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 (continued)

B. Preparation:

The borrower's ultimate objective in this stage is to prepare an information memorandum or project document that the borrower can use to try and persuade lenders to support the project or purpose for which the borrower is hoping to raise the money. This memorandum will contain a detailed description of the borrower and its financial situation and of the purpose for which the borrower intends to use the borrowed funds. A lawyer can perform a number of functions in regard to the preparation of the memorandum. Each of these functions are discussed in more detail below.

(i) Feasibility Studies The key issue that the feasibility studies are designed to resolve is whether the project or purpose for which the borrower is planning to borrow money is realistic. "Realistic" in this context means that me borrower can achieve its purpose in a way that will allow it to generate at least sufficient funds to cover all the costs associated with the project, including the servicing of the debts it plans to incur to fund the project or purpose. Answering this question requires the borrower to determine the technical, financial, environmental, economic, and social feasibility of the project. An additional aspect of this process is determining the legal feasibility of the project. Legal feasibility, requires the borrower to address such issues as:

1) Does the borrower have the legal power to undertake this type of activity? If not, what steps must it take to obtain this power? How difficult will it be to do so? What will it cost to obtain this power?

2) Does the borrower need to obtain any governmental authorization to undertake this activity? If so, how easy will it be for the borrower to obtain this authorization? How much will it cost to do so?

3) Does the borrower have clear legal title to all the assets and property that it plans to use in the project? If not, what kinds of challenges will it face in obtaining clear legal title? How easy will it be and how expensive will it be to overcome these challenges?

4) What kinds of actions (legal and otherwise) can those who oppose the project take that may cause delays in the project and increase its cost? How easy will it be for the borrower to overcome these challenges? It is important to note that these challenges may arise from issues that are traditionally viewed as outside the scope of project "costs". For example, these challenges could relate to resettlement issues, rights of indigenous people, or the environment.

In order to answer these questions, the lawyer will need to be well versed in the domestic law of the place of the borrower and of the project. The lawyer will also need to have some familiarity with the international legal commitments of the borrower's home country. These commitments, embodied in the international treaties and agreements which the country has signed, may influence the obligations of the borrower and may create rights which those who oppose the project can utilize to block or delay the project. For example, countries which have signed environmental treaties or agreements may be required to undertake environmental impact assessments for each project that they undertake.

In addition, if the country is a signatory to certain human rights treaties, there may be legal fora (for example the African Court of Human Rights or the United Nations Human Rights Committee) that opponents of the project may be able to utilize to block or delay the project. The fora available to project opponents may also be influenced by the choice of creditor. For example, if the World Bank provides funding for the project, the opponents of the project may be able to use the Bank's Inspection Panel to challenge the Bank's performance in regard to the project. Even though this does not directly affect the borrower, it can affect the price and timing of the project.

In addition, to knowing the applicable domestic and international law, the lawyer might want to review some "soft" law, such as the relevant social and environmental policies of international organizations like the World Bank. Investors and other creditors might view these policies as constituting the "best practices" that prudent project sponsors and their creditors should follow. Compliance with these policies may, therefore, help the borrower and its creditors limit the opportunities for opponents of the project to take dilatory actions against the project and to limit their exposure to the risk of future liability for injuries allegedly caused by the project.

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