(1) The total amount outstanding in respect of the ordinary operations of the Bank shall not at any time exceed the total amount of its unimpaired subscribed capital, reserves and surplus included in its ordinary capital resources excepting, however, the special reserve provided for in Article 20 of this Agreement.
(2) The total amount outstanding in. respect of the special operations of the Bank relating to any Special Fund shall not at any time exceed the total amount of the unimpaired special resources appertaining to that Special Fund.
(3) In the case of loans made out of funds borrowed by the Bank to which the commitment to calls provided for in paragraph (4) of Article 7 of this Agreement applies, the total amount of principal outstanding and payable to the Bank in a specific currency shall not at any time exceed the total amount of principal out-standing in respect of funds borrowed by the Bank that are payable in the same currency.
(4) (a) In the case of investments made by virtue of paragraph (I) (c) of Article 14 of this Agreement out of the ordinary capital resources of the Bank, the total amount outstanding shall not at any time exceed ten per cent of the aggregate amount of the paid-up capital stock of the Bank together with the reserves and surplus included in its ordinary capital resources excepting, however, the special reserve provided for in Article 20 of this Agreement.
(b) At the time it is made, the amount of any specific investment referred to in the preceding sub-paragraph shall not exceed a percentage of equity capital of the institution or undertaking concerned, which the Board of Governors shall have fixed for any investment to be made by virtue of paragraph (I) (0)of Article 14 of this Agreement. In no event shall the Bank seek to obtain by such an investment a controlling interest in the institution or undertaking concerned.
122
-Draft prepared by the Committee of Nine
Explanatory notes submitted by the Committee of Nine
Amendments proposed by Governments
Final text adopted by the Conference
PROVISION OF CURRENCIES FOR DIRECT LOANS Provision of cnrreneies for direct loans (Article 16)
In making direct loans, the Bank shall furnish the borrower with currencies other than the currency of the member in whose territory the project concerned is to be carried out (the latter currency hereinafter to be called "'local currency"), which are required to meet foreign exchange expenditure on that project; provided always that the Bank may, in making direct loans, provide financing to meet local expenditure on the project concerned:
(a) Where it can do so by supplying local currency without selling any of its holdings in gold or convertible currencies; or
(b) In exceptional circumstances, where in the opinion of the Bank local expenditure on that project indirectly gives rise to an increased demand for foreign exchange in the country where that project is to be carried out and the amount of such financing by the Bank does not exceed a reason-able portion of the total local expenditure incurred on the said project.
1. This Article is based on IBRD, Art. IV (3) and, in particular, on IADB, Art. III (6). Consequently, as drafted at present, the Article deals solely with the provision of currencies for direct loans, not with equity investments or the imple-mentation of guarantees (cf. Art. 14 (I)).
2. Under the Article, the Bank may not - with two exceptions - finance local expenses on a project: It provides foreign currencies - convertible or others-required for the foreign exchange costs of the projects. Subject to sub-para. (a), it does not provide "local currency" which, in the Article, is generally defined as lithe currency of the member in whose territory the project concerned is to be carried out". (As to the use of member currencies, see the special note by the Executive Secretary (EjCN.14/FMAB/9, p. 4); as to the Bank's powers to borrow currencies of
members for such transactions, see Art. 24).
3. In the case of the two provisos the Bank may finance local expenditure -in the case of sub-paragraph (a), however, only if it can do so without loss of gold or convertible currencies, and in the case of sub-paragraph (b) in exceptional cir-cumstances only and to the extent that the project indirectly gives rise to an increased demand in foreign exchange; the amount thus advanced must not exceed a reason-able portion of the total local expenditure.
4. As to conditions concerning the repayment of direct loans, see Art. 18; as to the valuation of currencies, see Art. 26.
Tanganyika: Sub-paragraph (b): Delete the phrase "in exceptional circum·
stances". The Article should be rephrased so as to provide for members sharing the same currency.
ARTICLE 16
PROVISION OF CURRENCIES FOR DIRECT LOANS
In making direct loans, the Bank shall furnish the borrower with currencies other than the currency of the member in whose territory the project concerned is to be carried out (the latter currency hereinafter to be called "local currency"), which are required to meet foreign exchange expenditure on that project; provided always that the Bank may, in making direct loans, provide financing to meet local expenditure on the project concerned:
(a) where it can do so by supplying local currency without selling any of it>
holdings in gold or convertible currencies; or
(h) where, in the opinion of the Bank, local expenditure on that project is likely to cause undue loss or strain on the balance of payments of the country where that project is to be carried out and the amount of such financing by the Bank does not exceed a reasonable portion of the total local expenditure incurred on that project.
OPERATIONAL PRINCIPLES Draft prepared by the Operational principles (Article 17) Committee of Nine
(I) The operations of the Bank shall be conducted in accordance with the follow-ing principles:
(a) (i) The operations of the Bank shall, except in special circumstances, provide for the financing of specific projects - including those forming part of a national or regional development programme-urgently required for the economic or social development of its mem-bers. They may, however, include global loans to, or guarantees of loans made to, African national development banks in order that the latter may finance projects of a specified type serving the purpose of the Bank within the respective fields of activities of such banks;
(ii) In selecting suitable projects, the Bank shall always be guided by the provisions of paragraph (1) (a) of Article 2 of this Agreement and by the potential contribution of the project concerned to the purpose of the Bank rather than by the type of the project. It shall, however, pay special attention to the selection of suitable multi-national projects;
(b) The Bank shall not provide for the financing of a project in the territory of a member if that member objects thereto;
(c) The Bank shall not provide for the financing of a project to the extent that in its opinion the recipient may obtain the finance or facilities elsewhere on terms that the Bank considers are reasonable for that recipient;
(d) Subject to the provisions of Articles 16 and 24 of this Agreement, the Bank shall not impose conditions enjoining that the proceeds of any financing undertaken pursuant to its ordinary operations shall be spent in the ter-ritory of any particular country nor that such proceeds shall not be spent in the territory of any particular country:
(e) In making or guaranteeing a loan, the Bank shall pay due regard to the prospects that the borrower and the guarantor, ifany, will be in a position to meet their obligations under the loan;
(f) In making or guaranteeing a loan, the Uank shall be satisfied that the rate of interest and other charge,", are reasonable and such rate. charges and the schedule for the repayment of principal (ue appropriate for the project concerned;
(g) III the case of a direct loan made by the Bank, the borrower shall be per-mitted by the Bank to draw' its funds only to meet expenditure in conne-xion v·lith the project as it is actually incurred;
(h) The Bank shall make arrangements to ensure that the proceeds of any loan made or guaranteed by it are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency;
(i) The Bank shall seek to maintain a reasonable diversification in its invest-ments in equity capital;
(j) The Bank shall apply sound banking principles to its operations, and, in particular, to its investments in equity capital. It shall not assume responsibility for managing allY institution or undertaking in which it has ,m investment; and
(k) In guaranteeing a loan made by other investors, the Bank shall receive suitable compensation for its risk.
(2) The Bank shall adopt such rules and regulations as are required for the con-sideration of projects submitted to it.
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124-Explanatory notes Submitted by the Committee of Nine
Amendments proposed by Govanments and by international organizations
Final text adopted by the Conference
l. The operational principles set out in paragraph (I) of this Article constitute a digest of relevant provisions of the constituent instruments of other lending
agencies, adapted to the requirements of the Bank.
2. It may he useful to indicate these sources in detail:
(a) !BRD, Art. III (4) (vii); IDA, Art. V (1) (b); IAVB, Art. I!I(7) (a);
(b) IFC, Art. III (3) (ii); IDA, Art. V (1) (e): IADB, Art. !II (7) (b);
(c) !BRO, Art. III (4) (ii); IrC, Art. III (3) (i); IDA, Art. V(I) (c);
IADB, Art. III (7) (a) (ii);
(d) IFC, Art. III (3) (iii); IDA, Art. V (1) (F): IADD, Art. !II (9) (a). As to the definition of ordinary operations, see Art. 13 (2);
(e) lBRO, Art. III (4) (v); IAOB, Art. !II (7) (a) (iii);
(f) !BRO, Art. III (4) (iv); lADS, Art. III (7) (a) (lV);
(g) !BRO, Art. !II (5) (c);
(h) !BRO, Art. !II (5) (b); IDA. Art. V (I) (g); IADB, Art. 11 (9) (b);
(i) IFC, Art. III (3) (vii);
(j) IFC, Art. !II (3) (a) (iv) and (v): and
(k) !BRD, Art. III (3) (vi); TADB, Art. III (7) (a) (v).
Kenya: Paragraph (I): The Government has already stressed the need for programme rather than project loans. It notes therefore with some misgiving that, notwithstanding the terms of Article 2 (I) (a), Article 17 (I) (a) (i) provides that, except in special circumstances, the operations of the Bank shall provide for the financing of specific projects. The Government considers that the present circum·
stances of Kenya, and probably of many other African countries, will warrant sub-stantial emphasis on the making of programme loans in order to ensure that Govern-ments can carry out properly balanced programmes of development. The first sentence of sub-paragraph (a) (i) should be suitably re-drafted.
The Government supports the proposal that global loans may be made to African national development banks. It suggests, however, that the words "or other suitable financial institutionsH should be added. This would enable programme loans to be made, for example, to an agricultural finance corporation.
Tanganyika: Paragraph (I) (a) (i): Provision should be made for loans to
"other suitable financial institutions".
Paragraph (I) (c): In exercising discretion the Bank should take into account the foreign exchange position of a country.
Paragraph (I)(j):The right of the Bank to impose conditions on recipients of equity capital should be maintained.
IBRD: Paragraph (l)(d) prohibits the Bank from imposing geographic limitations on the use by borrowers of the proceeds of loans made out of its ordinary capital funds or out of borrowings for ordinary operations. It should be noted that there exist national and international lending organizations which do impose such limitations, Thc effect of paragraph (1) (d) would be to restrict borrowings from such organizations to borrowings for special operations.
ARTICLE 17