The Republic of Colombia and the World Bank signed on Saturday a Master Derivatives Agreement (MDA) that will allow the Government of Colombia to use a range of hedging products linked to existing World Bank loans to assist Colombia in managing currency and interest rate risk.
The agreement was signed by the Minister of Finance, Alberto Carrasquilla, and World Bank Deputy Treasurer, Kenneth G. Lay. Commenting on this agreement, Mr. Lay said, “Colombia will now have access to the full range of risk management tools that IBRD offers to its clients, which should afford the Government significant additional flexibility in carrying out a prudent sovereign debt management strategy. This is a landmark agreement that further strengthens the financial partnership between the World Bank and the Repubilc of Colombia."
This is the third master derivatives agreement between the World Bank and one of its member countries. The newly signed agreement will enable the Government of Colombia to access a range of risk management products, including currency swaps, interest rate swaps, caps and collars and, on a case by case basis, commodity swaps.
These products offered by the World Bank allow borrowers to use standard market techniques to transform the risk characteristics of their outstanding World Bank loans. In providing these financial products, the World Bank stands between market institutions and its borrowers, entering separate financial contracts with each of them. Borrowers therefore benefit from financial terms that reflect the Bank’s own AAA credit rating.
The World Bank uses one of the standard derivatives agreements published by the International Swaps and Derivatives Association, Inc. (ISDA) (the ISDA Master Agreement – Multicurrency - Cross Border), as documentation for clients’ hedging transactions.