Infrastructure development Banks

Infrastructure development Banks

Specialized infrastructure development banks have suffered from all the
negative features associated with government ownership, such as
1. Inefficient targeting
2. Subsidization of lending
3. Interference in operations
4. Corruption

Japan – Postal Savings have constituted the primary source of long term
funds used by such institutions as the Japan Development Bank (JDB).

In Europe – Municipal banks obtaining their resources from contractual
savings institutions & other long term sources have generally performed
well where local governments have had operational independence.

Few municipal banks n developing countries have shown a capacity for
sustained investment, largely because of under capitalization, poor
financial discipline & substantial arrears.

Exceptions include a facility in Colombia that rediscounts lending by
commercial banks to municipal infrastructure projects.

Morocco – reformed FEC – Fond d’ Equipment Communal – An agency
established in 1959 to fund municipal investments.

Specialized infrastructure bank, BANOBRAS in Mexico – Privatization of
municipal infrastructure. BANOBRAS is playing an important role in
facilitating private water & sewage projects by guaranteeing that
municipalities will pay for services provided. BANOBRAS is working to
strengthen municipal finances by demanding better operational & financial
performance as a condition for its support.

BANOBRAS provides short term loans for public works against
contractors’ receivables from the government agency sponsoring a
project. It also operates a special fund that can provide up to 25 % of the
full cost of a project to finance the start up costs of construction.
New Infrastructure

Two types of infrastructure funds have emerged in recent years.
1. Government sponsored infrastructure development funds are designed
as transitional mechanisms to provide long term finance until markets
are better developed.
2. Private funds, of which there are a growing number, serve the
commercially useful function of diversifying investor risk. As transitional
mechanisms, these funds serve two purposes.
a) They allow the leveraging of government resources or official
development assistance by attracting co-financing from private
sources.
b) They can also create credit histories for borrowers perceived as
risky. In time, these borrowers can secure direct access to
capital markets.

The Private Sector Energy Development fund in Pakistan & Private Sector
energy Fund in Jamaica is designed to catalyze private financing for
power projects.

The Jamaican government makes long term financing available through
the Energy Fund as a means of attracting private investments.

Thai Guaranty Facility for financing environmental infrastructure. It will
guarantee private loans to municipalities & private operators.

The Regional Development Account (RDA) in Indonesia is a transitional
credit system designed to shift financing of infrastructure projects from
governments grants to debt instruments. The RDA lends at near market
rates. The goal is to give local authorities three to five years to establish
measures for cost recovery and to demonstrate adequate financial
management.

Pension fund with little interest in investing directly in a toll road in Mexico
might be interested in participating in a fund that invests in a portfolio of
toll roads.
 Privatization

Aggregate proceeds from infrastructure privatization have been highest in
Latin America, with the most activity being in telecommunications.

Some Asian Countries, such as Malaysia & Korea, have opted for partial
privatization.

Outside Latin America & America – Privatization has so far had a limited
impact.

The two Argentine telephone companies constitute almost 40 % of the
market capitalization in Buenos Aires & Telmex dominates in Mexico with
a 20 % share.

The large capitalizations have attracted financing from pension funds,
creating the basis for long term capital flows in to the capital market.

Argentine government used a debt equity swap mechanism in the
privatization of ENTel, bringing in caps proceeds of around $ 2.2 billion
and reducing its commercial bank debt.