Strengthening Capacity of Developing Member Countries for Managing Credit Enhancement Products (Phase 2):Main Report October 2012

Abstract

For Asian developing countries it is of great importance to create a good investment climate for the private sector, in particular for direct investors and commercial debt financiers. However, for many of them it remains quite a challenge under current market circumstances (e.g., the EU sovereign debt crisis and new Basel III solvency regulations) to find commercial lenders willing to provide medium and long term (MLT) debt financing for infrastructure projects, which are often projects with relatively high political risks. Commercial banks use various risk mitigation techniques and instruments to secure their MLT financing. The most commonly used instruments are credit and political risk guarantees, but there also some other credit enhancement products available. It is strategically important that governments are aware of the importance of these credit enhancement products (CEPs) and how they are used in both public and private sectors infrastructure projects. Without adequate CEPs, many infrastructure projects will not be able to attract commercial finance or the financing will be too expensive. Among government officials in developing member countries (DMCs), there appears to be insufficient knowledge about and experience with such risk mitigation instruments, including those provided by ADB. To attract sufficient financing for current and future infrastructure projects, officials involved in financing infrastructure should have a good knowledge of the financing needs, the risks related to projects, and the possible financing sources and instruments like CEPs that can be used to mitigate risks. In December 2008, the President of ADB approved the provision of technical assistance in the form of CEPs workshops for government officials in DMCs. Under this technical assistance program, workshops on CEPs were given in eight member countries (in chronological order): Mongolia (October 2009), the People's Republic of China (October 2009), Indonesia (November 2009), Viet Nam (December 2009), Cambodia (February 2010), Papua New Guinea (March 2010), the Philippines (March 2010), and Sri Lanka (July 2010). The CEPs workshops in eight ADB member countries were attended by 424 government officials. Their feedback, comprehensively described in the report of consultants of August 2011,6 showed that the workshops were highly successful. This led to the decision to extend the program to another three ADB member countries. Based on the experience with and feedback obtained in previous workshops, it was furthermore decided to extend the workshop for middle management and infrastructure (finance) specialists from 2 to 2.5 days. This would allow for more in-depth discussions with participants and an exchange of views on the basis of various case studies. In addition, it was decided to design a special half-day workshop for senior executive government officials in which all issues would be discussed at a more strategic level.