The World Bank has been authorized to repurchase its outstanding bonds in individually negotiated market transactions. The goal of the repurchases is to manage the Bank's liabilities to reduce its funding costs. The authorization, approved by the Bank's Executive Directors on December 16, is not restricted to specific currencies, although the initial repurchases will be confined to the U.S. dollar market, according to Donald Roth, Vice President & Treasurer of the Bank.
The World Bank has been active for several years in the management of its outstanding debt, having called over $11 billion of bond issues in ten currencies since 1987. Opportunities for these calls will dwindle in the future since the Bank's more recent bond issues typically have not contained call provisions. Mr. Roth said, "the new repurchase authority represents a logical next step and a potentially valuable tool for the management of the Bank's liabilities in the 1990s."
Mr. Roth explained that one of a variety of approaches being examined would be to use the greater liquidity of the institution's global bonds, by repurchasing bonds from its less liquid pre-global bond issues and refinancing them with global bonds: "This would benefit bond holders by adding a bid to the market for these earlier issues, while at the same time permitting the Bank to profit from substituting more liquid, less costly debt for the more costly, older issues." The Bank would, ·however, apply strict financial requirements to any repurchase decision, taking into account the cost of replacing the repurchased debt. "For this reason," Mr. Roth explained, "the total volume of debt repurchased is likely to be modest."
At June 30, 1991, the Bank had over $23 billion outstanding in medium- and long-term U.S. dollar issues in both domestic and international markets.
The World Bank is the largest, and the only global, multilateral development bank. Headquartered in Washington, D.C., it has been in operation since July 1946. Its capital stock is owned by 156-member countries. The principal purpose of the Bank is to promote the economic development of less developed member countries in order to foster the long-term growth of international trade and improved living standards. Its principal activity is providing loans and related technical assistance for specific projects and for adjustment programs of economic reform in those countries.