CHAPTER VI

RECOMMENDED PROCEDURES FOR IMPLEMENTATION OF EIGHTH GENERAL INCREASE OF RESOURCES


6.1 The foregoing analysis shows that, in order for the Bank to maintain an appropriate level of lending operations, action should be taken by the Board of Governors as soon as possible to increase the Bank's capital resources and the Fund for Special Operations (FSO) and to allocate additional resources to the Intermediate Financing Facility.

6.2 In order to permit the Bank to utilize its capital resources to meet future loan program needs in a timely manner, it is contemplated that the increase of both paid-in and callable capital would become effective in six equal annual installments on December 31 in each of the years 1994 through 1999. It is proposed that 2.5 percent of the contemplated subscribed US$40 billion capital increase be in the form of paid-in capital and 97.5 percent be in the form of callable capital. It is proposed that there also be an increase in the Fund for Special Operations in the equivalent of US$1 billion with the additional contributions by the member countries becoming effective as set forth in paragraph 4.11 of Chapter IV. It is also proposed that additional transfers of the Fund for Special Operations be made to the Intermediate Financing Facility (IFF) sufficient to support the annual levels of IFF financing determined by the Board of Executive Directors. Finally, it is proposed that a Technical Cooperation Fund ("FONTEC") be established for the purpose of attracting and making efficient use of a larger volume of financial resources for nonreimbursable technical cooperation.

1. APPLICABLE PROVISIONS OF THE AGREEMENT AND THE GENERAL RULES

6.3 The provisions of the Agreement and of the General Rules which concern increases in the capital resources and in the Fund for Special Operations, and which concern additional transfers to the Intermediate Financing Facility, may be summarized as follows:

A. Capital resources

6.4 Article II, Section 2(e), of the Agreement provides that the authorized ordinary capital stock may be increased when the Board of Governors deems it advisable and in a manner agreed upon by a three-fourths majority of the total voting power of the member countries, including a three-fourths majority of the total number of Governors, which includes a two-thirds majority of the Governors of regional members.

6.5 Article II, Section 3(b) of the Agreement provides that in case of an increase in the capital pursuant to Article II, Section 2(e), each member shall have a right to subscribe, under such conditions as the Bank shall determine, to a proportion of the increase of stock equivalent to the proportion which its stock theretofore subscribed bears to the total capital stock of the Bank, but no member shall be obligated to subscribe to any part of such increased capital. In other words, a member may waive its right to subscribe to its proportionate share of a capital increase.

6.6 Article VIII, Section 4(b) of the Agreement, and Section 7(b) of the General Rules, provide that no increase in the subscription of any member to the capital stock shall become effective, and any right to subscribe thereto is waived, which would have the effect of reducing the voting power: (i) of the regional developing members below 53.5 percent; (ii) of the United States below 34.5 percent; or (iii) of Canada below 4 percent. Section 7(b) of the General Rules provides that, notwithstanding the foregoing provisions, any resolution of the Board of Governors for a capital increase shall specify that: (1) in order to prevent the voting power of the regional developing members as a group from falling below 53.5 percent, any member of the group may subscribe to shares allocated to another member of the group if the latter member does not wish to subscribe to such shares; (2) the provision relating to percentages of voting power may be waived by the regional developing members as a group with respect to their 53.5 percent, and by the United States and Canada with respect to their 34.5 percent and 4 percent, respectively; and (3) any member of the group of nonregional members may subscribe to shares allocated to another member of the group if the latter member does not wish to subscribe to such shares.

6.7 To fully implement the increase of capital resources, the provisions specified in 6.5 above will need to be waived to the extent that some members do not subscribe to their current proportionate share. Similarly, the provisions with respect to minimum voting power specified in 6.6 will need to be waived to the extent that the voting power of the regional developing members and the United States may fall below 53.5 percent and 34.5 percent, respectively, of total voting power prior to the approval of the proposed resolution, Annex D, which will modify these percentages.

B. Fund for Special Operations

6.8 Article IV, Section 3(g), of the Agreement specifies that the resources of the Fund shall be increased through additional contributions by the members when the Board of Governors considers it advisable by a three-fourths majority of the total voting power of the member countries. As with increases to the Bank's ordinary capital, each member has the right to contribute to a proportion of the increase in the Fund for Special Operations equivalent to the proportion between the quota in effect for such member and the total amount of the resources of the Fund contributed by members. No member, however, shall be obligated to contribute any part of such increase. Therefore, a member may waive its right to contribute to its proportionate share of an increase in the Fund.

C. Intermediate Financing Facility

6.9 The proposed resolution, Annex C, authorizing the transfer of additional resources of the Fund for Special Operations for the Intermediate Financing Facility could be approved by a majority of the total voting power of the member countries in the same manner as Resolution AG-12/83 creating the IFF, and Resolution AG-3/90 transferring additional resources to the IFF, were approved. These majorities are established in Article VIII, Section 4(c), of the Agreement, which specifies that, except as otherwise specifically provided in the Agreement, all matters before the Board of Governors shall be decided by a majority of the total voting power of the member countries.

2. TECHNICAL COOPERATION FUND

6.10 The proposed resolution, Annex E, authorizing creation of an independent account to be known as the Technical Cooperation Fund Account ("FONTEC"), may be approved pursuant to the provisions of Article VIII, Section 4(c) of the Agreement, which specifies, as is more fully explained in paragraph 6.9 above, that the proposed resolution must be approved by a majority of the total voting power of the member countries.

3. DECISION-MAKING PROCEDURES

6.11 The Governors have agreed that the amendments to Part III, Section 2 of the Regulations of the Board of Executive Directors, which were approved in connection with the Seventh General Increase in Resources, would continue to be in effect with respect to the lending program of the Eighth Replenishment, with the amendment noted as follows. The additional delay periods permitted under the Seventh General Increase will be shortened so that one Executive Director can delay ordinary capital loans in the Committee of the Whole for one month, and thereafter two or more Executive Directors can delay ordinary capital loans in the Committee of the Whole for two additional months. Further delay would not be permitted.

6.12 Subsequent to the approval of this report, the Board of Executive Directors shall take the necessary steps to amend its regulations as provided in paragraph 6.11, above. Amendments to the Regulations of the Board of Executive Directors are approved by a majority of the total voting power of the member countries pursuant to Article VIII, Section 4(d)(iii), of the Agreement, which specifies that, except as otherwise specifically provided in the Agreement, all matters before the Board of Executive Directors shall be decided by a majority of the total voting power of the member countries.

4. AMENDMENTS TO THE AGREEMENT ESTABLISHING THE BANK AND OTHER BASIC BANK DOCUMENTS

6.13 As indicated in Chapter V above, the Committee of the Board of Governors has also reached consensus in proposing to the Board of Governors amendments to the Agreement and to certain other basic documents of the Bank so as to (i) alter the current voting structure of member countries, (ii) permit the nonregional countries to elect not less than three Directors to the Board of Executive Directors and provide an additional chair for the regional member countries, and (iii) implement certain new voting majorities to complement these changes. Accordingly, a proposed resolution, Annex D, is attached that includes amendments to the Agreement, the Regulations of the Board of Governors, and the General Rules that are necessary to effect these changes. Complementary amendments to the Regulations for the Election of the Executive Directors must also be approved by the Board of Governors. A proposed resolution for these amendments will be distributed at a later stage.

6.14 Amendments to the Agreement are generally approved by a majority of the total number of Governors, including two-thirds of the Governors of regional members, representing not less than three- fourths of the total voting power of the member countries pursuant to Article XII, Section (a). In addition, in accordance with Section 7(a)(i)(2) of the General Rules, any amendment of the Agreement which changes the number of Executive Directors to be elected by the nonregional member countries must be approved by a two-thirds majority of the total number of nonregional Governors representing not less than three fourths of the total voting power of the nonregional member countries. Amendments of the Regulations of the Board of Governors are approved by a majority of the total voting power of the member countries pursuant to Section VI of said regulations. Amendments of the General Rules are approved by a two-thirds majority of the total number of Governors, including two-thirds of the Governors of nonregional members, representing not less than three-fourths of the total voting power of the member countries pursuant to Article II, Section 1(b) and Article XII, Section (a) of the Agreement and Section 7(a)(i) of the General Rules.

5. WAIVERS REQUIRED

Waiver of preemptive rights

6.15 In order to implement the specific changes in the capital structure of the Bank, it will be necessary to obtain waivers from those members whose proposed subscriptions are less than their current proportionate share. In order to obtain the needed waivers, a simplified procedure will be adopted. Specifically, each member shall be deemed to have waived any rights it has under Article II, Section 3(b) and/or Article IV, Section 3(g) upon the effective date of the resolution approving this report, unless it specifically notifies the Bank to the contrary in writing by June 30, 1994.

Waiver of minimum shareholdings

6.16 The minimum shareholding percentages set forth in paragraph 6.6 above would prevent the proposed changes in shareholding outlined in paragraph 5.2 above from taking place until Article VIII, Section 4(b) of the Agreement, and Section 7 of the General Rules, are amended or appropriate waivers are obtained from the regional developing members and the United States.

6.17 Under the proposed schedule for subscriptions, the voting power of the regional developing member countries as a group and the United States will drop below 53.5 percent and 34.5 percent, respectively, once the first subscription is completed, which is expected to be December 31, 1994. It is unlikely that the proposed amendments to the Agreement and to the General Rules will be effective by that date while the current minimum shareholding percentages will continue to be in effect. Therefore, the Agreement would require the Bank to defer acceptance of shares from other members, or obtain a waiver from the regional developing members as a group and the United States for the first installment to be effective. The same situation would arise for any subsequent installment which was completed prior to the effective date of the amendments to Article VIII, Section 4(b) of the Agreement, and Section 7 of the General Rules. To minimize the need to defer acceptance of shares, the regional developing member countries as a group and the United States would be deemed to have waived their minimum shareholding rights upon the effective date of the resolution approving this report, unless a member notifies the Bank otherwise in writing by June 30, 1994.

6. RESOLUTIONS PROPOSED

6.18 Accordingly, to implement the Eighth General Increase in the Resources of the Bank, it is recommended that the Board of Governors adopt the following three attached proposed resolutions:

Annex A: Increase of US$40 billion in the Authorized Capital Stock and Subscriptions Thereto.

Annex B: Increase in the Resources of the Fund for Special Operations and Contributions Thereto.

Annex C: Transfer of Additional Resources to the Intermediate Financing Facility Account.

6.19 Further, to implement the amendments to the Agreement and to certain other basic documents of the Bank referred to in Chapter V, it is recommended that the Board of Governors adopt the proposed resolution attached as Annex D. Also, to establish the proposed Technical Cooperation Fund, it is recommended that the Board of Governors adopt the proposed resolution attached as Annex E.

7. PROCEDURES FOR VOTING

6.20 After its adoption by the Committee of the Board of Governors, this Report (to which the proposed resolutions noted in the preceding paragraphs 6.18 and 6.19 are attached) will be presented to the Board of Governors for approval by mail vote, as established in Section 5 of the By-Laws of the Bank. The Board of Governors will be requested to approve this report by adopting the proposed resolution submitted therewith and entitled "Report on the Eighth General Increase in the Resources of the Inter-American Development Bank". This Resolution approves the Report and recommends that the members take such action as may be necessary and appropriate to give effect to the proposed resolutions described above.

6.21 Subsequently, the proposed resolutions in Annexes A, B, C, D, and E would be voted upon by the Board of Governors by mail vote. To be valid the votes on the proposed resolutions in Annexes A, B and C must be received at the headquarters of the Bank no later than October 31, 1994, or by such later date as the Board of Executive Directors shall determine.

8. SPECIFIC ACTIONS REQUIRED AFTER ADOPTION OF THE PROPOSED RESOLUTIONS

6.22 If the proposed resolutions on the Eighth General Increase are adopted, then the following initial actions by each subscribing member are required by the dates indicated:

A. Capital increase

By October 31, 1994:

(i) Deposit of an appropriate instrument agreeing to subscribe to the respective number of shares of paid-in and callable capital stock, in accordance with the terms of the pertinent resolution.

By December 31, 1994:

(ii) Subscription of the first installment of the callable capital.

(iii) Subscription of the first installment of the paid-in capital and arrangements for payment thereof within 30 days.

B. Fund for Special Operations increase

By October 31, 1994:

(i) Deposit of an appropriate instrument agreeing to the making of the respective contribution to the increase in accordance with the terms of the pertinent resolution.

By December 31, 1994:

(ii) Arrangements for payments of the first installment of the increase within 30 days.

6.23 The subscriptions to and payments by the members of these increases and contributions and their corresponding encashments in the following years are detailed in the respective resolutions.