The World Bank The World Bank Guarantee ProgramGuarantee Program

“Partial Credit Guarantees”

Evolution of Guarantee Programs

B-loan program -1980s ECO Program -1988 Mainstreamed in 1994 IBRD “Enclave Guarantees” for IDA countries -

1997 IDA Guarantees - 1998 Policy Based guarantees – 1999 CAS envelope counting-2004

World Bank Guarantee Objectives

“Leveraging” Bank resources “Catalyzing” private finance in support

of developmental objectives Facilitating member countries access to

the international debt and capital markets

“Guarantor of Last Resort”

IBRD Guarantees for private and public borrowers

•PRG •PCG (PBG)

IDA Guarantees for private borrowers•PRG

Variety of Guarantees

Guarantees portion of debt service (Not 100% of debt service)

Supporting commercial banks and investors Examples:

Late maturities Roll-over guarantee under a put option Take-out Financing Rolling guarantees for a fixed number of

payments

Partial Credit Guarantees

PCG: Bond Issue

0 10 years

$100

PV

5 years

PCG

(e.g. Hungary, Lebanon, Philippines)

Maturity extension

Borrower: Ertan Power Amount: US$150 million Spread: 30 bp over LIBOR Project Cost: US$ 2.9 billion World Bank Guaranteed:

Principal on accelerable basis during years 12-15

Guarantee Release Option

PCG: Syndicated Bank Loans for China

China: Ertan Power Project

$150 million

Average financing term forChina without

World Bank Guarantee

Additional uncoveredrisk taken by

commercial banks

World BankGuaranteed

Total risk assumed by commercial banks

$50 million

0 3 6 9 12 15

Advantages of the Guarantees

Market instrument (Bank loan is off-market instrument)

Flexibility - market, currency, interest rate Better terms (funding cost, maturity) Market access and exposure Procurement flexibility CAS envelope counting (25%)

An extension of partial credit guarantee beyond investment projects to adjustment/ sector programs

Facilitates borrowings in support of structural and social policy reforms

Alternative / Complementary to an adjustment loan

Policy-Based Guarantees

Strong performers: The country has a strong track record of

performance Satisfactory macroeconomic, social, and structural

policies Policy impact:

Eligible for adjustment program Linkage to up-front conditionalities

Value added: Improve market access and terms Sustainable external financing plan

Policy Based Guarantees: Eligibility

Argentina: PBG Bond Issue

Borrower: Republic of Argentina Amount: US$ 250 million Issued on October 15, 1999 Maturity: 1, 1.5, 2, 3, 4 and 5 years Priced at 94.202, 88.485, 83.450, 74.897, 66.421,

and 58.701 respectively World Bank PBG: Zero coupon bonds at stated

maturities on a rolling basis

Rolling Guarantee Structure

Structure of the Argentine Notes

$220

$230

$240

$250

0.0 1.0 1.5 2.0 3.0 4.0 5.0

Tenor (yrs)

US$

mil

lion

s

Exposure to the Bank*

*Bank’s maximum exposure is US$ 250 million

S&P BB BBB- AAA BBB BBB BBB BBB BBB

Duff BB BBB- AAA A A- BBB+ BBB+ BBB+

Fitch IBCA BB BB+ AAA BBB+ BBB+ BBB+ BBB+ BBB+

Republic or Argentina Argentina Serial Zero Coupon Notes*

Foreign Local Series A Series B Series C Series D-F Currency Currency

* Each of the Series B – F Notes will receive AAA ratings once the Guarantee rolls to such Series

Ratings on the Argentine Bonds

PCG Impact on Maturity and Pricing

Colombia(PBG) 10

6.5%

5%

Philippines(PCG) 15

7

2.5%3%

5

Thailand(PCG)

010 2.9%

8.5%

Lebanon(PCG)

Jordan(PCG)

510

3%1%

72 3%

1%

with Guarantee

without Guarantee