Catalog

	Table of Contents
p. 18 of 21 BACK | NEXT I. Introduction II. An Overview of the Political Risk Insurance (PRI) Market III. Review of ADB's Partial Risk Guarantee (PRG) Program IV. Recommendation for Changes to ADB's PRG A. Redefining the Coverage of the PRG Instrument B. Defining the Fee Structure C. Covering Interest D. Introducing a PRG Prudential Limit E. Introducing a Coguarantee Program and a Collaboration Program F. Improving the Product Name G. Improving Communications with the Market and Potential Users H. Creating a PRG Focus Group I. The Use of ADB’s Financing Instruments and Staff Implications J. Summary of Proposed Changes to the PRG V. Potential Benefits of the Proposed PRJ Program VI. Conclusion

Review of the Partial Risk Guarantee of the Asian Development Bank : IV. Recommendation for Changes to ADB's PRG

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I. The Use of ADB’s Financing Instruments and Staff Implications

68. When considering assistance to a private sector project, ADB has often a choice between (i) lending a large sum directly to the project or (ii) reducing its loan and providing a PRG to support third-party lending. From ADB’s perspective, supporting a project by means of a PRG is advantageous, as it would cover only political risks, while leaving commercial risks to the private sector lenders, which are better positioned to assess and absorb such risks. ADB, as a multilateral institution, is well equipped to assess and mitigate the political risks in its DMCs, but may have no comparative advantage in absorbing commercial risks that should properly be left to the private sector. Thus, in the first instance, it is recommended that ADB seek to provide enhancement, via its guarantee instruments, in preference to direct lending of large sums, whenever practical and advantageous to ADB.

69. In future, ADB will assess whether a PRG could be deployed to attract commercial funding. If a funding gap remains, ADB could then provide direct lending. This strategy will increase the use of the PRG product and enable ADB to focus its private sector assistance in areas where its comparative advantage lies—the assessment of country and political risks— while leaving commercial risks to the private sector.

70. ADB has two specialized staff positions in OCO, one in export credit financing and one (a new position provided in the 2000 budget) exclusively for guarantee operations. As the ADB pipeline of PRG-related interventions builds over the medium term, ADB’s competencies in handling political risk related activities will need to be strengthened. In the meantime, current staff in this area will need to be supplemented through the flexible use of staff consultants services to provide immediate support to the focus group and help develop a comprehensive implementation program for PRG activities, thereby strengthening the organizational capacity to implement and market the PRG program.

71. As ADB builds a PRG portfolio, supervision and monitoring of ADB’s guarantee operations will be needed. Monitoring and risk management of PRGs will be carried out by the concerned division. Since most PRGs will be private sector instruments, even with counterindemnities from the host government, this will mean that PSG will have a prime responsibility for PRGs. ADB-wide oversight will be provided by the existing Guarantee Committee and the new focus group.

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