Regional Banks and Development Funds
Regional monetary and financial organizations are not limited to European integration organizations. In today's world, there are several dozen regional interstate credit organizations and trust funds operating in all regions of the world. The largest role among them is played by regional and subregional development banks, modeled after the International Bank for Reconstruction and Development (IBRD).
The most common category of regional interstate financial organizations is regional development banks created on the basis of the IBRD model. Such banks operate in the major regions of the world ( Inter-American Development Bank, Asian Development Bank, African Development Bank, European Bank for Reconstruction and Development). In addition, < strong> subregional banks whose scope of activities is limited to a small group of countries (East African Development Bank, Andean Development Corporation, Eurasian Development Bank).
The purpose of the activities of regional and subregional development banks is stimulating the economic development of the region. To achieve this, development banks credit and finance projects that are significant for the development of individual countries or the region as a whole, but not of interest to private investors. This category includes infrastructure projects with a high payback period (construction of roads, bridges, power stations, ports, etc.) and lending to low-profitable but socially significant sectors (medicine, healthcare, agriculture).
More often, development banks provide funds to states or private borrowers that have a state guarantee. However, a number of banks also allow lending to private companies. For financing a wide range of financial instruments is used: simple crediting at fixed and floating rates, purchase of securities, provision of guarantees. Co-financing is also practiced (ie, a financing model in which development banks finance the project jointly with private investors). This form is attractive both for development banks (it allows to reduce the amount of provided funds) and for private investors (development banks carry out the expertise of the project and their participation in the project is a certain guarantee of its reliability).
The main source of funds of regional development banks are the contributions of member countries to the capital of the bank. In this case, as a rule, only a part of the country's share in the bank's authorized capital (up to 25%) is actually paid, and the remaining funds of the country are obliged to deposit at the first request. Development banks place bonds secured by requirements to member countries on the world financial market. Since securing these bonds is fairly reliable, they usually have a high credit rating (up to AAA), that allows you to raise funds at low rates. This scheme of organization of activities allows to minimize the financial burden on member countries and to ensure the possibility of development banks to manage significant financial resources.
All development banks use the so-called "principle of the joint-stock company". The number of votes the representative of a member country has on the board of governors of any development bank depends on the country's contribution to the bank's capital. In order to protect the interests of small countries, in many development banks, along with votes determined by the country's share in the bank's capital, countries receive additional votes, equally distributed among all member countries. However, the proportion of additional votes in the total number of votes is not high (no more than 20%). Since developing countries, as a rule, have limited financial resources, the countries of other regions are allowed in the capital of development banks. In order to prevent countries from other regions from controlling control over development banks, the statute of many banks restricts long-term countries from other regions in the capital (African Development Bank - 40%, Inter-American Development Bank - 50%).
Another form of interstate regional organizations - trust funds, designed for preferential or irretrievable financing of priority industries, disaster relief, etc. Many of these funds are managed by regional development banks, but in some cases they operate independently.
Of particular interest are regional settlement systems. Such systems, created within the framework of regional integration associations, are aimed at simplifying settlements between companies from different countries of the integration association. Reducing transaction costs and operational risks increases the attractiveness of trade and financial transactions within the framework of integration associations and promotes the formation of common commodity and financial markets.
The principles of organizing regional settlement systems in different associations vary considerably. Thus, the ECB, together with the national central banks, supports the settlement system TARGET, which unites the national payment systems of the EU countries, and EPM - the ECB payment system, ensuring the movement of payments between individual payment systems.
A different approach to ensuring the sustainability of intraregional payments was used in the CIS and the Common Market for Eastern and Southern Africa ( Common Market for Eastern and Southern Africa - COMESA). In these integration associations, special organizations were established that make international payments (Interstate Bank of the CIS and Clearing House COMESA). These organizations provide operational international settlements in the national currencies of member countries with low commissions, which not only simplifies settlements between companies from different countries, but also helps reduce the dollarization of the economies of the regions. In addition, the obligations of these organizations are guaranteed by the central banks of the countries of the respective integration associations, which ensures their credibility.
The first regional development banks - the Inter-American Development Bank (IDB), the African Development Bank (ADB) and the Asian Development Bank (ADB) - were established in the late 1950s and 1960s. in connection with the dissatisfaction of developing countries with the policies of the IBRD. Under the dominance of the US and Western European countries in the IMF and the World Bank, these organizations were inclined to impose on their borrowers conditions that reflect the position of developed countries. In addition, the Bretton Woods organizations were focused on functioning globally and did not take into account the specifics of individual regions. In order to overcome these shortcomings, the regional development banks mentioned above, whose capital was dominated by the countries of the region, were created.
However, the regions in which the IDB operates, AfDB and ADB are also very heterogeneous. Therefore, in the late 1960s and 1970s, a number of subregional banks have been set up to finance relatively small regions: Caribbean Development Bank (Caribbean), Andean Development Corporation (the countries of the north of South America), West African Bank, East African Bank, ECOWAS Investment and Development Bank, and PTA Bank (various regions of Africa).
A new wave of creation of development banks began in connection with the collapse of the world socialist system. In 1991, the European Bank for Reconstruction and Development (EBRD) was set up to provide loans to post-socialist countries conducting market reforms. A number of sub-regional banks have been established by the former Soviet republics: Eurasian Development Bank, the Black Sea Development and Trade Bank and the Central Asian Bank for Development and Cooperation .
The majority of regional and subregional banks are closely connected with one or other regional integration associations. Some of them were created by the relevant regional associations and countries that are not members of these associations can not be members of the bank. For example, the Bank PTA was created within the Common Market of Eastern and Central African countries, and the Eurasian Development Bank is part of the infrastructure of the Eurasian Economic Community. A number of regional development banks (the Caribbean Development Bank, the Andean Development Corporation) were initially established within the framework of regional integration associations, but then countries that are not members of integration associations were admitted to membership of these organizations.
Even regional development banks, initially created without linking with integration associations, as a rule, eventually establish close ties with certain integration associations. In particular, the European Bank for Reconstruction and Development is closely linked to the European Union, and the Asian Development Bank is actively interacting with ASEAN.
Thanks to the links with regional integration associations, regional and subregional development banks can act more efficiently than global organizations. They are in a position to coordinate their actions with the budgetary policies of the countries that are members of the association and carry out a more accurate examination of financed projects taking into account regional specifics.
The prototype for most regional and subregional development banks was the International Bank for Reconstruction and Development. Therefore, there is nothing surprising in the fact that the organization of the activities of these banks is in many respects similar to IBRD. The main objective of the activities of regional and subregional development banks is to stimulate the economic development of the region concerned. To achieve this goal, development banks provide preferential financing for projects that are significant for the development of individual countries or the region as a whole, but are not attractive enough for private investors. This category includes infrastructure projects with a high payback period (construction of roads, bridges, power stations, ports, etc.) and lending to low-profitable but socially significant sectors (medicine, healthcare, agriculture).
As a rule, development banks provide funds to states or private borrowers that have a state guarantee. Since most development banks are closely connected with integration associations, which include the borrower's countries, this gives development banks an additional guarantee for the fulfillment of obligations by borrowers. A number of development banks also allow lending to private companies.
Development banks use a wide range of financial instruments. The most common form of financing is simple loans to borrowers. As a rule, development banks adhere to a more flexible lending policy than IBRD and offer borrowers a wide range of lending terms (including lending in the borrower's national currency, floating rate lending, etc.).
Another form of financing used by development banks is the purchase of securities of financed enterprises (both bonds and shares). Investments carried out by the development bank in securities increase the liquidity of these securities during the initial placement. Financing through the acquisition of shares can reduce the debt burden on borrowers and, accordingly, reduce the project's time to break even. However, the reverse side of such financing is a higher level of risks, so it is used very narrowly.
Most subregional banks and many regional banks have limited resources. Therefore, along with traditional forms of financing, they actively use financial instruments that allow attracting funds from outside (mostly private) investors to the project.
The simplest of these tools is co-financing (co-financing projects with private investors). In many cases, the inability to attract funds from private investors is not related to the low profitability of the project, but to the uncertainty of the risks associated with it. Since the participation of an international organization in a project is often perceived by investors as a "quality mark", the consent of the development bank to finance part of the project, allows to attract funds from private investors to finance the remainder of the project. This form of financing is attractive both for development banks (it allows increasing the inflow of capital into financed projects without increasing development bank costs), and for private investors (development banks take on an expensive and complex procedure for examining investment projects).
Another financial tool that allows development banks to stimulate the flow of private capital into projects is provision of guarantees for the obligations of private investors and creditors. The provision of guarantees dramatically reduces the credit risk of the project and not only increases the availability of borrowed funds for it, but also reduces the cost of raising funds.
An important tool used by development banks is also technical assistance - training of personnel, project expertise, mediation in negotiations, etc. Such gratuitous measures are associated with relatively low costs for the development bank, but can significantly improve the borrower's position from developing countries in negotiations with private investors.
Among the international regional development banks, a special place is occupied by two specific banks: Northern Investment Bank (NIB) and Islamic Development Bank (IDB). Unlike the above-mentioned regional development banks created by developing countries that lack investment resources, NIB was created by the developed countries of Northern Europe (Denmark, Iceland, Norway, Finland, Sweden), rather, to effectively use excess financial resources.>
The priority area of the Nordic Investment Bank's business is to improve the environmental situation in Northern Europe (through lending to the companies of the green economy, "the transition of companies to more environmentally friendly technologies, etc.). As the ecological situation in the adjacent territories affects the ecology of Northern Europe, NIB credits not only companies from member countries, but also foreign companies that conduct economic activities in the waters of the Baltic and Barents seas. Another important area of NIB activity is the support of competitiveness of the national economies of the member countries (projects in the field of medicine, railway transport, information technologies). Many projects financed by the NIB are related to both these areas (energy saving technologies, public transport, etc.).
NIB uses loans and guarantees as financing instruments, while actively cooperating with export-import banks, commercial banks and international financial organizations (including other regional development banks).
The Islamic Development Bank was organized by the countries that are members of the Organization of the Islamic Conference in 1973. To date, 56 countries are members of the bank, mainly of Asia, the Middle East and North Africa. A distinctive feature of the IDB is that initially it was not so much an economic as a religious and political project, financed primarily by oil-exporting countries. This specificity predetermined the absence of significant problems with the formation of the bank's capital and the use of IDB specific forms of financing that comply with the norms of Sharia (investment in shares, sale of fixed assets in installments, production sharing agreements, etc.). In other respects, the IDB differs little from other development banks.
Numerous regional trust funds are functioning in modern international monetary and credit relations, financing certain projects on a non-refundable or over-the-counter basis. As a rule, these funds are connected with regional integration associations or regional development banks. For example, under the aegis of the Inter-American Development Bank, Special Operations Fund , intended for lending to least developed Latin American countries on preferential terms (for up to 40 years at a rate not exceeding 2% per annum). On a similar basis, the least developed country in the region is credited with the African Development Fund, acting in conjunction with the African Development Bank, and Asian Development Fund established by the Asian Development Bank.
A number of regional funds are intended for solving more narrow problems. Thus, the Islamic Solidarity Fund (ISF ) is functioning within the framework of the Organization of the Islamic Conference, funded by voluntary contributions from member countries. This fund provides, at no cost, assistance to Muslim states that are victims of natural disasters or man-made disasters, and also supports Muslim minorities in foreign countries. The Nordic Development Fund , acting in cooperation with the NIB , provides concessional financing for environmental projects in developing countries. Under the auspices of ADB, The Joint Poverty Reduction Fund supports the least socially protected groups of the population.
Regional funds make a certain contribution to overcoming the uneven development of regions and the alleviation of social and climate problems. However, the funds available to these funds are generally small. Since these funds are allocated on an irrevocable or ultra-long-term basis, the re-use of these resources is minimal. The functioning of these funds is possible only in the conditions of constant receipt of new funds, which is difficult in the conditions of crises, local political and economic conflicts, etc. Therefore, the influence of regional funds on the functioning of the world financial system is extremely weak and incomparable with the influence of regional development banks.
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