Catalog

Multilateral Guarantees

More needed for infrastructure and financial market development

More guarantee instruments for financing infrastructure and capital market development projects are needed to reduce poverty in Asia. This was stated by resource persons at a seminar on “Multilateral Guarantees: A Practical Approach.”

Motomichi Ikawa, Executive Vice President of the Multilateral Investment Guarantee Agency - MIGA, said Asia will receive more assistance in the form of guarantees, particularly for infrastructure projects, in the poorer countries in light of traditional investment risks and “resurging” concerns such as terrorism and economic crises.

MIGA is an agency within the World Bank group that promotes foreign direct investment - FDI - to developing countries by providing guarantees to private investors against political risks.

Mr. Ikawa projected that some 20% of MIGA’s total guarantee portfolio will be in Asia and said an increase in FDI will bring more demand for private political risk insurance.

“FDI flow is the key to fostering higher economic growth to reduce poverty,” he said. Of MIGA’s current guarantee portfolio in Asia, two thirds has gone to infrastructure projects, Mr. Ikawa said.

Bruce Purdue, Director of ADB’s Private Sector Operations Division, cited the need to develop guarantees as an effective instrument in project finance. ADB’s private sector operations have focused on the infrastructure and financial sectors.

ADB’s guarantees for private sector projects cover risks that the private sector cannot easily absorb or manage on its own. They also aim to catalyze financing from local or foreign sources. ADB’s guarantee program includes partial credit guarantees, which provide comprehensive cover for both commercial and political risks, and political risk guarantees, which cover sovereign or political risks.

However, multilateral guarantees for commercially viable projects are a form of subsidy, said Stuart T. Gulliver, Group General Manager of the Hongkong and Shanghai Banking Corp. He proposed that multilaterals develop the domestic bond market instead.

“Multilateral guarantees are a useful tool in the least developed countries and in exceptional cases in the more developed countries. However, in the more developed countries there is always the worry that guarantees disrupt the credit pricing mechanism and in that sense hinder market development,” Mr. Gulliver said.

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Read the news release - More Guarantees Needed for Infrastructure and Financial Market Development