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Supporting Emerging Markets in Turbulent Times
Ritva Laukkanen
Global Director
Syndications & Resource Mobilization
Matthew Morrison
Head of Syndications - Asia
International Finance Corporation
April 2009
Supporting Emerging Markets in Turbulent Times
Overview:
Impact of Crisis on Emerging
Markets
Role of IFIs: Addressing Challenges
faced by Emerging Markets
IFC’s Crisis Response Initiatives
Conclusions
2
Impact of Crisis on Emerging Markets
How did we get here?
Sub-prime mortgage meltdown fueled crises in confidence and
credit resulting in high market volatility and illiquidity, which
led to a…
Global financial crisis marked by market disruptions, bank
failures and the need for massive global scale government
interventions to try to stabilize and support markets
Confidence in the international banking system has declined,
major institutions have collapsed, countries around the world
have entered into recession with decreasing trade and rising
unemployment
The global financial crisis has devolved into a global economic
crisis, posing unprecedented challenges
3
Impact of Crisis on Emerging Markets
Significantly Lower Growth in Emerging Markets
2005 2006 2007 2008 2009 forecasted
10.0
8.0
6.0
4.0
2.0
0.0
World EM EAP ECA LAC MENA SA SSA
Emerging Markets Real GDP Growth (%)
Source: World Bank
4
Impact of Crisis on Emerging Markets
Drastically Reduced Capital Flows to Emerging Markets
500
400
300
FDI
200 Private Creditors
Portfolio EQ
100
Public Creditors
Remittances
0
-100
-200
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Capital Flows to Emerging Markets (US$ bn)
Source: World Bank GDF 2008; 2008, 2009 from IIF
5
Impact of Crisis on Emerging Markets
Difficulties Financing/Refinancing
Developing Countries Suffer from Heavy Debt Burdens
3,000,000
2,500,000
2,000,000
1,500,000 Half of the total is due
in less than 1year
1,000,000
500,000
0
Non-Local Currency International Bank Obligations by
Developing Countries (US$ mn)
Source: BIS Quarterly Table 9a, December 2008
6
Impact of Crisis on Emerging Markets
Significantly Increased Funding Costs
2000
bp
1800
Eastern Europe
CEEMEA 1600
Latin America
Asia - Blended 1400
Middle East
1200
1000
800
600
400
200
Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09
Source: Bloomberg - Emerging Market Corporate Spreads
7
Impact of Crisis on Emerging Markets
Steep Decline in Lending to Emerging Markets
Source: Dealogic Global Loans Review – 1Q 2009 4/1/2009
8
Supporting Emerging Markets in Turbulent Times
Overview:
Impact of Crisis on Emerging
Markets
Role of IFIs: Addressing Challenges
faced by Emerging Markets
IFC’s Crisis Response Initiatives
Conclusions
9
Role of IFIs: Addressing Challenges faced by Emerging Markets
Key Challenges
Very limited financing available, particularly in:
Trade
Infrastructure
Microfinance
Agribusiness
SME Lending
Weakened financial infrastructure requiring
recapitalization of banking sector
Problems in both financial and real sectors expected to
lead to major NPL problems, which require solutions to
manage troubled assets
10
Role of IFIs: Addressing Challenges faced by Emerging Markets
Role of International Financial Institutions (IFIs)
Strong counter-cyclical operators; Experienced in
numerous previous crises
Strengthen and streamline cooperation and partnerships
with all EM players – private sector banks and other
investors, multilaterals, bilateral development banks
Promote strong EM support by member governments
through international forums (e.g., G-20)
Proactively work with various stakeholders (private sector
banks, IFIs, governments, international organizations) on
crisis response measures, new products/initiatives
11
Supporting Emerging Markets in Turbulent Times
Overview:
Impact of Crisis on Emerging
Markets
Role of IFIs: Addressing Challenges
faced by Emerging Markets
IFC’s Crisis Response Initiatives
Conclusions
12
IFC’s Crisis Response Initiatives
Mobilization: IFC’s Key Approach
Continued strong focus on mobilizing financing
through syndicated B Loans
Development of new approaches like unfunded
risk participations (IFC funding entire loan;
backed by guarantees from international banks)
Expanded and streamlined co-financing with
IFIs/DFIs through syndicated parallel loans using
existing placement and agency platform
Large-scale fund mobilization effort from
shareholder governments through special
initiatives
13
IFC’s Crisis Response Initiatives
IFC B Loans: Increased Value in Today’s Market
Loan Agreement How do Borrowers benefit?
• Enables loans with longer tenors
• Exempt from withholding tax
Borrower
• Completes financial package
A + B Loans
• Introduces new banking
relationships
Participation
Agreement
B Loan
• IFC’s “stamp of approval”
• IFC’s environmental and social
leadership
How do Participants benefit?
• Preferred Creditor Status
Participants
• Recognition of IFC’s risk mitigation by regulators,
rating agencies, PRI providers
• IFC’s environmental and social leadership
• IFC’s structuring and restructuring skills
• Lower capital requirements under 14 Basel II
IFC’s Crisis Response Initiatives
Syndicated Loans to IFIs/DFIs
Historically, IFC has mobilized debt funding for its borrowers
primarily through B Loans (over US$32 bn from over 400 banks)
Most IFIs and DFIs are not eligible B Loan participants
On a number of occasions, IFC and other IFIs have provided
financing to a project in parallel, but operating independently and
often duplicating processes
Current environment calls for greater cooperation and presents an
opportunity to increase efficiencies and streamline processes
IFC acts as Arranger, working closely with the DFIs/IFIs; IFC acts as
Agent (not as Lender of Record as in B Loans) post-signings
15
IFC’s Crisis Response Initiatives
Phased Approach
Trade Finance
Pillars of Success
Infrastructure
1. Liquidity
Agribusiness • Mobilization &
working with
Microfinance & SMEs Partners
2. Financial
Advisory Support
Infrastructure • Job Creation
• Continued Focus
3. Capital Bank Recapitalization on Frontier
Markets &
Bottom of the
Pyramid
4. Troubled
Assets Managing Troubled Assets
16
IFC’s Crisis Response Initiatives
Global Trade Finance Program (GTFP)
GTFP was increased from US$1 bn to US$3 bn in response to the crisis
Helps extend trade finance to underserved clients globally
Provides partial or full guarantees to major commercial banks to cover
the payment risk of local financial institutions
Currently has 140 issuing / emerging market banks in 72 countries
Global Trade Liquidity Pool (GTLP)
GTLP expected to be ~ US$5 bn; Leveraging IFC’s resources by bringing
in other IFIs, DFIs & Governments (British, Canadian, Chinese & Dutch
governments have already committed)
Will leverage trade networks of major international banks; First MOUs
(Standard Chartered Bank and Standard Bank) signed at G-20 meetings;
Rabobank also plans to participate
GTLP may also support specific sectors, e.g., agricultural exports
17
IFC’s Crisis Response Initiatives
Bank Recapitalisation Fund
Fund will make subordinated loans and equity investments
to EM private banks to support them through the crisis
IFC has partnered with the government
of Japan: IFC has invested US$1 bn, Europe
Sub-
19%
Japan has invested US$2 bn Saharan
Africa
33%
Working to bring in other investors
Fund operational with strong & globally
diverse pipeline Asia
23%
Opportunity for commercial banks to Latin
America &
provide debt financing to recapitalized Middle East
and North
Caribbean
10%
banks Africa
15%
Current pipeline by region
18
IFC’s Crisis Response Initiatives
Infrastructure Crisis Facility (ICF)
ICF will bridge financing gap for viable private or PPP projects
Facility aims to (i) ensure that vital projects in progress may be
completed and (ii) enable continuation of some new project
development
Will include both debt, equity and advisory components to
provide short- to medium-term financing for infrastructure
projects, as well as advisory services for design or redesign of
PPPs
IFC plans to invest in equity and will aim to mobilize financing
from other sources, primarily from shareholder governments
(both developed & EM)
19
IFC’s Crisis Response Initiatives
Microfinance Enhancement Facility (MEF)
MEF was jointly established by IFC and KfW to provide
refinancing to 100+ microfinance institutions in 40
countries
MEF will address refinancing issues that microfinance
institutions are facing due to the crisis
Aim is to support lending to 60 million low-income
borrowers in many of the world’s poorest countries
20
Supporting Emerging Markets in Turbulent Times
Overview:
Impact of Crisis on Emerging
Markets
Role of IFIs: Addressing Challenges
faced by Emerging Markets
IFC’s Crisis Response Initiatives
Conclusions
21
Conclusions
Conclusions
Current environment has left EM borrowers particularly
vulnerable
IFC and other IFIs are making serious efforts to address
EM challenges
IFC has proven track record as catalyst through B Loan
Syndications; Broad-based participant network is highly
valued and critically important today
Expansion of relationships and strengthening
mobilization of financing and other resources from
other IFIs & governments is vital to maximizing impact
and leveraging resources in face of unprecedented
crisis
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www.ifc.org/syndications
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