IFC’s most treasured possession today is our AAA credit rating. A top-of-the-line endorsement of financial health from Moody’s and Standard & Poor’s, it enables us to meet our funding needs by issuing bonds on international capital markets at the best possible rates.
It may seem like something we’ve had for ever. But we got it only in 1989 — an event that marked “the financial liberation of IFC from the Bank,” historian Jonas Haralz wrote.
Issuing bonds in international capital markets is mainstream business for IFC today. In fiscal year 2005, Treasury’s funding team borrowed the equivalent of $2.0 billion in ringit, Peruvian nevos soles, Colombian pesos, and Moroccan dirham.
These bond issues not only cover our own funding requirements but also do much to stimulate development of local currency bond issues that can be helpful tools to corporations in emerging markets.
But until the 1980s, we never borrowed in our own name, relying instead on transfers from the World Bank. For many years there had been fears that any bonds we did issue would come at higher cost than the Bank’s and thus make little financial sense.
But as IFC’s financial picture began to improve in the wake of the 1985 capital increase, new ideas were floated. In 1984, then-IFC Financial Management and Planning Director Richard Frank suggested to new EVP Sir William Ryrie that the time might be right to seek our own credit rating. The concept was developed, and in December of that year, the Board gave IFC authority to raise funds directly in the capital markets without backing from the Bank. Over the next few years, a series of bonds was sold through unrated private placements — a vital first step, but one that inevitably carried limited liquidity and flexibility in pricing.
The breakthrough came in 1989, when IFC at last obtained AAA credit ratings from the two largest rating agencies, Moody’s and Standard & Poor’s. With this top-notch rating, we were at last able to borrow at the best rates available in the markets. The first $200 million issue took place in the U.S. markets that year, followed by another in Japan.
“The financial liberation of IFC from the Bank had thus been completed,” writes historian Jonas Haralz.
In many ways, that one event paved the way for the rapid growth IFC experienced in the 1990s, when we finally began to receive a level of resources to match the size of our global mission. A large and sustained expansion occurred during that decade, fueled not only by our borrowing program but also by the $1.1 billion 1991 capital increase and several years of strong profits. In time, it would get us where we are today.
If you have an idea for a “postcard from the past,” please email Celeste Diaz Ferraro at cdiazferraro@ifc.org.
