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35 Harv. Int'l. L. J. 345 (1994)
New Approaches to Economic Development: The World Bank, the EBRD, and the Negative Pledge Clause

handle is hein.journals/hilj35 and id is 351 raw text is: VOLUME 35, NUMBER 2, SPRING 1994

New Approaches to Economic
Development: The World Bank, the
EBRD, and the Negative Pledge Clause
Matthew H. Hurlock*
The transition of the former Soviet Republics and the countries of
Central and Eastern Europe from state-run to market-oriented econo-
mies has presented new challenges for the multilateral development
institutions seeking to assist in this process. Private sources of capital
and many export credit agencies have been reluctant to invest in these
countries as a result of their macroeconomic difficulties, political in-
stability, or opaque legal systems. Lenders have also become wary of
making loans to developing countries because of the financial losses
suffered during the debt crisis of the 1980s. As a result, the multilat-
eral development banks (MDBs), particularly the World Bank1 and the
European Bank for Reconstruction and Development (EBRD), have
had to provide the majority of the capital to these countries and to
adopt policies to encourage lending from private commercial sources
and export credit agencies.
Despite their provision of much-needed external capital to govern-
ments and state-owned enterprises (SOEs) in the countries in transi-
tion, the EBRD's and the World Bank's use of very broadly worded
negative pledge clauses, included in the Standard Terms and Condi-
tions of both institutions, has created a significant barrier to encour-
aging lending from     privatesources and export credit agencies.2 The
negative pledge clauses of both institutions provide, with certain lim-
* A.B., Princeton University, 1988; J.D., Columbia University, 1993; associate, Davis Polk &
Wardwell, New York. The author wishes to thank the Ford Foundation for its support in the
research of this Article. The views expressed herein are the author's alone and do not reflect those
of the World Bank, the European Bank for Reconstruction and Development, or the Ford
Foundation.
1. References to the World Bank in this Article will be to the International Bank for
Reconstruction and Development (IBRD) and not to the International Development Agency
(IDA). IDA provides loans with low interest rates and generous repayment terms. The issues
raised in this Article will be concerned with the terms and conditions of the IBRD's loan
covenants.
2. References to the World Bank's Standard Terms and Conditions will be to the IBRD's terms
and conditions, not to those of IDA.

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