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.
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.
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.
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.
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.