Central American Bank for Economic Integration CABEI Special Fund for Social Transformation in Central America (FETS) Central American Bank for Economic Integration

Special Fund for Social Transformation in Central America FETS was created in November, 1999 by CABEI’s Board of Governors as the Bank’s soft window that offers concessional financing to HIPCs. Honduras and Nicaragua are eligible to receive financing through FETS. With the creation of FETS, CABEI has joined the efforts of the international community to improve the living conditions of the region through the provision of concessional financing, which linked to the debt relief assistance being provided under the HIPC Initiative, will contribute towards the achievement of the region’s poverty reduction goals.

Special Fund for Social Transformation in Central America CONCEPT Special “Window” offering concessional financing for Programs and Projects related to Central American country-led poverty reduction efforts. MAIN OBJECTIVES To improve social and living conditions of Central American families. To boost international competitiveness within the Region. To provide proper assistance in order to meet population basic needs. To help combat enviromental deterioration and depletion of natural resources. To foster civil society participation in the beneficary countries.

Special Fund for Social Transformation in Central America CAPITALIZATION USD MM CABEI - yearly allocations from net income 49.5 European Union – donation 22.2 Denmark – donation 5.2 Other sources 16.9

Special Fund for Social Transformation in Central America MAIN CHARACTERISTICS Financing Modalities Soft Credits Trust Funds Co financing Programs Donations Other Financial Mechanisms of interest to the Donor Community.

Special Fund for Social Transformation in Central America APPROVALS AND DISBURSEMENTS   Approvals  Disbursements (USD MM) Country 2002 2003 2004 2005 2006 Total Honduras 52.4 3.7 4.2 10.1 0.8 1 19.8 Nicaragua 41.9 2.8 3.9 7.3 9.6 23.6 94.3 7 14 8.1 10.6 43.4

Special Fund for Social Transformation in Central America MAIN BENEFITS Integrates funds from different sources for common goals (multiplier effect). Guarantees the sustainability of a continuous flow of concessional resources. Ensures the visibility of the different contributions. Includes a number of mechanisms to identify, manage, implement, monitor, evaluate and measure the impact of its programs and projects. Reduces the cost of granting and managing resources for donors which do not have a strong presence in the Region.

Special Fund for Social Transformation in Central America MAIN CONSTRAINS Scarce concessional resources within the international donor community. Great investment needs in HIPC countries when compared to CABEI’s limited capacity to allocate funds from its net income. Capitalization structure. Does not incorporate replenishments.

Special Fund for Social Transformation in Central America LEVERAGE MECHANISM It provides concessional funds that can be leveraged through a mixture with CABEI’s ordinary resources.   Approved Amount Type Of Resource USD MM % FETS 94.43 53.2 CABEIs Balance Sheet 82.88 46.8 Total 177.31 100 Average Leverage Ratio (Total to FETS) 1.9

CABEI/IADB Joint Initiatives in HIPC Countries Special Fund for Social Transformation in Central America CABEI/IADB Joint Initiatives in HIPC Countries Public Sector / Nicaragua: Currently discussing the possibility of cooperating on the financing of long term projects. Focus on Renewable Energy (USD 50.5MM) and Health (USD 75MM). Under the proposed scheme, IADB would provide concessional funds that would be leveraged through a mixture with CABEI’s ordinary resources. Joint efforts in order to explain the structure to the Nicaraguan Government (“one single package”).

Special Fund for Social Transformation in Central America CLOSING REMARKS CABEI does not have its own “concessional funds”, but over the years has developed strong ties with governments, cooperation agencies, and development banks willing to channel concessional funds through CABEI. CABEI has demonstrated strong commitment towards poverty reduction and debt relief efforts. CABEI has developed mechanisms to efficiently use concessional funds and continue financing HIPCs. CABEI is determined to keep its “franchise value” for HIPCs.