TNAG-0340-FCO40-376-Aid-to-Hong-Kong-from-UK-1972 — Page 81

aid loan) will be shared between the recipient government and the local

development institution. It will normally be desirable to enable the

local development institution to strengthen its local currency resources,

for subsequent investment in other development projects, by allowing it

to retain at least the major part of the product of on-lending, but

there would be no objection in principle if the recipient government

wishes to on-lend the aid loan to the local development institution at

an intermediate, but still concessionary rate."

13. The above practice may need to be varied in the case of development banks

wholly or partially in the private sector with private shareholders

possibly by

ensuring that the aid-generated income is kept intact in a revolving fund out of

which dividends cannot be paid.

Tving

14. Tying arrangements for this type of aid should be the normal tying arrange-

ments applicable to aid to the country in question. Proposals for joint ventures

with British private investors, which may provide for the development bank's

participation to be partly or wholly in the form of local costs, will be examined

on their merits.

Use of Aid for Equity Investments

15. The use of British loan funds for equity investments by development banks is

not precluded, although it will need to be made clear that we could not agree to

the use of British aid, even in association with British private capital, to

obtain for the recipient country a controlling interest in existing enterprises.

There would, however, be no objection in principle, subject to the QDA being

given the opportunity to consider particular cases, if an aid loan is used to

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