financial statements
79
intermediate financing facility account Inter-american development bank
NOTES TO FINANCIAL STATEMENTS
Note A – Origin The Inter-American Development Bank (Bank) is an international organization which was established in December 1959. Its purpose is to promote economic and social development in Latin America and the Caribbean, primarily by providing loans and related technical assistance for specific projects and for programs of economic reform. The Agreement Establishing the Inter-American Development Bank (Agreement) provides that its operations be conducted through the Ordinary Capital and the Fund for Special Operations (FSO). In 1983, the Board of Governors of the Bank established the Intermediate Financing Facility Account (IFF) to subsidize part of the interest payments for which certain borrowers are liable on loans from the Ordinary Capital. Up to December 31, 2006, the IFF was funded primarily through transfers from the FSO. As part of the Multilateral Debt Relief and Concessional Finance Reform approved in 2007 (see Note G), the Bank discontinued the transfers from FSO to the IFF. In making decisions concerning operations of the IFF, the number of votes and percent of voting power for each member country are the same as those applicable for decisions involving the Ordinary Capital, except that the voting authority for decisions to award IFF loan subsidies is determined according to each member country’s proportional contribution to the FSO. Note B – Summary of Significant Accounting Policies The financial statements are prepared in conformity with United States generally accepted accounting principles (GAAP). The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. New accounting pronouncements On January 1, 2008, the Bank adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. The adoption of this standard did not have a material impact on the IFF’s financial position and results of operations. In May 2008, the Financial Accounting Standard Board issued SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles”, which identifies the sources of accounting principles and the framework for selecting the principles used
in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. The adoption of this standard did not have an impact on the financial statements of the IFF. Investments Investment securities transactions are recorded on the trade date and are held in a trading portfolio carried at fair value, with changes in fair value included in Income (loss) from investments1. Fair values for investment securities are based on quoted prices, where available; otherwise, they are based on external pricing services, independent dealer prices, or discounted cash flows. Administrative expenses Administrative expenses of the IFF are paid by the Bank and are allocated between the Ordinary Capital and the FSO, pursuant to an allocation formula approved by the Board of Executive Directors. Note C – Investments As part of its overall portfolio management strategy, the Bank invests the IFF resources in high quality securities, in accordance with established investment guidelines, through two investment pools managed by the Bank for the benefit of the IFF and the FSO. Investments include government, agency, corporate and bank obligations, and asset-backed and mortgagebacked securities substantially all with credit ratings ranging from AAA to A+ (short-term securities carry the highest shortterm credit ratings). The Bank limits its activities of investing in securities to a list of authorized dealers and counterparties. Credit limits have been established for each counterparty. The IFF’s proportionate share of the investment pools assets at December 31, 2008 and 2007 is presented in the Summary Statement of Investments in Appendix III-1. During 2008, the IFF’s share of unrealized investment losses from these pools amounted to $17 million (2007—$4 million). The average return on investments during 2008, including realized and un realized gains and losses, was (2.30%) (2007—4.41%; 2006— 4.99%). Note D – Fair Value Measurements Effective January 1, 2008, the Bank adopted SFAS 157, which provides a new framework for measuring fair value under GAAP. SFAS 157 establishes a fair value hierarchy that priori-
1 References to captions in the financial statements are identified by the name of the caption beginning with a capital letter every time they appear in the notes to the financial statements.