Best Practices

General Operational Policies*

FINANCING OF INTEREST

Basic Guidelines

The following guidelines are applicable to loans financed out of the Ordinary Capital and the Fund for Special Operations and to loans financed with other funds administered by the Bank:

1. Financing may be considered only for interest payable on Bank loans. As in past and current practice, financing will not be provided for credit fees.

2. The proceeds of a loan made by the Bank using any one of its own funds or funds it administers may not be used to finance interest on a loan or loans from any other Bank fund.

3. In the case of an additional loan or loans is/are granted to finance an on-going project already being financed by the Bank, the portion of the new loan(s) used to finance interest is subject to the following conditions:

a) Provided that the additional loan(s) is(are) from the same fund or from a fund subject to the same rules as the original financing, the proceeds of the loan(s) may be used to finance current interest that is incurred by the borrower on both the old and new loans, beginning with the approval date of the additional financing; and

b) In no event may proceeds of a new loan be used to cover interest incurred by the borrower prior to the approval date of the new loan.

4. Interest will not be financed on loans to financial intermediaries, such as loans to development banks, preinvestment funds, and other financial institutions that onlend the funds received from the Bank.

5. Interest on loans from the Fund for Special Operations to be paid by the borrower in local currency, regardless of whether such interest arises from loans extended in local currency or in foreign exchange, will only be financed by the Bank in local currency.

6. Since the payment of interest in foreign exchange during the construction period of projects represents an integral part of the total investment cost of the project and as such constitutes a burden on the foreign exchange reserves of the respective member country, the Bank may finance those costs during the construction period, when so requested by the borrower. The financing will extend to the earlier of the end of the execution period or the date of the final disbursement.

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Prevailing Reference Documents:
GN­1301, April 1979,
GN-1335-2 and GN-1335-3, March 1980.

* 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