World Bank Document

Box 7.5
Mixed credits
The term mixed credit usually refers to loans that are a infrastructure for only 2 percent. Similary, exporters are
combination of aid and government (or governrnent- keen to extend mixed credits to middle- and high-income
guaranteed) trade credits that are given to finance spe- countries where trade competition is greatest, which
cific exports from the lending country. Until the late would shift aid away from the low-income countries.
1970s, mixed credits were only a small fraction of total Supporters of mixed credits have argued that mixed
aid budgets and export credits; the main exception was credits can promote development by "stretching" ODA;
in France, which used mixed credits as a standard part of increase the total flow of finance to the developing
its aid program. However, with recession and balance of world; improve the quality of export credits by bringing
payments difficulties in the late 1970s and early 1980s, all the judgment and monitoring of aid agencies to bear;
industrial countries came under increasing domestic reduce the cost of finance for countries with limited debtpressure
to use mixed credits to promote exports and to servicing capacity; and provide more appropriate, less
match the mixed credit offers of other donors.
concessional financing terms for middle-income coun-
Data on mixed credits are sketchy. The DAC is seeking tries. The merits of these points, however, remain in
to increase the availability and quality of data on the use dispute. Not only is there little evidence that aid stretchof
"associated financing" credits, a concept that covers ing actually occurs, but also opponents have argued that
all trade financing in which some ODA is included but such effects could be attained more effectively through
which is composed primarily of mixed credits. Although other mechanisms, such as the direct allocation of a limmixed
credits have been estimated to have totaled less ited volume of aid to a country. Reflecting the concern
than a quarter of a billion dollars in 1975, some $10.5 over the potential distortion of aid and trade that can
billion of associated financing was reported by fifteen result from mixed credits, the DAC in June 1983 adopted
DAC countries for 1981-83. The amount of ODA "Guiding Principles on the Use of Aid in Association
involved in these associated financing transactions with Export Credits and Other Market Funds." The
totaled $3.1 billion. France accounted for 45 percent of objective of these guidelines was to avoid aid and trade
the total, followed by the United Kingdom with 23 per- distortions by increasing the transparency of such transcent,
and Italy and Japan each with 9 percent.
actions and strengthening the deterrent to the possible
Since mixed credits are largely based on commercial diversion of aid resources to purposes that are primarily
considerations, they could easily dilute the development commercial. In 1984 the DAC adopted measures to
impact of a donor's program. Mixed credits can divert improve the reporting by members of associated financfunds
to capital-intensive and import-intensive ing transactions, and in April 1985 the ministers of the
projects-such as transportation, telecommunications, OECD agreed on reinforced notification and consultation
and power generation. They have a built-in bias against procedures and an increase in the minimum permissible
projects and programs with a low import content, such grant element for such transactions. Supportive of DAC
as rural development or primary health care, and in par- objectives, the World Bank has recently established a
ticular against local cost financing. In 1981-83, energy cofinancing "framework" agreement with one member
accounted for 30 percent of associated financing transac- country, which involves, among other flows, mixed
tions; industry and transport for 20 percent each; food credits.
and agriculture for 10 percent; but health and social
The Inter-American Development Bank (IDB) tion of aid has been provided to countries at low
and the Asian Development Bank (ADB) have a:lso levels of development with weak institutional and
evaluated samples of their loans. Their results are managerial structures. Investments, whether
broadly similar: 60 percent or more of their undertaken by private or official sources, are thereprojects
met their objectives fully; about 30 percent fore more risky than those in more advanced counpartially
did so; well under 10 percent were unsat- tries. Furthermore, the innovative or experimental
isfactory or marginal. Several bilateral donors have nature of some activities adds to their risks, but the
also developed evaluation programs. These gener- lessons derived from these efforts, both successes
ally do not place as much emphasis on the quanti- and failures, can be critical to the design and
fication of project results. However, those studies implementation of future projects.
that have looked at the impact of particular To judge the cumulative impact of individual
projects have usually found a substantial measure projects, and donors' contributions to policy, studof
success.
ies of countries would obviously provide a better
Even where failures do occur it is important that guide. They too involve problems, the most fundathey
be placed in perspective. A significant propor- mental being the question of what would have
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