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RELATIONSHIP WITH SUBREGIONAL FINANCIAL INSTITUTIONS - GENERAL POLICY
Objectives
The goals of the IDB's relations with subregional financial institutions
are primarily envisaged as supporting efforts to promote regional integration.
The IDB's specific goals are as follows:
- To strengthen subregional banks in order to help them consolidate
or enhance their position as key players within their respective subregions,
and on international capital markets;
- To make effective use of the principle of division of labor on
the basis of their respective competitive advantages and experiences;
and,
- To increase the financial intermediation directed toward the region.
Basic Principles
There now follows a discussion of the general principles governing
the IDB's operations with subregional financial institutions (the Central
American Bank for Economic Integration, CABEI; the Caribbean Development
Bank, CDB; the Andean Development Corporation, CAF; and the Financial
Fund for the Development of the River Plate Basin, FONPLATA). In view
of the marked differences among institutions, this policy is necessarily
general in nature to establish a new framework for relations. The specific
strategic framework for conducting operations with each subregional
bank will be established in a dynamic context, in the process of dialogue
and consultation of the Bank's subregional programming process and formulated
as part of the respective subregional strategy document
Comprehensive IDB support for subregional financial institutions will
be determined in accordance with three fundamental principles reflected
in the IDB's support for regional integration: compatibility of strategies
and policies, complementarity of actions, and additionality of resources.
COMPATIBILITY. Compatibility requires that the strategies and
policies of the IDB and a subregional financial institution be consistent
with each other. Strategy compatibility implies consistent objectives
and priorities in country-specific strategic plans and programs. Policies
are compatible when the main policies of both institutions are predicated
on consistent principles and there are no rules in conflict with each
other.
COMPLEMENTARITY. Complementarity requires that a subregional
institution have the capacity to act more efficiently than the IDB in
specific activities within the areas of mutual interest in which strategy
compatibility is found. In other words, within the areas of commonality
in the general and country-specific strategies referred to issue of
compatibility, areas would be identified in which action by the subregional
bank would yield clear benefits for both institutions and their member
countries, in the interests of achieving greater operational efficiency.
This would help maximize the use of the comparative advantages of each
institution and thereby prevent unnecessary duplication of effort, while
enhancing the efficiency of financial intermediation.
ADDITIONALITY. The principle of additionality involves the IDB's
technical and financial support having a multiplier effect within the
subregion concerned. In other words, the IDB's financial and technical
support for the subregional banks must help to promote the involvement
and positioning of such institutions in international capital markets.
The task of identifying and verifying compliance with the requirements
of compatibility, complementarity, and additionality will be entrusted
to the IDB's project teams at the time each operation is analyzed. Compliance
with the principle of compatibility will be the first issue addressed
by the IDB as a requirement for entering into credit operations, and
will be analyzed and reported in the Profile I for the operation concerned.
Areas of complementarity will be agreed upon by the IDB's project team
and its counterpart from the subregional bank; for this purpose, the
priorities of both institutions will be taken into consideration, among
other issues.
Types of Operations
CREDIT OPERATIONS FOR SUBREGIONAL FINANCIAL INSTITUTIONS. Financing
programs involving subregional financial institutions meeting the principles
of compatibility, complementarity, and additionality may fall into the
following categories:
- GLOBAL LOANS TO SERVE AREAS OR SECTORS OF COMPLEMENTARITY.
The sizing of these operations will be determined in a flexible fashion,
and the following factors will be taken into consideration: the type
of subprojects to be financed, the size and level of development of
the economies concerned, analysis of the investment programs of member
countries, the level of demand for credit within the subregion, the
financing-related experiences of financial institutions in the areas
of complementarity, and their capital structure. With each operation,
the eligibility criteria for the individual subprojects will be stipulated,
as will the maximum amounts of the subloans. Attention will also be
paid to the degree to which the subprojects reflect the objectives
and mandates of the relevant IDB capital replenishment. These criteria,
and any other criteria deemed important, will undergo technical review
by the project team as it prepares each operation, and will be set
forth in the credit regulations. The reference to the maximum amounts
of the subprojects does not apply to the Bank's operations with the
Caribbean Development Bank that target countries that are not members
of the IDB.
- OPERATIONS INTENDED TO SERVE SPECIFIC AREAS OR PROJECTS.
These operations will involve projects covering several countries
within a subregion, or those being executed in a single country but
contributing to integration processes. The ultimate use of the financing,
more precisely identified than in the case of global loans, will be
specified in terms of a set of specific projects.
- PHASED GLOBAL LOANS. These operations are similar to those
defined in the paragraph "Global Loans to Serve Areas or Sectors
of Complementarity", with regard to the types of projects eligible
for financing. In this case, however, the IDB's financing for subregional
banks is divided into tranches. Authorization to commit resources
in respect of each tranche will be conditional on verifying progress
achieved with respect to institutional strengthening or preinvestment
jointly agreed upon by the IDB and the subregional bank in question.
Here, the eligibility criteria and the maximum amounts for the subprojects
will be specified in the credit regulations and may be modified as
a result of the regular meetings between the IDB and the subregional
institution to review each tranche. With respect to the operations
described in paragraphs corresponding to Global Loans, the eligibility
criteria and the maximum amounts for the subprojects will be determined
in such a way that the eligible projects are specific projects whose
financing requirements are not large enough to warrant direct IDB
involvement. For each operation with a subregional bank, it will be
specified that proceeds from the IDB loan are to be maintained in
a separate account and that the use of said resources is to be audited
in accordance with rules acceptable to the IDB.
COFINANCING OPERATIONS. The IDB may cofinance operations with
subregional banks, subject to the rules governing such operations at
the Bank and the institutions involved. Under no circumstances may the
subregional banks utilize IDB resources for purposes of cofinancing
operations with the IDB.
PROVISION OF GUARANTEES. The IDB may consider providing subregional
institutions with guarantees for contracting resources earmarked for
specific projects. Such guarantees are necessary to enable the subregional
banks to obtain longer terms on the international markets than those
markets would be willing to grant in the absence of guarantees. Consequently,
the IDB would be granting partial loan guarantees. Such guarantees would
be provided once the principles of compatibility, complementarity, and
additionality have been established. These guarantees would be reviewed
on a case-by-case basis.
COOPERATION IN PROJECT PREPARATION AND SUPERVISION. The IDB
may enter into operating agreements with subregional financial institutions
pursuant to which the latter would work together with the IDB in preparing
projects for the Bank's approval and supervising their execution. The
framework agreement between the IDB and the subregional bank would indicate
the precise form that such cooperation would take, the maximum amounts
for the projects, reimbursement of costs, as well as project selection
criteria.
FINANCING FOR CARIBBEAN COUNTRIES THAT ARE NOT MEMBERS OF THE IDB.
The IDB will provide financing for the programs and projects of Caribbean
countries that are not IDB members, through loans to the Caribbean Development
Bank, as stipulated in the Agreement Establishing the IDB.
Operating Mechanisms
The Bank's activities will utilize the following mechanisms:
STRATEGIC PLANNING. The starting point in identifying operations
with subregional financial institutions will be to determine the extent
to which their strategic outlooks are consistent and compatible with
those of the IDB. To examine the compatibility of strategies and policies,
the Bank will consult with the subregional financial institution to
identify opportunities for complementary work as well as those areas
of activity most beneficial for each institution, in the context of
support for regional integration.
IDB REGIONAL PROGRAMMING PAPERS. Regional programming papers
are an essential operating mechanism for identifying possible areas
for cooperation between the IDB and subregional financial institutions.
Accordingly, the IDB's regional programming papers will be used to identify
opportunities for operations and interinstitutional cooperation, including
those actions which the IDB can carry out with the subregional bank
in those areas jointly identified as offering the greatest potential
for coordinated activity.
IDB COUNTRY PROGRAMMING PAPERS. A further opportunity for identifying
areas for joint activity can be found in the procedure for establishing
objectives, targets, and programs contained in the programming paper
for each country within a subregion. In particular, the dialogue associated
with the programming process will facilitate the task of identifying
issues of common concern which may be addressed through the preparation
of joint financial programs. In using the various programming papers
for each country in the subregion to identify areas for investment and
objectives shared with the subregional banks, the relevant objectives
may be discussed with the subregional financial institutions with a
view to ensuring effective coordination and efficient use of the comparative
advantages of each institution.
INSTITUTIONAL STRENGTHENING OF SUBREGIONAL FINANCIAL INSTITUTIONS.
At the request of a subregional bank, the IDB will assist in the execution
of institutional strengthening and development programs designed to
enhance the administrative, operational, and financial caliber of the
institution in question. The project team will determine the content
of the technical cooperation program included within the operation,
in accordance with the priorities of the respective institution.
COORDINATION. The IDB and each subregional bank will set up
a liaison committee to engage in ongoing dialogue in areas of common
concern. The liaison committee will be responsible for periodically
reviewing and evaluating the programs and the joint work plan (financing
programs, research studies, institutional support and inter-institutional
cooperation, etc.), with time frames of at least six months. The IDB
will also hold an annual meeting with all subregional banks to promote
cooperation among all the institutions involved, in the interests of
achieving cross-fertilization.
RISK ANALYSIS. Taking into account the nature of each subregional
bank, the IDB will carry out a credit analysis of the subregional bank,
examining its financial soundness, the quality of its portfolio, and
its administrative policies, among other factors. In this context, the
loan document will explicitly identify the financial risk associated
with each operation and any mitigating measures that are considered
appropriate will be recommended; for this purpose, the project team
may solicit the opinion of a rating agency. In addition, when necessary,
the subregional bank will be supported in designing a program of measures
to enable it to gain access, or to broaden its access, to international
capital markets. This program may include measures to enable the subregional
bank to issue securities with an investment-grade rating awarded by
a rating agency with an established reputation on international capital
markets. In situations where a phased global loan operation is deemed
advisable, during the first and subsequent loan tranches, emphasis will
be placed (for as long as is considered necessary) on achieving whatever
objectives are conducive to the institutional strengthening of the subregional
bank.
MONITORING OF RISK. The IDB and each subregional bank will establish
a mechanism for the exchange of economic, financial, and institutional
information to ensure that risk can be monitored adequately. In addition,
the IDB may select a set of financial and operating indicators which
it will use to monitor the institution concerned. The IDB will also
be kept informed of any changes in the institution's medium-term strategy,
country-specific strategies, and operating, financial, and environmental
policies. In addition, other issues connected with adherence to the
principles of compatibility, complementarity, and additionality will
be specifically incorporated in the loan documents in each case.
POLICY MONITORING. The Bank will periodically review its policy
governing its relations with subregional banks, to ensure that its activities
in this regard remain relevant, and to reflect changing circumstances
and other useful input.
Exception
The "Banco Latinoamericano de Exportaciones (BLADEX)" is
not included in the finacial institutions, focus of this policy. This
does not imply that "BLADEX" is not eligible for financing
by the Bank.
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Prevailing Reference Document: GN-1922-3, November 1996.
*
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.
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