THE ROLE OF THE LAWYER IN THE INTERNATIONAL DEBT OPERATIONS OF DEVELOPING COUNTRIES
by Professor Daniel D. Bradlow
(Article Reference: Document No.6, July 1999)

III. The Stages of a Debt Transaction and the Role of the Lawyer[2]

Any debt transaction can be divided into the following stages:

• Identification: the borrower identifies the purpose for which it intends to borrow money.
• Preparation: the borrower prepares the request for funding and decides which sources of funds to approach for money.
• Appraisal: those sources of funds that have been approached by the borrower assess the borrower's proposal and decide whether or not to fund the proposal.
• Negotiation and Approval: the two parties negotiate the terms of their financing arrangement and draft the agreement. This stage also involves the submission of this agreement to whatever approval processes the borrower requires for the agreement to become a legally valid and binding commitment.
• Implementation: the loan contract is effective and the borrower is able to access the loan proceeds provided it meets all its contractual obligations. The stage ends when the contract is fully performed.

A. Identification:
In this stage, the borrower determines the purpose for which it intends to borrow and begins to assess the feasibility of that purpose. The decisions that the borrower must take at this stage are strategic business or economic decisions. Given the strategic nature of the decisions being taken at this stage, the lawyer's role is limited. The lawyer's advice may be needed in regard to some initial questions relating to the feasibility of the purpose or to specific aspects of the proposed financing strategy.

Despite his/her limited role, it is useful for the lawyer to participate in the discussions at this stage of the transaction for a number of reasons. First, if the lawyer is party to these discussion, he/she will have a better understanding of the borrower's business or economic objectives in the transaction and will be better equipped to advance these concerns at the later stages of the borrowing process. In addition, the lawyer's explanation of the legal consequence of the borrower? different financing options may help the borrower make key decisions at this stage.

Second, if the lawyer participates in these discussions, he/she will be able to identify legal issues that may arise if the transaction proceeds and can advise the borrower about how to address these issues in the most effective and least costly way. For example, if the borrower's plans require government approval the lawyer can explain the process for obtaining this approval and give the borrower some idea of the potential impact of this process on the borrower's plans. In addition, if the borrower plans to use the funds for a project that will have significant social and environmental impacts, the lawyer can begin advising the borrower on what measures it should take to assess these impacts and to deal with the associated risks.

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