Notes to Financial Statements 36

MIGA __ Public Disclosure Authorized ANNUAL REPORT 199-2

FILE COPY Public Disclosure Authorized Report No. :11613 Type: (PUB) Title: MIGA ANNUAL REPORT Author: Ext.: 0 Room: Dept.: BOOKSTORE 1992 Public Disclosure Authorized

M.LGA8 MultilateralInvestment Guarantee Agency

E 2' Public Disclosure Authorized

M I G A_ ANNUAL REPORT 1992

Multilateral Investment Guarantee Agency 6FA L s

MIGA in brief

* - The Multilateral Investment Guaran- tee Agency (MIGA), a member of the

l - * *. * World Bank Group', commenced op-

- l erations in April 1988 to promote private foreign direct investment for economic a * l development in its member countries. 3X " MIGA does this by:

2 * * * * * * * Guaranteeing investments made by foreign investors against political risks in developing member countries.

* Providing promotional and advisory services to assist member countries in creating an attractive climate for private foreign direct investment.

MIGA is owned by its member countries and is capitalized at SDR 1.0 billion ($1.082 billion)3 . Membership is open to all member countries of the World Bank.

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4 Letter to the Council of Governors

June 30, 1992

The Board of Directors of the Multilateral Investment Guarantee Agency is pleased to report that MIGA's insurance, investment promotion, and advisory services grew faster than planned during fiscal 1992.

MIGA 'sprograms are designedto encouragetheflow ofprivateforeign direct investment for productive purposes among its member countries, especially to developing member countries. MIGA facilitates capitalflows to developing countries by providing insurance for private investors against political risks, by promoting investment activity, and by assisting countries to create an attractive investment climate. MIGA thus complements the development activities of the other members of the World Bank Group. Lewis T. Preston, President of the Agency and Chairman of the Board of Directors, submits this report and the accompanying auditedfinancial statementsfor thefiscal year ending June 30,1992 on behalf of the Board to the Council of Governors in accordance with the bvlaws of the Agency.

L- NEM.;31

MIGA Board of Directors, March 1992.

5 ¼,AL/ Foreigndirect investment and MIGA's role

factors affecting investment decisions. For- eign investors are also influenced by factors such as relative costs, domestic market size, Through its investment guarantee program quality of infrastructure, and level of indus- and its promotional and advisory services, trialization. MIGA promotes the flow of private invest- The global environment for investment ment resources to developing countries for has undergone significant change in the last productive purposes. Private foreign direct few years. Many developing countries have investment brings in capital, generates em- emerged from the stagnation and decline of ployment, and is an important means of fa- the 1980s and resumed positive real growth. cilitating technology transfer and foreign The general policy environment in many of market access. Through training of local staff, these countries has also become more favor- foreign direct investment helps diffuse prod- able toward foreign direct investment, with uct and process technologies and enhances the adoption of more pragmatic attitudes that local management and marketing skills as are conducive to private investment. Public well. Thus, flows of investment resources authorities worldwide are increasingly be- into developing countries help fuel economic coming aware that prospective foreign inves- growth and development. Developing coun- tors are interested in an investment climate tries are increasingly recognizing the myriad they perceive as stable and hospitable and benefits of foreign direct investment, and that tangible progress in policy reform helps today most countries welcome foreign in- create such positive perceptions. vestment as a valuable addition to domestic The changes in Central and Eastern Europe investment. and in the former republics of the Soviet Union have increased global competition for The global environment for foreign foreign direct investment and made develop- direct investment ing countries more keenly aware of the need to improve their investment climate. That In recent years foreign direct investment awareness is evidenced by the heavy demand has outpaced other forms of foreign capital for the services of the Foreign Investment inflows to developing countries. In 1991 it is Advisory Service (FIAS), a jointly spon- estimated to have reached $24.8 billion (on a sored program of MIGA, the International cash flow basis) in developing countries - Finance Corporation (IFC), and the World about three times its size in 1986. Argentina, Bank, which advises governments on im- China, Brazil, Mexico, Malaysia, and provingpolicies, regulations, and procedures Thailand were some of the largest recipients to attract foreign investment. of foreign direct investment among develop- Despite the positive changes in the global ing countries in 1991. environment, uncertainty continues about the Whether, where, and how foreign direct prospects for increasing the flows of foreign investment occurs depends on scores of fac- direct investment to developing countries in tors. World economic conditions and a the 1990s, and investors' concerns about the country's policy, legal, and political environ- many risks of doing business in foreign coun- ment are among the more important macro- tries remain. Increasing numbers of prospec-

6 tive investors are turning to investment in- * Developingcountrieshavebecomemore surers, including MIGA, for assistance in acutely aware of the implications of the in- implementing their projects. The demand for creasingly competitive environment for at- MIGA's services - guarantees and promo- tracting orretaining foreign investment.More tional and advisory work-is rising steadily. governments realize that they must promote The indications of the potential magnitude of their business opportunities with foreign in- this business, as demonstrated in fiscal 1992 vestors and reform inappropriate national and highlighted in this report, are very posi- policies, unsound financial and economic tive. laws and regulations, and ineffective institutions. The result has been a growing demand MIGA's role for MIGA's promotional and advisory services. MIGA's role in promoting the flow of MIGA also has a unique role to play with investment resources to developing coun- other members of the World Bank Group as tries is unique in that MIGA directly assists they increasingly focus on strengthening the both investors and host country governments. contributions of the private sector to eco- The changing environment for foreign direct nomic growth and development. MIGA's investment - and the concerns it arouses in staff have broadened and deepened their in- prospective investors - is affecting MIGA volvement with otherparts of the Bank Group in two ways: in the past year. MIGA often consults with * Foreign investors are clearly concerned staff of the World Bank, IFC, and the Interna- with reducing the risks and uncertainties as- tional Centre for Settlement of Investment sociated with prospective projects in devel- Disputes on specific economic, technical, oping countries. This concern is evidenced legal, and environmental questions and is by the growing number of inquiries and ap- increasingly consulted by them on the design plications MIGA receives for its political of private sector initiatives. risk insurance coverage.

7 > Country membership

IM.I.G.. q ______

In fiscal 1992, 14 more countries signed the MIGA Convention, bringing the number of signatories to 115.India became the thirteenth Asian country to sign the Convention. Many republics of the former Soviet Union are expected to become signatories shortly. Twenty-one countries completed MIGA membership procedures, bringing the number of full members to eighty-five. The new members are Albania, Argentina, Belize, Bolivia, Republic of Congo, Dominica, El Salvador, Ethiopia, Honduras, Israel, Luxembourg, Malaysia, Nicaragua, Papua New Guinea, Paraguay, Peru, Sudan, Tanza- nia, Uganda, Yugoslavia, and Zimbabwe. The increase in membership raised MIGA's subscribed capital by 7 percent to $844 million. A total of sixty-nine Category II member countries are entitled to receive guarantee and promotional and advisory assistance (see map). Country membership in MIGA is illus- trated in figure 1. Figure 1. MIGA Membershipgrowth * MEMBER COUNTRIES 120- J2Convention Signatories Albania Czech and Slovak Fed.Rep. Ireland Angola Denmark Israel 100 - * Full Members _ Argentina Dominica Italy Bahrain Ecuador Jamaica 80 - Bangladesh Egypt, Arab Republic of Japan :3 El Salvador Jordan 0 ~~~~~~~~~~~~Barbados 60 -Beliie Ethiopia Kenya dB 60 - l l i Bolivia Fiji Korea, Rer a) Botswana Finland Kuwait E 40 Burkina Faso France Lesotho Z | I | ICameroon E i Germany Luxembcg.. Canada ~~Ghana Madagas-c 20- Chile Grenada Malawi China Guyana Malaysia

0 * I I I Congo, Republic of Honduras Malta April FY FY FY FY FY Cote d'lvoire Hungary Mauritius 1988 1988 1989 1990 1991 1992 Cyprus Indonesia Namibia

8 COUNTRIES IN THE PROCESS OF FULFILLING MEMBERSHIP REQUIREMENTS Netherlands Sudan Belgium Libya Nicaragua Swaziland Benin Mali Nigeria Sweden Brazil Mauritania Norway Switzerland Bulgaria Mongolia Oman Tanzania Cape Verde Morocco Pakistan Togo Colombia Philippines Papua New Guinea Tunisia Costa Rica Romania Paraguay Turkey Equatorial Guinea Rwanda Peru Uganda Gambia Seychelles Poland United Kingdom Greece Sierra Leone Portugal United States Guatemala St. Kitts & Nevis Saudi Arabia Vanuatu Guinea Syrian Arab Republic Senegal Western Samoa Guinea-Bissau Trinidad & Tobago Spain Yugoslavia Haiti Uruguay Sri Lanka Zaire India Yemen, Republic of St. Lucia Zambia The denominations, classifications, boundariesand colors usedin the map in the MIGA St. Vincent Zimbabwe Annual Report 1992do not imply on the part of the World Bank Group any judgementon the Stelegal or other statusofany territory, or any endorsementor acceptane ofany boundary. M.I.G.A. The guarantees program

intrigued by prospects of high returns on projects in these countries, but they also worry about the associated risks, especially Deciding whether to venture into a foreign the political risks. In this uncertain environ- country is often a complex, time-consuming ment, MIGA and most national and private process for an investor, especially when dif- investment insurers have witnessed a steady ferences in political and economic systems stream of inquiries about investment insur- and in culture and language are great. Inves- ance coverage. tors generally subject potential projects in developing countries to more intensive analy- Portfolio distribution sis than investments in their own countries. This scrutiny includes careful investigation As is any insurer, MIGA is concerned with of potential risks, both commercial and po- the distribution of its current and future port- litical, and consideration of how to manage folio of risks. For a relatively new insurer, such risks. MIGA has a portfolio that is reasonably well Investors often evaluate numerous poten- distributed by country and by type of cover- tial projects before reaching a decision. This age (figure 2). Its sectoral coverage is some- process makes it difficult to identify in ad- what concentrated in the financial and min- vance which projects will go forward, and ing sectors, but neither constitutes more than investment insurers face a strong element of uncertainty in projecting their own business levels and allocating resources. MIGA is no Figure 2. exception. The volume of MIGA's business Totalexposure by type of coverage in fiscal 1992,forexample, was almostdouble (as ofJune 30,1992) the projected amount. There are several indicators that suggest currency that demand for MIGA guarantees will re- transfer $277.7 Million main large and continue to grow over the next few years. One is the expansion in the number of preliminary applications. Another is Expropriation $M33l4.2 the more receptive environment that has followed the great political and economicWaancil changes of the last several years. There are Wiirban $210Million many new prospects for investment in the developing world. Of particular interest re- _ cently are the opportunities in the former contract $50 Million socialist countries of Central and Eastern Europe and the newly independent states of the former Soviet Union. Many investors are 0 50 100 150 200 250 300 350 400 450

,Mostof the republics of theformer Soviet Union are expected to join MIGAsoon.

10 40 percent of the portfolio. Furthermore, Marketing much of MIGA's mining exposure is through reinsurance of national investment insurance In fiscal 1992 MIGA continued its previ- agencies. MIGA's country coverage is spread ously launched marketing efforts to explain among ten countries; its highest level of its programs and services. MIGA intensified exposure is in Turkey, which constitutes less its literature distribution activities and par- than 19 percent of the portfolio. ticipated in numerous seminars and confer- Investors' preliminary applications to ences worldwide to inform investors and MIGA are a rough indicator of MIGA's fu- government policy makers about its services. ture portfolio. Active registrations increased Through journalists, business groups, and by 34 percent to 302 during the year. These insurance brokers, MIGA launched several projects involved investors from twenty- marketing efforts aimed specifically at the seven countries with prospective investments large market of European investors. MIGA distributed across seventy-seven countries. also increased its efforts to reach these inves- This growth was spread broadly across tors directly through conferences, speeches, geographic regions, with all regions experi- and one-on-one business meetings. encing a rise in applications. Distribution of An example of MIGA's targeted market- project applications by sector continued to be ing to specific sectors during fiscal 1992 was excellent (figure 3), while the diversity of its focus on financial institutions. The large host countries also improved. The breadth of number of guarantees issued for banking- these preliminary applications suggests that related projects this year clearly attests to MIGA will have a growing and increasingly the success of these efforts (see box on well-diversified portfolio in the future. page 16).

Guaranteesissued Figure 3. Total registrations by industry (asof June 30, 1992) During the fiscal year MIGA issued 21 guarantees covering a maximum liability Oil & Gas11% of $313million. These guarantees will facili- Communications11% tate aggregate direct investments totaling Power9% about $1 billion and will provide the host Mining13% governments with substantial annual ben- Services _ ^ _ Mining13% efits in foreignexchange (an estimated$130 8% : | #_ million annually) and revenues (an estimated FAishing2%$29 million annually) in the form of increased taxes and dividends. These invest- Financial ments are also expected to directly create an 10% X i ' -0 /1C1on/struction estimated 2,920 new jobs in the host coun- Forestry tries and to provide such critical, if less Forestry 1% Other1% tangible, benefits as employeetraining and Manufacturing23% the transfer of technologyand knowledge of international product standards (table 1).

11 The projects guaranteed by MIGA in fis- The Coca-Cola Export Corporation/ cal 1992 are described in the following para- Ringnes A.S., Poland graphs. As part of MIGA's normal clearance process, the developmental, financial, and The Coca-Cola Export Corporation,aU.S. environmental impact of each investment company, and Ringnes A.S., a Norwegian project was carefully evaluated before guar- company, have established Warszawa Coca- antee coverage was extended. Cola Bottlers Ltd., a joint venture company Thatwill construct soft drink bottling facili- Sociat1 Generale, Poland ties in Warsaw. Ringnes has also established a separatejoint venture company, Bydgoszcz To establish and operate a branch bank in Poland, Societ6 Generale received $14.4 million in loan and equity guarantees from MIGA. The Warsaw branch will provide a wide range of advisory and financial services, including trade finance and medium- and long-term lending. The project will contribute to the development of Poland's financial markets, an effort actively supported by others in the World Bank Group and the InternationalMonetary Fund. The new branch will create twenty-two new jobs. MIGA coverage will protect the investment against MIGA guarantees totalling US$16 million are the risks of currency transfer and expro- supporting new soft drink operations in Poland established by Ringnes of Norway and its U.S. partner, priation. The Coca-Cola Export Corporation.

12 Coca-Cola Bottlers Ltd. in Bydgoszcz, Po- ve Tutunculuk Sanayi ve Ticaret Anoim land. These projects will serve the Polish soft Sirketi, a 75 percent owned joint venture in drink market. Through the construction of Turkey.2 MIGA willprovide coverage against new bottling factories and the establishment the risk of expropriation for fifteen years. of a new transportation and distribution sys- This will be the first privately owned ciga- tem, the two projects will create 484 new jobs rette manufacturing operation in Turkey. The and provide $7.5 million in annual tax rev- project will establish a facility in Torbali to enue for the Polish government. The projects produce several of Philip Morris's interna- will also generate substantial income for lo- tional cigarette brands. As the world's lead- cal suppliers of bottles, crates, trucks, and ing exporter of oriental tobacco, the Turkish other major inputs. MIGA has issued three tobacco industry plays an important role in separate insurance contracts covering the the national economy, and this project will equity investments of the Coca-Cola Export further improve the industry's international Corporation and Ringnes. The total guaran- competitiveness. The project will also tee amount of $16 million covers the risks of privatize a portion of the industry and help to currency transfer and war and civil distur- liberalize the economy. It will generate 200 bance for fifteen years. new jobs during constructionand will employ 1,548 people by the fifth year of operation. Citibank, N.A., Turkey Citibank, N.A., Pakistan MIGA issued a $20 million investment guarantee to cover the expansion of Citibank MIGA issued three loan and equity guar- branch banking operations in Turkey. antees totaling $49.8 million to insure expan- Citibank, a U.S.-based corporation, already sions of Citibank's branch banking opera- has successful branch banking operations in tions in Pakistan. MIGA's guarantees cover Ankara, Istanbul, and Izmir, where it has the risks of currency transfer and expropria- provided a full spectrum of commercial and tion. The increase in branch capital will sig- investment banking services to its public and nificantly raise Citibank's authorized lend- private customers for ten years. The increase ing ceiling and help expand and diversify in branch capital is expected to contribute financial services and resources for produc- significantly to the development of Turkey's tive investment in Pakistan. The expansion is capital markets. MIGA's guarantee covers the expectedto generate$11.6 million a year in tax risks of currency transfer and expropriation. revenuesfor the Pakistan governmentand create 100additional jobs over the next five years. Philip Morris Companies Inc., Turkey Societe Generale, Pakistan MIGA issued a $50 million guarantee to cover a portion of Philip Morris's equity Societ6 Generale, a French company, re- investment in Philip Morris Sabanci Sigara ceived a $12.6 million debt and equity guar-

2Under a policy adopted by MIGA's Board of Directors on March 5, 1992. MIGA will no longer consider issuance of insur ance for investments in tobacco businesses.

13 antee from MIGA for a new branch bank in Komatsu Ltd., Indonesia Pakistan. The Karachi branch will provide a wide range of banking services to its national MIGA issued a $1.4 million guarantee to and international customers, aiding in the Komatsu Ltd., a Japanese company, to cover development of Pakistan's financial sector. its equity investment in P.T. Hokuriku United The branch will create some forty-seven new Forging Industry, an Indonesian joint ven- jobs and generate an estimated $2.6 million ture. The company will manufacture and in tax revenues during its first five years. export forged machinery parts for construc- MIGA's guarantee covers the risks of cur- tion equipment and commercial vehicles. rency transfer and expropriation. Through an extensive training program for its forty-six Indonesianemployees, the project Banque Indosuez, Pakistan will transfer modern forging technology and quality standards. The project will have a Banque Indosuez,a French corporation,has $3.7 million annual net positive effect on the used MIGA's $9.47 million loan guarantee to balance of payments and generate annual tax insure part of the expansion of its branch bank- revenues of over $300,000. MIGA will pro- ing operationsin Karachiand Lahore,Pakistan. vide war and civil disturbance coverage for MIGA's guarantee covers the risks of currency 90 percent of Komatsu's investment for fif- transfer and expropriation. teen years.

Bank of America, Pakistan AVX Corporation, El Salvador

MIGA issued a $5 million equity guaran- For the first time, MIGA used its tee for the expansion of Bank of America's reinsurance facility to provide reinsurance to branch banking operations in Islamabad, Karachi, and Lahore. The project will aid thedevelopment of Pakistan's financial sector by expand- ing and diversifying financial servicesand resourcesfor productiveinvestment. Bank of America's loans to Paki- stani trading and manufacturing companies will facilitate increased production of goods for export. The project will create twenty-eightnew jobs. MIGA's guarantee will insure against the risks of MIGA's first reinsurance arrangement with a private insurance company currency transfer and expro- enabled AVX Corporation to obtain coverage against war and civil priation. disturbance for its subsidiary in El Salvador.

14 a private insurance company, Nordia (see port Development Corporation's insurance bor on page 17). In cooperation with Pan of Cambior Inc.'s $150 million equity and Financial, Nordia's U.S. agent, MIGA loan guarantee contributions to the Omai reinsured 50 percent of the company's expo- Gold Mine Ltd. in Guyana. The project, to sure under its contract with AVX Industries construct and operate an open-pit gold mine, PTE Ltd., for a total coverage of $1.75 mil- will contribute substantially to Guyana's lion, against the risks of war and civil distur- export eamings. In addition, it will create bance. AVX Industries is a wholly-owned 625 new jobs and provide significant infra- subsidiary of AVX Corporation, an Ameri- structure improvements.MIGA's reinsurance can subsidiary of Kyocera Corporation of Japan. In addition, MIGA insured AVX Cor- poration directly for $10.4 million against the risk of war and civil disturbance. The guarantee covers AVX's contribution to the expansion of its capacitor manufacturing facility in the El Salvador Free Zone. Estab- lished in 1977 with a work force of 350, AVX Industries PTE Ltd. has become the largest employer in the area, now employing 1,600 people. A new product line will create forty- nine new jobs and increase the level of local procurement.

Rio Algom Ltd., Chile

In fiscal 1991 MIGA issued a $5 million political risk guarantee to Rio Algom Ltd. of Canada for its investment in the Cerro Colo- rado Copper Mine in Chile. This year MIGA Employees of increased its participation in the project OmaiGold Mine Ltd. in Guyana through a $22.5 million reinsurance contract break ground on with the Overseas Private Investment Corpo- arjcgpoldsmied ration (OPIC) covering a syndication of U.S. by CambiorInc. and European banks lending to the project. of Canada. MIGA reinsured MIGA will provide coverage against the risks Canada's Export of currency transfer, expropriation, and war Development and civil disturbance for fifteen years. iCsuooraienri issued covering Cambiors equity Cambior Inc., Guyana investment and loan guaranty. MIGA issued two reinsurance contracts totaling $49.8 million for the Canadian Ex-

15 covers both Cambior and the project lenders out Argentina, increasing its range of whole- against the risks of currency transfer, expro- sale and retail banking activities. The project priation, and war and civil disturbance. will create forty new jobs and generate $1.9 million in annual tax revenues for the gov- Bank of Boston, Argentina emient of Argentina. MIGA's guarantee will insure Banco de Boston against the risks MIGA issued a $50 million guarantee to of currency transfer and expropriation. cover Bank of Boston's loan to expand its branch banking operations in Argentina. The Claims local enterprise, Banco de Boston, has suc- cessfully conducted business in Argentina As of June 30, 1992 MIGA had not re- since 1917. The expansion will enable Banco ceived any claims, nor was it monitoring any de Boston to add six new branches to the situation that in management's view was thirty-four offices it now operates through- likely to give rise to a claim.

16 Cooperation with other investment insurers

MIGA is enjoined to cooperate with and seek to complement the activities of other investment insurers. To this end, MIGA has the authority to enter into reinsurance and coinsurance agreements with both private and public investment insurers, activities in which it has enjoyed considerable success. MIGA completed its first reinsurance arrangements with two national insurers (in Canada and the United States) in fiscal 1990. The following year MIGA expanded its coinsurance activities, participating in projects with insurers from Denmark, Japan, the United Kingdom, and the United States. In fiscal 1992 MIGA entered into three reinsurance arrangements with national insurers from Canada and the United States and into its first agreement with a private political risk insurer, Nordia. The reinsurance of Nordia - for an investment in El Salvador by AVX Corporation, a U.S.-based company majority-owned by Kyocera Corporation of Japan - is an interesting example of two investment insurers cooperating to meet the needs of an investor whose project is making a significant contribution to the local economy. AVX Corporation has manufactured electronic capacitors in El Salvador since 1977. At that time, as a U.S .-owned company, AVX purchased political risk insurance from the Overseas Private Investment Corporation (OPIC), a U.S. government agency that provides insurance for U.S. investments in other countries. When AVX merged with Kyocera in 1990, however, it became ineligible for OPIC coverage, and it was not eligible forJapanese governmentpolitical risk insurance because the company was based in the United States. AVX was in a bind. Private insurers, its only apparent alternative for insuring its existing investment, were unwilling at the time to provide political risk insurance in El Salvador. AVX approached MIGA about insuring a proposed expansion in its Salvadoran operations, at the same time asking whether MIGA could insure the existing investment. Although MIGA does not directly insure existing investments, it has a limited ability to do so under certain circumstances through its reinsurance facility. Considering the size of the expansion and the importance of the project to the economy of El Salvador, MIGA agreed to insure the expansion investment. And, since a private political risk insurer was willing to assume the primary risk on the existing investment, MIGA also agreed to reinsure that investment. Nordia, through its U.S. agent, Pan Financial, underwrote the risk based on MIGA's willingness to reinsure 50 percent of its liability.

17 MIGA and financial institutions

Many financial institutions today are cautious about making investments in developing countries or increasing their country exposure because of concerns about political risk and special provisioning requirements. MIGA's political risk guarantee program can be particularly attractive to financial institutions in these situations. MIGA can insure a variety of bank investments, including such equity investments as those derived from debt-equity swaps, currency swaps, and expansion of branch capital, as well as loans to nonrelated borrowers. MIGA can also insure a guarantee that a bank may require from the foreign sponsor of a project in a developing country. Since MIGA provides long-term, noncancellable insurance against political risks and is a member of the World Bank Group, bank regulators in some countries have exempted commercial banks from special provisioning requirements for country risk on their loans or investments insured by MIGA. To date such exemptions have been explicitly granted by banking authorities in France and Spain. Regulatory authorities in other countries are expected to make similar rulings shortly.

7_1

Puto stngthtowork foryou,

]8 Since MIGA began to intensively market its program to the banking community less than a year ago, the response from banks has exceeded expectations. Insurance contracts issued to banks for all forms and types of investment represent 19 percent of all contracts executed to date and 38 percent of MIGA' s total contingent liability. All the contracts were concluded this fiscal year. By insuring financial institutions, MIGA is able to make an important contribution to the development of the financial sector in many developing countries.

SOCIETE GENEIRALE

BANQUEINDOSUEZ

19 Promotional and advisory services E13M.I.G.A. 5 L sions with several governments on ways to promote foreign direct investment and a healthy private sector. MIGAjoined in World During fiscal 1992 MIGA continued to Bank Group efforts to coordinate technical undertake complementary activities to im- cooperation to the former Soviet republics, prove the ability of member countries to focusing on private sector development and attract foreign investment. Promotional and investment promotion. advisory services were undertaken directly by MIGA and through its joint venture, the Executive development program Foreign Investment Advisory Service (FIAS). MIGA collaborated with many international To complement its investment promotion institutions and private organizations in de- conferences and improve communication be- livering these services. In fiscal 1992 MIGA tween local managers in developing coun- also began charging fees for its promotional tries and potential foreign investors, MIGA services. launched an executive development program series in fiscal 1992. The programs give local Investment promotion participants a better understanding of how to develop business plans, find the right foreign In collaboration with governments, MIGA business partner, apply modern international organizes investment promotion conferences business practices to market their firms, and to alert the international business community evaluate and negotiate foreign business deals. to business opportunities in a developing In fiscal 1992 four executive development country and to facilitate dialogue between programs were conducted for over 200 busi- interested foreign investors and local business executives representing companies of ness managers and policy makers. Confer- all sizes and engaged in many different types ence participants receive information on the of activity. Programs were conducted for country's investment climate and profiles of executives from Hungary, the Czech and individual investment projects. Slovak Federal Republic, Angola, and other The conferences provide an opportunity Portuguese-speaking countries in Africa (see for foreign investors from a large number of box on page 24). The participants found the countries to hear directly from local senior programs to be a practical and valuable way government officials about their economic of helping them understand new perspectives programs and outlook, to explore investment and methods of attracting foreign invest- opportunities, and to discuss prospective in- ment. vestments with local business executives. Many joint venture arrangements are set in Foreign investment policy roundtable motion during these conferences. In fiscal 1992 an investment promotion conference MIGA designed a foreign investment was held in Pakistan (see box on page 23). In policy roundtable in fiscal 1992 to provide a preceding years, conferences have been held forum for high-level government officials in Ghana, Hungary, and Jamaica. from developing countries to share their ex- During the year MIGA also held discus- periences in attracting foreign direct invest-

20 ment. The first roundtable was held in Africa Although MIGA - not the investor-is the in June 1992 (see box on page 25). The beneficiary of the most favorable treatment, roundtables give policy makers an opportu- the investor benefits indirectly from the pro- nity to learn from their peers in other coun- tection granted MIGA. Furthermore, since tries about the government policies and pro- the legal protection agreement enhances the grams that are most effective in attracting overall investment climate in a developing investments. Managers ofmultinational com- country, it also serves the country's interests. panies are also invited to discuss the economic and political factors they consider Foreign Investment Advisory Service when making foreign investment decisions. In fiscal 1992 MIGA also provided advice Advice on legal frameworks on foreign direct investment policies, programs, and institutions through the Foreign A country's legal and regulatory frame- Investment Advisory Service (FIAS), its work for foreign direct investment often has jointly managed venture with the IFC and the a decisive impact on the decision to invest. World Bank. Either directly or through participation in the Overall, FIAS worked in thirty-two coun- work of FIAS or other departments of the tries during the fiscal year, nineteen of them World Bank Group, MIGA has worked with members of MIGA. The program was di- a number of countries to liberalize laws and vided approximately equally among coun- regulations applying to foreign investments. tries in Africa (see box on page 26), Asia, Several developing member countries have and the rest of the developing world. Work amended their legislation to facilitate re- was completed in twenty-six countries, of course to internationalarbitration as the means which fourteen were MIGA members. of settling investment disputes or have en- Some notable examples of FIAS work in acted new statutes for this purpose. Many MIGA member countries include the follow- have entered into bilateral treaties for the ing: protection and promotion of foreign invest- * In China, FIAS revisited its earlier study ments. MIGA also concluded legal protec- of impediments to foreign investment to iden- tion agreements with six member countries. tify those remaining after five years and to When an investment covered by MIGA is see whether new impediments had emerged. located in a country that has concluded a * InWesternSamoa,FIASidentifiedsev- legal protection agreement with the agency, eral policy measures that may be retarding the investment benefits from the most favor- foreign investment flows to this small island able treatment granted by that country to any economy. other state or national or international entity. * In Tunisia, FIAS evaluated the invest- In essence the provisions of any bilateral or ment policy and institutional framework for multilateral investment treaty to which the investment promotion. host country is a party apply to the insured * FIAS completed a study of investment investment, even if the country from which incentives in five Eastern European coun- the investment originates has not concluded tries (including MIGA members: the Czech an investment treaty with the host country. and Slovak Federal Republic, Hungary, and

21 Poland). The study was used in a seminar to ment prospects. This work is supported by a advise these countries on measures they could United Nations Development Program grant take to improve their incentive structures. to FIAS. MIGA legal staff participated in FIAS advisory activities became more di- several FIAS advisory projects. Also, FIAS verse in fiscal 1992 as more specific policy staff have helped MIGA in its country mem- niches were investigated. For example, in bership drive. three projects FIAS explored policies and FIAS has been a low-cost and effective programs to help facilitate and promote link- instrument enabling MIGA to extend its con- ages between foreign investors and local cems and advisory reach to its own member- suppliers. However, the bulk of the advisory ship and beyond. In fiscal 1992 the boards of work, as in earlier years, focused on diagnos- MIGA, IFC, and the World Bank took steps tic studies and reviews of specific investment to strengthen FIAS while retaining its essen- policies. tial link with MIGA. The Bank has become a In several MIGA member countries, work cosponsor of FIAS along with IFC and MIGA, completed during the year and in earlier and the three institutions will now provide years yielded results in fiscal 1992. Early in half of the funding required by a growing the year Poland adopted a new investment FIAS program overfiscal 1993-95.The newly code that included improvements suggested designated General Manager of FIAS will by FIAS. More recently Papua New Guinea have more authority and will report to a established a new investment promotion or- supervisory committee composed of the Ex- ganization and abolished aregulatory institu- ecutive Vice President of IFC, the Executive tion at FIAS's suggestion. Vice President of MIGA, and a Managing FIAS worked directly with MIGA in vari- Director of the Bank. In structuring this ar- ous activities during the year and has increas- rangement, care was taken to ensure that the ingly involved MIGA staff in its projects. essential relations between FIAS and MIGA MIGA joined FIAS in overseeing the devel- are maintained and even strengthened, so opment of computer software to enable in- that FIAS will continue to be an effective vestment promotion agencies to better track instrument through which MIGA can serve potential investors as they consider invest- its member countries.

22 Exploring new opportunities for investmentinPakistan

Over 400 private investors from more than forty countries met in Islamabad, Pakistan in November 1991 to explore the new business opportunities that opened up as the country reformed its policies and turned more attention to the growth potential of its private sector. The three-day investment promotion conference - the fourth such conference organized by MIGA- brought together foreign business executives and more than 200 local entrepreneurs. Conference participants were able to examine, first hand, investment opportunities in agribusiness, leather and textiles, the electrical and electronics industries, chemicals, pharmaceuticals, and engineering. Foreign investors heard directly from senior government officials about the recent reforms affecting foreign investment and about the govermnent's commitmnentto an open and dynamic economy. in his keynote address Prime Minister Nawaz Sharif highlighted the reforms of the past year, noting: "We are also determined to provide constitutional protection to these measures. I would therefore like to announce in no uncertain terms that the stability of investment incentives is, and will be, guaranteed by law." At the conclusion of the conference, the Pakistan government estimated that $600 million in commitments through the exchange of letters of intent between potential joint venture partners had been made. The government has embarked on an aggressive follow- up program to continue to encourage conference participants to invest in Pakistan, establishing a special coordinating committee for this purpose.

23 Learning how to do business with foreign partners

With the theme Doing business with foreign partners, MIGA introduced its first executive development program to twenty-three managers from Portuguese-speaking countries in Africa (Angola, Cape Verde, Guinea Bissau, Mozambique, and Sao Tome and Principe). The five-day program, held in Portugal in September 1991, was part of a larger effort to promote foreign direct investment in Lusophone African countries by helping them build the institutional structures needed for the transition to private sector- led development. MIGA established a special Fund for Investment Promotion in Lusophone Africa (FIPLA), sponsored by prominent international corporations and multilateral agencies such as the United Nations Development Program and the Africa Project Development Facility of the International Finance Corporation. The fund will support MIGA's promotional activities in Lusophone Africa. As a follow-up to this program MIGA organized an executive development program for Angola in April 1992. About seventy business executives, most of them from the private sector, participated in discussions on developing and operating with a business plan, negotiating strategies and applications, and exploring prospects for foreign investment in Angola. MIGA also organized executive development programs in Central European countries, for the emerging private sector. Programs in Hungary (September 1991) and the Czech and Slovak Federal Republic (October 1991) exposed some 120 participants to "a new way of thinking and new methods" and encouraged participants to identify and develop aspects of their business and management that would attract foreign partners. The programs emphasized Managing the searchforforeign partners as a way to increase foreign direct investment in these countries. The programs were cosponsored with domestic banks and introduced the practice of banking institutions offering a wider range of services to their clients in these countries.

Senior business managers from the Czech and Slovak Federal Republic discuss how to develop business plans and attract foreign investment partners at an executive development program organized by MIGA in Prague, October 1991.

24 Sharing successful experiences among developing countries: policies that attract foreign direct investment

Over the past twenty years developing countries have had very different experiences in attracting foreign direct investment. A small group of about a dozen countries, such as Thailand and Malaysia, has been very successful in attracting foreign investment. But for most other developing countries, particularly in Africa, the annual inflow of investment has actually declined or stagnated at low levels. For African countries the outlook for the 1990s remains difficult, given the exceptionally stiff worldwide competition for foreign investment capital. These countries will need to take bold steps to improve their attractiveness to investors. At a roundtable conference organized by MIGA and hosted by the government of Botswana, high-level African officials had a unique opportunity to discuss strategies with their peers from countries that have had success in attracting foreign investment. The roundtable conference, held in June 1992, brought together a group of 16 ministers and high government officials from several Sub-Sahara African countries, with six senior government officials from developing countries that have been successful in attracting foreign investment. This dialogue was enriched through the exchange of views between the African policy makers and about a half dozen senior managers from private multinational companies. The three-day conference showed clearly that foreign investors desire, above all, a stable and predictable environment - economic, social, legal, and political. Their investment plans are influenced by their assessment of how even-handedly and scrupu- lously a country carries out agreements reached with a private partner, how fairly its legal system functions, and how stable its overall political situation is. Foreign investors also look for straightforward procedures and speedy processing, a minimum of government interference in day-to-day business operations, and a competitive economic environment.

Senior policy makers from African countries and other developing countries met to discuss successful strategies in attracting foreign investment, at a MIGA-organized Roundtable on Foreign Direct Investment Policies in Africa, in Botswana, June 1992.

25 :FIAS support of MIGA member countries in Africa

In Sub-Saharan Africa FIAS has assisted fourteen MIGA member countries and eight MIGA signatory nations. Recent examples highlight the speed with which improvements are being made in the investment environment with FIAS assistance. Since mid-1990 FIAS has assisted the government of Malawi in preparing an investment policy statement, an investors guide, and a statute for establishing an investment promotion agency, all of which have been embodied in legislation passed by Parliament. These measures greatly simplify the regulatory requirements of business registration, establishment, and land acquisition, and have improved investment incentives and the investor services provided by the government. FIAS is now launching a program of institution-building assistance to the new promotion agency, supported in part by a World Bank credit. In Namibia FIAS work since early 1992 has helped in the drafting of new investment legislation designed to substantially improve the investment incentives, facilities, and institutional arrangements for the approval and promotion of investment. FIAS has also been asked to help draft an investment policy statement, for which work is already under way, and to help develop investment promotion strategies and programs for the country.

26 Officers of the Agency s 0M.I.G.A.4--L

1 '1 i

. ) 1

Standing (left to right): Luis Dodero, General Counsel; Timothy T. Thahane, Secretary; Yoshio Terasawa, Executive Vice President; Ghassan El-Rifai, Vice President, Policy and Advisory Services: Leigh P. Hollywood, Vice President, Guarantees; W. John Griffith. Chief Financial and Administrative Officer.

Financial Statements of the Multilateral Investment Guarantee Agency

Balance Sheets 3t

Statements of Income 32

Statements of Capital and Retained Earnings 32

Statements of Cash Flows 33

Statement of Subscriptions to Capital Stock and Voting Power 34

Notes to Financial Statements 36

Report of Independent Accountants 40

Multilateral Investment Guarantee Agency Balance Sheets June 30, 1992 and June 30. 1991 Expressed in thousands of US dollars

1992 1991 Assets

CASH...... S 3.653 $ 2 S57

INVESTMENTS - Note B Time deposits and other obligations of banks and financial institutions ...... 96,081 58.358

NONNEGOTIABLE, NONINTEREST-BEARING DEMAND OBLIGATIONS FROM MEMBERS ...... 84.973 76.212

OTHER ASSETS ...... 244 356

TOTAL ASSETS .S 184.951 $ 167,783

Liabilities, Capital and Retained Earnings

LIABILITIES Accounts payable and accrued expenses ...... S 2.650 3.826 Unearned premiums ...... 2,131 1,542 Reserve for claims - Note A ...... 1.079 - Total liabilities...... 5.860 5,368

CAPITAL AND RETAINED EARNINGS Capita] stock - Note C Authorized capital (100.000 shares - 1992 and 1991) Subscribed capital (78.039 shares - 1992, 72,974 shares - 1991) ...... 844,382 789.579 Less uncalled portion of subscriptions ...... 675.506 631,663 Less amounts due on called subscriptions ...... 1.069 2,370 167,807 155,546 Payments on account of pending subscriptions ...... 604 1,362 168.411 156,908 Retained earninEs Accumulated net income ...... 8146 7.62 Cunmulativetranslation adjustments ...... 2,534 (, 121) 10.680 5,507

Total capital and retained earnings ...... 179.091 162.415

CONTINGENT LIABILITIES - Note D ......

TOTAL LIABILITIES. CAPITAL AND RETAINED EARNINGS ...... S 184,951 $ 167.783

See Notes to Financial Statements

31 Multilateral Investment Guarantee Agencv Statements of Income For the fiscal vears ended June 30, 1992 and June 30, 1991 Expressed in thousands of US dollars

1992 1991

INCOME Income from investments - Note B ...... $ 5,355 $ 7,174 Premium income ...... 3.099 1,827 Miscellaneous income ...... 212 -

Total income ...... 8.666 9,001

EXPENSES Administrative and other expenses - Note E ...... 6.669 6,353 Provision for claims - Note A ...... 1,079 - Contribution to special program - Note E ...... 400 400

Total expenses ...... 8,148 6,753

NET INCOME ...... $ 518 $ 2,248

Statements of Capital and Retained Earnings For the fiscal years ended June 30, 1992 and June 30, 1991 Expressed in thousands of US dollars

1992 1991

CAPITAL Balance at beginning of fiscal year ...... $ 156,908 $ 153,051 New subscriptions...... 12,261 4,245 Payments on account of pending subscriptions ...... (758) (388)

Total capital ...... $ 168,411$ 156,908

RETAINED EARNINGS Accumulated net income Balance at beginning of fiscal year ...... $ 7.628 $ 5,380 Net income for fiscal year ...... 518 2,248 8.146 7,628 Cumulative translation adjustments Balance at beginning of fiscal year ...... (2,121) 96 Translation adjustments for fiscal year ...... 41655 (2,217) 2.534 (2,121) Total retained earnings ...... $ 10,680 $ 5,507

See Notes to Financial Statements

32 Multilateral Investment Guarantee Agency Statements of Cash Flows For the tiscal years ended June 30. 1992 and June 30. 1991 Expressed in thousands of US dollars

1992 1991

CASH FLOWS FROM OPERATING ACTIVITIES: Net income ...... $ 518 $ 2.248 Adjustments to reconcile net income to net cash provided by operating activities: Provision for claims ...... 1,079 - Decrease in other assets ...... 123 60 Increase in unearned premiums ...... 586 493 (Decrease) increase in accounts payable ...... (1.061) 788

Net cash provided by operating activities ...... 1,245 3,589

CASH FLOWS FROM FINANCING ACTIVITIES: Capital subscription payments ...... 5.327 2,550

EFFECT OF EXCHiANGERATE CHANGES ON CASH AND INVESTMENTS ...... 1,947 (1.918)

Net increase in cash and investments ...... 8.519 4,221 Cash and investments at beginning of fiscal year ...... 91.215 86.994

CASH AND INVESTMENTS AT END OF FISCAL YEAR ...... 5 99.734 $ 91,215

COMPOSED OF: Cash ...... 3.6$ $ 53 2.857 Investments...... 96.(81 88,358

$ 99.734 $ 91,215

See Notes to Financial Statements

33 Multilateral Investment Guarantee Agency Statement of Subscriptions to Capital Stock and Voting Power June 30, 1992 Expressed in thousands of US dollars

Subscriptions (Note C) Voting Power Amount Number % Total Amount Amount Subject of of Members Shares Subscribed Paid-In Due to Call Votes Total

Albania ...... 58 $ 628 $ 126 S - $ 502 235 0.25 Angola ...... 187 2,023 404 - 1,619 364 0.39 Argentina ...... 1,254 13,568 2,714 - 10,854 1,431 1.54 Bahrain ...... 77 833 167 - 666 254 0.27 Bangladesh ...... 340 3,679 736 2,943 517 0.56 Barbados ...... 68 736 147 - 589 245 0.26 Belize ...... 50 541 1(8 433 227 0.24 Bolivia ... 125 1,353 271 1,082 302 0.32 Botswana ...... 50 541 108 - 433 227 0.24 Burkina Faso ...... 61 660 132 - 528 238 0.26 Cameroon ...... 107 1,158 232 - 926 284 0.31 Canada ...... 2,965 32,081 6,416 - 25,665 3,142 3.38 Chile ...... 485 5,248 1,050 - 4,198 662 0.71 China ...... 3,138 33,953 6,791 - 27,162 3,315 3.56 Congo, Republic of ...... 65 703 141 - 562 242 0.26 Cote d'lvoire ...... 176 1,904 381 - 1 523 353 (1.38 Cyprus...... 104 1,125 225 - 900 2)81 0.30 Czechoslovakia ...... 667 7,217 1,443 - 5,774 844 0.91 Denmark ...... 718 7,769 1,554 - 6,215 895 0.96 Dominica ...... 50 541 108 433 227 0.24 Ecuador ...... 182 1,969 394 - 1,575 359 0.39 Egypt, Arab Republic of ...... 459 4,966 993 3,973 636 0.68 El Salvador ...... 122 1,320 264 - 1,056 299 0.32 Ethiopia ...... 70 757 152 - 6(05 247 (0.27 Fiji ...... 71 768 154 614 248 0.27 Finland ...... 600 6,492 1,299 - 5,193 777 0.83 France ...... 4,860 52,585 10,518 - 42,067 5,037 5.41 Germany ...... 5,071 54,868 10,973 - 43,895 5.248 5.64 Ghana ...... 245 2.651 530 - 2,121 422 0.45 Grenada ...... 5() 541 108 - 433 227 0.24 Guyana ...... 84 909 182 - 727 261 0.28 Honduras ...... 101 1,093 219 874 278 0.30 Hungary ...... 564 6,102 1,220 - 4.882 741 0.80 Indonesia ...... 1,049 11,350 2,27(0 9,08( 1,226 1.32 Ireland ...... 369 3,993 798 - 3,195 546 0.59 Israel ...... 474 5,129 1,025 - 4,104 651 0.70 Italy ...... 2.820 30,512 6,102 - 24,410) 2,997 3.22 Jamaica ...... 181 1,958 391 - 1,567 358 0.38 Japan ...... 5,095 55,128 11,026 - 44,102 5,272 5.66 Jordan ...... 97 1,050 210 - 840 274 0.29 Kenya ...... 172 1,861 372 - 1,489 349 0.37 Korea, Republic of ...... 449 4,858 971 - 3,887 626 0.67 Kuwait ...... 930 10.063 2,013 - 8,050 1,107 1.19 Lesotho ...... 50 541 1(8 - 433 227 (0.24 Luxembourg ...... 11...1i6 1,255 251 - 1,004 293 0.31 Madagascar ...... 100 1,082 216 - 866 277 0.30 Malawi ...... 77 833 167 - 666 254 0.27 Malaysia ...... 579 6,265 1,253 - 5.012 756 0.81

34 Multilateral Investment Guarantee Agency Statement of Subscriptions to Capital Stock and Voting Power June 30, 1992 Expressed in thousands of US dollars

Subscriptions (Note C) Voting Power Amount Number % Total Amount Amount Subject of of Members Shares Subscribed Paid-In Due to Call Votes Total

Malta ...... 75 $ 811 $ 161 $ - $ 650 252 0.27 Mauritius ...... 87 941 188 753 264 0.28 Namibia ...... 107 1,158 232 - 926 284 0.31 Netherlands ...... 2,169 23,469 4,694 - 18,775 2,346 2.52 Nicaragua ...... 102 1,104 221 - 883 279 0.30 Nigeria ...... 844 9.132 1,826 7.306 1,021 1.10 Norway ...... 699 7.563 1.513 6.050 876 0.94 Oman ...... 94 1.018 204 814 271 0.29 Pakistan ...... 660 7,141 1,428 - 5,713 837 0.90 Papua New Guinea ...... 96 1.039 208 - 831 273 0.29 Paraguay ...... 80 866 173 - 693 257 0.28 Peru ...... 373 4.036 807 - 3,229 550 0.59 Poland ...... 764 8.266 1.653 - 6,613 941 1.(1 Portugal ...... 382 4.133 827 - 3,306 559 0.60 St. Lucia ...... 50 541 1(8 - 433 227 0.24 St. Vincent and the Grenadines .. 50 541 108 - 433 227 0.24 Saudi Arabia ...... 3.137 33.942 6.788 - 27.154 3,314 3.56 Senegal ...... 145 1.569 314 - 1,255 322 0.35 Spain ...... 1285 13.904 2,781 - 11,123 1.462 1.57 Sri Lanka ...... 271 2.932 586 - 2.346 448 0.48 Sudan ...... 206 2,229 446 - 1.783 383 0.41 Swaziland ...... 58 628 126 - 502 235 0.25 Sweden ...... 1,049 11,350 2,270 - 9.080 1.226 1.32 Switzerland ...... 1.so500 16,230 3.246 - 12,984 1.677 1.80 Tanzania ...... 141 1.526 305 - 1.221 318 0.34 Togo ...... 77 833 167 - 666 254 0.27 Tunisia' ...... 156 1,688 - 338 1.350 333 0.36 Turkey ...... 462 4.999 1.000 - 3,999 639 0.69 Uganda ...... 132 1.428 286 - 1,142 309 0.33 United Kingdom ...... 4.860 52,585 10,517 - 42.068 5.037 5.41 United States ...... 20.519 222.016 44,404 - 177,612 20,696 22.23 Vanuatu ...... 50 541 108 - 433 '27 0.24 Western Samoa...... 50 541 108 - 433 227 0.24 Yugoslavia ...... 635 6,871 1,374 - 5.497 812 0.87 Zaire' ...... 338 3.658 - 731 2.927 515 0.55 Zambia ...... 318 3.441 688 - 2,753 495 0.53 Zimbabwe ...... 236 2,553 511 - 2.042 413 0.44

Total - June 30. 1992h 78,039 $844,382 5167.807 $1,069 $ 675.506 93.()84 10(.(

Total - June 3(). 199b .72.974 $789.579 $155,546 52,370 S 631,663 84,302

a. Amounts aggregating the equivalent of $604,000 have been received from (i) member countries on account of their initial subscriptions that are in process of completion: Tunisia 5169.000 and Zaire $1,000; (ii) countries that have signed and/or ratified the Convention and are in the process of completing their membership requirements: The Gambia $40,000. Mali $22,000, Mauritania S68,000, and Trinidad and Tobago $165.000: (iii) non-signatory countries as part of their forthcoming subscription: Estonia 553,000 and Lithuania $86,000. b. May differ from the sum of individual figures shown because of rounding. See Notes to Financial Statements 35 Multilateral Investment Guarantee Agencv Notes to Financial Statements June 30, 1992and June 30, 1991

Statement of Agency Purpose

The Multilateral Investment Guarantee Agency (MIGAj is a member of the World Bank Group designed to help developing countries attract productive foreign investment by both private investors and commercially operated public sector companies. Its facilities include guarantees against noncommercial risks and a program of consultative and advisory services to promote improvements in member countries environments for foreign investment.

The Agency was established on April 12, 1988, when 29 countries ratified the MIGA Convention, and their subscriptions totaled 53.38 percent of the Agency's authorized capital.

Note A: Summary of Significant Accounting and Related Policies

MIGA's financial statements have been prepared in conformity with Intemational Accounting Standards. In the absence of such standards, then, subject to relevant legal requirements, the policy adopted is that considered most appropriate to the circumstances of MIGA having regard to the accounting principles used in the United States and the practices of other international insurance entities. The following summary of policies adopted by MIGA is provided to assist readers in the interpretation of these financial statements. The accounting policies followed generally are consistent in all material respects with accounting principles in the United States.

Translation of Currencies

MIGA's financial statements are expressed in terms of United States dollars solely for the purpose of summarizing financial position and the results of its operations for the convenience of its members and other interested parties.

MIGA is an international organization that conducts its operations in the currencies of all its members. MIGA's resources are derived from its capital and accumulated eamings in its members' currencies. MIGA strives to minimize exchange rate risks in a multicurrency environment. As such. MIGA attempts to match its contingent obligations in any one currency with assets in the same currency.

Accordingly, MIGA may periodically undertake currency conversions to match the currencies underlying its reserves with those of the outstanding contingencies. The purpose of these conversions will be to minimize currency exposure that may occur through operations. Otherwise, MIGA will not convert one currency into anotherexcept for small amounts required to meet certain operational needs.

Assets and liabilities are translated at market rates of exchange at the end of the period. Capital subscriptions are stated in accordance with the procedures described below. Income and expenses are generally translated at an average of the market rates of exchange in effect during each month. Translation adjustments are charged or credited to retained earnings.

36 Multilateral Investment Guarantee Agency Notes to Financial Statements June 30, 1992 and June 30, 1991

Valuation of Capital Stock

Under the Convention of MIGA, all payments from members subscribing to the capital stock of MIGA shall be settled on the basis of the average value of the SDR in terms of United States dollars for the period January 1, 1981to June 30, 1985, such value being equal to $1.082 for one SDR.

Investments

MIGA's investment holdings are valued at market, with both realized and unrealized gains and losses included in income from investments.

Due to the nature of the investments held by the Agency and its policies governing the level and use of such investments, the Agency classifies the investment portfolio as an element of liquidity in the Statement of Cash Flows.

Revenue Recognition

Revenue from premium payments for both direct and assumed reinsurance contracts is recognized on a pro rata basis over the contract period.

Reserve for Claims

The reserve for claims provides for any losses inherent in guarantee operations based upon claim submissions, consideration of loss experiences by insurers engaged in similar underwritings. and other factors including changes in the composition and volume of the insurance and outstanding guarantees and worldwide economic and political conditions. The reserve is increased by provisions charged to expense and decreased for claims settlements.

Acquisition Costs

Costs of acquiring investment guarantees are expensed in the year incurred, as such amounts are not material.

Note B: Investments

As of June 30, 1992. the investment portfolio was valued at market, which approximates cost. The investment portfolio was denominated primarily in United States dollars with instruments in nondollar currencies representing 19.4 percent of the portfolio.

37 Multilateral Investment Guarantee Agency Notes to Financial Statements June 30, 1992 and June 30, 1991

Note C: Capital Stock At June 30,1992, MIGA's authorized capital stock comprised 100,000 shares.,of which 78,039 (72,974 - 1991) shares had been subscribed. Each share has a par value of SDR0O,000, valued at the rate of $1.082 per SDR. Of the subscribed capital, $167,807,000 ($155,546,000 - 1991) has been paid in; $1,069,000 ($2,370,000 - 1991) is due and the remaining, $675,506,000 ($631,663,000 - 1991) is subject to call by the Agency when required to meet its obligations. Of the amounts paid in, at June 30, 1992,$84,973,000 ($76,212,000 - 1991) is in the formnof nonnegotiable. noninterest-bearing demand obligations from members; the composition by members of these demand obligations closely corresponds to the total amount paid-in as presented in the Statement of Subscriptions to Capital Stock and Voting Power.

Note D: Guarantee Program and Contingent Liabilities MIGA offers guarantees against loss caused by noncommercial risks (political risk insurance) to eligible investors on qualified investments in developing member countries. MIGA offers coverage against four different categories of risk: currency transfer, expropriation, war and civil disturbance, and breach of contract. Investors may insure projects for any combination of the four types of coverage. MIGA guarantees, other than those issued as reinsurance, cannot be terminated unilaterally by the parties within the first three years from the date of issuance. Premium rates applicable to issued contracts are fixed for five years. Payments against all claims under a guarantee may not exceed the maximum amount of coverage issued under the guarantee. In accordance with Article 22(a) of the Convention and paragraph 3.50 in the Operational Regulations, the Agency, unless determined otherwise by the Council of Governors, currently shall not issue any guarantee that would raise the outstanding aggregate amount of contingent liabilities above 150 percent of the sum of the Agency's unimpaired subscribed capital and retained earnings, plus under certain conditions, 90 percent of the insurance ceded by the Agency through contracts of reinsurance. The maximum amount shall not, under any circumstances. exceed five times the amount of the Agency's unimpaired subscribed capital, its retained earnings, and such portion of its insurance ceded as may be deemed appropriate. The maximum amount of contingent liability of MIGA under guarantees issued and outstanding at June 30, 1992,totaled $421,474,000 ($191,160,000 - 1991). The composition of the contingent liability under guarantees issued and outstanding by host country is summarized below: US$ thousands Turkey $ 80,000 Pakistan 76,440 Indonesia 51,458 Argentina 50,000 Guyana 49,878 Chile 41,000 Poland 36,411 Bangladesh 19,800 El Salvador 12,154 Madagascar 4,333 38 $ 421,474 Multilateral Investment Guarantee Agency Notes to Financial Statements June 30, 1992 and June 30, 1991

Note E: Other Matters Conthihbutionto Special Program, This represents grants to the Foreign Investment Advisory Service (FlAS). which was established to assist developing countries to improve their policies, programs and institutions that relate to foreign direct investment. FIAS was established by the International Finance Corporation (IFC) in 1986, and became ajointly managed program of IFC and MIGA in November 1988. MIGA's Board of Directors approved a recommendation on March 6. 1992, under which the Agency's management is authorized to contribute $400,000 to FIAS in the fiscal year ending June 30, 1992, and $719,000. S794,000 and S877,000 in each of the fiscal years ending June 30, 1993 to June 30, 1995 respectively. Serv,ice anidSutppor-t Fee. The International Bank for Reconstruction and Development (IBRD) charges the Agency an annual Service and Support Fee, which for the fiscal year ending June 30, 1992 has been negotiated at $524,000 ($483,000 - 1991). Staff Retirement Plan. The IBRD has a defined benefit retirement plan (Plan) covering substantially all of the staff of the Agency, the IBRD and the IFC. Under the Plan. benefits are based on years of service and average compensation, with the staff contributing a fixed percentage of pensionable remuneration, and the Agency, IBRD and IFC contributing the remainder of the actuarially determined cost of future Plan benefits. The total contribution is based upon the aggregate funding method. All contributions to the Plan and all other assets and income held for the purposes of the Plan are held by the IBRD separately from the other assets and income of the Agency, IBRD and IFC and can be used only for the benefit of the participants in the Plan and their beneficiaries until all liabilities to them have been paid or provided for. The total expense allocated to the Agency for the fiscal year ended June 30, 1992 was $692,000 ($508,000- 1991). Otheer Post Employm7lenitBeniefits. The IBRD also provides certain life insurance and medical benefits to substantially all retired staff of the Agency. IBRD and IFC and their spouses through contributions to a Retired Staff Benefits Plan (RSBP). Commencing in 1990, the Agency, IBRD and IFC began accruing and funding, on an actuarially determined basis. the expected future cost of providing such benefits for future retirees. All contributions to the RSBP and all other assets and income held for purposes of the RSBP are held separately from the other assets and income of the Agency, IBRD and IFC and can be used only for the benefit of the participants in the RSBP and their beneficiaries, until all liabilities to them have been paid or provided for. The total expense allocated to the Agency for the fiscal year ended June 30, 1992 was $94.000 ($27,000 - 1991)

39 Report of Independent Accountants

Price Waterhouse The Hague Tokyo Interrationa F rm) London Wasn ngton New York

Price WUterhouseC

July 31, 1992

President and Council of Governors Multilateral Investment Guarantee Agency

In our opinion, the financial statements appearing on pages 31 to 39 of this report present fairly, in all material respects, in terms of United States dollars, the financial position of the Multilateral Investment Guarantee Agency at June 30. 1992 and 1991, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles in the United States and with International Accounting Standards. These financial statements are the responsibility of management of the Multilateral Investment Guarantee Agency: our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, including International Auditing Guidelines, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

40 Appendices

Governors and Alternates 42

Directors and Alternates and their voting power 44

Signatory countries to the Convention 46

Fiscal 1993 Budget 47 Multilateral Investment Guarantee Agency Governors and Alternates June 30, 1992

Member Governor Alternate

Albania ...... Genc Ruli ...... Niko Hobdari Angola ...... Emmanuel M. Carneiro ...... Dumilde das Chagas Simoes Rangel Argentina ...... (vacant) ...... (vacant) Bahrain ...... Ibrahim Abdul Karim ...... Isa Abdulla Borshaid Bangladesh ...... M. Saifur Rahman ...... Enam Ahmed Chaudhury Barbados ...... L. Erskine Sandiford ...... George Reid Belize ...... (vacant) ...... (vacant) Bolivia ...... Samuel Doria Medina ...... Raul Boada Botswana ...... Festus G. Mogae ...... G.T. Stoneham Burkina Faso...... Frederic A. Korsaga ...... Djiga Haby Toure Cameroon...... Tchouta Moussa ...... Esther Dang Canada ...... Donald Mazankowski ...... Marcel Masse Chile ...... Alejandro Foxley ...... Jose Pablo Arellano China ...... Wang Bingqian ...... Chi Haibin Congo ...... Dieudonne Diabatantou ...... Bernard Tchibambelela Cote d'Ivoire ...... Kablan D. Duncan ...... N'Golo Coulibaly Cyprus ...... George Syrimis ...... George Hadjianastassiou Czechoslovakia ...... Vaclav Klaus ...... Josef Tosovsky Denmark ...... Uffe Ellemann-Jensen ...... Henrik Woehlk Dominica ...... Mary Eugenia Charles ...... Cary A. Harris Ecuador ...... Pablo Better ...... Virginia Fierro Renoy Egypt, Arab Republic of ...... Atef Ebeid ...... Maurice Makram-Allah El Salvador ...... Mirna Lievano de Marques ...... Jose Roberto Orellana Milla Ethiopia ...... Alemayehu Daba ...... Haile-Meskel Abebe Fiji ...... J.N. Kamikamica ...... Rigamoto Taito Finland ...... liro Viinanen ...... Toimi Kankaanniemi France ...... Jacques de Larosiere ...... Jean-Claude Trichet Germany ...... Carl-Dieter Spranger ...... Horst Koehler Ghana ...... Kwesi Botchwey ...... Kwesi Bekoe Amissah-Arthur Grenada ...... George Ignatius Brizan ...... Lauriston F. Wilson, Jr. Guyana ...... Carl Greenidge ...... Winston Murray Honduras ...... (vacant) ...... (vacant) Hungary ...... Janos Martonyi ...... Csaba Repassy Indonesia ...... J.B. Sumarlin...... Adrianus Mooy Ireland ...... Bertie Ahern ...... Sean P. Cromien Israel ...... Jacob A. Frenkel ...... Shalom Singer Italy ...... Carlo Azeglio Ciampi ...... Mario Draghi Jamaica ...... Hugh Small ...... Omar Davies Japan ...... Tsutomu Hata ...... Koichiro Matsuura Jordan ...... Ziad Fariz ...... Fayez Tarawneh Kenya ...... George Saitoti ...... W. Koinange Korea, Republic of ...... Yong-Man Rhee ...... Soon Cho Kuwait ...... Nasser Abdullah Al-Roudhan ...... Abdullah A. Al-Gabandi Lesotho ...... A.L. Thoahlane ...... T.N. Thokoa Luxembourg ...... Jean-Claude Juncker ...... Yves Mersch

42 Multilateral Investment Guarantee Agency Governorsand Alternates June 30, 1992

Member Governor Alternate

Madagascar ...... Evariste Marson ...... Gerard H. Rabevohitra Malawi ...... L. J. Chimango ...... Ian Bonongwe Malaysia ...... Anwar Ibrahim ...... Mohd. Sheriff Kassim Malta ...... John Dalli ...... Edgar Wadge Mauritius ...... Madhukarlall Baguant ...... Rundheersingh Bheenick Namibia ...... Tsudao Gurirab ...... Paul Walter Hartmann Netherlands ...... W. Kok ...... J.P. Pronk Nicaragua ...... (vacant) ...... (vacant) Nigeria ...... Ahmadu Abubakar ...... (vacant) Norway ...... Sigbjoem Johnsen ...... Grete Faremo Oman .Qais Abdul-Munim Al-Zawawi . Mohammed Bin Musa Al Yousef Pakistan ...... Saeed Ahmad Qureshi ...... Choudri Mueen Afzal Papua New Guinea ...... Paul Pora ...... Gerea Aopi Paraguay ...... (vacant) ...... (vacant) Peru ...... Carlos Bolona Behr ...... Alfredo Jalilie Awapara Poland...... Janusz Sawicki...... Zbigniew Piotrowski Portugal ...... Jorge Braga de Macedo ...... Jose Manuel Alves Elias da Costa St. Lucia .John G.M. Compton .Bernard Lacorbiniere St. Vincent and the Grenadines .James F. Mitchell .Maurice Edwards Saudi Arabia .Mohammad Abalkhail .Osamah Faquih Senegal .Famara Ibrahima Sagna .Awa Thiongane Spain .Carlos Solchaga .Miguel Angel Feito Sri Lanka .D.B. Wijetunga .Susantha de Alwis Sudan .Tag Elsir Mustafa .Mohamed Kheir El Zubeir Swaziland. Isaac S. Shabangu .Phindile Mkhonta Sweden .Anne Wibble. Alf Svensson Switzerland .Nicolas Imboden .Francois Rohner Tanzania .Steven A. Kibona .Peter J. Ngumbulu Togo .Aime Tchaboure Gogue .Kwassi Klutse Tunisia .Mustapha Kamel Nabli .Abdellatif Saddem Turkey .Tevfik Altinok .Kemal Kabatas Uganda .(vacant) .(vacant) United Kingdom. Robin Leigh-Pemberton .Timothy Lankester United States .Nicholas F. Brady .Robert B. Zoellick Vanuatu .Willie Jimmy .Franklyn Kere Western Samoa .Tuilaepa S. Malielegaoi .Nonomalo Faiga Yugoslavia .Slavoljnb Stanic .Nikola Jelic Zaire .Ilunga Ilunkamba.Mbonga Magalu Engwanda Zambia ..... Emmanuel Gabriel Kasonde ...... David Matongo Zimbabwe ..... (vacant) ...... (vacant)

43 Multilateral Investment Guarantee Agency Directors and Alternates and their voting power June 30, 1992

% of Director Alternate Casting votes of Total votes Total

Elected by the votes of five largest shareholders:

E. Patrick Coady Mark M. Collins, Jr. United States 20,696 24.63

Yasuyuki Kawahara Tatsuo Fujino Japan 5,272 6.27

Fritz Fischer Harald Rehm Germany 5,248 6.24

Jean-Pierre Landau Philippe de Fontaine Vive France 5,037 5.99

David Peretz Robert Graham-Harrison United Kingdom 5,037 5.99

Elected by the votes of other shareholders:

Rosario Bonavoglia Fernando S. Carneiro Italy. Malta, Poland, Portugal, Spain 6,211 7.39 (Italy) (Portugal)

Frank Potter Hubert Dean Barbados, Canada, Grenada, Guyana, 5,233 6.23 (Canada) (The Bahamas) Ireland, Jamaica, St. Lucia, St. Vincent and the Grenadines

Oscar Knapp Onno Ruhl Cyprus, Netherlands, Switzerland 4,304 5.12 (Sswitzerlanid) (Netherlands)

Einar Magnussen Jorunn Maehlum Denmark, Finland, Norway, Sweden 3,774 4.49 (Norway) (Norway)

Fawzi Hamad Al-Sultan Mohamed W. Hosny Bahrain, Egypt (Arab Republic of), Jordan, 3,712 4.42 (Kuwait) (Arab Republic of Egypt) Kuwait, Oman, Pakistan, Tunisia

Alhaji Ahmadu Abubakar W. Koinange Angola, Botswana, Kenya, Lesotho, Malawi, 3,456 4.11 (Nigeria) (Keniya) Namibia, Nigeria, Swaziland, Zambia

Wang Liansheng Jin Liqun China 3,315 3.94 (China) (China)

Ibrahim A. Al-Assaf Ahmed M. Al-Ghannam Saudi Arabia 3,314 3.94 (Saudi Arabia) (Sauidi Arabia)

J.E. Ismael Bong Hee Won Fiji, Indonesia, Korea (Republic of), 2,554 3.04 (Indonesia) (Republic of Korea) Vanuatu, Westem Samoa

Jean-Pier re Le Bouder Ali Bourhane Burkina Faso, Canmeroon, Cote d'lvoire, 2,243 2.67 (Central Africani Republic) (Comoros) Madagascar, Senegal, Togo, 7aire

Janos Marnonyi Nurcan Akturk Czechoslovakia, Hungary, Turkey 2,224 2.65 (Hungary) (Turkey)

M.A. Syed Ernest Ako-Adjei Bangladesh, Ghana, Sri Lanka 1,387 1.65 (Bangladesh) (Ghana)

Nicolas Flano Patntci Rubianes Chile, Ecuador 1,021 1.21 (Chile) (Ecuador)

44 Multilateral Investment Guarantee Agency Directors and Alternates and their voting power June 30. 1992

In additionto the Directors and Alternatesshown in theforegoing list, the following also servedafterJune 30,1991:

Director End of period of service Alternate director End of period of service

Jonas H. Haralz July 31, 1991 Matthijs Bienefelt January 7. 1992 (Iceland) (Netherlands)

Masaki Shiratori June 28. 1992 Mark T. Cox, IV November 30. 1991 (Japan) (United States)

Clarence Ellis October 31, 1991 (Guyana)

Charles S. Mbindyo February 20, 1992 (Kenya)

Note: Albania (235 votes). Argentina (1,431 votes), Belize (227 votes). Bolivia (302 votes). Congo (242 votes), Dominica (227 votes), El Salvador (299 votes). Ethiopia (247 votes), Honduras (278 votes), Israel (651 votes), Luxembourg (293 votes), Malaysia (756 votes), Mauritius (264 votes). Nicaragua (279 votes). Papua New Guinea 1273votes). Paraguay (257 votes). Peru (550 votes), Sudan (383 votes). Tanzania (318 votes), Uganda (309 votes,1,Yugoslavia (812 votes), and Zimbabwe (413 votes) became members after the 199( Regular Election of Directors. a. To be succeeded by David Stanton (United Kingdom), effective August 24. 1992. b. To be succeeded by Jorunn Maehlum (Norway). effective August 1, 1992. c. To be succeeded by Helga Jonsdottir (Iceland), effective August 1, 1992.

45 Multilateral Investment Guarantee Agency Signatorycountries to he Convention June 30, 1992

Albania* Guatemala Philippines Angola* Guinea Poland* Argentina* Guinea-Bissau Portugal* Bahrain* Guyana* Romania** Bangladesh* Haiti Rwanda** Barbados* Honduras* St. Kitts and Nevis Belgium** Hungary* St. Lucia* Belize* India St. Vincent and the Grenadines* Benin Indonesia* Saudi Arabia* Bolivia* Ireland* Senegal* Botswana* Israel* Seychelles Brazil Italy* Sierra Leone Bulgaria Jamaica* Spain* Burkina Faso* Japan* Sri Lanka* Cameroon* Jordan* Sudan* Canada* Kenya* Swaziland* Cape Verde Korea, Republic of* Sweden* Chile* Kuwait* Switzerland* China* Lesotho* Syrian Arab Republic Colombia Libya** Tanzania* Congo, Republic of* Luxembourg* Togo* Costa Rica Madagascar* Trinidad and Tobago** Cote d'Ivoire* Malawi* Tunisia* Cyprus* Malaysia* Turkey* Czechoslovakia* Mali** Uganda* Denmark* Malta* United Kingdom* Dominica* Mauritania** United States* Ecuador* Mauritius* Uruguay Egypt, Arab Republic of* Mongolia Vanuatu* El Salvador* Morocco Western Samoa* Equatorial Guinea** Namibia* Yemen, Republic of** Ethiopia* Netherlands* Yugoslavia* Fiji* Nicaragua* Zaire* Finland* Nigeria* Zambia* France* Norway* Zimbabwe* Gambia,The** Oman* Germany* Pakistan* Ghana* Papua New Guinea* Greece** Paraguay* Grenada* Peru*

* Member countries. ** Countries that have ratified but not yet completed membership requirements.

46 Multilateral Investment Guarantee Agency Fiscal 1993 Budget Expressed in thousands of US dollars

Incomefrom: Investment ...... $ 5,500 Premium ...... 5,000 Technical service fee ...... 200

Total income ...... ,. . , ...... 10,700

Expenditures by organizational unit: Executive Vice President ...... 1,401 Guarantees ...... 2.717 Policy and Advisory Services ...... 1,656 Legal and Claims ...... 1,341 Finance and Administration ...... 806 Subtotal...... 7,921 Contribution to FIAS ...... 719 Reimbursements from FIAS ...... (374)

Total expenditures ...... ,...... 8,266

Net income ...... S 2,434

Expenditures by category: Discretionary costs: Staff costs ...... $ 2,721 Operational travel ...... 481 Representation...... 44 Consultant fees ...... 295 Contractual services ...... 80 IFC services ...... 104 Marketing and publications ...... 98 Direct communications...... 93 Internal computing ...... 13 Subtotal ...... 3,929

Other direct costs: Staff benefits...... 1,981 Council and Board meetings ...... 575 Office occupancy ...... 575 IBRD services and support fee ...... 611 Furniture and equipment ...... 97 Overhead ...... 130 Miscellaneous ...... 23 Subtotal ...... 3,992

Total discretionary and other direct costs ...... 7,921

Contribution to FIAS ...... 719 Reimbursements from FIAS ...... (374)

Total expenditures ...... $ 8,266

Note: The Fiscal 1993 Budget was approved by the Directors in accordance with the MIGA bylaws.

47 Printed on recycled paper

ISSN 1014-823X

Multilateral Investment Guarantee Agency

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ISBN 0-8213-2235-4