The Secretary of State for International Development (Penny Mordaunt)
This statement sets out the particulars of a short-term arrangement arising from the UK’s intention to become a member of the IIC (the private sector arm of the IADB Group) through the transfer of up to US$6.98 million of UK resources already held in the IADB. These resources form part of a US$725 million capital asset transfer from the IADB (of which the UK is a member) to the IIC, and will be temporarily held by the IADB in an escrow account while the UK’s membership goes through the ratification process and the privileges and immunities sections of the treaty are brought into UK and Scottish law. Transfer year IADB capital to be transferred Number of UK shares to be transferred UK share of transfer 2018 US$50,000,000 29 US$481,510.09 2019 US$50,000,000 30 US$481,510.09[1] 2020 US$110,000,000 66 US$1,059,322.20 2021 US$150,000,000 89 US$1,444,530.27 2022 US$150,000,000 89 US$1,444,530.27 2023 US$72,000,000 43 US$693,374.53 2024 US$72,000,000 43 US$693,374.53 2025 US$71,000,000 42 US$683,744.33 Total US$725,000,000 431 US$6,981,896.33 [1]2018 and 2019. Half shares non-transferable, so shares transferred differ, rounded down or up while funds paid in are the same.
Joining the IIC through capital asset transfer offers the opportunity, at no extra cost, to be part of an important organisation in the Latin America and Caribbean region, which will support economic growth and leverage further private sector resources for development financing, as part of the UK’s prosperity agenda. The UK’s membership will deepen economic ties with the region and create opportunities for British businesses, by making it easier for UK companies to win contracts through the IIC.
The only alternative would be to transfer the assets back to the UK Treasury over eight years. However, doing so would go against our Global Britain objective of playing an active, outward facing role in the rules-based international system.
In 2015 the UK was part of a unanimous vote of the bank’s shareholders to merge the bank’s private sector operations into a single consolidated entity, the IIC. This took effect in January 2016, formalised by a treaty signed by members who were providing new capital at that time. The UK opted to join at no cost, as part of an agreed capital transfer from the IADB to IIC which starts this year and spans eight years. This will give the UK a 0.22% shareholding in the IIC.
The IADB obtained permission from governors at this year’s annual meeting in March to initiate the eight year US$725 million capital transfer process, including approval for an initial US$50 million transfer of which the UK’s share is US$482,000. The first transfer took place on 30 March 2018. The timing and size of further transfers will be subject to annual agreement by the IADB’s board of governors but will likely follow the indicative schedule below (set out in the implementation package for the second general capital increase of the IIC). The UK’s share of the transfers is a proportion of the capital that we invested plus the pro rata amount of accumulated net income earned with that capital, totalling US$6.98 million over the eight years and breaks down as follows (using the indicative schedule):
The UK needs to become a member of the IIC by ratifying the treaty and bringing the privileges and immunities sections of the treaty into UK and Scottish law. Given the estimated timeframes, neither of these processes was possible before the IADB completed the first capital transfer.
To ensure that, despite this delay, the UK can still become a member and maintain the agreed share at its current value, DFID has negotiated to move the UK’s capital share into a no-cost escrow account. An escrow account is a temporary holding account that the IADB will set up, to keep UK funds separate from both the IADB’s and IIC’s accounts until all parliamentary processes are completed and in place. This is the only means of the UK preserving the full value of our share. DFID has sought and received HMT’s approval of this process.
We will be pursuing parliamentary approval as soon as possible to ensure that the UK’s funds remain inactive for as short a time as possible.
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