Global Finance and the
role of the World Bank
September 2007
MScIF
Michel Henry BOUCHET
M H BOUCHET/CERAM (c)
International Financial Institutions:
The role of the World Bank as provider of
economic and development data and
intelligence, provider of infrastructure project
financing and structural adjustment lending,
and of investment risk cover.
M H BOUCHET/CERAM (c)
IMF & WORLD BANK: the two “sister institutions”
IMF IBRD + IDA + IFC +MIGA
2715 employees 10,000 employees
185 shareholder countries
cooperative credit union with
185 member countries The Bank leverages its AAA rating
providing quotas whose total to issue long-term global bonds in
the capital markets
reach > US$300 billion.
Eligible countries:
Crisis prevention and short- $1065>GDP$150 billion
US$ billion
18
16 Argentina
9,3%
Brazil
14
China
12 India
10 Indonesia
Korea
8
Mexico
6 Pakistan
4 Philippines
Russia
2 Turkey
0
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IBRD & IDA Annual Lending Commitments and
Disbursements
Commitments
35 Disbursements
Commitments
30 Disbursements
25
20 IBRD
15
IDA
10
5
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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Regional IBRD-IDA Lending distribution 2004
18%
27%
LAC
Africa
Meast
South Asia
13% East Asia
Eurasia
20%
17%
5%
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Annual lending program (IBRD/IDA)
in US$ million
25000
Loans
20000
15000
10000
5000
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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2. IDA
Established in 1960; 165 members
81 eligible countries with per capita GDP 800 guarantee
contracts in 91 developing countries
Estimated FDI facilitated: > 30 billion
MIGA offers guarantees for up to 20 years
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4 types of guarantees
Transfer restriction coverage protects against losses arising from an
investor's inability to convert local currency (capital, interest,
principal, profits, royalties, or other monetary benefits) into foreign
exchange for transfer outside the host country.
Expropriation coverage offers protection against loss of the insured
investment as a result of acts by the host government that may reduce
or eliminate ownership of, control over, or rights to the insured
investment.
War and civil disturbance coverage protects against loss due to the
destruction, disappearance, or physical damage to tangible assets
caused by politically motivated acts of war or civil disturbance,
including revolution, insurrection, and coups d'etat. Terrorism and
sabotage are also covered.
Breach of contract coverage protects against losses arising from the
host government's breach or repudiation of a contractual agreement
with the investor.
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MIGA’s Outstanding Portfolio
US$ million
6000
5000
Gross exposure
4000
3000
2000
1000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005
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MIGA’s Outstanding Guarantee
Porfolio by Sector
Oil/gas
15% Mining
38% Infrastructure
Manufacturing
19% Agrobus.
Tourism
Services
Financial
20%
M H BOUCHET/CERAM (c)
MIGA insurance cover amount issued
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1990 1992 1994 1996 1998 2000 2001 2002 2003
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MIGA’s Gu arantees Process
Only new investments and new contributions
towards the expansion, privatization, or
modernization of existing enterprises are eligible.
MIGA must obtain approval from the host
government to offer a guarantee to the investor.
MIGA’s legal department undertakes a range of
mediation activities to encourage the amicable
settlement of disputes between investors and host
countries, to forestall the need for formal
international arbitration.
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4. IFC and the World Bank partnership with the Private Sector
IFC (1956) finances private sector investment, mobilize capital,
and provides technical advice for private sector ventures and projects
in developing countries: equity, LT loans, loan guarantees and risk-
management products.
Members: 175 as of 2005
Source of funds: member capital, capital markets (80%) and IBRD
(20%)
The Investment Promotion Agency Network is an online information
exchange, marketing, and communications network linking
investment intermediaries, private investors, business associations,
investment promotion agencies, and providers of technology in over
150 countries. It is a useful forum to provide and obtain information.
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The International Finance Corporation (a member of
the World Bank Group) lends directly to private
sector entities for projects in various sectors in
developing countries.
A foreign or domestic company or an entrepreneur,
seeking to establish a new venture or expand an
existing enterprise, can approach IFC directly.
As a rule, the enterprises that IFC finances must be
majority private sector owned and controlled.
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In the area of privatisation and corporate
restructuring, IFC advises at every stage of the
process.
IFC undertakes a strategic review and recommends
financial and organizational restructuring, assisting
in changes of legal status where necessary.
IFC also helps implement sales, orchestrating a
competitive bidding process, crafting sales and
related contracts, marketing companies to interested
investors, and conducting tender evaluation and
negotiations.
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5. Rationale for working with the Private
Sector: Advisory services
The World Bank provides advisory services to
governments in a broad range of private sector
related areas, including tax administration, labour
laws, competition policy, export and trade policies,
export processing zones, contractual enforcement
systems, standards, patents, copyrights, trade
financing, productivity programs, small-scale
enterprise support, technology policy, and
privatisation.
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The World Bank provides advisory services to
governments on market structure and regulatory
arrangements in telecommunications, energy, water,
and transport to enable sustainable private
participation in service provision. The advice also
covers legal and contractual mechanisms for private
participation in infrastructure, financial policy
implications, regulatory agency design, and pricing.
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6. International Center for the Settlement
of Disputes
International Centre for Settlement of Investment
Disputes (ICSID-1966) provides facilities for the the
settlement by conciliation or arbitration of investment
disputes between members. Provisions for ICSID dispute
settlements are common features of international investment
contracts.
The Bank's overriding consideration in creating ICSID was
the belief that an institution specially designed to facilitate
the settlement of investment disputes between governments
and foreign investors could help to promote increased flows
of international investment.
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International Center for the
Settlement of Disputes
ICSID: 139 members
Membership criteria: IBRD membership
Total cases registered: 129 (including 26 in
2003 alone!)
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The Administrative Council is chaired by the World
Bank's President and consists of one representative
of each State which has ratified the Convention.
Annual meetings of the Council are held in
conjunction with the joint Bank/Fund annual
meetings.
Recourse to ICSID conciliation and arbitration is
entirely voluntary. However, once the parties have
consented to arbitration under the ICSID
Convention, neither can unilaterally withdraw its
consent.
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Moreover, all ICSID Contracting States, whether or
not parties to the dispute, are required by the
Convention to recognize and enforce ICSID arbitral
awards.
Provisions on ICSID arbitration are commonly
found in investment contracts between governments
of member countries and investors from other
member countries.
The number of cases submitted to the Centre has
increased significantly in recent years.
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In addition to its dispute settlement activities, ICSID
carries out advisory and research activities relevant
to its objectives and has a number of publications.
Since April 1986, the Centre has published a semi-
annual law journal entitled ICSID Review-Foreign
Investment Law Journal.
The journal was recently rated as one of the top 20
international and comparative law journals in the
United States.
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7. The HIPC Initiative’s Purpose
September 1996: The Initiative ensures that poor, heavily indebted
countries that have shown a sound track record of macroeconomic
performance can attain a sustainable debt situation over the medium-
term. The use of the ESAF as the centerpiece of the fund’s support of
the Initiative was decided in September 1996.
Accordingly, use of the ESAF continued until end-2000. A self-
sustained ESAF began in 2005. The Fund would mobilize adequate
financing for the interim period, from a new round of bilateral lending
to the ESAF Trust.
Objective: reducing the NPV of future claims to
sustainable levels with a comprehensive, integrated and
coordinated approach to debt reduction.
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The HIPC Initiative
Group of 41 developing countries were classified as being
“heavily indebted poor countries”, including 32 with a
1993 GNP per capita of $695 and 1993 NPV of D/X >
220% or NPV of D/GNP > 80%.
30 Target Countries : Uganda, Bolivia, Burkina Faso,
Mozambique and Côte d’Ivoire have been selected as pilot
cases for the HIPC.
G7 in mid-1999 decided to raise the level of debt relief
from 80% to 90%, far above the 67% Naples terms.
Decision confirmed at the October 1999 IMF/IBRD annual
meeting in Washington.
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HIPC situation by 2004
26 countries had reached their decision
point under the enhanced HIPC
initiative
Completion points reached: Bolivia
– Burkina Faso – Tanzania –
Mozambique – Uganda
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Toward a mutually-fruitful partnership between
the World Bank Group and the Private Sector
1. Products and Services
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a. Procurement Information
World Bank lending generates about 40,000 contracts
worth approximately $25 billion annually to firms
worldwide.
Loans are made to governments and government agencies,
which are responsible for procurement. The World Bank
issues standard bidding documents, supports borrowers in
developing procurement capacity, disseminates
information on procurement matters, and maintains liaison
with the business community through periodic conferences
and monthly business seminars.
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b. Project Finance Instruments
Guarantees of private debt : In addition to MIGA's
coverage for equity and equity-related investments, the
World Bank offers debt-specific guarantee products,
including partial guarantees of private debt. By covering
risks the market is unable to bear, the Bank's guarantee
can open new investment opportunities for businesses.
A partial risk guarantee protects lenders against payment
defaults arising from non-performance of sovereign
contractual obligations of a project, transfer risks, and
certain major force events.
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c. Financing for Small- andMedium-
size Enterprises
Both the World Bank and IFC have developed special
facilities to enhance access to international credit by
entrepreneurs for micro-, small-, and medium-size
enterprises.
The "Extending IFC's Reach" initiative promotes private
investment in selected regions and countries where difficult
conditions have constrained IFC activity.
A Small Enterprise Fund is used to invest in projects with
total costs between US$250,000 to US$5 million and
primarily provides debt financing but will also have the
flexibility to make equity and quasi-equity investments and
to provide local currency guarantees.
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IFC has established several programs to assist entrepreneurs
develop business proposals and raise financing for projects.
To meet the financing needs of the enterprises, the programs
catalyse funds from local and foreign banks, private
investors, and investment funds.
The Consultative Group to Assist the Poorest (CGAP) is a
multidonor effort to systematically increase resources for
micro enterprises. It provides governments, donors, and
practitioners with a vehicle for structured learning on how
to reach the poor with sustainable financial services. CGAP
also funds sound micro finance institutions, with the
objective of helping them achieve commercial viability.
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e. Other Products and Services
In addition to providing products, services and
business opportunities to the private sector, the
World Bank enters into various types of partnerships
with private sector organizations.
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f. Investment Marketing Services
MIGA's Investment Marketing Services Department
provides technical assistance to public and private
sector investment intermediaries in developing
member countries and transition economies.
This assistance is designed to help client countries
attract and retain foreign direct investment (FDI).
More than ninety developing and transitional
countries have benefited from capacity building,
investment facilitation and information
dissemination assistance from IMS.
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2. Business Partnership Center
The Business Partnership Center (BPC) is a central
contact point for business inquiries about the Bank
Group's products and services. The BPC also works in
partnership with leading business organizations around
the world. M H BOUCHET/CERAM (c)
Focal Point for Business Inquiries: The BPC acts as
a referral service and hot line, directing incoming
inquiries (via phone, fax, and e-mail) to appropriate
staff within the Bank Group for action. It also
disseminates general information on Bank Group
products, services and special initiatives of interest
to businesses.
Partnerships with Business Organizations: The BPC
is establishing partnerships with leading business
organizations around the world (such as chambers of
commerce and federation of industries) to
disseminate information about the Bank Group's
private sector activities.
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