1. IDA-only Debt Reduction Facility Project Finance and Guarantees Group The World Bank

2. Objective of the Presentation u Overview of the IDA-only Debt Reduction Facility (“Facility”) u Overview of the requirements and procedures involved. u How can the Facility assist a country?

3. Content of this Presentation u Definition and purpose. u What countries qualify for support. u What debt is eligible. u Characteristics of an operation. u Overview of completed operations. u Financing. u Procedures.

4. Definition and Purpose u Established in 1989, as a mechanism to assist IDA-only countries in reducing their external commercial debt. u Funds provided as grants: –Technical Assistance for hiring advisors and –Finance the operation. u Facility is funded with transfers from IBRD’s net income. (US$350 million)

5. Countries eligible.  Highly indebted IDA-only countries u A medium term adjustment program. u A comprehensive strategy for debt management: –addresses the commercial debt comprehensively –provides substantial relief from official bilateral creditors. –enhances country’s growth and development.

6. What debt is eligible. u all publicly guaranteed uninsured medium and long-term commercial debt in arrears u all publicly guaranteed uninsured short- term debt (trade financing, suppliers credit and overdrafts)

7. Debt that is not eligible u Paris Club debt. u Bilateral debt (Government to Government) u Third party Guarantee.

8. Characteristics of an operation. u Case by Case basis. u Deep discount. u Preferred option is a buy-back. u Interest and penalties extinguished. (buy-back of principal only.) u Comprehensive operation u Donor co-financing expected.

9. Financing u IDA provides grants for Technical Assistance and/or to finance the operation.  Grants from bilateral sources are expected. u US$ 207 million obtained to date. u If necessary complementary resources can be obtained from IDA credits.

10. First Steps u Formal Request from the Government so that IDA can provided resources to hire Financial and Legal advisors. u Review the data base. u Set up a task team in the country consisting of Central Bank, MOF or others as the case may be.

11. Operations u Altogether 22 operations have been successfully completed. u A total of US$ 4.5 billion of principal in commercial debt have been extinguished. u More than US$ 3.5 billion of interest arrears and penalties have been extinguished.

12. General Characteristics u The price has fluctuated from 8 cents a dollar of principal to 26 cents a dollar of principal buy-back. u Acceptance level from 64% to 100%. u Grants provided from US$1.3 million to US$97.4 million. u Structure has included straight buy-back, discounted bonds, debt for development and debt-equity swaps.

13. Some Operations u Ethiopia –Buy-back that included dollar denominated Russian debt. u Mauritania –Buy-back that included debts from parastatal to parastatal companies (commercial nature) u Nicaragua –Buy-back of US$1.3 billion of commercial bank debt. u Sao Tome & Principe –Buy-back which required only US$1 million of financing.

14. Some Operations u Senegal –included a discount bond option guarantee with zero-coupon bonds that could be used in the local economy (to pay taxes, privatization, etc..) u Zambia –more than 5,000 creditors and pipeline debt. –included various options. (debt for development, buy- back, discounted bonds)

15. General Procedure u Letter from the Government Requesting access to Facility resources. u Define the amount of the Grant for TA and modalities. u MOP to request the Grant from the Board. u Grant agreement with the Government. u Government hires advisors through competitive bidding. (we provide draft TOR, contract and long list.)

16. General Procedure (cont) u Contracts with legal and financial advisors. (signed between the Government and advisors) u Debt reconciliation process to determine the eligible amount. (issues of eligibility are addressed) u Informal contacts with creditors to determine market expectations. (informal reports on specific finding) u Formal Report from the advisors is discussed (should included strategy, price, threshold and issues pending) u Strategy approved, financing determined and co-financing from donors identify and requested.

17. General Procedure (cont) u MOP to request Grant from the Board. (includes all eligible debt as well as commitments from donors) u Grant agreement with the Government. u Operation is launched in the market. (offering memorandum is distributed to creditors) u Operation is closed (paid at the closing date specified in the offering memorandum) u Auditors are hired and auditing report done. u Closing report to the Board.