As a multilateral development institution, IFC enjoys a de facto Preferred Creditor Status. This means that member governments grant IFC loans preferential access to foreign currency in the event of a country foreign exchange crisis. The Preferred Creditor Status therefore mitigates transfer and convertibility risk for IFC and its B Loan participants.
IFC loans, including the portions taken by participants, have never been included in a general country debt rescheduling, and have never been subject to mandatory new money obligations under a country debt rescheduling. Please find below a description of how the B Loan Program weathered the crises in Argentina (2001), the Russian Federation (1998), and Pakistan (1998).
The crisis: On December 24, 2001, a moratorium on government foreign debt payments was imposed by the Argentine government. On January 2, 2002, Argentina abandoned the peso’s peg to the U.S. dollar. A dual exchange rate was introduced, which was subsequently eliminated. Banking holidays were imposed at times when the crisis became severe.
IFC Portfolio: At that time, IFC’s loan portfolio consisted of about $800 million in A loans and about $900 million in 28 B Loans. IFC's loan portfolio was well diversified, and included exposure to financial institutions, infrastructure, oil and gas, agribusiness, and general manufacturing.
Reaction: IFC requested the Argentine government to allow automatic convertibility and transfer of IFC loan payments, thus exempting IFC from new regulations requiring prior Central Bank approval for foreign exchange transfers.
Result:Throughout the crisis, the Central Bank exempted payments to IFC and other international organizations from foreign exchange restrictions, and allowed IFC loans to be serviced without prior Central Bank approval, thus recognizing IFC’s de facto Preferred Creditor Status.
Russian Federation (1998)
The crisis: On August 17, 1998, the Russian Federation announced that it would force a restructuring of domestic government debt and impose a 90-day moratorium on external debt repayments by commercial and financial entities.
IFC Portfolio:IFC’s B Loan portfolio at that time consisted of two projects with a total loan amount of $46 million on behalf of 12 participants.
Reaction: The World Bank Group requested that the Russian Federation provide confirmation of its Preferred Creditor Status.
Result: On August 28, 1998, the Russian Federation issued a statement confirming debt due to multilateral development agencies, including IFC, was not included in the moratorium. Accordingly, payments for debt servicing of the A and B Loans, where the borrowers had local currency available, continued to be made to IFC.
The crisis: As a result of severe balance of payments problems, Pakistan stopped repaying foreign debt in mid-July 1998, and by August/September 1998 started accumulating arrears to the World Bank Group, including IFC.
IFC Portfolio:IFC’s portfolio in Pakistan at that time consisted of approximately $545 million in A loans and $310 million in B Loans. These loans were spread across 51 companies in sectors such as power, construction materials, financial institutions, and textiles.
Reaction:IFC and the World Bank coordinated their efforts and intervened at the highest levels with the government of Pakistan, to facilitate resolution of the problem. Pakistan confirmed IFC’s Preferred Creditor Status but indicated that it had no reserves available to allow even preferred creditors to be serviced. It committed to clear these arrears as soon as possible.
Result:In November 1998, the government agreed with the IMF and the World Bank on a strengthened program of macroeconomic stabilization and medium-term structural reforms. By January 15, 1999, the government cleared foreign exchange arrears to IFC as it had promised.