Session IV: Finding the Right Instruments, and Using them Correctly

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

Hiroto ARAKAWA

Executive DirectorJapan Bank for International Cooperation

(JBIC)

July 4, 2006

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

- Table of Contents -

I. Judging the “Right” Instruments

II. Various Instruments1. Flow from Private Sector2. Flow from Emerging Donors3. Flow from NGOs4. Domestic Funds

III.Summary　

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I. Judging the “Right” Instruments　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

(unit: billion dollar)

1997 2000 2004

1. Total net ODA (DAC total) 48.5 53.7 79.5

2. Flow from Private Sector235.0

(484.5%)133.5

(248.6%)208.5

(262.3%)

3. Flow from Emerging Donors (non-DAC： Total net ODA/OA)

1.0(2.1%)

1.0(1.9%)

3.1(3.9%)

4. Flow from NGOs6.4

(13.2%)9.5

(17.7%)14.9

(18.7%)

Flow to developing countries

Source: 2005 Development Co-operation Report

Note: Figures in parenthesis are the percentage compared to Total net ODA.

ODA’s role is to mobilize these flows to developing countries by providing efficient “mix of instruments”. “Dichotomy” of “Loan or Grant” is meaningless.

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• Flow from Private Sector has large volume. But, its fluctuation add to rather than reduce to consumption variability of developing countries.

• Therefore, ODA flow has a role of “lender of first resort” to provide shock-absorbing as well as consumption-smoothing assistance. (e.g. Cohen, Jacquet, and Reisen)

• ODA’s role is threefold; (i) Reducing Risk for Private Sector(ii) Reforming Policy & Institution / Investment Environmen

t(iii) Assisting “Bottleneck Facility” in case of Infrastructure

II. Various Instruments1. Flow from Private Sector　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

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II. Various Instruments1. Flow from Private Sector

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

Phu My 1 Phu My 2 Phu My 3

ODA Loans Project Financing

Private Financial Institutions

JBIC

Private Company

International InstitutionsTransmission Lines / Distribution Systems

Generation Systems (thermal power plant)

Investment

Loans

(WB / ADB)

≪≪Case studyCase study Assistance for Vietnam’s Electrical Power Project≫ Assistance for Vietnam’s Electrical Power Project≫

ODA’s threefold roles on the ground; (i) Reducing Risk for Private Sector JBIC’s ODA loan assisted the 1st generation plant for aiming demons

tration effects for the 2nd plant financed by private investment.(ii) Reforming Policy & Institution / Investment Environment JBIC co-financed PRSC, which paves the way for equal treatment for

domestic and foreign firms.(iii) Assisting “Bottleneck Facility” JBIC’s ODA loan assisted transmission line (“Bottleneck Facility”) for making BOT work.

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II. Various Instruments2. Flow from Emerging Donors• Flow from Emerging Donors, especially of East Asia, has bee

n increasingly significant.• Aid community, especially DAC, need to work on building clo

se partnerships with Emerging Donors.

<Case>JBIC is building close partnerships with Emerging Donors.1. Thailand: NEDA (Neighbouring Countries Economic Developme

nt Cooperation Agency )– Memorandum of Understanding (May 2006)– JBIC will support the organizational capacity enhancement of NEDA

by drawing on its knowledge and know-how, thereby helping Thailand as an “Emerging Donor”.

2. Korea: EDCF (Korea Eximbank, Economic Development Cooperation Fund)

– JBIC aims to share its experiences and know-how of ODA loan financing operations.

3. Philippines, Indonesia– Memorandum of Understanding (May 2006)– JBIC aims to transfer its monitoring and evaluation knowhow of ODA

loan-financed projects to the foreign aid coordinating agency of Philippines and Indonesia.

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

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II. Various Instruments3. Flow from NGOs

• Role of grants financing from NGOs is growing.• Those contributions through NGOs have a risk to e

xceed absorptive capacity of developing countries, if provided fragmentedly. ODA, especially loan facility, can provide some good practice (e.g. PRSC) to reduce fragmentation and to align with recipient country priorities and programs.

<Case> Needs Assessment after Tsunami Disaster– JBIC conducted joint needs assessments right after the Tsun

ami disaster at the end of 2004 with Tsunami-stricken countries (Indonesia, Sri Lanka, and Maldives), the World Bank, the Asian Development Bank and other international institutions.

– The assessments contributed to paved the way for NGOs assistance activities.

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

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II. Various Instruments4. Domestic Funds　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

　 　

≪≪Case studyCase study Assistance for Philippines’ Municipal Water and ≫ Assistance for Philippines’ Municipal Water and ≫Sanitation Projects under U.S.-Japan partnershipSanitation Projects under U.S.-Japan partnership

JBIC

Development Bank of Philippines

Water and Sanitation Projects by Local Government Units, Water Districts

Private Lenders

USAIDGuarantee

LGU/GC

GuaranteeLoa

n

Loan

ODA

Loan

JBIC provides long-term financing through the Philippines’ public institutions. USAID provides guarantee for the private lenders’ loan through the Philippines’

private guarantee corporation. JBIC, USAID, and the Government of the Philippines are trying to establish “Water

Revolving Fund” which aims to institutionalize the municipal water projects financing framework.

Water Revolving Fund (to be established)

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III. Summary

• ODA’s role as a catalyst is significant.(i) Reducing Risk for Private Sector(ii) Reforming Policy & Institution / Investment Environment(iii) Assisting “Bottleneck Facility”

• Challenges ;– sub-sovereign financing

– local currency financing

– non-sovereign financing to private sector

– output-based financing

• Japan will provide seamless aid modalities of loan, grant, and technical assistance under a new ODA institution in 2008.