The $60 billion decline in annual private investment in
infrastructure in less developed countries since 1997 has
resulted to a large degree from inability to close financing
of the limited recourse project finance model. As a byproduct
of the Indonesia currency crisis, the Argentinean economy
collapse and other severe jolts to the economies of the
developing world, international financial institution lending
in developing economies has declined 77%, from $26 billion in
1998 to $5.7 billion in 2002.
IMF policies commencing in the late 90's discouraged host
governments from providing sovereign guarantees or
counter-guarantees to World Bank partial risk guarantees by
defining such guarantees as liabilities on the country's
balance sheet. As a result, such guarantees became difficult
to obtain and rare. Numerous projects in the planning and
financing stage could thus not close the financing. Given the
nature of less developed country economics, most of the public
utility off-takers (e.g. public electricity distributors or
local public water authorities) are not credit worthy
standalone entities. Thus, without a sovereign guarantee
backing the off-takers’ commitments, the risk of nonpayment
and thus borrower default is excessive.
IPIA will address the finance-ability problem through the
establishment of IPIA managed contingency funds and
development of related insurance solutions.
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