In addition to the three lending categories the IDB can guarantee loans made by private financial sources in public sector projects. Guarantees seek to improve financing conditions for projects in Latin America and the Caribbean and help promote investment in borrowing countries. They cover the risks that the private sector is not normally in a position to absorb or manage. These guarantees are partial guarantees of private debt, so that the risks are shared between the Bank and private lenders. The Bank is in a unique position to do so, given its experience in the Region and its relationship with governments.The IDB offers two types of guarantees in investment lending:
- Partial credit guarantees cover part or all the funds provided by financiers, effectively covering any risk that might affect repayment to the financier. These are designed to assist governments and their entities in accessing new sources of debt financing with longer maturities than would otherwise be available.
- Political risk guarantees cover the risk that the sovereign or public entity will not comply with the contractual conditions required by a private entity such as a bank or investment partner, which could affect the repayment of the debt to creditors. It may be used where the government has moved from owner or operator to regulator or purchaser of a service. This guarantee protects lenders against debt service defaults that result from nonperformance of government obligations agreed to under a concession or similar arrangement.
Reference: GN-2729-2, 2013