(b) the nature of the project or programme, its economic and financial return as well as its social and culwral impact; and
(c) in the case of loans, to factors guaranteeing their servicing.
3. Financial assistance may be made available to or through the ACP States concerned or, subject to their agreement, either through eligible financial institutions or directly to any other eligible beneficiary.
4. Where financial assistance is granted to the final recipient through an intermediary:
(a) the terms on which the assistance may be made available by the intermediary to the final recipient shall be laid down in the financing agreement or loan contract; and
(b) any financial benefit accruing to the intermediary from the on-lending transaction shall be used for development purposes, on the conditions laid down in the financing agreement or the loan contract, after taking into account administrative costs, exchange and financial risks, and the cost of technical assistance given to the final recipient.
Article 234.
1. Risk capital may be provided in the form of loans or equity participation.
(a) In the case of loans, it may be provided mainly in the form of:
(i) subordinated loans, which shall be redeemed and in respect of which interest, if any, shall be paid only after other claims have been settled;
(ii) conditional loans, the servicing and/or the duration of which shall be linked to the fulfilment of certain conditions with regard. to the performance of the project financed such as profit or target output. The specific terms shall be laid down when the loan is made.
(b) In the case of equity participation, it may be provided to acquire temporary minority holdings on behalf of the Community in the capital of ACP enterprises or institutions financing development projects in the ACP States or of ACP financial institutions promoting and financing private investment in the ACP States. Such holdings shall be transferred to nationals or institutions of the ACP States or as otherwise agreed with the ACP State concerned, once the conditions specified for the purpose are met.
(c) The terms of risk capital operations shall depend on the characteristics of each project or programme financed and shall in general be more favourable than those of subsidized loans. In the case of loans the interest rate shall, in any case, be less than 3 %.
2. In order to minimize the effects of exchange rate fluctuations, the problem of exchange rate risk shall be dealt with in the following way:
(a) in the case of risk capital operations designed to strengthen an enterprise's own funds the exchange rate risk shall as a general rule be borne by the Community;
(b) in the case of risk capital financing for investments of private sector firms and small and medium-sized enterprises, hereinafter referred to as "SMEs", the exchange rate risk shall be shared by the Community, on the one part, and by the other parties involved, on the other. On average, the foreign exchange risk shall be shared equally.
Article 235.
Loans from the Bank's own resources shall be granted under the following terms and conditions:
(a) the rate of interest before subsidy shall be the rate applied by the Bank for the currencies, duration and repayment conditions adopted for the loan on the day of signature of the contract;
(b) this rate shall be reduced by means of a 4 % subsidy. The rate of subsidy shall be automatically adjusted so that the interest rate borne by the borrower will be neither less than 3% nor more than 6% for a loan contracted at the reference rate. The reference rate adopted for calculating the adjustment in the rate of subsidy shall be the rate for the ECU applied by the Bank for a loan with the same conditions as to duration and repayment on the day of signature of the contract;
(c) the amount of the interest rate subsidy calculated in terms of its value at the times of disbursement of the loan shall be charged against the amount of grants and paid directly to the Bank;
(d) the duration of loans made by the Bank from its own resources shall be governed by terms stipulated on the basis of the economic and financial characteristics of the project, but may not exceed 25 years. These loans shall normally comprise a grace period fixed by reference to the construction period and the funds needed for the project.
Article 236.
The Bank shall:
(a) contribute, through the resources it manages, to the economic and industrial development of the ACP States on a national and regional scale; and to this end, finance in the first place, productive projects and programmes in industry, agro-industry, tourism, mining, energy and in transport and telecommunications linked to these sectors. These sectoral priorities shall not exclude the possibility of the Bank's financing, from its own resources, productive projects and programmes in other sectors including commercial agriculture;
(b) establish close cooperation links with national and regional development banks and with banking and financial institutions of the ACP States;
(c) in consultation with the ACP State concerned, adapt the arrangements and procedures for implementing development finance cooperation, as set out in this Convention, if necessary, to take account of the nature of the projects and programmes and to act in accordance with the objectives of this Convention, within the framework of the procedures laid down by its statute.
Article 237.
The ACP States concerned shall, in respect of loans granted or equity participation under the Convention, and in respect of which they have given their written approval:
(a) grant exemption from all national or local duties, fiscal charges on interest, commissions and amortization of loans due in accordance with the law or laws of the ACP State or-States concerned;
(b) place at the disposal of the beneficiaries the currency necessary for the payment of interest, commission and the amortization of loans due in terms of financing contracts granted for the implementation of projects and programmes on their territories;
(c) make available to the Bank the foreign currency necessary for the transfer of all sums received by it in national currency at the exchange rate applicable between the ECU, or other currencies of transfer, and the national currency at the date of the transfer, which represent the net revenue and proceeds from transactions involving the acquisition by the Community of holdings in the capital of companies or firms. :
Article 238.
Special treatment shall be accorded to the least-developed ACP States when determining the volume of the financial resources which such States may expect from the Community for the purpose of their indicative programmes. In addition, account shall be taken of the particular difficulties of the landlocked or island ACP States. Those financial resources shall be combined with more favourable terms of financing, having regard to the economic situation and the nature of the needs specific to each State. They shall consist essentially of grants, and, in appropriate cases, of risk capital or loans from the Bank, having regard in particular to the criteria laid down in Article 233 (2).
Section 3. Debt and Structural Adjusement Support
Article 239. Debt
1. The ACP States and the Community share the view that the external debt situation of ACP States has emerged as a major development issue, and that the associated heavy debt-servicing obligations contribute to constraints on import capacity and the level of investments in these States, thus affecting their growth and development.
2. The ACP States and the Community reaffirm their determination to develop and implement in a coordinated and integrated way the different instruments of the Convention and to implement the following measures with a view to contributing to the attenuation of the debt burden of the ACP States and their balance of payment problems with a view to stimulating economic recovery and growth.
Article 240.
In order to avoid increases in the debt of ACP States, finance under this Convention, apart from bank loans and risk capital, is provided in the form of grants. Specifically the following measures and actions will be taken:
(a) for projects with high rates of return, and in particular for Sysmin financing, a two-stage procedure will be followed whereby ACP States will: receive grants and will on-lend the funds at appropriate market terms and conditions, with suitable arrangements for deposit of interest and repayment, less an agreed service charge, in a counterpart fund account, managed according to normal procedures as agreed for this type of finance generated from Community assistance;
(b) Stabex transfers will be granted without any obligation for the beneficiary ACP States to reconstitute the resources of the system.
2. In addition, the Community agrees to:
(a) enable, on a case-by-case basis, the acceleration of the use of the resources of past indicative programmes which have not been committed through the quick-disbursing instruments provided for in this Convention in order to contribute to the attenuation of the debt burden;
(b) grant, at the request of an ACP State:
(i) assistance in studying and finding practical solutions to indebtedness, debt-servicing difficulties and balance of payments problems;
(ii) training in external debt management and international financial negotiations as well as support for training workshops, courses and seminars in these fields;
(iii) assistance to ACP States in developing flexible techniques and instruments of debt management to deal with unanticipated interest rate and exchange rate variations;
(c) encourage its institutions, including the Bank, to play a more active role in catalysing new flows of finance to debt-affected ACP States.
Article 241.
The Community commits itself to support the ACP States' efforts to:
(a) undertake reforms with a view to improving the performance of the economy;
(b) strengthen their external debt management mech- anisms at national level so as to exercise more effective control over external borrowing by the public sector, and monitor private sector borrowing;
(c) reverse the outflow of capital;
(d) intensify their efforts to reduce inflation and implement measures designed to increase domestic savings;
(e) introduce concrete measures to improve the quality of investment in both the public and private sectors;
(f) give adequate incentives to projects that generate or save foreign exchange;
(g) as a long-term objective, develop subregional capital markets which can serve as effective mechanisms for tapping ACP surplus funds invested abroad;
(h) adopt measures aimed at increasing intra-ACP trade through the use of existing subregional and regional payments mechanisms and encourage clearing arrangements and credit insurance in all intra-ACP trade transactions.
Article 242.
In order to contribute to the servicing of the debt resulting from Community loans from the Bank's own resources, special loans and risk capital, the ACP States may, in accordance with arrangements to be made on a case-by-case basis with the Commission, use the available foreign currency referred to in Article 319 for such servicing, as and when debt repayment falls due and up to the amount required for payments in national currency.
Article 243. Structural Adjustment Support
The ACP States and the Community recognize that the economic and social problems being experienced by ACP States are the result of both internal factors and external developments. They see the need for urgent action and share the view that short and medium-term policies must reinforce the long-term development efforts and goals of ACP States. To this end, they have agreed that the Convention should provide structural adjustment support to assist ACP States in their effort to:
(a) create an economic environment favourable to a resumption of, or to an acceleration in, the growth of GDP and employment;
(b) improve the social and economic well-being of the population as a whole;
(c) improve public sector management and provide appropriate private sector incentives;
(d) increase the level of productivity in the key sectors of the economy;
(e) achieve greater economic diversification as part of the effort to develop a larger measure of resilience in the economy and to reduce domestic and external imbalances while maintaining GDP growth;
(f) improve balance-of-payments performance and the foreign-exchange position;
(g) ensure that adjustment is economically viable and socially and politically bearable.
Article 244.
Adjustment support shall be administered on the basis of the following principles:
(a) the ACP States shall bear primary responsibility for the analysis of the problems to be solved and the preparation of reform programmes;
(b) support programmes shall be adapted to the different situation in each ACP State and be sensitive to the social conditions, culture and environment of these States;
(c) assistance shall be supportive of the ACP State's priority development objectives such as agricultural and rural development, food security, PMDT and environmental protection, and contribute to the attenuation of the debt burden;
(d) adjustment support shall take place within the framework of the political and economic model of the ACP State concerned;
(e) the right of the ACP States to determine the direction of their development strategies and priorities shall be recognized and respected;
(f) both the reform and the support programme shall make provision from the outset to deal with the negative social effects that may result from the process of adjustment efforts, in pursuit of the objectives of economic growth and social justice, particular attention being paid to the most vulnerable groups in the society including the poor, the unemployed, women and children;
(g) the pace of the reform programmes shall be realistic and compatible with each ACP State's capacities and resources, while the implementation of support programmes shall be flexible and adapted to the management capacity of the ACP State concerned;
(h) quick disbursement shall be an important feature of support programmes;
(i) support shall be given in the context of a joint assessment between the Community and the ACP State concerned on the reform measures being undertaken or contemplated either at a macro-economic or sectoral level.
Article 245.
1. For purposes of structural adjustment support, Community financial assistance shall be given in form of grants:
(a) as provided forin Article 1 of the Financial Protocol; and
(b) from the indicative programme, in accordance with Article 281 (2) (c).
2. On the expiry of the Financial Protocol, appropriations set aside for structural adjustment support and not committed shall be paid back, save as otherwise decided by the Council of Ministers, to the assets of the Fund for the purpose of financing other operations falling within the scope of development finance cooperation, notably those relating to programmable assistance.
Article 246.
1. All ACP States shall in principle be eligible for structural adjustment assistance depending on the scope of the reforms being undertaken or contemplated at the macroeconomic or sectoral level, their effectiveness, and their likely impact on the economic, social and political dimension of development, and on economic and social hardships being experienced, as reflected, by indicators such as:
(a) the level of indebtedness and the debt service burden;
(b) balance of payments difficulties;
(c) the bidgetary situation;
(d) the monetary situation;
(e) the rate of growth of real national income;
(f) the level of unemployment;
(g) the situation in social areas such as nutrition, housing, health and education.
2. ACP States undertaking reform programmes that are acknowledged and supported at least by the principal multilateral donors, or that are agreed with such donors but not necessarily financially supported by them, shall be treated as having automatically satisfied the requirements for adjustment assistance.
3. In assessing the social and economic hardships referred to in paragraph 1, particular attention will be given to the least-developed ACP States.
Article 247.
1. The resources earmarked for structural adjustment support may be mobilized either at the beginning of or during the Financial Protocol period, at the request of the ACP State concerned.
2. Such support for adjustment effort shall take the form of:
(a) sectoral or general import programmes in accordance with Articles 224 (c) and 225;
(b) technical assistance related to structural adjustment support programmes.
3. In addition, with a view to alleviating the ACP States' domestic financial constraints, counterpart funds generated by various Community instruments may be used in accordance with Article 226.
4. Structural adjustment support shall be implemented flexibly and the instruments chosen on a case-by-case basis.
A GIP designed in keeping with the approach to structural adjustment support laid down in the Convention will usually be the most appropriate instrument for countries carrying out macroeconomic reforms. In the case of sectoral adjustment, the assistance will be given in the form of an SIP in kind or in foreign currency.
An SIP could also beused in a situation of macro-economic reforms with a view to achieving a greater sectoral impact.
Article 248.
The implementation.of each support programme shall:
(a) be adapted to the needs of each recipient State;
(b) ensure consistency between the use of the different support instruments and the approach of structural adjustment as defined in Articles 243 and 244;
(c) ensure that the eligibility of ACP economic operators for access to the resources of the programme is as wide and transparent as possible and that the best price/quality ratio is obtained on imported goods. To this end this Convention's tendering procedures must be applied flexibly in order to:
- ensure the rapidity of disbursements,
- minimize the administrative burden on the State | concerned,
- accord with the administrative and commercial practices of that State;
(d) be the subject of an agreement between the Commission and the ACP body in charge of the implementation of the programme.
Article 249.
In order to increase the flow of financial resources the Community, with the agreement of the ACP State concerned, may enter into cofinancing arrangements with other donors or agencies. The various provisions of this Convention on cofinancing shall apply. To this end and in order to ensure effective use of resources and to minimize delays, efforts shall be made, subject to the agreement of the ACP State concerned and with its effective participation, to:
(a) coordinate the approach of the various donors towards structural adjustment support;
(b) coordinate operational implementation in a simple and cost-effective manner.
Article 250.
1. The ACP State's request for structural adjustment support shall contain the broad outline of the underlying problems being addressed by the ACP State and of the measures and actions being implemented or contemplated, the areas in which support is required, the social repercussions being experienced or envisaged and proposals to deal with them, as well as the cost estimates of the support programme for which assistance is being sought and the duration or likely period of completion.
2. The preparation, appraisal and financing decision for structural adjustment programmes shall be carried out according to the provisions on implementation procedures of Chapter 5 with due regard to the need to ensure the quick disbursing feature of structural adjustment programmes. On a case-by-case basis, retro-active financing of a limited part of imports of ACP-EEC origin may be permissible.
3. In the case of foreign exchange programmes, funds will be transferred to an ecu-denominated bank account opened by the ACP States concerned in a Community Member State from which all disbursement covered by the programme shall be made. Such funds will be considered as an advance to be cleared by the submission of justification of the use of funds.
Section 4. Cofinancing
Article 251.
1. The financial resources provided for in this Convention may be applied, at the request of the ACP States, to cofinancing (undertaken in particular with development agencies and institutions, Community Member States, ACP States, third countries or international or private financial institutions, firms, or export credit agencies).
2. Special consideration shall be given to the possibility of cofinancing in the following cases, among others:
(a) large-scale projects which cannot be financed ex- clusively by any one source of financing alone;
(b) projects in which Community participation, and an input of its project expertise, might facilitate the participation of other additional sources of finance;
(c) projects which may benefit from a blend of concessionary and non-concessionary financing;
(d) projects which may be broken down into sub-projects which could be eligible for financing from different sources;
(e) projects for which a diversification of financing may Jead to an advantageous solution from the point of view of the financing and investment costs and of other aspects of the implementation of the said projects;
(f) projects of a regional or inter-regional nature.
3. Cofinancing may be in the form of joint or parallel financing. Preference will be given in each case to the solution which is more suitable from the point of view of cost-effectiveness.
4. With the agreement of the parties concerned:
(a) measures shall be taken to coordinate and harmonize operations of the Community and those of other cofinancing bodies, in order to minimize the number of procedures to be undertaken by the ACP States and to render those procedures more flexible, notably as regards:
(i) the needs of other cofinancing bodies and recipients;
(ii) the choice of projects to be cofinanced and the arrangements for carrying them out;
(iii) the harmonization of works, supply and services contracts rules and procedures;
(iv) the payment terms;
(v) the rules of eligibility and competition;
(vi) the margin of preference granted to ACP enterprises;
(b) the process of consultation and coordination with other donors and cofinanciers should be strengthened and developed, where possible, through the establishment of cofinancing framework agreements, and cofinancing policies and procedures should be reviewed to ensure effectiveness and the best terms possible;
(c) the Community may provide the other cofinancing bodies with administrative help or may act as a lead or coordinating agency for projects part-financed by it in order to facilitate the implementation of cofinanced projects or programmes.
Section 5. Micro-projects
Article 252.
1. In order to respond to the needs of local communities with regard to development, the Fund shall, at the request of the ACP State concerned, participate in the financing of micro-projects at local level which:
(a) have an economic and social impact on the life of the people:
(b) meet a demonstrated and observed priority need, and
(c) will be undertaken at the initiative and with the active participation of the local community which will benefit therefrom.