CHAPTER III
PROGRAM EXECUTION OF THE SEVENTH GENERAL INCREASE IN RESOURCES DURING
THE PERIOD FROM 1990 TO 1993
1. INTRODUCTION
3.1 The Seventh General Increase in Resources agreement defined a lending
program focusing on two major goals: (1) financing investments which would
contribute to the economic and social progress of borrowing member countries,
and (2) assisting member countries to restore sustainable economic growth
through improving the strategies and policies for the basic sectors of their
economies. The agreement defined some new institutional means to pursue
these goals and called for a strengthening of others.
3.2 The Seventh Replenishment agreement also defined a number of program
priorities. These included urging the Bank to do its utmost to ensure that
50 percent of its lending program was allocated to benefit the lower income
groups. To provide a direct economic incentive to do so, the IDB provided
an additional share of financing for projects in which at least 50 percent
of the net benefits were directed to low-income beneficiaries. Other priorities
included support for the environment, women, micro- entrepreneurs, regional
integration, growth and diversification of exports, science and technology,
along with modernization and rationalization of public sector institutions.
Emphasis was given to improving country dialogue and program planning along
with strengthening the evaluation function.
3.3 An overall lending program of US$22.5 billion was defined for the 1990
to 1993 period including US$1.86 billion in Fund for Special Operations
(FSO) resources and US$1.136 billion in Intermediate Financing Facility
(IFF) assisted ordinary capital (OC) lending. A new lending instrument to
provide quick-disbursing sector loans in support of policy reforms was agreed
to, with an initial ceiling of up to 25 percent of the overall lending program.
Initially these operations were to be carried out in conjunction with the
World Bank. The remaining 75 percent of Bank lending was to be provided
through traditional investment loans and technical cooperation.
3.4 Over the course of the 1990 to 1993 period the Bank took significant
steps to put in place the capacities necessary to respond to the programming
challenges defined by the Seventh Replenishment agreement. In general terms,
the Bank substantially met the targets and priorities defined in the Seventh
Replenishment agreement. An assessment of the IDB lending program carried
out by the Institute of Development Studies at Sussex University during
1992 concluded that "overall very favorable results have been achieved
with IDB lending over the 1979-1992 period". / The study judged that
IDB involvement in sector loans was positive. By supporting an improvement
in the economic policy framework of its borrowing member countries, the
Bank helped to reduce bottlenecks and distortions limiting some countries'
economic growth, and in some cases the effectiveness of their investment
borrowing from the IDB. The adjustment process supported by IDB sector lending
was also judged to have played a key role in restoring private sector and
commercial banking confidence in the region. This in turn has contributed
to increased investment capital flows to the region.
3.5 In 1993, the President commissioned a group of external experts to
carry out a review of IDB's portfolio. In October 1993 this group issued
the "Report of the Task Force on Portfolio Management", which
concluded that "the Bank's portfolio is generally sound and is meeting
intended development objectives". / To respond to the emerging challenges
of the region the panel of experts recommended that the Bank focus more
broadly on the quality and impact of its lending, provide greater support
to implementation activities, reexamine organizational arrangements, and
strengthen reporting and evaluation.
2. LENDING PROGRAM FOR THE PERIOD FROM 1990 TO 1993
A. Lending parameters
3.6 Document AB-1378 provided for an overall lending program of US$22.5
billion for the period of the Seventh Replenishment, covering the years
1990 to 1993, and defined the size and composition of that lending program
by fund and country group. The document set out criteria for the use of
concessional resources and reaffirmed a target from the Fifth and Sixth
Replenishments of allocating 50 percent of the lending program to benefit
lower income groups. The document also outlined the importance of sound
environmental management in development activities, and highlighted the
role of women in the development process. In addition, the agreement called
for the Bank to assume a more active role in working with its borrowing
member countries in the formulation and implementation of policies needed
for the restructuring and modernization of their economies. For this purpose,
it established that the Bank could lend up to 25 percent of total lending
for sector loans - i.e., loans that would disburse against imports rather
than specific project-related costs - in support of such policy changes.
B. Lending by country group
3.7 Document AB-1378 set a maximum of 65 percent of total resources, equivalent
to US$14,625 million in freely convertible resources, for loans to Group
A and B countries; while a minimum of 35 percent, or US$7,875 million in
convertible resources, was allocated for countries in Groups C and D. The
following table summarizes the execution of the Seventh Replenishment by
country groups.
C. Policy-related sector lending
3.8 As indicated above, the Seventh Replenishment established that the
Bank would make sector loans to support sector or subsector policy and/or
institutional changes. No more than 25 percent of the total lending was
to be directed to this type of lending during the period 1990 to 1993. In
1992 the Governors authorized additional resources to this program for debt
and debt service reduction operations. This allowed the Bank to approve
a US$400 million debt restructuring operation to Argentina in late 1992.
The following table summarizes the distribution of sector lending commitments
by country group over the 1990 to 1993 period:
3.9 As is evident in Table III-2, total sector loans approved during the
Seventh Replenishment period amounted to US$5.649 billion, which was equivalent
to 27 percent of total loans approved, but only slightly more than the original
ceiling for sector lending of US$5.625 billion. A large share of fast-disbursing
resources (over 70 percent) was channelled to countries in Groups A and
B, for a total of approximately US$4 billion concentrated in the first three
years of the period. For countries in Groups C and D, sector loan approvals
tended to be for smaller amounts and were spread more evenly over the 1990
to 1993 period. This was due to factors such as the degree and stage of
the stabilization and adjustment programs in these countries. The Bank also
approved 12 non- reimbursable parallel technical cooperation operations
for an amount of US$76 million to support the implementation of sector loans.
3.10 Sector loans provided in support of reforms in economic sectors were
primarily aimed at improving competitiveness. Programs supported by these
loans focused on policy issues directly related to productive activities
(e.g. agriculture, trade, finance), and amounted to approximately 35 percent
of the total sector lending during the 1990 to 1993 period (or US$1,930
million). Broader programs in areas such as public sector reform (e.g. public
divestiture, institutional strengthening, tax and budgeting policies) accounted
for 30 percent of total sector lending (or US$1,725 million), whereas programs
aimed at enhancing the framework for private investment accounted for approximately
20 percent of total sector lending (or US$1,240 million) during the same
period. The remaining 13 percent of total sector lending (or US$750 million)
focused on complementary areas such as external debt restructuring and ecological
conservation.
3.11 Sector loan compliance with tranche release conditions as of December
31, 1993 indicates that 18 loans, or 55 percent of the total approved, have
been fully disbursed; 10 loans or 30 percent have been over 50 percent disbursed;
seven loans are between 30 percent and 40 percent disbursed; and five loans
(approved in 1993) are in the process of initiating disbursements. Of the
US$5.65 billion in fast-disbursing funds approved during the 1990 to 1993
period, almost 80 percent has been disbursed.
D. Use of concessional resources
3.12 For the period from 1990 to 1993 a total amount of US$1.86 billion
of FSO resources was available for lending. It was agreed during the Seventh
Replenishment negotiations that FSO resources would be allocated to countries
in Group D. Furthermore, it was agreed that within this group, preferential
treatment would be given to the five countries facing the most severe economic
difficulties, and 55 percent of the total FSO loan program was targeted
for these countries. The remaining 45 percent was targeted to the other
five countries in Group D.
3.13 Document AB-1378 states that in the case of the Intermediate Financing
Facility (IFF) a significant portion of the resources available would be
directed to Group C countries, and US$100 million would be directed to the
relatively more developed countries of Group D. In 1992 the Governors agreed
that an additional US$140 million of IFF-assisted ordinary capital lending
would be made available as a result of a transfer of US$35 million of ordinary
capital net income to the IFF for lending to Group D countries.
3.14 Management made an initial allocation of concessional funds to recipient
countries based on the criteria of equal distribution. While some countries
fully utilized their share, others did not or could not do so. The reasons
for this carryover can be attributed to (i) individual countries not being
able to access Bank funds; (ii) agreed limits on the amount of concessional
resources which could be used for any individual project (in order to maximize
benefits); and (iii) attempts to use scarce concessional resources as much
as possible for projects in the social sectors. Thus, the fact that available
concessional resources were not completely exhausted during the period from
1990 to 1993 was not due to lack of demand. In fact, the Group C and D countries
borrowed nearly twice as much ordinary capital as IFF and FSO combined during
this period.
E. Approvals by sector
3.15 During the Seventh Replenishment period, investment loans and investment
components of hybrid loans (combined sector and investment loans) were distributed
by sector of economic activity as shown in the following table:
3.16 The Bank's efforts to finance projects in the social infrastructure
sectors resulted in US$5 billion of approvals or 34 percent of investment
lending in convertible currencies and approximately 25 percent of overall
Bank lending including sector loans. The share of social sector investments
in the 1990-1993 lending program of the Bank increased from US$3.9 billion
at the end of the Sixth Replenishment to just over US$5 billion in the Seventh
Replenishment. Approvals in this area included projects for water supply
and sewerage, programs for housing reform, municipal development, education,
health care programs, science and technology, and environmental projects.
3.17 Approvals in convertible currencies for the transport and communications
sectors amounted to 22 percent of the total, followed by energy (19 percent);
agriculture and fisheries (8 percent); industry, mining and tourism (6 percent);
and others (12 percent), which included preinvestment and multisector credit
programs.
F. Technical cooperation
3.18 The technical cooperation program was closely tied to the Bank's operational
program by providing support to the countries' preinvestment activities,
institutional strengthening, including personnel training, and implementation
of IDB-financed projects. Regional and subregional technical cooperation
initiatives to promote economic integration programs were also an important
component of the Bank's technical cooperation program. Total financing of
nonreimbursable technical cooperation programs was equivalent to US$367
million, of which 17 percent was approved for Groups A and B, 49 percent
for Groups C and D, and 34 percent to finance regional initiatives. The
net income of the FSO continued to be the principal source of technical
cooperation financing, which accounted for 70 percent of the total program.
An additional 13 percent of financing came from the resources of the Japan
Fund, 11 percent from the U.S. Social Progress Trust Fund (SPTF) resources,
and 6 percent from other donor funds.
3. AREAS OF SPECIAL EMPHASIS IN THE BANK'S PROGRAMS
A. Low-income beneficiaries
3.19 A mandate for the Bank to direct 50 percent of its lending program
towards benefiting low-income groups was included in the Seventh Replenishment
agreement, as it was in the Fifth and Sixth Replenishment agreements. This
objective has been pursued directly by the Bank, through specifically targeted
projects and through more general means such as sector loans and investment
projects aimed at improving overall economic conditions including lowering
inflation, promoting economic growth and employment.
3.20 Distributional impact coefficients (DIC) have been calculated on approximately
half of the individual projects approved each year with the value of the
portfolio evaluated ranging from 44.3 percent in 1990 to 71.9 percent in
1993. These calculations estimate the percentage of a project's benefits
accruing to low-income groups. The Weighted Total DIC is a weighted average
calculation using one of two indicators which are based on either a cost-benefit
analysis (DIC-CB) or a head-count approach (DIC-HC). These coefficients
(DIC-HC and DIC-CB) are weighted by the percentage, in the monetary value,
of all the loans evaluated under each methodology. The Weighted Total DIC
does not reflect the distributive impact of certain types of lending operations
where it is difficult or impossible to define low-income beneficiaries as
a proportion of all the beneficiaries of the loan. These include global
loans, preinvestment, and sector lending. Management believes, however,
that many of these programs will have some positive impact on the low-income
groups over the longer term. The calculation of DIC is thus limited to only
a portion of the lending program. Care must be taken in interpreting results
from these partial indicators as estimations are themselves limited in two
important ways. Firstly, calculations made on only a portion of the portfolio
cannot be used to extrapolate results for the overall portfolio. Secondly,
the result of the weighting, based on the volume of lending related to each
of the two indicators, is affected by the size of projects, and projects
of smaller size, e.g. in basic health and education, are usually evaluated
using the head-count approach and tend to be better targeted to the poor.
Therefore, the cost-benefit (DIC-CB) indicator consistently demonstrates
results below those of the head-count method (DIC-HC). The blending of these
two partial indicators into a single weighted coefficient therefore produces
an indicator of only limited usefulness.
3.21 Over the four-year replenishment period the Bank has calculated, based
on the above methodology, that it has achieved an average of approximately
40 percent of project benefits accruing to low-income groups of the projects
evaluated. The downward trend in the Weighted Total DIC evident in Table
III-9 is in part a result of an increase in the proportion of loans being
evaluated using the cost- benefit analysis method, which generally produces
lower DIC values. Another explanatory factor is the special composition
of the portfolio during the 1990 to 1993 period. For example, the sensitivity
and bias within the methodology can be noted from the fact that were three
large energy projects approved in 1993 to be excluded from the calculations,
the Weighted Total DIC would increase from the reported 33.4 percent to
40 percent. Similarly, in 1992, were one large transportation sector project
excluded from the calculations, the total DIC would increase from the reported
34.8 percent to 49.4 percent.
3.22 Over the period of the Seventh Replenishment the gravity of the debt
repayment crisis of many Latin American countries commanded priority attention.
Pursuit of structural adjustment, in order to achieve macroeconomic balances
and to restore the conditions for growth, was central for both borrowing
members and the Bank. IDB support to structural adjustment began in earnest
in 1990. Over the short run, both as a result of stabilization measures
and structural adjustment, in many countries the number of poor increased
and income distribution worsened as alleviating fiscal constraints became
an overriding policy objective. Towards the end of the Seventh Replenishment
period, however, borrowing member countries were increasingly concerned
with the sustainability of the reform process by placing greater emphasis
on social reform and poverty reduction. It is expected that the positive
impacts of adjustment and policy reforms made will become more evident in
the future.
3.23 In order to improve the Bank's performance in channeling benefits
to the low-income groups, Bank Management is developing a strategy to increase
its activities in the social sectors and to help reduce poverty in the region.
Experience during IDB-7 indicates that careful targeting is a key factor
in achieving the objective of project benefits accruing to the lower income
groups. A three- pronged approach to support borrowing countries' efforts
to reduce poverty is being developed to improve the Bank's capacity to deliver
additional benefits to the lower income groups. These include: (i) increasing
the focus in the programming process and country dialogue on poverty reduction
and social policy issues; (ii) designing and implementing social sector
and fiscal reforms to increase resource availability and improve the scope
and efficiency of the delivery of social services; and, (iii) enhancing
the poverty-reduction impact of Bank operations through the selection and
appropriate design of all of its projects. Based on program dialogue with
borrowing member governments, country programming will continue to define
expected results in order to facilitate program evaluation and improve programming
effectiveness over time in directing benefits to lower income groups.
B. Environmental considerations
3.24 The Bank has been very active in promoting environmental quality in
all of its operations during the period of the Seventh Replenishment. The
Environment Protection Division assists country and project teams directly
to ensure that IDB operations are environmentally sound, and is responsible
for identifying and preparing renewable natural resources and environmental
projects. The Division also deals with environmental quality, environmental
development in project preparation, and environmental policy, planning,
and research issues.
3.25 The Environmental Management Committee (CMA) is a management-level
committee which meets regularly to address environmental issues. The CMA
reviews the environmental aspects of the Bank's operations, and proposes
policies and strategies to address environmental risks and opportunities
in Bank operations, coordinates inter- departmental efforts regarding environmental
activities, and ensures compliance of Bank operations with internal environmental
quality control requirements. The committee reviews every operation processed
by the Bank to determine the level of environmental analysis needed, and
ensures that the analysis is carried out in a satisfactory manner and that
its conclusions are incorporated into the operation.
3.26 As a result of the strengthening of the review process in the IDB,
the Bank has significantly improved its ability to screen operations for
environmental sustainability and to avoid negative environmental impacts
as well as enhancing positive impacts. Every single operation is carefully
screened from its earliest stage to ensure the application of the minimum
standards established by the borrowers themselves and by the Bank. Over
the period from 1990 to 1993 the Bank approved US$3.7 billion for 34 projects
addressing urban (75 percent) and rural (25 percent) environmental issues
as well as for the strengthening of environmental institutions in the region.
In addition, 167 technical cooperations and small project operations, totaling
US$70.5 million, have been approved since 1990 to address environmental
issues in the region.
3.27 A major portion of the Bank's activity regarding the environment has
been to facilitate the participation of affected populations. The coordination
of the Bank's activities with these groups has been enhanced through periodic
meetings, including three major meetings on the environment and participation.
A special effort has been made to address the concerns of affected populations.
The Bank supported the region's governments in their participation in the
Earth Summit held in Rio de Janeiro in June 1992, and prepared two important
documents: Our Own Agenda and Amazonia without Myths.
C. Women in development
3.28 During the Seventh Replenishment period the Bank made steady progress
in the area of women in development. Continued implementation of the Bank's
Women in Development Policy and the approval of an Action Plan, increased
attention to the issue in the Bank's programming activities and in its operations
over the 1990 to 1993 period. In 1993, some 18 percent of the Bank's loans
included a thorough analysis of women's potential participation in the projects
as well as concrete steps to improve their participation. This compares
favorably with the 6 percent of loans that included this focus in 1990.
However, these figures show that the Bank still has some distance to go
to fully implement the WID Policy.
3.29 Also during the 1990 to 1993 period the Bank made significant progress
in strengthening its own institutional capacity to address the concerns
of the WID Policy. The Bank's WID unit was expanded and provided systematic
review and input into Bank projects affecting women. The unit conducted
several studies and prepared sectoral guidelines aimed at improving Bank
performance in this area. The Bank increased its cooperation and coordination
with a range of international organizations addressing WID issues and held
several international workshops and seminars providing training on WID issues
to both Bank staff and officials from the region.
3.30 During the period the Bank supported a broad range of institutional
strengthening activities for both public and private sector organizations
representing and promoting women's interests in several borrowing countries
through its technical cooperation programs. In addition, the Bank financed
several regional technical cooperation programs to strengthen women's roles
in agriculture and microenterprise. Currently, the Bank's WID programs are
increasingly focusing on strengthening women's vital role in the social
reform process.
D. Microenterprise and Small Projects
3.31 During 1990 to 1993 the Bank supported microenterprises through 170
individual operations for a total amount of US$278 million. The qualitative
changes in microenterprise support during the Seventh Replenishment are
as striking as the accomplishments that can be quantified. Bank support
emphasized institutional strengthening of the intermediary organizations,
their administrative and financial self-sufficiency, new credit management
techniques, accountability and responsibility in the management of loan
portfolios, and the elimination of distortions in resource transfers to
microentrepreneurs.
3.32 Increasing attention was paid to the non-financial aspects of the
context within which microenterprises and their support organizations were
operating. Diagnostic assessments of the legal and regulatory frameworks
affecting microenterprises were carried out in three countries. Likewise,
the limitations and conditions facing the NGOs, credit unions, and other
organizations of civil society interacting directly with microenterprise
development, constitute a growing focus of the Bank's microenterprise program.
E. Cofinancing
3.33 The Bank's approach to the cofinancing of Bank projects underwent
significant changes, with both bilateral and multilateral sources playing
a more important role. Over this period total cofinancing amounted to approximately
US$7 billion. Cofinancing with the IBRD increased dramatically from US$667
million in 1990 to US$2.2 billion in 1991, due primarily to the joint sector
adjustment program initiated with the Seventh Replenishment. As the Bank
proceeded to undertake policy-based sector lending on its own, cofinancing
with the World Bank decreased to US$969 million in 1992 and to an amount
of US$340 million in 1993. Cofinancing with Japan during the Seventh Replenishment
amounted to over US$2.2 billion or 31 percent of the total. Other active
sources of cofinancing for Bank projects included the European Investment
Bank (EIB), the Andean Development Corporation (CAF), the International
Fund for Agricultural Development (IFAD), the OPEC Fund, USAID, the Scandinavian
countries, Spain, Germany's KfW, and Switzerland.
F. Country programming and strategic planning
3.34 The programming process and policy dialogue between the Bank and its
borrowing member countries was strengthened and improved. The quality and
utility of country and regional programming papers (CPPs/RPPs) improved
as a result of the increased integration of Bank experiences, through a
country and project team approach.
3.35 Over the period from 1990 to 1993, 32 country programming papers and
five regional programming papers were produced and 62 country programming
missions were completed. These were supported by 31 country socioeconomic
studies. This strengthened the programming process and contributed to improvements
in the identification, selection, composition and degree of readiness of
the Bank's operational pipeline during the period from 1990 to 1993.
3.36 Also during this period strategic planning was strengthened. A number
of strategic corporate studies were carried out. These included policy papers
supporting the social reform process, privatization, and demographic issues,
as well as an assessment of the Bank's lending program over the Fifth, Sixth,
and Seventh Replenishment periods.
G. Evaluation activities
3.37 Over the Seventh Replenishment period a wide range of evaluation activities
were carried out addressing both program impact and the program processes
of the Bank. More than 20 impact and performance studies focusing on a range
of sectors including telecommuni- cations, agricultural research and extension,
environment management and women in development were completed. In addition,
issues of evaluation methodology were addressed through several studies,
and in 1994, as a consequence of a Board of Directors decision, a new Evaluation
Office was created. This new office is expected to enhance the scope and
coverage of evaluation of operations, policies and programs, through a focus
on measurable results.
H. Social Agenda Policy Group (SAPG)
3.38 In 1992 the President of the Bank established a high-level Social
Agenda Policy Group (SAPG). The SAPG was conceived as an instrument for
the expansion of the activities of the Bank in the social sectors. Its purpose
was to define an approach for enhancing the Bank's activities in support
of the social sectors. Since its establishment, the SAPG has carried out
three major pilot missions, to Trinidad and Tobago, Chile and Venezuela.
Through these missions, issues for inclusion in agendas for sectoral reform
have been identified involving broad-based dialogue in the borrowing member
countries with the governments and elements of civil society in the shared
definition of reform priorities and strategy.
4. DISBURSEMENTS DURING THE SEVENTH REPLENISHMENT PERIOD
3.39 During the 1990 to 1993 period, the Bank disbursed a total of US$12.2
billion, in freely convertible currencies of the ordinary capital and the
Fund for Special Operations. This represents an increase of approximately
46 percent over disbursements during the previous four-year period (1986
to 1989). Of the total convertible resources disbursed, 9.4 percent came
from the FSO and 90.6 percent from ordinary capital resources. The table
below shows the amounts for each year, broken down by type of resources.
5. FINANCIAL ACTIVITIES
3.40 At the beginning of the Seventh Replenishment period, and for the
first time ever, the Bank experienced protracted arrears in its loan portfolio.
These arrears however, were fully cleared during the period, reflecting
the unwavering commitment of member countries to the Bank.
3.41 During the Seventh Replenishment period, all major financial policies
were reviewed and updated in order to improve the Bank's financial management
and to make it more efficient. This included liquidity and investment policies,
borrowing policy, and currency selection policy.
3.42 During the Seventh Replenishment period, the Bank raised the equivalent
of US$14.5 billion of funding from the world capital markets and repaid
US$7.2 billion. Consequently, the net borrowings during the period reached
the equivalent of US$7.3 billion. Of the amount repaid, US$2.4 billion corresponded
to high coupon debt, redeemed in advance and replaced by lower cost funding.
The average cost of the Bank's new borrowings was 6.5%. As a result of improved
financial management systems the Bank narrowed its spread over comparable
benchmark issues.
3.43 The major rating agencies continued to affirm the Bank's AAA rating
throughout the Seventh Replenishment period. Their rating, which has remained
unchanged since the Bank was founded, is based upon the solid support from
the governments of member countries, on the prudent limits set by statute,
by management policy, and on a highly satisfactory financial performance.
6. CONCLUSION
3.44 The Seventh Replenishment period was one of major accomplishments
for both the region and the Bank. The Bank achieved its highest levels of
annual lending ever and made a significant contribution in support of the
major economic, social and political changes which occurred in the region
during the period. The average annual lending level between 1990 and 1993
increased to approximately US$5.3 billion as compared with US$2.5 billion
over the period from 1985 to 1989. Funding for technical cooperation and
small projects increased dramatically during the Seventh Replenishment with
approximately a doubling and quadrupling in value of these activities respectively.
Also during this period the IDB became the single most important provider
of official external financing to the region, particularly for the smaller
and poorer countries. The Bank continued to promote well-designed, financially
viable investment projects, played an important role in the public-sector
debt restructuring of several countries, and at the same time became a major
partner in the region's macroeconomic and development policy dialogue. The
IDB's contribution to this policy dialogue and process of economic adjustment
reflected its evolving role as an international multilateral development
institution, and its identity as a regional bank committed to the economic
and social development of Latin America and the Caribbean. / Assessment
of the IDB Lending Programme, 1979-92. The Institute of Development Studies,
Sussex University, August 1993. p. vii. / Managing for Effective Development,
Report of the Task Force on Portfolio Management for the Inter-American
Development Bank, October 1993, p.1.
