DEVELOPMENT: COURT OF AUDITORS FINDS LITTLE FAULT WITH EIB RISK CAPITAL OPERATIONS.

Summary: In general, there have been no irregularities in the use of venture capital by the European Investment Bank (EIB) to assist investment in developing countries. Some procedural difficulties, however, may have led to poor judgement on the type of assistance, according to the Court of Auditors' Special Report (No24/98) on risk capital operations financed from the resources of the European Development Funds (EDF). The difference in interest rates on the various possibilities for assistance has, however, led to "unequal treatment of final beneficiaries". Further to making recommendations to improve the existing system, the EU's financial watchdog suggests that alternative systems should be developed, not least involving greater participation of the Commission.

The main gripe of the Court of Auditors' report is that the transparency and effectiveness of the risk capital operations (RCOs) should be improved. The report points out that the criteria which should guide the allocation of risk capital resources are very general. The EIB is more or less free to choose between risk capital or its own resources, when making loans. "The justification of the decision to use risk capital funds for a project does not clearly emerge from the project appraisal documentation", the report states. Article 263 of the Lom IV Convention stipulates that risk capital is used for investment financing in order to assist the implementation of directly productive investment, both public and private, contributing to the economic and industrial development of the ACP states. As specified by Article 234 of the Lom IV Convention, risk capital may be provided in the form of loans or equity participation. The use of different types of financing available to the European Investment Bank, such as direct loans, loans via a signatory state to the Lom IV Convention or global loans, means different conditions for the various beneficiaries. Some enjoy the 3% maximum interest rate mentioned in the Lom Convention...