IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1812.html
   My bibliography  Save this paper

Managing guarantee programs in support of infrastructure investment

Author

Listed:
  • Klein, Michael

Abstract

The author discusses the risks of infrastructure projects and the costs of capital, rationales for government support of private infrastructure ventures, and approaches to managing government guarantees of private infrastructure investments. Among his recommendations: 1) the decision to grant a guarantee for debts associated with infrastructure projects should be based on an explicit cost-benefit analysis for the project to be guaranteed, including an assessment of the likely cost to taxpayers and the impact of alternative forms of government support. 2) In principle, when the rationale for government support arises from the difference between effective willingness to pay and social benefits, the support should take the form of subsidies supplementing the price customers are willing to pay for a service. Such subsidies are contingent on the effective provision of the subsidized service. They allow the private provider to be guided by the full benefits of the project without reducing the incentives to perform (as would occur with risk sharing through cofinancing or guarantee). 3) Guarantees of policy risks should support a credible reform program but not substitute for it. In the medium term, policy reform should obviate the need for a guarantee. Beneficiaries of guarantees should bear a part of the risk, as with a deductible. In structuring guarantees, governments need to take care that performance incentives for private investors are nor undermined. Essentially, this means not covering normal business risk, including exchange rate and interest rate movements. 4) Governments should consider sharing normal business risks only as a last resort, if at all. To prevent excessive government exposure, decisions should be transparent and based on explicit cost-benefit analysis. Monetary limits should be placed on total government exposure, and there should be an exit strategy for the government wherever possible. 5) Governments should consider creating acentral office charged with managing guarantee exposure, to limit taxpayer exposure and to strengthen private performance incentives. 6) Governments should establish a system to update the valuation of its guarantee exposure periodically as well as mechanisms to adjust guarantees or to seize collateral when fees are not paid. The use to which guarantees can be put should be clearly limited, and policies for appropriate guarantee fees and coinsurance requirements should be established.

Suggested Citation

  • Klein, Michael, 1997. "Managing guarantee programs in support of infrastructure investment," Policy Research Working Paper Series 1812, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1812
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2000/02/24/000009265_3971110141353/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christopher M. Towe, 1991. "The Budgetary Control and Fiscal Impact of Government Contingent Liabilities," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 109-134, March.
    2. Alexander, Ian & Mayer, Colin & Weeds, Helen, 1996. "Regulatory structure and risk and infrastructure firms : an international comparison," Policy Research Working Paper Series 1698, The World Bank.
    3. Kenneth J. Arrow & Robert C. Lind, 1974. "Uncertainty and the Evaluation of Public Investment Decisions," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 3, pages 54-75, Palgrave Macmillan.
    4. Kahn, Edward P., 1991. "Risks in independent power contracts: An empirical survey," The Electricity Journal, Elsevier, vol. 4(9), pages 30-45, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Klingebiel, Daniela & Ruster, Jeff, 2000. "Why infrastructure financing facilities often fall short of their objectives," Policy Research Working Paper Series 2358, The World Bank.
    2. Jicai Liu & Charles Cheah, 2009. "Real option application in PPP/PFI project negotiation," Construction Management and Economics, Taylor & Francis Journals, vol. 27(4), pages 331-342.
    3. Charles Cheah & Jicai Liu, 2006. "Valuing governmental support in infrastructure projects as real options using Monte Carlo simulation," Construction Management and Economics, Taylor & Francis Journals, vol. 24(5), pages 545-554.
    4. Nur, Suardi & Burton, Bruce & Bergmann, Ariel, 2023. "Evidence on optimal risk allocation models for Indonesian geothermal projects under PPP contracts," Utilities Policy, Elsevier, vol. 81(C).
    5. Michel Noel & W. Jan Brzeski, 2005. "Mobilizing Private Finance for Local Infrastructure in Europe and Central Asia : An Alternative Public Private Partnership Framework," World Bank Publications - Books, The World Bank Group, number 7333, December.
    6. Gilberto M. Llanto, 2007. "Dealing with Contingent Liabilities: The Philippines," NBER Chapters, in: Fiscal Policy and Management in East Asia, pages 257-284, National Bureau of Economic Research, Inc.
    7. Justin Yifu Lin & Doerte Doemeland, 2012. "Beyond Keynesianism: Global Infrastructure Investments In Times Of Crisis," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1-29.
    8. Ratha, Dilip & De, Prabal K. & Mohapatra, Sanket, 2011. "Shadow Sovereign Ratings for Unrated Developing Countries," World Development, Elsevier, vol. 39(3), pages 295-307, March.
    9. Carlos Contreras & Julio Angulo, 2017. "Valuing Governmental Support in Road PPPs," Hacienda Pública Española / Review of Public Economics, IEF, vol. 223(4), pages 37-66, December.
    10. Irwin, Timothy & Klein, Michael & Perry, Guillermo E. & Thobani, Mateen, 1999. "Managing Government Exposure to Private Infrastructure Risks," The World Bank Research Observer, World Bank Group, vol. 14(2), pages 229-245, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eduardo Fernández-Arias & Ricardo Hausmann & Ugo Panizza, 2020. "Smart Development Banks," Journal of Industry, Competition and Trade, Springer, vol. 20(2), pages 395-420, June.
    2. Robert Holzmann & Yves Hervé & Roland Demmel, 1996. "The maastricht fiscal criteria: Required but ineffective?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(1), pages 25-58, February.
    3. Simon Eckermann & Andrew R. Willan, 2016. "Expected Value of Sample Information with Imperfect Implementation," Medical Decision Making, , vol. 36(3), pages 282-283, April.
    4. Birgitte Grøgaard & Asmund Rygh & Gabriel R. G. Benito, 2019. "Bringing corporate governance into internalization theory: State ownership and foreign entry strategies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(8), pages 1310-1337, October.
    5. Rausser, Gordon C. & de Janvry, Alain & Schmitz, Andrew & Zilberman, David D., 1980. "Principal issues in the evaluation of public research in agriculture," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt74v9m7dh, Department of Agricultural & Resource Economics, UC Berkeley.
    6. Reinhard Mechler & Stefan Hochrainer & Asbjørn Aaheim & Håkon Salen & Anita Wreford, 2010. "Modelling economic impacts and adaptation to extreme events: Insights from European case studies," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 15(7), pages 737-762, October.
    7. Nathalie Berta, 2016. "On the definition of externality as a missing market," Post-Print halshs-01277990, HAL.
    8. Cristiano Antonelli, 2017. "The derived demand for knowledge," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(1-2), pages 183-194, February.
    9. Ian Alexander & Antonio Estache, 2000. "Industry restructuring and regulation: Building a base for sustainable growth - lessons from Latin America," Development Southern Africa, Taylor & Francis Journals, vol. 17(3), pages 307-337.
    10. Bruno CRUZ & Aude POMMERET, 2002. "Does public investment reduce private investment risk ? A real option approach," LIDAM Discussion Papers IRES 2002039, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    11. Tirelli, Mario, 2006. "The evaluation of public investments under uncertainty," Research in Economics, Elsevier, vol. 60(4), pages 188-198, December.
    12. Gollier, Christian, 2016. "Gamma discounters are short-termist," Journal of Public Economics, Elsevier, vol. 142(C), pages 83-90.
    13. Edward C. F. Wilson & Miranda Mugford & Garry Barton & Lee Shepstone, 2016. "Efficient Research Design," Medical Decision Making, , vol. 36(3), pages 335-348, April.
    14. Gray, Richard S., 1990. "The Role of Learning in Investment Decisions," 1990 Annual meeting, August 5-8, Vancouver, Canada 261490, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Carsten Helm, 1998. "International Cooperation Behind the Veil of Uncertainty – The Case of Transboundary Acidification," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(2), pages 185-201, September.
    16. Yuri Biondi, 2009. "Capital budgeting under relational contracting: optimal ranking and duration criteria for schemes of concession, project-financing and public-private partnership," Post-Print hal-00404305, HAL.
    17. Knight-John, Malathy & Jayasinghe, Shantha & Perumal, Andrew, 2004. "Regulatory Impact Assessment in Sri Lanka: The Bridges That Have To Be Crossed," Centre on Regulation and Competition (CRC) Working papers 30666, University of Manchester, Institute for Development Policy and Management (IDPM).
    18. Augusto de la Torre & Alain Ize, 2010. "Containing Systemic Risk: Paradigm-Based Perspectives on Regulatory Reform," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2010), pages 25-64, August.
    19. HEIFETZ, Aviad & MINELLI, Enrico & POLEMARCHAKIS, Heracles, 1999. "Arbitrage and equilibrium with exchangeable risks," LIDAM Discussion Papers CORE 1999046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Stiglitz, Joseph E., 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, Elsevier, vol. 162(C), pages 101-119.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1812. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.