Explanatory outline of a charter for the African Development Bank : note by the executive secretary

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.UfNITED NATIONS

BCONOMIC

AND SOCIAL COUNCIL

Distr.

EBSTRICTED

B/CN.14/AEB/12 18 October 1962

Originals

ECONOMIC COMMISSION FOE AFRICA

Committee of Nine on the

Establishment of an

African Development Bank Sub-Committee on the Drafting of the Charter Second session

Geneva, 5-10 November 1962

EXPLANATORY OUTLINE OF A CHARTER FOR THE AFRICAN DEVELOPMENT BANK

(Note by the Executive Seoretary)

62-4009 62-22988

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e/CN.14/aEB/12

- : ■''■ "EXPLANATORY OUTLINE 0? A CHARTER FOR ,:.. x:X ^ L:J'i;:

THE AFRICAN DEVELOPMENT BANK ■ ;. .., .-..■>n-:i i ■n-

(Note "by the Executive Secretary)

1. At its first session, the Sub-Committee expressed the view that the actual drafting of the charter text at its third session should be preceded by comprehensive studies to be undertaken both by experts

of the secretariat, and by members of the Sub-Committee working "each in his own country with his legal advisers" •-'

2. In this view, the task of the second session is primarily to permit the Sub-Committee to develop specific issues with which these studies should deal and to lay down the general lines of policy on which these studies and subsequently the Charter itself should be predicated. In this way, when the Sub-Committee meets at its third session it should have at its disposal various proposals for the solution of the different problems to be dealt with by the Charter with an analysis of the technical and policy implications of such

solutions. On this basis the Sub-Committee should then be in a position to make its decision on the various points at issue, and thus to present a draft charter to the Committee of Nine at its third

session.

3. In order to assist the Sub-Committee in this work, the Executive Secretary has prepared the attached Explanatory Outline.-' It seeks

2/

to list in order the questions to be covered by the Charter indicating the policy or technical issues to be faced in each of them, and adding references to the solutions adopted by the principal existing inter

governmental development finance institutions,—'

l/ See Report of the first session - Document E/CN.14/adB/9> paras. 4, 5.

2/ Mr. Alexander Elkin, former Assistant Director European Office, UN, former Legal Adviser, OEEC, served aa a Consultant to the Executive

Secretary in the preparation of this Note,

3/ A synoptic table of the constituent documents of these institutions

will be presented in an Annex to this Note,

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II

4« The Sub-Committee at its second session may wish to use this outline in order to formulate the directions in which .the experts * seart»h for solutions should proceed on each of the charter provisions*

\5:

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E/CN.14/ADB/12

TABLE OF OTEENTS I. INTRODUCTION' . . . .

II. PURPOSE AND FUNCTIONS

A. Purpose ' ...

B1. Functions '. *. '. ■. . . - C. Co-operation . \ . - . D. Guiding Rule f.-<r Action III. MEMBERSHIP

Paragraphs

1-7

8-11 8 9 10 11

12-23 A'. Founder Members and Admission ... 12

B. Ufrica" . ..•:•• • ? 13

C-. Qualifying Membership

D, Associate Members ...

EV Organs of Cooperation ... i ■ • . P. Withdr'awal

G. Suspensiolri . . "- . . ;. I

HV Settlement of Accounts . . 1

14 15 - 18 19 20 - 22 -

17

21 23

IV. CAPITAL STRUCTURE 24-52

A", Authorized Capital 25- - 26

B. Share Capital 27

C'. Paid-up arid Callable Capital . . -28-34 ,! J>* "Subscription System .' . . . . 35 - ' '.'E; 'Iiabilityori Shares; Charges;. . . V . . - 42 -

. ' 'Tfarisferability ■ .

'?. Alteration of the Authorised '.'■ . . . . .' . ;. . .44-45

Capital

G. "Definition of Capital Resources

Ordinary Capital Resources • 48

Special Capital Resources - -

fiicoine and Capital Returns on Investments

⁴⁹⁵⁰

41 43

46 - 47

d) Implementing Charter Provisions ... 51-52

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E/CK.14/ADB/12

-i* -

Paragraphs

V. OPERATIONS, OTHER ACTIVITIES, BORROWING POWERS .... 53 - 81

A, Operations: General Questions 53 - 68

B.

a). Forms pf, Operations ■ 53 - 55

b; Recipients , 56-59

c) Projects ... ( 61 - 62

d) Limitations on Operations 63

General limitation. ... 64

Special Funds 65

. ; Use of. Cm*rercies .. . - . . . • ■• • • - -• • • .66 - 67 Non-Conventional. Loans . . .. ... .68 The Use of Special Capital Resources 69-71

(a) .Ordinary and special Operations^ ... 69 : ; ■

(b) Principles of Separation 70-71

. . .and.of Special Administration ■ .

C, Operational Principles.and Conditions ... 72 - 81 . Operatipnal. Principles . . . ... . . . ..

.General. Principles .,...- . Procedirre for. i-he. Selection of Projects, . Conditions of Operations . ... .. . ...

D» Borrowing and Additional Powers

, ORGANIZATION AND MANAGEM3NT

72 73 74 75 - 79 80 - 81

82 - 113

>A« General. Structure of the Baric ... ....-•■. .82-86

B# . Board, of Governors .... . . ..-....,,,. .,■ . . 87 - 92

C. Board of Directors. .- •;r?r • - - 93 - 102 d. voting ....;....:...,. .;-.,. . '103 - 109 E. .Officers and Staff - - • -• ■ ■ • • •■ - • • H° " H3

VII, GENERAL AND FINAL PR0T7ISIQNS 114 - 141

115 - 124 A. Status, Immunities, Exemption? and Privileges .

B. Location of/OfficeS; Channels;.of Communication,

Depositories . ■ .; . . . ... ... . . ■. . . • 125 -

C. Suspension and Termination of the Bank's Activities 126 - 127

D. Amendments to the Charter • 128 - 130

E. Interpretation, Settlement of Disputes, Language

of the Charter 131-135

F. Signature, Ratification and Acceptance, Coming

into Force, Beginning- of Operations ... 136 - 141 ANNEX : Synoptic Tables of the Principal Provisions of the Constituent

Instruments of Selected Inter-Governmental Development Finance Institutions.

Table I Table of Article Numbers of Provisions Table II Table of Text of Provisions

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B/CK.H/aIIB/12

-iii-

NOTE:

This Document uses thi. follovdng terms:

IBRD - International Bank for Reconstruction and Development IFC - International Finance Corporation

IDA — International Development Association IADB — Inter-American Development Bank

EIB - E-xopean Investment Bank

to designate the institutions as well as their constituent instruments.

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E/CN.1A/ADB/12-

I - INTRODUCTION

The Charter: Effect and Contents

1. The African Development Bank (!the Bank1) vdll be

established by the Charter. The Charter will define its purpot

and functions^ its membership and its capital structure., the scope of its activities, its powers and its operational princi]

It will lay down its institutional structure and provide basio rules for its management. It will determine its status in law

and the immunities^ exemptions and privileges that the. Bank, its officers and other staff require.

The Bank: An African Institution

2. The Bank iti_ll be an African institution. It will serv

Africa by aiding In tue development of the economies of its

member countries., To this end it will cooperate with Govern ments, with United Nations and other international agencies and with instit-uMons, public and private,in the economic and

financial -~ :' All this must be brought out in the provisl

of the Charter,.

The Chart art An "."nternational Instrument

3. The Charter \dl3 be'an international legal instrument

an Agreesi.v.: or .?. Convention- It must provide for,the requi

legal personality of the Bank- It should contain rules for t signature of the instrument., its ratification or acceptance, its coming into f-. rce, its interpretatirn and amendment, and termination, It must ensure that its provisions remain in fr for the purposes of liquidation should the operations of the Bank be terminateda

The Language of ol'o Charterc

40 The Charter should be confined to essentials. It must contain authority to issue by-lawa and regulations on the detailed aspects of its activities, I .here desired, drafts of by-laws or regulations might be prepared in advance.

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5. The Charter will. be--consulted_noi^only-Trdthin the Bank but by aTLihose without who are actively interested in Africa>s

economic development. Its rules must be therefore clear, workable and, whenever possible, brief. Purpose and functions of the Bank, the definition of the scope of the projects it might support and its operational principles must be set out in broad and imaginative language. Nothing in the text of the Charter should impair the powers of the Bank to carry on, in changing circumstances, its activities for the good of Africa's development. YetA .feeing an . instrument for a financial institution, it must determine the

limits of the financial liabilities of the Bank and its Members, their rights and obligations, the Bank's borrowing powers in . precise terms and there must be assurances that the Bank will

act according to sound banking principles. ''"

■ Further Development , .

6. There must be clauses in the Charter which ensure, from a legal point of view, the possibility for the expansion of the Bank's activities. Subject to proper safeguards, the-£ank should be able,to increase its ordinary, capital resources and to receive and use funds earmarked for special development purposes and, '■: possibly, governedfby special administrative rules.

■'■■■'■"' ■ ■

The Outline

7. In the following, an outline is provided to the drafting rf the Charter. Vihere understandings have been reached by the Committee of Nine, the outline attempts to show their implica- tions_£or the legal-provision. It also enumerates;and analyzes other legal issues that should be considered and, where appropriate^

indicates the possible solutions that might be adopted in the

Charter.

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II - PURPOSE AND FUNCTIONS

IBRD, Art. I IFC, Art. I IDA, Art'. I IADB, Art. I

IBRD, Art. I IFC, Art-. I IDA, Art'. I IADB,Art. 'I

IDA, Art.' v(4)

IADB, Art. I

()() -•

A. Purpose

8. At its beginning,- the Charter must define the purpose

and functions of the Bank. Its purpose is, in.essence, to

contribute to the economic and social development of Africa by- promoting and accelerating the development of the economies of

its Members - individually and collectively. This should «e

laid down in the Charter.

B. Functions

9. The functions of the Bank must be set out, as stated before, in broad language. To do so, it is necessary to

decide on the sc.*pe and true nature of the Bank's operations.

In the meantime, it is suggested to consider whether they may be described as follows:

(a) to mobilize additional financial resources for invest ment in its Member countries for development purposes;

(b) to use resources at its disposal for financing the

development of its Members (especially through national

and multi-national projects), r

(c) to promote private investment in such projects, enterprii

and activities contributing to such development (and posse

to supplement private investment when it is,not available

on reasonable terms);

(d) to provide technical assistance in the preparation, financing and implementation of development plans and projects relating to African countries.

C Co-operation

10. The Charter should add to the definition of functions that the activities cf the Bank shall in no way duplicate or replace those of any other governmental, intergovernmental or private agency or institution concerned with the development of its Member countries; that it shall no-operate with such agencies and institutions and, as far as possible, supplement

their activities (see doc. E/CN.1//ADB/12, point 2(h) ,

D. Guiding Rule for Action

11. Finally, the Charter should lay down the principle that the provisions defining the purpose and functions of the Bank shall guide all its actions - such a clause being of great

practical importance fcr the interpretation of the whole Charter.

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III - J^MBERSHIP

IBRD, Arts.n(l) A* Founder Members and Admission

V()()

and V(2)(b)(i) lo ...

IFC, Arts.II (1) . African States whose Governments vail sign and ratify andIV(2) (c)(i) £r fi^t Charter «ill thereby become Founder Members of the*

IDA, Arts.II (1) cff* ' Z „ > membership should be open to other African ' and Vl(2)(c)(i) states- ^e Charter should define the procedure of admission. '

Note: In the IBRD, IFC, IDA, and IADB the power to admit new members and to determine the terms of admission is vested in the Board of Governors. It may not be delegated to

the Board of Directors and is exercised, in the IBRD, IFC and IDA, by a majority of the votes cast, and in the IaDB by a majority of the total voting power.

' Bv : Africa'

13. In connection with the potential membership of the Bank as well as with other issues (definition of its purpose and

functions; potential.scops of its operations arid other activities.

■ .'etc.) it. might-be useful to define in the Charter that the geographical area referrsd therein as *Africa' or 'African', as thexase may be, shall comprise all parts or continental and insular Africa. (See paragraph k of Economic and Social Counsel Resolution 671 A XXy setting up the ECa),

: Cv Qualifying Membership ■

14. Membership of the IBRD depends on that of the IMF*

membership of the IFC and IDA depend on membership of the IBRD:

membership of the IADB on that of the Organization of American , States. It should be considered whether any qualification of

such a kind is required-for membership in the Bank.

D. Associate Members

15. African territories still dependent in their external

■relations on non-African Governments, present a special institution problem of a transient nature. The solution might be sought by providing for the possibility of being admitted to the Bank as

■:■ Associate Members. (The transmission of the invitation'and its acceptance are technical diplomatic problems),, ...<s

16. In addition to the problem of admission there -are a number of special financial, legal and institutional issues - the contribution of such territories to the resources of the Bank; the form it should take; the benefits they may derive drom the Bank's operations and other activities; their participation in the deliberations of the Bar&'-s organs (with or without vote);

the procedure in accordance with which, upon becoming independent,

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they may acquire full membership; the possibility of their

associate membership being suspended and their right to withdraw from the Bank; etc..

17. The following possible principles, suggested for study, might be suitably considered in this connection:

(a) Associate Members would, as a matter of principle, be able to take part in, and benefit from, operations and other activities of the Bank;

■ ' (b) Associate Members would contribute to the. Bank's 'capita.'"

0 resources,, the amount" of their contribution being detenu, by the ssjue criteria as the initial subscriptions of

Members;

J""" (6)" their initial contribution could take the form of:

i: ^ Alternative A: initial subscription to the : share capital' of the Bank in respect of which,

1 " however, they would not - sub.je.pt tn sub-para.

(e) below - 'exercise their voting powers until they acquire full membership; OR

Alternative B: a loan to the Bank which, upon their acquiring full membership, would be transf*:.

•'■-'-■■■■ into' an equivalent paid-up portion of share . '

capital; „

(d) Associate ^embers may, like full Members, be suspended

and should have the right to withdraw, from the Bank; and

(e) Associate Members should be bound by all decisions

taken in pursuance of the provisions of the Charter relating to its interpretation or the settlement of

-;^; Vi; __ ' disputes (subject, of course, to the terms of any; ,

"""" ' agreement which they may conclude with the Bank).' As-' sociate Members wouloV not,towever,without their.,concurreric- ■ ? be bound by the decisions of the Bank (which require the

concurrence of all members) - subject, however, to sub*-para ■ (d) above >

IBRD, Arts.""IH 3, Organs of Co-operation

(2) and V(lf) . . < ■ ■ . , ,

IFC, Art.^r(9) 18. The Charter should provide that each Member ij-and As- and (10)'. sociate Member^ should deal with the Bank, and the Bank with that

IDA, Art.Vl(9) Member, through its Treasury (respectively, its 'Ministry of Finane*

and (lO) * Central Bank or other public financial institution (*.•£• Rational IADB, Art.XIV(3) development bank ). Each Member shall also designate the Central

and (41) Bank or other financial institution in which the Bank may hold

that Member's currency or any other assets of the Bank.

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Page .6

F. YJithdrawal

IBRD, Art'?Vl(l) . '

IFC, Art-. V(l) 19. The Charter should provide for the right of a Member IDA, Art.VTfl) (or Associate Member) to withdraw from the Bank. It should

IADB, Art.ix(l) determine' the form of withdrawal and the date on which it becomes

effective, *

G. Suspension

IBRD, Art.Vl(-2)

IFC, Art'. V(2) * 20, Clearly, the Barik should have the power - by decision IDA, Art.VIlte) taken by a qualified majority - to suspend a Member (or Associate IADB, Art. 12(2) Member) which fails to fulfill its obligations towards the Bank,

;■;. As a result, that Member, while remaining subject to all obligate

■ • ' r would not be able to exercise its rights under the Charter -

except, possibly, its right to withdraw.

Note: In the IBRD, IFC and IDA the decision suspending a Member (as well as that terminating its suspension) must be taken by the majority of the Governors exercising the majori^.

«f the total Voting piwerj-in the IADB, it requires a two '' , ' thirds majority of the Governors exercising three fourths of . ,-'■—" *■■ total voting power.

In' none of these four agencies may the Beard of Governor:,

delegate its power to suspend a Member.

IBRD Art VI 21.- The effect of suspension en the continuance of membersh' (2) ' * must b^ examined. Should the suspended Member - as in the case

•* the IBRD, IFC, IDA and IADB- automatically cease to be a Member one year after its suspension unless the Bank decides,

L - by the same qualified majority, 'to restore the Member to good r!- :- ' standing1? .

H. Settlement of Accounts

IBRD, Art.Vlft) '

IFC, Art', v('0 . 22. The Charter should contain detailed rules for the settle IDA, Art, Vli(4); merit of" accounts of the Bank with an-ex-Member (or an ex-Associa - IADB, Art.TXp)1 Member), Such1 rules will apply in the case of withdrawal, cesse *

"j:\'" ■ ef membership resulting from suspension or termination of qualii -'■:'--: membership, if any (see para. 14 above), :

23. The rules in the* case of existing "international finane; ■■

agencies are based on three principles: First, the Government

concerned shall remain fully liable for its existing debts owe4

to the Bank and the existing contingent liabilities arising, £•: . instance, out of the ouistanding loans or guarantees of the Ban] *'

Second, shares of the Bank rielci by that Government shall be re

purchased by the Bank on terms to be specified in the rules'.^ ' Last,

• the Government shall no longer share in the Bank's profits or losses nor incur liabilities but of its operations undertaken

■ the termination of membership.

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Page 7

IV - CAPITAL STRUCTURE.

""■i;' ^•Jvr: ; 24. The contents of the provisions'of'the, Charter relating IBRD, ArU II to the capital structure of the Baric- depends t<*much g^ter

IFC, .. Art.- II extent « financial rather than on legal conslderat^on^^

IDA,r Arta. II questions which the Charter ought to determine are descried

••■■■ ; an* HI 'r ^3. 25 to 52 below. The issues relating to the capital IADB, Art. II Structure are of course closely linked with those (discussed

t V below) regarding the Bankis.:pperations. . ' .■:-■:.

■'■ "' (

.. . (r, y

A. Authorized Capital ' ' , ■■ ;.;. ,;■• .

25. The Charter must define the amount of the authorized capital of the Bank and'the unit of account, that is to say^t

^rdstickt,(for instance, the US dollar <***?&* f^S

iTeffect on a specified date cr a specified weight of fine geld) in- which the /capital stock or any other resources of the B^k

(e.g. fundspaAle in non-convertible Gur:rencl#s) or any part thereof shall be expressed,, '^'\-\-\. '\\'_''\' '''' -

Note: The IBRD, IFC, IDA and IADB, in all of «hich the

Rrme), uses an" e

26. It is envisaged that the Bank should have an authorised capital equivalent to US$ 200 mi (ste doc. E/CN.lV^B/4, para.7,

B» Share Capital . : '■ ' ; ,;v ,;

" 27. The Charter must determine'whether the: capital stock

shall take the form o^WiforSi-share units^ ^^^Ji^f nd

shares' indicate the amount sitoiribed-*>y the^meniber-concerned.

In the former case, the chaTter musf-indicate the division or the capital stock into shares, the par value o£ each share an^

the 'price at which it -shall bs issued; The decision on this question will be largely influenced by the decision on the dxstrit

tion-of^share allocations and voting power among the Members.

: Note: ;the capital of the IBRD, IFC and IADB consists of ^ ' uniform share units, while that of the E^ is divided intf.

to: Its ;^^

^^A^^^^l^whetner a specified part

^ ifid

#f the,:share capital shall rQmaXn:yx|.P^-^ ^til a specified

contingency arises. r;"\t;;;

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E/CN.14/aDB/12

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29. ^ Such callable part of the capital is held not as a reserve for the expansion of operations, but as a guarantee fund

far the borrowing activities o£ the Bank.. Y ,; .-

30. It is at present envisaged that..h$l£ of the capital

E. .p£ the Banic.sha.U be..,callable (qee doc. /^V ''■■■. ■-^".. M M;■.. ,:;O, ■'■/:.;[..[ l . . ,.;-. . ■

A.*i+^"tf" ; ; jfote; The IBRD, lADB-ano: ;EIB^ha1fo'a ca-lTtpble capital of,

(3Kct #:-^ '■• 'respectively, 4/5, 9/17/and 3/4 bftheir initial capital IDA Irfe^ II (2 V stock. The IFC has no callable capital but may postpone

' ;■:■ > ;:-:,payment:.altogether ' The iai's subscriptions are fully payable

■:t './. ^. . :■•."■ ■; in; fixedj annual instalments.

- ■:; '."" ■*;;) .[ ■: ■-.. 31# -. the,- distihctiWii..,between paid-up and callable capital

*>"-wV yf:\- miay be^effected in, two ways'.; >' The share capital'.may be divided,

*, i','^?W&!&~- '■"■ as in ihe'.case pf the. IADB, into .-tibo'lly paid-in and

fh; rr callable shares (IADB, ,Art«It(2)tb)3« Alternatively, a portion l ( t()t)3

•feach share may be, delcared'ss.cpaid in, the remainder being

callable. '-as:;, for instanc^Vi-fe-^ije1 case of the shares of the IBR&;'jiA3rt,.r3(7)). The Chart^^iist settle this point.

■'-.- ■- ■ .. ■ " .'■■ ■ _ ■ . '..*

^ 32. Payment of paid-up and of callable share capital may be determined by different-rules - and this not* only as regards

the time-schedule for paym0ftt.3-:^b«t as regards .the means of payment (see para. 34 Note 2 below) -and other conditions*

- ■ 33*' The Charter must determine the" conditions for payment in detail. Dates for payment of the paid-^up capital must be precise or ascertainable. by a reference to the contingencies

in iflihich.the Bank may require payment. (At present it is envisager1

that the paid-mp portion of the; share capital- i.e., the equivale:

of US$ KX) m - shall be J payable,, over a maj&mdm period of five

years* - see dw-o* |)/CN.14/ADB/4i para. 7,)» ""No; dates can be specified for rfche,.callable porbion. (see. para. 29 above); yet the

-Charter should presumably state that -when calls, are made on it ther

shaj-l be uniform, in percentage wlthjr/egard io J&P- Members.

'■ .'■ ■ ' 34* In the case of payments in local currency, provision IBRD, Art. II ■-. should be.m^de io ensure that the Bank receives in effect neither

\'J ' less nor .more than is due in terms of miisj,unit of account. This

IABB, Art... II jaay require subsequent 'adjustment1 payments to or by the Bank

(4)(b) / • ■ t : ',

.;?> ■ '■?..- , • " ' ■ ■ ■ ■

,'''' 1- •' ' : '■'. '. -:' ■ rY ■', '■ ■-

'"'* i "■ Note 1: Time of Payment; tt.-should he. noted that the

obligation of Members of the IADB "to pay the instainents

■ ; on the paid-up capital, subsequent'to the initial payment,

: is conditional on the payment of at least 90 per cent of the total due in respect of th* preceding instalments.

)

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E/CN.14/ADB/12

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Note 2: Means of Payment; In the case of the JBRD the SwTtenbh of the paioVup capital was payable in gold or US currency, the remainder in the Member's currency.

As to the LiDB, 50 per cent of each instalment is payable iji gold or US currency, the other 50 per cent in the IFC, Artr ;II , lisnherts currency. Shares-of the IFC are paid in gold

'"w )• -.. cr US currency in response to a call by the Corporation.

.w regards the callable portion of the capital, payments IBRD Art. II ■= to the IBRD' and IADB must b.emade in gold* US currency or

S(ii) the curren°y required to discharge the obligation in respect

IADB, Art. II »f which the call is made.

D. Subscription System ■■.-.

35. The Committee of Nine haWhenvisaged that the share

of the Bank shall be wholly African (see document^E/CN.IVADB/10, TORn Art I para. 10 (a)). Owing to the intergovernmental, character of the

&)U) Bank its shares would presuma^ be available only to Member.

' governments, not to other Africa institutions. ..: ^-r'-; t . 36. The-'Gharter should fix - preferably in. a Schedule td ;.;.. \ the Agreement - the precise amounts of each lumber's initial .. ' subscription and of its paid-up and callable ^oririons (see on , this question paragraph 7 of document B/CK.iyADB/4;.

' . 37. The: size of the-initial subscription and the questions - ■ whether subscriptions should be the sap*.for all Members or, if

■ hot, to what extent they should vary w<in *>ther words whether there should be minimu and/or maxijmm. subscriptions - depend by their nature, not on legal considerations -but on economic and financial criteria that will be adopted.

: - ■ ,- 3^ - These questions are normally brought into relation with -- : the problem of voting powers, though is;principle ;different

criteria apply for each. Economic- -considerations relating to the differing capacities-to-pay.of the Member governments and to - the dfesirabildty of placing maximum reso\irces_&t the disposal of .:i.'',-, ... i.the Bank, speak in fav*r of cotifeibutions varying in amount ^^Ie.t(:.

■ ■."■■• existing institutions have empfeyed techniques to adjust such considel^tions:::to the requirement of a more balanced distribution

of voting po'we'r'among their Members.

39. One example may be mentioned at this stage as it clarifies,.

IBRD Art. V and may assist in, tha.Ifecussion of the question of 'minimug

(3)(a) • subscription': Und&r ifeer-constituent instruioents of the IBHD, IFC, IFC, Art. IV IDA and IADB Members h&v<. a "'minimum voting power plus voting (3)(a) ' powers in proportion -to 'tfeeir subscriptions. ^Minifltum*subscri^tions IDA, Art. VI and tminimum» voting ;po;w^s are therefore not necessarily conconata:

(3)(a) The relations between Ascriptions and vptin&.powws--wUl be more IADB, Art.VIII fully discussed in terns of the solirtims adopted by the «"—+*«»

(4) (a) institutions, in Part VI below*

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Page 10

■ ■ ' . . AD. The question whether Associate Members should forthwith ...". . ■ be able, and expected to subscribe an initial subscription or

whether such a subscription should be allocated bet. conditional .. ., .... on their acquiring full membership was briefly discussed in

•■:-- ■..■ para.17 above.,and requires examination. It, too, will be referred .to again in Part VI in connection with its implications oh the

total voting power within the Bank. '-,.': '■ A

41. The Charter should furthermore determine whether

IBRD, Arts, II Members (or Associate Members) should^have the right to subscribe

"(3)(b) and V additional shares - a question not fully identical'with that »f (3) ^ Minimum' subscriptions - and whether such a right should exist

. with regard to the initial capital anchor in the everit of its

.:■■ increase. ..-,-.; ...:

IBRD, Art, II E. liability on Sharest Charges; Transferability -;::^ ■ (6) and (10)

IFC, Art, uC4) 42. The Charter should clearly state that the liability and (5) ' . of each Member (or Associate Member) en its shares is limited IADB, Art H(3) t«^ the unpaid portion of the issue priee.

(d) and (8) ' .

43. Owing to its intergovernmental character, shares of the Bank may not be pledged or otherwise encumbered. They may be transferred only to the Bank - for instance^ if re-purchased

by the latter in the case of termination of membership (see

para. 23above). This, too, ehould.be provided for in the Charter ' ■ -, F. Alteration of the Authorized Capital :

44« In order to facilitate possible expansion in resources, : :.. the Charter should provide a procedure for increase in its

authorized capitalj there should be powers to'decrease the

capital stock. ' '. . .

Note:. As regards an increase "in the authorized, capital,

IADB, Artt J3(3) . the constituent instruments of cxistdng institutioas provide (b) . _■■:. ■ for a 're sonr.bic opportTmitj'-' or a 'right1 for each J-fember IBRD, Art. £$■■ ., tr> subscribe shares in. the increased stock.

IPC, Art, II 45. The Charter should provide a procedure for subscriptions ;

(2)(d) .. ; by future Members of;the Bank. .

-"--■ . .G. 'Definition of Capital Resources ' ■ t^'-■'■

■: 45. - The-Charter should contain a general definition of .. ;;

the capital resources of the Bank which should be related t« tha

provisions on the Bank!s operations (See Pairt V below). The

task is complicated by the problem of. special funds >4iich may be placed at the Bank*s disposal. ■'■:*'.'■■■ .

(17)

Page 11

47. Thus, at the outset the range of the capital, resources of the Bank might consist

'%m ' £ph ,£pauthorised capital stools: subscribed by its Members (ar

.^.^^o^iat-e Members}; •.;■ ..." ' .' " ' \, ' "

i;i Be-[ fbnds"raised Joy virtue of its'borrowing powers;

bilt also 'of: ''"" '' ."""" ;

^ sgecr.cA^gnrpose funds, trust funds, grants and other funds received by the Bank by virtue of its powers to accept funds

the use of which is earmarked for some special purpose or

sub.ject to s^me special terms (each such fund to be herein after called a 'Special Fund1)j

as wej.1 as r£:

Do funds received in repayment of loans made by the Bank and proceeds from the realization of its investments; and E. income of the Bank from its loans and other investments or 'guarantees (interest, dividends, service charges, rent,

)

(a) Ordinary Capital Resources

48. Of the items A to E, described in the preceding paragraph, resources appertaining to items A and B may be described as

Ordinary Capital Resourcesa In their management-^and use-ttie 3anlc-

follows its general rules and policies.

(b) Special Capital Resources

49. On the other hand, resources which represent Special Funds and, therefore,, appertain to item C, may be described as Special Capital Resources of the Bank. In respect of their management and use the Bank must follow certain special rules or

procedures r-r is subject to certain special terms.

(c) Income and Capital Returns on Investments

50. Resources appertaining to items D and E may be described as Ordinary Capital Resources if derived from items A and B cr if t:

derived from item C, they are no longer earmarked for any

special purpose or subject to special terms.

(d) Implementing Charter Provisions

510 As stated in paragraph 46 above, the Charter should

provide a definition of the Bank»s Capital Resources. This

definition should draw a door distinction between Ordinary and

Special Capital Resources en the lines described above.

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E/cK.14/aDB/12

Page 12

.52. On this basis, the Charter mostjpjpovide rules, which

'will'enable' the Bank to resolve the complex legal issues that

are bound to arise in connection with the acceptance, afiministra- tion* managaaent and use of Special Funds, The problem is discussed

;in somewhat greater detail in Rart V (sea paragraphs 69 to 71

below). :

h : I' **'

■' ' ';'(

(19)

v."Uj

Page 13 V - OPERATIONS, OTHER ACTIVITIES; BORROlilKG POWERS

53. Purpose and functions cf the Bank, its membership

and capital structure have been discussed, . T^e next part of the Charted qhpvT.d.,d^al' with .the operations and oi^her activities

"of the Barft and with'borrowing powers.and .any/other powers that it may require*

54» -(-)^r,5i?j£ns consist, .In essence, in activities by which 3 Bank fir^.ncesy or guarantees the financing of development projects in Africa., The Bank'e other activities concern not only its .borrr.wing out the encouragement and promotion of invest

ment,, by other, agencies and "institutions .as well as techr£e§l 0 ■;:•:;;

assistance (t&rugh advisory services and traixiing programmes) r :

"*that**it might' render in the furtherance'of its purpose apgU , ;r. v.

functionso •/■-■!".(."•; .1*11

5;5;. '. Faur geh'eral. questions arise frcm ttie. legal point of

,vi.ew""in/'cb'nrie'ctiQn witli.the .operations 61 _ the Bank: (a)' ,What,^\

"form.m^y.'such operations iakej (b> IJho may,be their recipiekis;'v ■ Cc) VJhat^ projects Eiay they concern; and (d) To what general

or special limitations m&y they be subjecta The Charter must . . ., answer these questi-ns. and thpy are p^iscussed in Section A of this

' '' ;" "' " -"'""■ The next, iSept^on - Section B.- 'deals, briefly with legal,:

^{^} ^{,^} ^b

issues arising out of tho administration, management, and use of Special Funds by the Bank (cf. paras0A6 to 52above)» Next some -

in Section C -. the-operational ^principles governing the selection of projects; and otliav principles that should, guide, the Bank.

Its. bprrcwi"g and additional powers are the subject of Section D.

-Qe^oral Questions

56* Activities by which the Bank itself will,' in the

furtherance of its purpose ard functions (see, paxas. S ancj.9 (b)

and (c)abovo)j, finance^ or guarantee the financing of, projects,.

■'■-■■■ relating, to■■"the.;&Gonomic" and sociait development cf.-its Members

"»,: H(and -Associste Members) 'Tnay bo .termed • Its Operations.

-t .0 .'\ .. :r$7" The first question tr* be- asked:" is whkt4cind:of

Operations - from a legal point of view — the Baiik will carry*

out in this respscfc - from the beginning of its activities or,

:> ' .'.vj-i-as. can'be^'foresssn.r^t prcyont,' in future? - Their main forms

■■■I -! .•..■■■i.imubt "-be set'.eu"^:.±n the -Charter,-; ■ ■ ' ■■ ■ \ '- **"»

5S. ?r. this er_A, it must be determined whether the Bank should have poworses ; -' ' '

only: m:-~ ■ ■■'■■■-' ■»'■■: "' '■ -''-■ ■' '■■-• v-^

(a) to make/ partiGipafe in* oar1 :gu&r"antee loans;

(20)

e/cn.u/adb/i

Page 14

but

[; to make, participate in, or guarantee investments in

other forms (for instance, equity investment; loans with equity featured; etc.).

The Committee of Nine, it may be noted, has stated that the Bank

should not make non-rei3ibursable grants (doc. E/CN14/aDB/1®, par 10 (c).

Note: Operations of the IBRD and Ordinary Operations «f the

IBRD, Art, ' jadb (i.e. those not financed from its Fund for Special HI W> ' Operations) relate exclusively to loans and guarantees

IADB, Arti ■.--. -. r . Ill (2)(b)

Operations of the IDA should, as a general rule, take the

"DA, kflf V form of loans. However, funds deriving from.additional subscrii

2) (4)0?) tions and, in special circumstances, finm supplementary re-

: : sources may be used for other forms of financing

_, ... TTT The life !may make investments of its funds in such form or v,. Art, III forms- as it may deem appropriate in the circumstances1

59, The question of Operations is closely linked with that of

; the limitations to which the Bank will be subject in the use of

■■-■ the funds constituting its Capital Resources (cf« paras. 46 - 52 above) either because of legal limitations arising out of (i) the nature of its Special Funds (See Section B below); and (ii) the non-convertibility of any currencies held by it (See paras.

below), or because of the financial terms on which its own re

sources were secured (see para«68 below).

;,HD, Art'.III

r a-H" TTTfli ^Os ■^tie secend general question concerning the Bankjs •peratio;.

' ™y r~V relates to recipients: Vlho in Africa may receive finanoo supplied

A, Art. V ^ the Bank or benefit from its guarantees? - It may be appr»priat'

';ic\ , TTT

lib. ArT-#-L-L±

_ _ . _ .

\ * . . following lines:

: (a) Any Member or any agenay or political sub-divisi»n, thereo;*

or any public or private agricultural, industrial or commercial entity in its territory; or

(b) any group of Members; or

(c) any international or regional or sub—regional agency or

institution concerned, as regards the project in question, with the economic O"~ social development of Africa.

(21)

Page 15

IDA, Arts. I («>

and V(l)(b) 6l The first general question referred to the JjJ -■^- - • Of operations- loans, guarantees, etc; the second to£»

■'■■ concerned - the recipients. The third,. which the Charter ^

•■ " ' answer, links operations more cleseOy with the purpose .and functzo

' --S^he Baric:' What are the projects that may be the subject of

its operations? (This question is distinct from that of the

■ ' -; ■-•- policy principles *ich should govern the selection of projects fr amoigthose which the Bank is legally empowered to finance: tb»

latter question is dealt with in para. 72 below;.

- 62. A measure of agreement exists in this respect -see

■■ '■■■'■ d*e. E/CH.U./ADB/10, par.lO(b). tin its basis and.£rf"j? ._

purpose of further consideration of this.,questxon, the following

text is submitted:

The operations of the Bank may concern the implementation of economic or social projects of high-developmental pri.£ty

- '; ."" . : in the light of the needs of the African areas or countries

1" "■-'"' ■ concerned^ " :'•"

■ : (i) vAiich can only be financed oh terns more flexible than

those available through, conventional financing (.e.g.

,: .- -;>:•■■ ..■'..■ non-productive Infrastructure; projects); or

(ii) which should be financed on conventional terms but f»r

ifunds on reasonable terras :are not, or not fully,

"'" available.,

Invitations on Operations

63. The Capital Resources of the Bank impose lijnitations

on Its operations of t« kinds - first,, on theformal (quantxta

tive) sense; secondly - and certainlyr hb less unportantly -

owing to the nature of such resources.

3RD, Art-. Ill (3) fi^ftral LUnitation

■J)B, Art. 111(5) g. Aj ^ the case of any financial institution of this kind, the Charter should contain a, general: financial lonatation on the Bank's operations based on the principle that the total amount outstanding at any time in respect pf its ?Pf£ions sihall not exceed its unimpaired Ordinary and Special Capital . Resources (cf. paras.46 to 52 above). This Imitation squares

■ further study in the light of the rules, agreed for the use of : ' Special Funds, special currencies, any reserve funds, etc.

!:"o.. ■ ■ ■

'""'' Special Funds

,::■' - ■& Special Funds owing to their natiire (see para, 47-C above

•-'<■ : : are oarmafked fnr certain operations only and are subject to . spe6ial terms. This question will be further discussed in Secti

; ' B belowo

(22)

Page

Use of Currencies

P* Art-. iv(2) 66*..- Slnce s™e assets of the Bank may consist in non-c^nvertib

IFC, Art; IH(5> cmrencies the Charter .must include rules on their use by the Ban IDA, Art'. IV *y the.recipients of its funds, Tney require, of course, a detailed IADB>Art. y- study which, it is suggested, should relate to threee main questi

(a) May the Sank and tho recipients, use.tne non-convertible

-,ui . ■ , , \ , . currency of a Member in.the territory of that Member

. "srthout restrictions? " '

. .. . (b) May the Bank..and .the recipients use such a currency

. -.ft, .-. . ^ the ^errfv°ry o-f any other State^without restrictions?

(c) May the Bank and the recipients use other currencies

without restrictions? '

■v;j. V 67- It is premature to discuss the..legal aspects of these

■;...:..,.- .-.ft questions. The.only suggestion that might perhaps be made at this stage is that the Charter should contain a definition of convertibility speedily related to the needs of the Bankts i■■■■■: <■"' operations and rules on the valuation of. currencies.

Me.: rFor the purposes of operations of the IDA a currency

<-f its Member is 'freely convertible! if, after consultation r-1: :'■-' : ^^. th% IMF,, the IDA determines that; it is 'adequately

. : convertible' intc other Member currencies for such purposes <>r if the Member concerned agrees to exchange its currency for other Member currencies fr.r such operations (Art. 2(2)(f).

This definition of. convertibility is, of course, much wider than the notion of jonvertibility under the Articles of : \ . . ■ Agreement of the IMF,-(Arb.o- 8(A))

68. The Charter ma" als^ provide that the Bank keep separate

balance sheets for funds received and invested on "hard" and

"soft" terms, (See pa^a. ?2(i-)below), ':" *■■-

■"...■ - ■. ■■ •■.«..

B... The Use of Social Capital Resourccg

^ Ordinary and Special Operations., .'".

. 69.,.. Xt may be recalled that in connection with the definition of the Bank is Capital Rss-urces it was-proposed that Special (or Trust) Funds - i9eo; funds the use of which is earmarked for some specified parposo or subject to some .special terms - should constitute its Special Capital Resources (see paras. 47-50 abeve), SPe(?^ Funds *&y entail nob only that tfteir assets are managed

^y.the. Bank according to special rules but also that operations

in..which they arc us-d ars conducted according to specxal principle

It will be useful, therefore to distinguish betwee 1

(23)

E/CN.14/ADB/12/'

Page 17

(a) Ordinary Operations of the Bank for which it will use

its Ordinary Capital Resources} and

(b) Special Operations' which it"'wall finance,"wholly

or in part, with Special Capital Resource^. .

, (b) . Principles of Separation and of Special Administration

.. - 70. The Bank must be in the position, from a l^gal point of view, to receive, administer, manage and use Special Funds in its . > #perations. To this end it is suggested that the Charter should

embody two principles which the -;Bank ma£ apply, and may by binding agreement undertake to apply, to Special Funds and which may be

;'';; deWcribe4 as: ' ■ ■ _^:' '[■•■'■■ '■' ' . •

A. The Principle of Separatibny according to which the assets of a Special Fund shall tie held., used, obligated,

invested and accvvunted for by the Bank entirely separately frm its Ordinary Capital Resources and all other Special Funds, which, in their turn, shall not be -charged with losses or liabilities arising out of operations financed by that

■■■-'''" Special Fund; and

).." ».*" B» The Principle of Special Administration according to which Special Funds may be adioinistefed in'i-ccdrdance with special

rules (e»g» constitution under a special system of subscriptions5

■■'-- administration with the cooperation of special bodies (e.g.

a Loan Committee,'t etc.).

Note: The Economic arid Social Development Trust Fund administered

by the IADB under I\^ agreement with the ?S(which established

it)jis a case in pointo

\ ■:> -o.yu The problem of the use of Special-Fsnds is somewhat

complex within the framew-rk of a development Banke It will require further consideration once the scope and nature of the Bank's

.activities and its potential resources- are, moro, precisely known. It is, -. however, ■confidently submitted that the. Bank .will be able from

; a legal point.of view, t- ccpe with this: problem if the Charter

(a) endows the Bank with international personality and

requisite capacitv tr, -enter iirb"- -international agreements

(see.Part VII, bolo^V; and ■ ■ ■■ o -

(b) embodies, vdth sufficient., flexibility,:-the two principles

discussed in the preceding paragraph and confers on the Bank and its organs appropriate powersijfai .give them effect.

(24)

. 14/ADB/12 . _/ . r_

Page 18 ,

C. Operational Principles and Conditions IBRD, Art',IXl(4)/ \ ■* i^ t « . • -, ;.-.-■

•n?n a-j.. TTT??<Ca) Operational Principles

ArU, Art.XCLUJ ■ js»... ■ i i ■ r

IDA, Art-. V(l) no - nu . ... , ■.. ..-;■..._ ,

IADB Art TIT?7) ' * Charter must lay down the policy principles (as

* . • ^distinguished from the legal requirements discussed in-paras*

will_..guide the Bank in its operations. It is suggested that the

. f»ribwing principles, drafted on the basis of the.relevant provisions

in the constituent instruments of the IBRD, LTC/IDA ariS IADB, may

be considered for inclusion in the Charter of the Bank:

(a) In selecting among qualified projects for its- operations

the Bank shall always give priority to projects that will contribute::;/most effectively to the economic.growth «f the African areas or countries concerned; <>

. (b) The Bank, shall-not engage in any opera^on except to the extent that the borrower is unable to obtain funds therefor on

reasonably term; elsewhere;

(c) . In engaging in a lean or guarantee operation where the ..: r r, recipient is not a Member government,'*the Bank shall have due

regard to the ability,'of the borrower and gtCarantor, if any,, to

meet their obligations;

1 ■ ' '-rr -\ '; The Bank shall be satisfied with regard go its operations that - as may be appropriate - the rate of 'interest or other

;-■'.■■■■■■ . . charges and the schedule for repayment of;.the principal are suitable for the operation concerned;

(e) As regards its guarantee operations, the Bank shall

* ensure* that- it receives compensation suitable for its risk;

: ; (f) In its commercial transactions the Bank ^shail be guided

■ ■ 'fy sound banking principles; and , generaJly tHe BankJs

■" investments should not be made on terms more fkvourable than

' those on which its corresponding resources had been secured,

... (see para* abcve)j and

(g) The Bank shall ensure that the proceeds of any of its

loans or guarantees are exclusively used for the purposes of the project concerned^ with due regard to considerations of economy and efficiency,

(b) Goncrp.l Principles

73 • In addition to principles applying to the operations of

the Bank, the- Charter -should,contain some-.prxociples--of general application-^to-all_±ts activities:

(25)

IBRD, Art.17(10) ri^-tei-. in(9) IDA, Art. V (6)

/ Page 19