Best Practices

General Operational Policies*

GUARANTEES REQUIRED FROM THE BORROWER

General Policy

The Bank requires JOINT AND SEVERAL GUARANTEES from third parties to guarantee each of its loans.

The capacity of the borrower and the guarantor (if any) to comply with the loan obligations should be considered when making or guaranteeing loans.

Objectives

- TO ASSURE COMPLIANCE WITH THE MONETARY OBLIGATIONS of a loan, including repayment of principal, payment of interest and fees, and provision of the local contribution required for the project.

- TO ASSURE COMPLIANCE WITH THE OBJECTIVES and purpose of the loan, bearing in mind that in some cases only the nation is legally empowered to ensure compliance with basic national policy guidelines affecting a project, in which case, attainment of the objectives of a loan lies beyond the control of the borrower.

Basic Guidelines

LOANS TO THE GOVERNMENT OF A COUNTRY. The guarantee consists of the responsibility of the government in its capacity as borrower. No third-party guarantee is required.

LOANS TO CENTRAL BANKS. The Bank does not require a joint and several guarantee from the government of a country for the financial obligations stemming from loans made to that country's central bank. However, in the event that a central bank is prohibited from assuming - directly or through the executing agency - certain obligations to perform or to forbear in relation to the objectives of the project, a guarantee from the government of the country in question will be required.

LOANS TO PUBLIC SECTOR DEVELOPMENT AGENCIES AND OTHER NATIONAL DECENTRALIZED BODIES. The Bank requires the government's joint and several guarantee.

This policy does not apply with regard to loans to development banks or agencies that have ample financial capacity to meet the obligations they would assume towards the Bank, provided that their charters include the provision that all the operations they enter into as borrowers are covered by a joint and several or subsidiary guarantee of the nation.

LOANS TO SUBNATIONAL ENTITIES. The Bank requires the member country's joint and several guarantee. However, the policy can accommodate decentralized regimes where subnational entities may be creditworthy and financially autonomous. In these cases, the sovereign guarantee on local counterpart need not be required when the financial analysis demonstrates the capacity of the borrower to provide these resources on a timely basis. Similarly, the sovereign guarantee need not extend to those performance requirements or contractual obligations for project execution that are within the sphere of competence pertaining to the legal mandate of the subnational borrower. Other contractual obligations of the country as guarantor would be reflected in the guarantee contract.
In the case of loans to decentralized entities connected or attached to subnational entities, taking into account the area of responsibility assigned by law to the former and the latter, the projects have been prepared in such a way as to have a complete guarantee, provided as follows: (a) by the member country, with respect to the payment to the Bank of the loan, interest, and other financial charges; (b) by the subnational entity, with respect to the other aspects, including such contractual obligations the fulfillment of which depends on that entity.

LOANS TO THE PRIVATE SECTOR. According to the Bank's Eighth General Increase of Resources, and pursuant to previous agreements with member countries, the Bank can loan directly to the private sector without sovereign guarantee, provided that such lending is made with the concurrence of the government of the member country. This modality must not exceed the percentage of loans outstanding, excluding emergency loans as established in the Bank's policies for private sector operations.

FINANCING FOR EXPORTS OF CAPITAL GOODS AND SERVICES. The Bank requires the joint and several guarantee of the government of the exporting country or a financial agency in that country acceptable to the Bank.
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Prevailing Reference Documents:

GP104, August 1981,
GN1630, August 1988,
GN-1860-1, GN-1860-2,
GN-1860-3, May, June, October 1995, respectively;
GN-1860-6, october 1997.
GP-104-2, September 2001 .

 

* The operational policies of the Inter-American Development Bank are intended to provide operational guidance to staff in assisting the Bank's borrowing member countries. Over the course of the Bank's more than 40 years of operations, the approach to developing operational policies has taken various forms, ranging from the preparation of detailed guidelines to broad statements of principle and intent. Many policies have not been updated since they were originally issued, and a few reflect emphases and approaches of earlier years which have been superseded by specific mandates of the Bank's Governors, the most recent being the Eighth Replenishment mandates of 1994. In accordance with the Bank's information disclosure policy, the Bank is making all of its operational policies available to the public through the Public Information Center. Users please note that the Bank's operational policies are under a process of continuous review. This review process includes preparation of best practice papers summarizing experience at the Bank and other similar institutions, and sector strategy papers.

General Operational Policies Sectoral Operational Policies Information Disclosure Policy Procurement Policy