HA NOI, VIET NAM - Development finance institutions around the world should encourage greater use of risk-sharing models like public-private partnerships to ensure critical infrastructure gets built in developing countries. The institutions should do that by helping create the right regulatory and market environment and offering risk mitigation instruments to spur private capital, a seminar audience heard today.
The seminar "Bridging the Gap: Catalyzing Private Capital for Investment in Infrastructure" was held at the ADB's 44th Annual Meeting in Ha Noi, Viet Nam which runs from today through 6 May. It discussed the challenges that developing nations face to mobilize the world's enormous pools of private savings and what development financing institutions must do to facilitate the flow of this capital.
ADB estimates Asia and the Pacific alone needs $750 billion per year through 2020 to finance necessary infrastructure.
Greater use of risk mitigation instruments, including guarantees, are key to drawing the private sector into supporting projects in emerging economies. Without them, private companies and financial institutions may not be prepared to invest their capital. But limited resources even at development finance institutions mean they will need to work more closely with other guarantors, including export credit agencies, private insurers, and other donors to draw in even more private capital.
"The global financial crisis has, as expected, reduced the risk appetite of the private sector, especially as it relates to investing in emerging markets," Lakshmi Venkatachalam, ADB Vice President for Private Sector and Cofinancing Operations, said in an introduction to the panel discussion. "The time-tested public-private partnership financing modality needs to be redesigned and customized to address some of the issues emerging out of the post-crisis environment," she added.
"The PPP modality is at the core of the Philippines' growth strategy," Cesar Purisima, Philippine Secretary of Finance and ADB Governor for the Philippines said during the panel discussion. "The lessons we learned from past PPPs, particularly the importance of well-structured contracts, open and transparent bidding processes, untainted by corruption will enable the country to effectively mobilize increasing capital inflows to productive uses," he added.