21-Apr-1997 21-Apr-1999
------------
Total By Currency 28,138,102
------------
DEUTSCHE MARK
- -------------
BOND/SELL DEM/IBRD/0599DEM06.75 0000000104 DEM DEM0259MLT01 150,000,000 81,632,862 17-May-1989 17-May-1999
------------
Total By Currency 81,632,862
------------
SPANISH PESIS
- -------------
BOND/SELL ESP/IBRD/0599ESP07.75 0000000149 ESP ESP0016MLT01 10,000,000,000 63,457,863 28-May-1996 28-May-1999
------------
Total By Currency 63,457,863
------------
JAPANESE YEN
- ------------
BOND/SELL JPY/IBRD/1200JPY02.50 0000000315 JPY JPY0124MLT01 3,600,000,000 30,222,894 01-Apr-1987 22-Jun-1999
BOND/SELL JPY/IBRD/0699JPY02.30 0000000318 JPY JPY0129MLT01 3,000,000,000 25,021,894 21-Dec-1987 21-Jun-1999
BOND/SELL JPY/IBRD/0699JPY02.30 0000000319 JPY JPY0129MLT02 4,000,000,000 33,362,526 21-Dec-1987 21-Jun-1999
BOND/SELL JPY/IBRD/1199JPY02.30 0000000320 JPY JPY0130MLT01 5,000,000,000 40,688,449 21-Dec-1987 20-May-1999
BOND/SELL JPY/IBRD/0400JPY02.30 0000000322 JPY JPY0132MLT01 2,700,000,000 22,679,546 30-Dec-1987 19-Apr-1999
BOND/SELL JPY/IBRD/0699JPY05.38 0000000339 JPY JPY0174MLT01 63,300,000,000 518,618,656 26-Jun-1989 23-Jun-1999
------------
Total By Currency 670,593,964
------------
NETHERLANDS GUILDERS
- --------------------
BOND/SELL NLG/IBRD/0504NLG09.13 0000000372 NLG NLG0054MLT01 6,500,000 3,127,136 02-May-1984 03-May-1999
BOND/SELL NLG/IBRD/0500NLG08.13 0000000377 NLG NLG0071MTL01 10,000,000 4,850,911 24-May-1985 20-May-1999
BOND/SELL NLG/IBRD/0699NLG07.13 0000000384 NLG NLG0092MTL01 300,000,000 142,899,928 01-Jun-1989 01-Jun-1999
------------
Total By Currency 150,877,974
------------
NEW ZEALAND DOLLAR
- ------------------
BOND/SELL NZD/IBRD/0499NZD08.25 0000000387 NZD NZD0526GMT01 100,000,000 55,150,000 30-Apr-1996 30-Apr-1999
BOND/SELL NZD/IBRD/0699NZD08.75 0000000388 NZD NZD0535GMT01 100,000,000 53,320,000 11-Jun-1986 11-Jun-1999
------------
Total By Currency 108,470,000
------------
POLISH ZINO
- -----------
BOND/SELL PLN/IBRD/0699PLNSTR 0000000417 PLN PLN0591GMT01 100,000,000 25,404,890 17-Jun-1997 17-Jun-1999
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TREASURY ASSET LIABILITY RISK SYSTEM (TALRS)
Page 4
SEC REPORT -- CHANGES IN BORROWINGS
BORROWINGS (MLT) APRIL 01, 1999 THRU JUNE 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CURRENCY US$ SETTLEMENT MATURITY
BORROWING TYPE DESCRIPTION TRADE ID CURRENCY EXTERNAL ID AMOUNT EQUIVALENT DATE DATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BOND/SELL PLN/IBRD/0699PLNSTR 0000000418 PLN PLN0591QMT02 50,000,000 12,702,445 06-OCT-1997 17-JUN-1999
------------
TOTAL BY CURRENCY 38,107,336
------------
UNITED STATES DOLLAR
- --------------------
BOND/SELL USD/IBDR/0499USD09.15 0000000463 USD USD0102COL01 171,000 171,000 31-Jul-1987 15-Apr-1999
BOND/SELL USD/IBRD/0499USD08.02 0000000564 USD USD0420COL01 19,100,000 19,100,000 01-Jun-1988 01-Apr-1999
BOND/SELL USD/IBRD/0499USD09.641 0000000678 USD USD1015COL01 50,000 50,000 13-Apr-1989 14-Apr-1999
BOND/SELL USD/IBRD/0499USD09.642 0000000682 USD USD1029COL01 10,000,000 10,000,000 24-Apr-1989 30-Apr-1999
BOND/SELL USD/IBRD/0499USD09.59 0000000681 USD USD1028COL01 25,000 25,000 27-Apr-1989 30-Apr-1999
BOND/SELL USD/IBRD/0499USD09.63 0000000685 USD USD1031COL01 6,000,000 6,000,000 27-Apr-1989 28-Apr-1999
BOND/SELL USD/IBRD/0599USD09.65 0000000687 USD USD1043COL01 8,050,000 8,050,000 05-May-1989 10-May-1999
BOND/SELL USD/IBRD/0699USD09.50 0000000696 USD USD1081COL01 10,000,000 10,000,000 17-May-1989 01-Jun-1999
BOND/SELL USD/IBRD/0599USD09.60 0000000690 USD USD1065COL01 100,000 100,000 18-May-1989 19-May-1999
BOND/SELL USD/IBRD/0599USD09.40 0000000692 USD USD1075COL01 5,660,000 5,660,000 19-May-1989 20-May-1999
BOND/SELL USD/IBRD/0599USD09.381 0000000694 USD USD1079COL01 10,000,000 10,000,000 19-May-1989 20-May-1999
BOND/SELL USD/IBRD/0599USD09.382 0000000695 USD USD1080COL01 4,100,000 4,100,000 19-May-1989 01-Jun-1999
BOND/SELL USD/IBRD/0599USD09.20 0000000698 USD USD1103COL01 25,000 25,000 26-May-1989 28-May-1999
BOND/SELL USD/IBRD/0699USD08.10 0000000699 USD USD1105COL01 8,550,000 8,550,000 26-May-1989 01-Jun-1999
BOND/SELL USD/IBRD/0599USD09.08 0000000700 USD USD1114COL01 5,000,000 5,000,000 30-May-1989 28-May-1999
BOND/SELL USD/IBRD/0699USD09.00 0000000701 USD USD1117COL01 1,000,000 1,000,000 30-May-1989 01-Jun-1999
BOND/SELL USD/IBRD/0699USD08.12 0000000705 USD USD1133COL01 100,000 100,000 07-Jun-1989 07-Jun-1999
BOND/SELL USD/IBRD/0699USD08.90 0000000706 USD USD1142COL01 400,000 400,000 09-Jun-1989 09-Jun-1999
BOND/SELL USD/IBRD/0599USD07.30 0000000771 USD USD1420COL01 400,000 400,000 15-May-1990 10-May-1999
-------------
TOTAL BY CURRENCY 88,731,000
-------------
SOUTH AFRICAN RAND
- ------------------
BOND/SELL ZAR/IBRD/0699ZAR12.80 0000000894 ZAR ZAR0677GDI01 200,000,000 33,044,196 30-Mar-1998 30-Jun-1999
BOND/SELL ZAR/IBRD/0699ZAR12.60 0000000895 ZAR ZAR0677GDI02 200,000,000 33,044,196 30-Mar-1998 30-Jun-1999
-------------
TOTAL BY CURRENCY 66,088,392
-------------
-------------
TOTAL 1,598,901,745
-------------
MTBOZ
-----
UNITED STATES DOLLAR
- --------------------
BOND/SELL USD/IBRD/0599USD00.001 0000000688 USD USD1045COL01 25,000 25,000 11-May-1989 11-May-1999
BOND/SELL USD/IBRD/0599USD00.002 0000000689 USD USD1062COL01 47,000 47,000 16-May-1989 18-May-1999
-------------
TOTAL BY CURRENCY 72,000
-------------
-------------
TOTAL 72,000
-------------
</TABLE>
<PAGE>
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TREASURY ASSET LIABILITY RISK SYSTEM (TALRS)
Page 5
SEC REPORT -- CHANGES IN BORROWINGS
BORROWINGS (MLT) APRIL 01, 1999 THRU JUNE 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CURRENCY/ US$ SETTLEMENT MATURITY
BORROWING TYPE DESCRIPTION TRADE ID CURRENCY EXTERNAL ID AMOUNT EQUIVALENT DATE DATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARLY RETIREMENT
- ----------------
MTBOC
-----
DEUTSCHE MARK
- -------------
BOND/BUY DEM/IBRD/0603DEMSTR 0000003772 DEM DEM0010GIMTCL 100,000,000 53,023,525 04-Jun-1999 04-Jun-2003
-------------
TOTAL BY CURRENCY 53,023,525
-------------
-------------
TOTAL 53,023,525
-------------
</TABLE>
