Speech Title

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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

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Supporting Emerging Markets in Turbulent Times

• Overview
• Impact of Crisis on Emerging Markets
• Role of IFIs Addressing Challenges faced by
  Emerging Markets
• IFCs Crisis Response Initiatives
• Conclusions

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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

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Emerging Markets Real GDP Growth ()
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
Source World Bank
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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
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Non-Local Currency International Bank Obligations
by Developing Countries (US mn)
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
Half of the total is due in less than 1year
1,500,000
1,000,000
500,000
0
Dec.1983
Dec.1987
Dec.1991
Dec.1995
Dec.1999
Dec.2001
Dec.2003
Dec.2005
Dec.2007
Source BIS Quarterly Table 9a, December 2008
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Impact of Crisis on Emerging Markets
Significantly Increased Funding Costs
Source Bloomberg - Emerging Market Corporate
Spreads
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Impact of Crisis on Emerging Markets
Steep Decline in Lending to Emerging Markets
Source Dealogic Global Loans Review 1Q 2009
4/1/2009
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Supporting Emerging Markets in Turbulent Times

• Overview
• Impact of Crisis on Emerging Markets
• Role of IFIs Addressing Challenges faced by
  Emerging Markets
• IFCs Crisis Response Initiatives
• Conclusions

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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

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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

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Supporting Emerging Markets in Turbulent Times

• Overview
• Impact of Crisis on Emerging Markets
• Role of IFIs Addressing Challenges faced by
  Emerging Markets
• IFCs Crisis Response Initiatives
• Conclusions

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IFCs Crisis Response Initiatives

• Mobilization IFCs 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

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IFC B Loans Increased Value in Todays Market
IFCs Crisis Response Initiatives

• How do Borrowers benefit?
• Enables loans with longer tenors
• Exempt from withholding tax
• Completes financial package
• Introduces new banking relationships
• IFCs stamp of approval
• IFCs environmental and social leadership

• How do Participants benefit?
• Preferred Creditor Status
• Recognition of IFCs risk mitigation by
  regulators, rating agencies, PRI providers
• IFCs environmental and social leadership
• IFCs structuring and restructuring skills
• Lower capital requirements under Basel II

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IFCs Crisis Response Initiatives
Syndicated Loans to IFIs/DFIs

• Historically, IFC has mobilized debt funding for
  its borrowers primarily through B Loans (over
  US32 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

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IFCs Crisis Response Initiatives
Phased Approach
Trade Finance

• Pillars of Success
• Mobilization working with Partners
• Job Creation
• Continued Focus on Frontier Markets Bottom of
  the Pyramid

Infrastructure
1. Liquidity
Agribusiness
Microfinance SMEs
2. Financial Infrastructure
Advisory Support
Bank Recapitalization
3. Capital
4. Troubled Assets
Managing Troubled Assets
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IFCs Crisis Response Initiatives

• Global Trade Finance Program (GTFP)
• GTFP was increased from US1 bn to US3 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 US5 bn Leveraging IFCs
  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

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IFCs 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 US1 bn, Japan has invested US2
  bn
• Working to bring in other investors
• Fund operational with strong globally diverse
  pipeline
• Opportunity for commercial banks to provide debt
  financing to recapitalized banks

Europe
Sub-
19
Saharan
Africa
33
Asia
23
Current pipeline by region
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IFCs 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)

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IFCs 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 worlds
  poorest countries

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Supporting Emerging Markets in Turbulent Times

• Overview
• Impact of Crisis on Emerging Markets
• Role of IFIs Addressing Challenges faced by
  Emerging Markets
• IFCs Crisis Response Initiatives
• Conclusions

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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