 Welcome again to CSIS's inaugural Global Development Forum. My name is Connor Savoy. I am the Deputy Director of the Project on US Leadership and Development here at CSIS. Today's breakout session is on innovative financing mechanisms for development, our contribution to the evolving discussion around how to finance development. This is an important and timely conversation as the UN will convene the Financing for Development Conference in Addis Ababa later this summer. This follows on to earlier conferences, one in Monterey in 2002 and Doha in 2008. Clearly how to pay for the post-2015 Sustainable Development Goals will be front and center at Addis. By at least one measure, achieving this new set of goals could cost somewhere up to four trillion dollars. We have a great panel here today to discuss these issues. Joining me are left to right, Mildred Collier, Vice President for Financial and Portfolio Management at the Overseas Private Investment Corporation, Julie Katzman, Executive Vice President and Chief Operating Officer of the Inter-American Development Bank, Charles Moser, Managing Director for Latin America Capital Markets at Morgan Stanley, and finally Edie Quantrill, Director of the Operations Group at the Multilateral Investment Guarantee Agency. So welcome everyone. Thanks for joining us. Before I turn to the panel, I did want to put out three data points that I think frame what we're looking at for the Financing for Development conversation. The first is about the changing nature of financial flows from the developed world to the developing world. In 1960, approximately 70 percent of all U.S. financial flows were public, and about 30 percent of that was private. That figure has now flipped, with about 90 percent being public, or private rather, and 10 percent being public. In 2012, foreign direct investment to the developing world surpassed FDI to the developed world for the first time. And finally, in terms of the domestic resources that are available, you've seen a massive increase in what developing countries have available to them. So for example, in Sub-Saharan Africa you saw domestic resources rise from around $100 billion in 2000 to just over $530 billion in 2012. And if you compare that to ODA, Official Development Assistance, that went from about $20 billion to $54 billion, so you see an order of 10 times the magnitude of domestic resources vis-à-vis foreign assistance. Let's turn to the panel. Thanks again to all of you for being here today. Julie, I thought we'd start with you. You're at the IDB. The IDB recently reorganized its private sector operations, your former director of the Multilateral Investment Fund. Can you explain why the IDB decided to reorg, and how you plan to use these resources to support the private sector? Thanks, Conor. And I agree. I mean, I think this conversation is very timely because we've spent most of last week or last weekend, if you were involved in any of the World Bank or IMF meetings, talking about what is that financing gap to try to achieve the SDGs, and you used four trillion, UNCTAD has two and a half trillion, some people have six trillion. It's an unknown. It's a big figure. But it's big. Right. What we know is it's big. And it's big in the context of the primary multilateral development banks lending last year order of magnitude $100 billion, $120 billion, change the first letter. So there's clearly a gap that has to be financed, and it's a big one. And if you look at most of the MDBs, most of them are in one way or another up against a financial constraint largely from their balance sheets. And so we, like the others, are looking at various ways to address first and foremost those financing and financial constraints, and in a bunch of ways. So the Asia Development Bank getting approval to combine the Asia Development Bank and the Asia Development Fund is going to create capital for them, which will allow them to increase their lending. We and some of the others are in the midst of working on exposure exchange agreements, which addresses the rating agency issue for many of us on concentration risk. So if we only have 26 countries we can lend to, that's it. And only three of them are very large economies, so you end up with heavily concentrated portfolios. And there's a whole issue around this methodology, but that's the methodology that the rating agencies use. So the result is we need to exchange some of those for other countries in the world and change that mix and create higher capital ratios for rating possibilities. So we're doing those kinds of things. And then let's talk a little bit about what we were calling the NUCO. In 1999, the IDB first thought about taking all of the private sector operations and putting them in one institution. We today have the IDB itself, the bank, and we have the Inter-American Investment Corporation, the IIC, which is a separate entity and focuses solely on the private sector. But it only does on medium-sized enterprises. Large deals, as well as small hills, were done in the bank. And then the third part of the private sector was another separate entity that's sort of the grant-making arm. If I tried to explain all of this to you, you would leave before I got to the end. And that's the problem for clients, right? So there's a lot of redundancy. It was very hard to explain. It's really hard to leverage resources when people can't figure out your structure. So that's what they began in 1999. I think there's an overlay of all this, that there's a little bit of a mismatch today between the ambition of the SDGs and the ambitions for the MDBs with A, our financial resources, and B, our governance. And this is a story in a way about that governance, because it took from 1999 until March to get an agreement to put all those private sector entities into one group. This time around, it took two years. And it took two years, and the result of that is that over the next seven years, shareholders will put $1.3 billion of fresh capital into the private sector entity, and the bank will transfer approximately $700 million of its resources into that entity for $2 billion. What I would say is that we believe that that's going to allow us to very cleanly hone the mission of that private sector entity. And there is no question that if we're going to, countries are going to be able to get to the numbers. We as a global community are going to be able to get to the numbers to achieve the SDGs. The private sector has a big role to play, but they can't play that role by themselves. Without grant money, without ODA, lots of things that the private sector might do, they're not going to do. They won't be able to do. Without the MDBs, there are many things that the private sector could do or would do that they won't be able to do. And so being able to create a single entity with a very clear focus, which re-looks its own processes, becomes more efficient and flexible and agile, while still maintaining all the safeguards, I think is a key ingredient to this, and that was really the thinking behind it. I will say that the other piece of this is there is often criticism about private sector-focused development institutions that they're not developmental enough. And we from the very beginning of this said, that is the core of what we are doing, and we were very focused on that development mission. And I feel very good about the way in which we have conceived of this and how we believe it will roll out. And in the period of time that we've been working on this, you can already see the increase, let's say, development content within the private sector transactions that we've been doing. That's great. Thanks, Julie. That was really very good. Charles, turning to you. You have a background in capital markets in Latin America. I think you've seen very much a growing interest recently in emergent market debt. Some folks feel this is chasing yields. With the low yields you're seeing in more traditional bond markets. Can you discuss how the debt markets in Latin America have changed since your career started? Do you see what's happening right now is simply chasing yields? I know you wanted to talk a bit about the Brady bond evolution, so maybe we can start. Yeah, I actually started out. My first job, my first major job in Latin America was restructuring debt. And that was the big growing area in Latin America if you had started in the 80s or 90s. And the problem was the situation where as there is now there was an excess at that time of petrodollars looking for a place to go. And they were channeled largely through the banking system and the banking system was set up to make five-year dollar loans and they were kind of balance of payment dollar loans. And those loans very quickly went south when or started to lose value and default when first it was the oil producers that had a decline in their oil prices and then when they started to default since the banks had concentrations in Latin America they stopped lending and that meant no one could roll over and everyone was counting on new loans and that led to a whole restructuring situation. But it actually was a very, it led after probably ten years of constant restructuring to an innovation that I think has taken the market a lot further than anyone ever expected it to go. So we went from having a situation where we had a lot of dollar loans to largely the six or seven champion countries in the region to a situation where the banks decided that it was no longer sustainable and I think it because we were going through our third or fourth restructure, every restructure was bleeding the financial institutions further, banks were, I worked at Citibank at the time and our capitalization was under four percent so we were very close to insolvency and if we had written down to market value the loans that we had it probably would have led to negative numbers. So there was a decision taken, I think it was a visionary decision by Secretary Brady of proposing these bonds that were offered a number of advantages. So instead of having a relationship between a bank and a sovereign borrower we decided to make the creditor anonymous and therefore much harder to deal with, much harder to force into rollovers every three or four years and so the banks agreed then or they exchanged what they had in bank debt for bond debt but there were some incentives thrown in there too, the banks were given the opportunity of recovering what they wrote down if values went back up, if the countries recovered. So in Mexico's case we worked on oil warrants, maybe familiar with Argentina has GDP warrants for example. So there are a number of different systems or mechanisms that were put in place to induce the banks to take the switch and what that created was the first kind of liquid bond market and the liquid bond market has brought a number of benefits to development financing in the region and has in essence provided a far lower cost more efficient and better suited source of financing than bank loans ever were. So you can see a situation now where virtually any country in the region can borrow for 30 years, Mexico borrows for 100 years, Peru's done 40 years, Panama's done 50 years and in size. I mean in Latin America just last year saw over 180 billion dollars of bond financing taking place. So there's a tremendous amount of money and part of it is this liquidity but we have the same liquidity and the same phenomenon before with the petrodollars, it's just that it's flowing in a much more efficient way. Banks, there were 10 money center banks in the US back then and they were the lenders and so lending was largely concentrated. So any one of us was systemically important and if any bank got into trouble the lending to the region pretty much seized up. Now we just did last year a consent solicitation for BMICS and what that allows us to do is see the entire universe of bond holders. So BMICS has over a thousand institutions that hold their bonds today that we needed to vote on this consent. So it pulverized the ownership a lot further. We're beginning to see lending in local currency. So the original sin as it was called back then was that people would lend in dollars to entities that generally could only generate revenues in local currency. And so eventually these things all blew up. My first restructures were like beer companies in Mexico or steel producers in Mexico that were earning local currency that had dollar obligations as soon as the currency devalued they were in various years trouble. So Mexico for example funds 70% of the long term bonds issued out of Mexico today in pesos are owned by foreigners, foreigners buy them. We've raised for Peru over $5 million in solace in the last two, three years. And that and most of the countries that have caught on to this are actually migrating their balance sheets as quickly as they can from dollar debt to local currency debt and that's working very well. And what we see going forward is a further evolution of the bond market where we're beginning to do bonds that are in local currency for projects or for companies. So Morgan Stanley for example has been focused the last three or four years in developing Mexican corporate bonds that actually trade on Euroclear. And so what that means is that there's a proverbial Belgian dentist that we used to talk about that used to give his money to a bank, the bank lent dollars into Mexico. Well now that same retail investor has the opportunity to buy into a road project in Mexico or a hydro, not a hydro I'm sorry a wind project in Paraguay or and they can do it in dollars or they can do it in local currencies. And they have much better information because when we do an international bond we have to provide a fair amount of information in average prospects probably to 300 pages so it's in local currency which means it's less likely to default because it's a matched obligation as opposed to an obligation of currency that's different from the one in which they earn the revenues. It's liquid because we trade them on international markets and it's in a market that has a lot more participants and participants with different priorities. So we have local investors, local pension funds and then we have international pension funds and what we found is that when we had our panic in 2008-2009 where all the international were selling the locals just bought it up because they got it and that reduced the volatility of the prices. And so we have I think today a far more efficient and it's all really the product of product innovation that came from these Raydemons but we have a far more efficient conduit now to provide long-term local currency financing for development to the region than we did say 25 years ago. Great, thanks Charles that's very interesting. Miltred you've had a long career at OPIC starting as a child prodigy no doubt. How has OPIC tried to be innovative in its approach to providing development finance it's the US government's development finance institution so it has a development mission but also has this over broader overlay of US foreign policy goals so you know in addition to the innovate innovation and its approach how are you reacting to emerging opportunities or challenges around the world? Great and I think you know a lot of good launching off points both from your opening remarks and from my fellow panelists here and and and I do want to talk about the different ways in which OPIC financing is moving into some some new innovative areas but I think it's worth you know stepping back to that to the big picture to comment upon both your introductory remark about the domestic resources that are being generated sometimes by the ability to to issue their own bonds sometimes and then hopefully that is improving the economy and that is allowing governments to increasingly enact better tax administration policies so that they are you know now resourced in a way that they can increasingly even in the lower-income countries resolve some of the most pressing domestic social needs with resources that they themselves generate and so increasingly when they want to partner with development institutions like those of my panelists here and and OPIC they want to use those funds to really generate jobs for the local economy and so I think that is a really important thing that they recognize they continue to need the partnership of both the private sector and the development finance institutions to do that and what it what it means for us is exactly what what Julie was saying we've got to look at how do we scale what we are able to do sufficiently to meet that increasing challenge how do we make sure we've got internal capacity to do that at a level that is sufficient for the task that's ahead and then also how do we make sure that institutionally we have the willingness and the ability to innovate to meet the needs that as they are evolving and so I think you know right now today it's a mixed bag I think for all of us scale is a problem you've just you've just heard the discussion on the multilaterals that have to be focused on their rating and what the capital adequacy standards need to be to maintain that high level rating so they can go out in the market and raise funds and and I think on the OPIC side of the equation we have a little bit of a different situation that equally constraints us and that is really it's it's a budgetary one that is rooted in in sort of the politics of lowering the budget overall without a recognition for the fact that as a self-sustaining agency and the fact that we are able to engage in political risk insurance and financing and do so at a profit in terms of earning a net contribution back to the US taxpayer in effect we could scale up without any net cost to the federal government and continue to make the kind of deficit reduction contribution that we have for the last 40 years year in and year out and so we have a statutory ceiling that allows us to go to $29 billion we're only at 18 today we've got $11 billion of running room and what we're constrained by is staff quite frankly it's the it's the throughput ability the people to process the transactions to do the diligence to monitor them for all the safeguards that need to be in place and so I think you know for us it's a slightly different equation but the capacity issue is one that we can't ignore and for all of the institutions and as as Julie also said in many of the the top markets that we're in the private sector does need and want our involvement and host country governments want us as partners so you know we have a fix we think in terms of the ability to scale we need some willingness on all sides from the budgetary standpoint to allow us to use more of the revenues that we generate year in and year out to employ the staff that will allow us to reach the full capacity that that Congress has given us of $29 billion so then the question is you know what what are we doing in terms of the you know flexibility and willingness to innovate so that that we can be continue our relevance as the world is easy as evolving so so let me start by talking a little bit about geographies through throughout opics history I think we have been a little bit of a first responder in unstable geographies quite frankly places where there's been transition really going back to the dawn of a big as part of the Marshall plan we were there on the front lines as as countries were transitioning you know economically and increasingly today as they're transitioning politically and as they are recovering from conflict and so we have very conservatively looked at our portfolio and estimated that at least a third is in either is an unstable geographies conflict affected post conflict places where transitions are going on that are you know very positive from a US foreign policy standpoint and ones we hope will turn positive if we can engage appropriately in terms of helping on the developmental side of that equation so whether it's Afghanistan the Middle East in North Africa what's happening you know in Ukraine today what happened in Georgia we've been in all of those environments and we've been doing it by partnering with local private sector and US private sector companies to create the kind of economic development that creates jobs and moves economies forward if you move away from geographies and begin to look at sectors there are a couple that I would highlight certainly the electrify Africa power Africa initiative has put us very squarely very very focused on renewable energy in Africa but all types of energy in Africa that's been a very big effort on our part and we're now looking beyond renewable energy to renewable resources as a whole and looking at the whole agribusiness value chain both the very small the very large how how do we play an effective role because food security is another important agenda item for the development agenda overall and then moving to sort of the smaller scale of things but I think it's really important is how do we address the new interest in investing for true impact how do we take some of the sectors that have been viewed as totally social and not having an economic sustainable model that works and turn those into private sector opportunities that do have a sustainable path so we've got a couple of pilots one is called investing is the portfolio for impact investing for impact we call it pie and we we've created a two-year pilot with a sum of money that we're willing to put into some pretty early stage fairly high risk cutting edge type projects that have a very specific objective of tackling a particular social or environmental problem or issue and we've had some great success with that one of the other things that we have recognized is that because of our staff constraints we really have to work with intermediaries they have to be our eyes and ears on the ground we do not have a large staff in the field just a few people scattered across the globe and so we need local organizations or international organizations with local presence who can play that role for us and we also have you know we've done it traditionally working with commercial banks microfinance institutions traditional investment funds but we recognize that if we want to reach the small and medium enterprise sector which is where a lot of job growth is going to come in these emerging markets you need a different kind of intermediary you need some hybrids you need some non-bank finance institutions you need some factoring companies some leasing companies some fund structures that don't look like the traditional private equity fund that we're familiar with that means you're going a little further on the risk curve you're doing things you're shaking things up you're looking at things in a slightly different way but it's the kind of innovation that we need to do to make sure that we're going to hit all of all of the milestones and all of the huge range of size on this spectrum that we need to in terms of private sector development and then finally we've created something we call aligned capital which because we do not have the ability to take equity directly into funds or into individual companies we don't have a grant source or function internally at OPIC so we need to align with with people who have those resources so we we've set up a mechanism to try to match applicants for OPIC lending with either commercial sources or philanthropic sources who want to be involved in a particular geography or sector and we hope to play a matchmaking role to provide the sort of capital either whether it's equity first loss capital side by side capital that can help us leverage the debt products that that OPIC has and achieve our overall developmental objectives so I think you know having having been on the investment practitioners side of this for the last 10 years at small enterprise assistance funds and now moving back into the government sector I've really seen this from both sides and I think you know everything that all of us are doing whether in the private sector or the public sector you know really really calls out for strong development institutions who can provide the financing that's needed to be out there on the cutting edge of these markets and also to be working very closely with our with our local counterpart so I think we need to be aggressive and innovative in tackling the challenges that are ahead of us but but humble enough to keep learning and particularly to keep learning from our partners on the ground who are even more invested in the success of what we're about than than all of us are up here and we should never forget that that this is you know this is about reaching a point where those domestic flows really make what we all do much less necessary and and I think that's that's what you know we've been tackling and and making an effort to make some progress. Great thanks Mildred. Edie you're at Miga you have a work on investment guarantees there. How have you seen your client demand shift over time as these financial flows have changed do you still think in this day and age that there's a need for the type of guarantees that an entity like Miga provides? Thanks Conor well there is an advantage to going last. I've heard some very interesting comments already made by by my panelists and as I listen to them I was thinking we all we all share this common challenge which is how do we as a development finance community mobilize trillions of dollars whatever number it is two or the nine to developing countries and emerging markets if we're going to meet these SDG goals of the post 2015 agenda so we're all I think you know facing that challenge I also spent you know my weekend at the World Bank spring meetings meeting with ministers of finance from many developing countries many of them are very very poor countries particularly in Africa and again and again the theme is private sector private sector private sector how do we get more into our country the private sector is the engine of growth creates 90% of most jobs in these countries and so the question is you know how do we do that I think there's a challenge though because there's quite a bit of money out there but there's I think still very limited risk appetite in the private sector to take on some of these projects particularly again in the poorest countries where the needs are just huge for infrastructure energy etc to answer your question I think if you look at what's happening globally we're clearly in a very very uncertain time we are in a in an environment of heightened political risk you have the situation in Ukraine and Russia which is a continued concern for many of us and particularly private investors you've got if you look at Africa you've got the threat of Boko Haram which is very very serious threat to West Africa in particular if you look to East Africa you have an increased obviously risk of terrorism and overall increase influence of non-state actors and increased terrorist risks globally bring up the question of Iran for example you know what's what's going to be the impact if there is a deal on Iran but more importantly what's going to be the impact if there is no deal no nuclear deal with Iran Venezuela continues to be a situation that deteriorates so again you know overall I think there is a heightened degree of risk I think investors are very very concerned about how to mitigate and manage those risks so where we sit at Miga which is part of the World Bank and our role is to provide political risk guarantees to get investors to go into these challenging markets we absolutely see increased demand for those products it's interesting because I've been in this business for about 25 years now and I remember a time about 10 years ago where many people were saying ah nobody's going to need political risk insurance anymore you know they're it's a dying product you know not not going to be needed well absolutely not I mean we've seen how more and more investors need these kinds of products to go anywhere outside of their home country we've seen particularly increased demand in the international banking market from the international commercial banks with the impact of volatile regulations and EU regulations the commercial banks are very constrained what they can do they're very limited in terms of long-term lending and there many of the banks are reducing their assets and reducing their risk tolerances so again where we sit at Miga that's been an I think an interesting shift in terms of our business many many of the banks now are seeking some kind of guarantee either a political risk guarantee or increasingly what we call a comprehensive form of guarantee that will give them full regulatory relief under Basel or similar regulations we're also seeing an interesting trend which is new players in this market it's no longer just investors from the US or from Europe we're seeing new players in the emerging markets who are also now investors not surprisingly if you look at overall trends and FDI an increasing share of FDI flows are coming from the developing countries themselves no longer from the developed world so Amiga we now have clients from South Africa for example South African banks very very active now in lending to projects in the Sub-Saharan African region not only South African banks the South African corporates also now going into neighboring countries we're seeing investors from Turkey for example clients of Miga we're guaranteeing their investments in the Middle East region doing projects in Iraq and elsewhere in the region we've seen investors now from India for example also clients of ours were now more active in the neighboring Asian countries and increasingly outside of Asia at Brazil for example again very very active now in Africa and those kinds of trends so we're seeing not only increased demand overall we're seeing shifts in terms of the types of investors that we're seeing we've also had to innovate as well to be responsive to these shifts and to the increased demand for more comprehensive covers one of the things we've done at Miga is develop a new product that we call non honoring of sovereign financial obligation product so unlike our political risk products this is a real credit enhancement products which allows us to guarantee long-term financing where you've got a government that's going out to finance a large infrastructure project and Miga can help bring better tenors better terms for those types of projects this puts us a bit more into the into the public sector range and we're now able to support more PPP projects and large energy and infrastructure projects one last point which is that I think another trend that we see and when we talk to investors is the increased concern about non political risks and by this I mean things like social risks when they're doing projects in the emerging markets security risks resettlement issues land acquisition issues the whole host of risks which are not political risks or you can't find an insurance product you can't find a guarantee product to mitigate those risks those are the things that I think investors worry about you know how do they deal with armed forces you know that may be either on the project site or nearby the project site you know how do they deal with the potential for NGOs domestic NGOs protesting against their project community engagement and those kinds of things and so I think again I think collectively you know we need to keep working on you know what's the best approach to deal with those types of issues so we can successfully bring more private sector investment financing to the developing world thanks Edie that's great I only want to ask a couple of quick follow-ups and then I think we really want to open it up to the audience for their questions one of the first ones I want to ask though is clearly what we've heard today is that there is a demand for the products that OPEC is offering at Oatmega IDB there's a clear demand here but one of the things that you often hear as a criticism is that entities like this crowd out private sector investment and I know Mildred OPEC deals with that quite a bit on the congressional with some of the congressional opposition here what do you all say to that is this is this what's actually happening or is this really just something that's ginned up because people don't like what you're doing maybe we'll start with Mildred on this one well look I think you know none of us would would be here but for the private sector right we cannot do this alone we are not authorized to do this alone certainly we are not we can only facilitate private sector flows and we work very closely with any commercial banks that are willing to take the risks in these these markets and we often will use our products otherwise to you know work alongside bondholders and others so to me it's a very collaborative synergistic partnership that allows each of us to do things that we could not do alone and it we just don't live in a black and white either or world we need all the tools and I think you know we're all continuing to innovate to make sure that the way we apply them is as effective as possible and and the last thing in the world given the challenges that are ahead of us that we want to do is crowd anyone out of how helping us solve the challenges that are ahead of us truly so I would say that there was probably a time in the past where some of that was true and and I can recall when I first took the job as the bank where particularly on the financial institution side someone came and said no no we need to do X because Citibank will do it they wished they hadn't said that because they left my office with okay that's good we shouldn't be in that long and that is very clearly what everybody understands today our business is crowding in not crowding out and and you know just to answer that and also pick up this question of risks and perceived risks what project finance is a fascinating business you know we all know intuitively that when you do a project financing things are probably more secure than if you do a corporate lending operation but people hadn't studied it particularly well and Moody's recently did last month did this huge study of 61% of all the project financing between 1983 and 2013 right like I think it's five trillion dollars fifty three hundred loans and public financing and a couple of really interesting things came out of that and I mentioned this because I think this is part of our job in terms of how to crowd in right it's a it's a it's being there but it's also conveying the kinds of knowledge that will convince people to do things that today they think are too risky and that's why if you look at project financing worldwide only 2% of the money comes from pension funds and insurance companies and if we want to get to these kinds of numbers that number cannot be 2% right okay so fifty three hundred five trillion dollars out of that fifty three hundred only three hundred and eighty defaulted and of that two-thirds of them actually after they defaulted paid back a hundred percent of the money that they borrowed and if the one third that didn't the ones that defaulted post construction paid back over eighty percent the ones that defaulted either at the start of construction paid up paid back seventy percent and fascinatingly so then the default rate is like six and a half percent and if you look at the subset of PPP's it's a small subset though it's three and a half percent and here's just one last piece of fascinating information OECD versus non OECD almost indistinguishable so the default rate instead of being like six and a half ish is a little over seven that the recovery when they default is identical it's actually slightly higher 1% higher in the non OECD countries and the period of time it takes to emerge from default two years in the OECD countries 2.9 years in the non OECD countries okay so if I put ten institutional investments investors in the room there is not a chance that any one of them would get anywhere close to knowing that the risk in those two markets is actually so similar and that the numbers are what they are so you know there is massive potential to crowd those guys in and it's it's people I think like us who have to take both knowledge and instruments to do that crowd. Charles you're our sole private sector representative on the panel what do you what's your view on well it's funny because I Julie mentioned that people used to complain about it more and I used to complain about it a lot but because it's private sectors very self-serving right I mean the whole point of private sector is to create the optimal conditions to make a profit frankly and so they will complain about it more I think there is a real place for all three organizations and the reality is that what my investors will invest in is quite conservative and they are not willing to go out on a limb and the credibility and the expertise that these organizations bring is valuable to us because at the end of the day we tend to be a lot less brave than we pretend to be but no one wants to get into a situation where the likelihood of default is 10% so there always is going to be a place for you know public sector but it has to be that you know the the tip of the spear and there's always going to be a place for the private sector and what's happened is that the balance is has shifted back and forth right now we have so much money coming in as you pointed out earlier that it's very easy not to complain because we have so many other things to do but but when that market begins to leave our markets when that money begins to leave our markets again our space is going to shrink and theirs is going to grow again because anything that we would consider marginal today but we still do will no longer be acceptable so it's not there is what you're always going to hear whining about crowding out but the reality is it's more self-serving than it is I think the legitimate concern for the for the investment community I would tend to agree with it with everything that's been said I think it used to be an argument I think it's kind of an old argument now and we don't hear it much at me these days we're also crowding in the private sector we take that role very seriously I mean we really want to complement and fill gaps and not compete with with the private sector one of the things we do is we reinsure quite a bit of our exposure so Miga has a 12 billion dollar portfolio with about a billion dollars of capital I mean how do we do that we do that by leveraging the private market behind us on transactions where we're involved so for example last year we did a very large project in Angola with a large hydro power project we provided a guarantee covering private financing to the project it was a 12-year guarantee we issued a guarantee of 600 million dollars but we only kept about 200 million dollars on our balance sheet so we were able to bring in 400 million dollars of private insurance capacity behind us for a transaction in Angola but the private market would not have done without Miga's involvement so that's very much our role how do we bring in more private insurance and private players behind us in support of transactions that they wouldn't do otherwise quite honestly if the private market can do it they're generally going to be faster they're generally going to be a little bit cheaper so it tends to work itself out anyway yeah and I also think that the needs are so great and the projects are getting so big that there's a role for everyone and that's another trend we're seeing these projects where you really need multi-sourcing and you need private public sector blends as well last year we did a very interesting transaction in Brazil where we use the non-honoring product to guarantee financing for the state of São Paulo alongside an IBRD loan to the state for a large transport project why did we do that because Brazil had limited resources in terms of what it can borrow from the World Bank so it wanted to leverage those resources by bringing in private sector financing with Miga so we're seeing very interesting structures of mechanisms where you really need private and public sector and I think there's room for all of us I think that competitive argument is quite honestly an old one and I'm not too concerned about it. Yeah I just wanted to pick up on this and just give one other example because I think it's not only our resources but things that countries are doing in a really creative way as well so we were obviously very active in climate change and renewables and the Canadians as part of the Copenhagen round gave us two hundred fifty million dollars of the fast-start money and we call it the Canadian Climate Fund and that money has now been leveraged seven to one in the projects that we've done right and I'll just give one example which is that it's solar you know the question of how brave right so solar in the Atacama Desert in Chile okay so you're really clear the Sun's going to be there but yet right but yet this was using solar to power drip irrigation for fruit for export but it hadn't been done and so there weren't commercial banks who were willing to do it and the the returns on the equity if we hadn't been able to put some subsidized money in there then the banks wouldn't have lent and the equity could have been needed so by putting in a slug of what what the Canadian Climate Fund money is which is subordinate we use it as subordinated debt with a very low return so it's reimbursable but it's got a subsidized return in it let the equity happen let the debt happened we let a couple hundred million dollars other banks came in for a couple hundred million dollars is a hundred million dollars of equity so you know it's taking all these pieces and putting it together I think that's really thank you I think given the time we'll go to the audience now and try to get some questions we have Mike so they will come to you just I identify yourself and please keep your question short and the commentary shorter so this gentleman right here in the middle third row and I'm gonna bundle these take two or three at a time and then this gentleman back here my name is Prem I am development professional from Pakistan I was hearing we talked about some challenges regarding security challenges regarding the political and non-political I just wanted to highlight and other challenge or another area of potential as well that when we talk about a small or medium landing or small or medium sector enterprises how much we put the emphasis on the capacity building of that entrepreneur okay we are providing the investment we are providing the money but on the other hand the non-financial aspect like the capacity building of that entrepreneur so that he or she can able to make the money and can return so that can actually so how you see that perspective one and then how we also influence their government to to increase the taxation for example like like there are less than 2% people who pay the tax and then they are like more than 40% who are in the fourth or the last quantile of the economic status so how we influence the government to increase like the tax reforms or increase the GDP share on the education or the economic development state of the military or the non-development expenses thanks and then this gentleman back here greetings I'm Thomas Ford I'm a former economist at the World Bank and a p3 specialist and I think that's a key thing we need to be talking about is how to p3 works what are difference between a p3 versus project financing project financing is very short-term thinking p3 is long-term thinking and what it was interesting as at the World Bank meetings this last week and the big discussions going on is the new bank that's coming into play the AII be and how is that playing into the trade issue how does that play also you had a good discussion here on the import export bank and so how did the 59 different agencies around the world affecting all this thank you so we go to the panel where I think we had a question on how do you build the capacity of entrepreneurs beyond just providing them financing and how do you influence governments to make the needed investments around social issues or education and things like that and then this was a long-term short-term p3 versus project finance so maybe we'll start with Mildred I think that the one of those that I can you know talk to you I think is the capacity building for SMEs and just acknowledged with you just how critical that is I spent the last 10 years of my life working with SMEs you know throughout the emerging markets and I know full well that without adequate capacity building and usually means you know some fine type of grant a technical assistance it's often challenging then to lend to such a company or invest equity with such a company and expect to get a return if you haven't built up that capacity and quite frankly today you know they're not often good options I think you know I'm interested in Julie's comment because I know they do have the capacity and the facility to join those two together and it's so critical but so many of our DFI's are quite frankly siloed in that respect and they have lending programs but they don't necessarily have a companion technical assistance capability that they can you know jointly provide and I think that what is what's so important so I think the more that our organizations can work together the more that OPIC can pair up with USAID or Millennium Challenge Corporation that has the grant capability that the you know the more effective it's going to be for the downstream SMEs we have done this in the renewable energy sector with our Africa clean energy program where the state and USAID have cooperated with us so that we can provide some technical assistance funding alongside but I agree with you it's it's absolutely critical to success in this in that sector Julie did you jump in on that I'll say uh-huh I mean in the interest of time you know I agree that we are in a great position in that regard we do have a grant arm that can invest to not only build capacity of individual entrepreneurs but also through our sovereign guaranteed side to work with countries to fix the enabling environment that entrepreneurs face you know I how long it takes to get licenses and establish your business and all of those small things which at the end of the day add up so I think it's coming at it from all angles and then the access to finance piece as well which you're right is not enough if people don't have a way to improve their capacity I would just say on the domestic resource mobilization piece yeah you know we work very hard on addressing tax administration tax reform and now the quality of spending for the revenues that are there and in our region there's a seven percentage point gap between the OECD and our region in the percent of GDP that is collected and you you obviously have to go after that and and a lot of countries in our region are very focused on that today because they're looking at their fiscal accounts and saying huh when things were great I spent a lot more on the social side now things are not great and if I am going to continue to keep up that spending without putting my rating and my access to finance and the international markets at risk I have to increase my revenue base and so there's a lot of focus there I would just say on the the I'll just take the AIIB part of this you know I said earlier that there's a bit of a mismatch between the ambition as captured by the SDGs and the financial capacity of these institutions there's also somewhat of a mismatch between ambition and the governance of these institutions and I think that the AIIB is actually a good catalyst for the countries that have invested so heavily over the last 60 years in the multilateral development system to look carefully and say where is it that we can while doing what is right improve the efficiency ability flexibility and speed of these institutions because if that does not happen then I think 10 years from now there'll be a people representing different institutions sitting right here and our creation of new co is a piece of this because we have used it and are using it to look wholesale at processes and say how do we become more agile and fast but it has to happen systemically across the institutions Charles do you have a view on any of these or well the only thing I'd say is there is an increasing social awareness in the investor community and there are series of products that are now being developed that are targeted at and we're talking large sums right 200 300 billion dollars for example largely out of Europe at this point but increasingly out of the US targeted toward social responsible investment and obviously all that can be used efficiently and channeled efficiently into micro lending and so forth but but I think it's more questionable yeah the other three panelists Edie just on the point about you know how do we influence governments in terms of some of these other issues I just wanted to say that that's not really Miga's role but certainly the World Bank and the new way that the World Bank has been organized I think it's going to go a long way to address some of those issues so the the new structure at the World Bank are these 13 global practices and the whole idea is how do you take this global knowledge that the World Bank has and deliver it locally to respond to the needs of our clients and so there's a global practice for example for education and the idea is to take that knowledge and that expertise that we have and deliver it where it's needed so I think some of these issues tax reform and governance social housing education etc. I think very much aligned with the with the new structure at the World Bank I agree also project finance p3 it's what we should be talking about more and more p3 although I would caution though again there's a bit of an expectation gap there as well I mean a lot of people put a lot of emphasis on p3 and ppp's in terms of being panacea for for everything and not always these are these are they take a lot of capacity they take a long time they can sometimes be very difficult to structure put together so I think it depends very much on the context other questions this gentleman in the back over here and we'll take this gentleman up here and then we'll get to these other folks. Yes, hello, I'm a way back a World Bank executive director. About 10 years ago right now the banks are allowed to hold much less equity when they lend to something perceived as safe than when they lend to something perceived as risky which means that the banks make much higher risk adjusted returns on their equity when lending what's safe than when lending to what's risky and that distorts the allocation of bank credit and for little purpose because what's risky has never been the determinant of major bank crisis is always been something perceived as safe that turns out to be risky but if you really want to push sustainable development goals then go to the bank regulators and ask them to have the SDGs weighted equity requirement for banks so that banks when they do that they can have a little bit less equity and they make better risk adjusted returns that is the way you treat the incentives give some purpose back to the banks. Thank you. Thank you sir. This gentleman right up here in front. Thank you. Aquariah former World Bank official. Thanks Mildred about your comments on OPEC if you could comment on OPEC portfolio size and OPEC gives your team to support it and also if you could include who are the major beneficiaries sectors in the countries. Thank you. And then let's take one more of this gentleman right here. Hi Dave Ramaswamy Africa Agribusiness Magazine. How do you quantify environmental social and governance risks on projects what and what have you learned from failures in failing to quantify these risks and going forward there are other players in the development arena like China Brazil and India. How do we ensure that MDB financing of projects specifically in agriculture piggybacks on some of the. Investment being done by these other country players and institutions. Thank you. Thanks very much. So Mildred maybe you can make a brief comment on the question about OPEC portfolio size and then we can go to these other ones. Sure. So OPEC portfolio today is about 18 billion dollars and as I mentioned earlier we actually have statutory authority go to 29 billion and we are you know fortunate in the sense that that because we are not raising money in the public markets we don't have the same. Constraint in terms of the rating agency but obviously we keep a sound portfolio or our loss rate is less than 1% on an annual basis net of recoveries in terms of how our portfolio is a raid. We are the majority of our portfolio today or the largest portion of our portfolio today is still in Latin America and Central America. So it's you know it's that region that is the largest part of our portfolio but Africa is a significant share as well and then you know earlier in OPEC's history it had done quite a lot in in Central Eastern Europe but much of that portfolio has paid off over time and then we are increasing our focus on Asia and in terms of sectors clearly in recent years the renewable energy sectorist has taken a big leap forward. We've done some some very major you know 250 million dollar you know exposures for OPEC and even much larger you know wind and solar projects throughout Africa so that that is that is strong for us but you know on the SME side we're doing sort of bread and butter you know manufacturing and services type companies so we're we're a raid globally and I think sectorally we're pretty balanced as as well and we have a you know a good track record in terms of recoveries but I you know I would agree to the other gentlemen that I think we've always got to keep our eye on the fact that our job is to be cutting edge our job is to take on you know risks that others aren't ready to take and so you know we've been spending a lot of time making sure we understand our portfolio as well as we can so that we can you know understand what those drivers are and be more able to take the kind of risks that we know as a development institution we need to take so thanks Mildred just in terms of these other questions how do you quantify how do we quantify ESG how do we ensure that the MDVs there the investments they're making are somewhat tandem with the ones that brick countries are making and then this comments around risk appetite and how that's driving achievement of the sustainable development goals or more may not drive achievement of the sustainable development goals so what is the risk appetite for the MDVs and are they trying to make riskier or make less safe investment shall we say Julie and Amy maybe you can comment on that sure so I'll start with the questions about sustainability broadly as I'll put it and that I think most of the MDVs have taken up until now an approach that is make sure we don't do the harm that had been done in a previous era by not taking things into account so that's a safeguards approach that says look have a resettlement policy and make sure you're doing the right thing and and various environmental policies but I I think at least for our institution we are in the process of taking another look at that and saying how do we have more of a sustainability approach how do we take something like the better growth better climate report which now for the first time says in fact you can have it all you know countries can grow sustainably and have less of an impact on the climate and on the on the planet recognizing that there are intertemporal problems between haves and have nots and winners and losers and and think about how we convey that message and how we think of this is not only what are the problems but what are the opportunities and what we think that means is we have to rethink businesses like the infrastructure business to go earlier in the value chain of the thinking of the projects so that you're actually thinking about the opportunities and avoiding from the get-go problems and that relates to things like someone said earlier you know communities who who may not be displaced but are not happy with the way things are being done or agricultural projects that might not be terrible for the environment but there might be better things to do or better ways to do them and if you were part of the conversation earlier on then you could think it through that way just tying it to the part of tying in with what the bricks and others are doing you know I think all of the institutions work harder today we we we program what we're going to do with our kind of parts in the country and we work hard during that piece of things to make sure we know what's happening in the countries and so if it's agriculture and it's Brazil we spend a lot of time with to make sure that we're thinking about what they are doing and how they can be important counterparts for us and how that also translates to the Africa Development Bank and to Africa as a whole because they're active there through what are new South-South foreign development organizations in the Global South so I think that the dialogue has changed quite dramatically and we're really conscious of being a part of that in a very positive way. Edie did you have a view on this the risk side of things? It's an interesting very interesting question on ESG risks and I think from the private sector's perspective there's a growing awareness obviously of these issues but I think a lot of private sector companies are grappling with exactly this how do they quantify these risks and how do they build them into their financial models and business models what have you I was last week was in New York at a roundtable and talking to a woman who's head of sustainability for one of a major oil oil and gas company US oil and gas company and you can imagine ten years ago it didn't even exist you know in their corporate structure now it's a formal responsibility but she spends you know every day talking to engineers and about you know you've got to pay attention to these things you've got to pay attention to the local communities where you're doing a project you have to you know you have to have stakeholder engagement and what have you what have you but all they want is just put it in a spreadsheet and give me a you know give me a way to to quantify this what is the cost to my business if I don't do this if I do do this I think there's a need for something like this at least in the private sector I think it's a very very interesting question I think we will continue to see more focus on this as I said earlier these non political risks these risks that cannot be mitigated you can't purchase an insurance product cover these I think a lot of private sector companies are trying to figure that out so it's an interesting question I'm not sure I have a good answer for you but I think it's something that we will hear more about I also just want to say I think the comment on regulation is right on what you said I agree with it either we need to change the regulations or we're going to need to have new non bank players that are going to be willing to go into these markets the commercial banks are just not able to do it anymore they're really withdrawing from this market did you want to talk yeah it's a really important point the failure part of your question I forgot so you know I I came from the private sector when I came to the IDB and and one of the fascinating things in these organizations is really no one wants to use that word so we have something called the development effectiveness overview every year and two years ago I said okay so we're gonna have a section on failure and I got back the first draft section on failure and it never used the word failure literally literally and because everyone wanted to call it lessons learned like you see by not using the word failure I promise you we're not talking about failure and we weren't and it was a fascinating thing because although the countries when they have their their investor donor shareholder hat on say you need to learn from failure if the failure happened in their country they don't want to talk about failure anymore so there are all of these cross currents that make learning from failure a little bit hard and it means that you have to really invest in freeing people to use the word and we brought fail forward into the organization we devote time to people talking about failure I'm hosting an event in a week with our directors on problems in in in projects of what failed and how we learned from it this year's section on failure uses the word failure but it's such a struggle to make it happen with the teams it's unbelievable so it's not easy but we think that we're doing a better job of actually looking at failures as failures and saying what do we learn from them what do we learn from them and let's just not repeat them and I think just to just add one one counterpoint to that is just that I think in in the development finance world failure has often been synonymous with we never got the loan repaid but I think you know now that the discussion is so much broader because failure isn't necessarily about whether we got the money back it's you know did we achieve our developmental objective did some other unforeseen you know unfortunate things happen along the ways in terms in terms of local communities or whatnot so I think the definition of failure is also absolutely Charles maybe I'll give you the last word you want to talk at all about how Morgan Stanley is approaching quantifying ESG or how you're looking at it in terms of I'm sorry she is an environmental social and government oh I'm sorry yeah yeah yeah now we're trying very actively to become involved in that space and we've led this whole green bond initiative that I mentioned previously so there is an enormous amount of socially conscious money we're trying to channel it to projects that that meet the criteria that we're looking for and that that investors are looking for because reality is that the nature of investors has gone from being purely profit and loss to a more socially conscious mindset as well and that's a trend that we see growing very very quickly throughout globally and and and it's going to also make environmental I mean environmental is already a very big consideration we won't do anything that doesn't meet minimum environmental sounds because it's bad business and we've learned that even if a transaction is profitable they could get this is negative publicity it's bad business and we learned that in in spades during the 2008 crisis when we realized how dependent we were on government institutions and on relationships with the government so we have a new consciousness I think with regard to that and you know that's one of many things we do but that's one that I'm involved thanks Charles I think we're out of time here so I want to thank all of you for joining me this was a great discussion great having all of you here I think we had a very fruitful discussion just very quickly for all of you lunch is starting now we're going to be doing lunch up here just in the back here and there's also lunch available down on the concourse level and there are folks who can direct you to that so please join me in thanking the panel