financial statements
73
fund for special operations Inter-american development bank
NOTES TO special PURPOSE FINANCIAL STATEMENTS (continued)
In December 2006, the Board of Governors approved a structure that included one hundred (100) percent relief of eligible FSO debt for Bolivia, Guyana, Haiti, Honduras and Nicaragua, effective January 1, 2007, as well as (i) the continuance of access to concessional resources for FSO countries (other than Haiti) via parallel loans, (ii) Haiti’s access to an appropriate mix of loans and/or grants with adequate levels of concessionality, (iii) the IFF’s extension to 2015 via a blending of FSO resources and Ordinary Capital loans, and (iv) annual non-reimbursable technical assistance of $30 million. As a result of this approval, the FSO recognized Debt relief expense of $3,286 million, increasing the Allowance for debt relief. On March 15, 2007, the Board of Governors approved 100% debt relief for Bolivia, Guyana, Haiti, Honduras and Nicaragua on FSO loan balances outstanding as of December 31, 2004. Under this agreement, the Bank forgave approximately $3.4 billion in FSO loan principal payments, including approximately $0.4 billion for Haiti to be effective once it reaches Completion Point under the Enhanced HIPC Initiative, and $1.0 billion of future interest payments. FSO loan balances of $3,868 million were eliminated from the books effective January 1, 2007, including $883 million related to debt relief remaining to be delivered to HIPC-eligible countries, other than Haiti, under the Enhanced HIPC Initiative. In addition, the FSO now bears a smaller percentage of the administrative expenses of the Bank currently allocated between the Ordinary Capital and the FSO, and countries eligible for IFF subsidies continue to receive concessional resources for new loans through 2015, in the form of parallel loans rather than a reduction in the interest rate billed, and still receive the reduction in interest rate billed for loans approved up to December 31, 2006, subject to availability of IFF resources. Note P – Prior Year Financial Statement Misstatement In 2008, Management identified a misstatement of the Debt relief expense recognized in the FSO financial statements for
2006, resulting from not considering the elimination of the maintenance of value amount related to certain loans that were forgiven as part of the MDRI. The total Debt relief expense amount reflected in the financial statements for 2006 of $3,382 million was overstated by $76 million, while Amounts payable to maintain value of currency holdings in the 2006 and 2007 financial statements were also overstated by the same amount. The misstatements of the FSO financial statements for 2006 and 2007 were not material. However, if the misstatement was corrected in the 2008 financial statements, its effect would materially misstate the 2008 results of operations. Therefore, Management decided to retroactively adjust the accompanying 2006 and 2007 financial statements. The effect of the adjustment on the individual line items in the Statement of Income and General Reserve (Deficit) for the year ended December 31, 2006 and the Balance Sheet as of December 31, 2007 was as follows (in millions):
2006: Debt relief expense . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . General reserve (deficit), end of year . . . . . . . . . . . . . . . . . . . . . 2007: Amounts payable to maintain value of currency holdings . . . . Fund balance . . . . . . . . . . . . . . . . . General reserve (deficit) end of year . . . . . . . . . . . . . . . . .
As Reported Adjustment
As Adjusted
$(3,382) (3,343)
$ 76 76
$(3,306) (3,267)
(3,965)
76
(3,889)
374 5,802
(76) 76
298 5,878
(3,956)
76
(3,880)