World Bank Document

Box 8.9
World Bank cofinancing
The World Bank has long encouraged other lenders- recently. In the mid-1970s, banks lent in parallel with
bilateral aid agencies and official export credit and bank- standard World Bank loans (known as A loans in this
ing institutions-to link their financing with the Bank's. context), with or without an optional cross-default clause
The number of cofinanced projects almost doubled or a memorandum of agreement with the World Bank. In
between 1975 and 1984, and cofinancing averaged $3.6 1983, however, the Bank introduced its B loans, which
billion a year over this period (see Box table 8.9A).
have terms and conditions that are more closely aligned
The type of partners involved in cofinancing depends with the loans of the cofinanciers.
largely on the borrowers. For the poorest countries, These B loans offer three options designed to extend
lenders that can offer concessional terms are the main the range of cofinancing instruments and to benefit all
cofinancing sources, whereas for creditworthy develop- three parties-the borrowers, the colenders, and the
ing countries the World Bank seeks commercial banks Bank. These options are (a) direct Bank participation in
and official export credit agencies as cofinanciers. The the late maturities of the B loan, with an option to sell all
volume of export credits used in cofinancing World Bank or part of its share; (b) a Bank guarantee of the late matuprojects
has grown in recent years, but is still a small part rities, with an option to release all or part of its guaranof
the long-term export credits annually committed by tee; and (c) Bank acceptance of a contingent obligation to
industrial lenders to developing countries. Given the finance part of the deferred principal at final maturity of
constraints on official aid and the cautious approach of a loan, with level debt service payments of floating rate
commercial banks to increasing their international expo- interest and variable amounts of principal repayments.
sure, export credit cofinancing may play a bigger role in Despite the financial difficulties of the past few years, the
the future. The Bank is pursuing a more systematic new instruments have been broadly welcomed in the
approach that would help borrowers secure export market. They have produced cofinancing worth more
credits in larger volumes and possibly on better terms. than $1 billion so far.
Cofinancing with commercial banks has evolved more
Box table 8.9A World Bank cofinancing operations, 1975-84
(billions of dollars, unless otherzoise noted)
Cofinanciers' contribution
Number of Export Other Bank Total
Fiscal projects with Commercial credit official contribution project
year cofinancing banks agencies sources Total IBRD IDA costs
1975 51 0.1 1.0 0.9 1.9 1.0 0.3 8.8
1976 67 0.3 0.9 1.1 2.2 1.6 0.4 9.6
1977 78 0.7 0.2 1.5 2.4 1.9 0.7 10.0
1978 79 0.2 0.5 1.8 2.5 1.7 0.8 11.4
1979 105 0.5 0.3 2.0 2.8 3.0 1.1 13.3
1980 86 1.7 1.6 2.6 5.9 3.0 1.6 20.3
1981 72 1.1 0.5 1.5 3.1 2.6 1.5 15.1
1982 98 1.2 1.8 2.2 5.3 4.1 1.2 20.0
1983 84 1.1 3.0 1.8 5.7 3.3 1.1 20.8
1984 98 1.1 0.9 2.0 4.0 4.6 1.3 21.7
Note: Components may not add to totals because of rounding. These amounts represent private cofinancing as reflected in the financing plans at the
time of Board approval of A loans. They do not represent private cofinancing loans actually signed in the fiscal year. An analysis of cofinancing
operations can also be found in World Bank Annual Reports.
Source: World Bank data.
OPEC surpluses prevented what might otherwise provide new money in conjunction with IMF prohave
been an even deeper world recession. Fur- grams. And the fact that bank lending was domithermore,
the banks contributed to the substantial nated by floating rate loans meant that developing
expansion of world trade through the provision of countries were vulnerable to the vagaries of policy
trade-related finance. Banking innovations also in the industrial countries.
increased the flexibility of the international finan- Several factors are likely to shape the developcial
system's response to the borrowing require- ment of the international capital markets over the
ments of developing countries in the 1970s. How- rest of this decade. International banks are curever,
the "herd instinct" of banks periodically rently redefining their strategies, after a decade of
undermined the stability of finance for developing unprecedented growth in a highly competitive
countries. More recently, banks have agreed to market. It is not clear whether their current caution
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