We certainly wouldn’t do so today.
But we did invest in Spain at one point. It was in 1962 — a transaction that stands out in IFC history.
IFC did invest in Spain. In fact, it was the site of our first equity investment ever.
The date: 1962.
The client: Fabrica Espanola Magnetos, a manufacturer of electrical components for automobiles.
Odd as it may seem today, it was not uncommon for IFC to invest in Western Europe in the early years. That same year we also made investments in a Greek cement company and a cellulose pulp mill in Finland. Such countries were quite far-removed from the economic mainstream of Europe at the time and deemed fully worthy of IFC’s support.
But something else distinguishes the Spanish auto parts transaction: the momentum it gave to our equity investment program.
When first created, IFC could only make loans, not investments in company shares. This unfortunate restriction left IFC ill-equipped to meet its challenging mandate of being a catalyst of private sector capital flows in emerging economies. The consequences were not lost on anyone. After four years of poor portfolio growth and results, IFC’s founders decided in 1960 to take a bold step, going back to shareholding governments and seeking a charter revision that would allow for equity investments.
“By 1960 it was time for the idea of change in the charter to take root,” former EVP Martin Rosen would later write. “In the opinion of many, IFC would do no more than pick at the fringes of its problems unless its scope was greatly widened.”
And widened it was, with shareholders acceding to the request for the charter revision that would go into effect in 1961. With this new tool, IFC was able to strengthen the capital structure of client firms, encourage a widening pool of other investors to share in risks and rewards in the developing world, negotiate investments in simple and acceptable terms, and eventually open the door to future participation in convertibles and options. It all began with a $500,000 million equity investment in Fabrica Espanola Magnetos, which used the money to expand its Madrid factory and build a new one in Treto.
Today the ability to make equity investments is essential to IFC operations: a source of profitability as well as development impact. And the first place it was ever done was in Spain — today a thriving EU member and donor to IFC trust funds, but in many ways still a developing country in 1962.
If you have an idea for a “postcard from the past,” please email Celeste Diaz Ferraro at cdiazferraro@ifc.org
