Issues and Opportunities in Subsovereign Projects
By Kenneth Hansen
An article in the June 2004 Newswire reported on a new frontier for the international lending community working on projects in developing countries — the move to finance projects that have the financial backing of a municipal government rather than the national government.
Chadbourne convened a conference call recently among representatives of several public institutions that have been substantial players in emerging market project financings to delve more deeply into the subject. The following are excerpts from that discussion. The speakers are Carlos Federico Basanes, adviser to the executive vice president of the Inter-American Development Bank, Christopher Bellinger, consultant with the office of co-financing operations at the Asian Development Bank and an alumnus of both the Multilateral Investment Guaranty Agency and the Overseas Private Investment Corporation (OPIC), Margaret Kostic, director for southeast Europe, and Paul Tumminia, director for Russia and the CIS, each with the Export-mport Bank of the United States, Henry Pitney, assistant general counsel at OPIC and formerly with the Asian Development Bank, and Sumeet Thakur, an investment officer with the World Bank-IFC Municipal Fund. The moderator is Kenneth Hansen, formerly general counsel of the Export-Import Bank of the United States and an associate general counsel of OPIC. Hansen is a partner in the Chadbourne Washington office.
MR. HANSEN: Has your institution made or guaranteed loans to a local government authority without recourse to the credit of the central government?
MR. THAKUR: The Municipal Fund has closed two transactions, not direct loans but guarantees to local governments.
One, in Mexico, is the Tlalnepantla transaction, which is for a public water company. With a partner, Dexia, IFC guaranteed a bond issued in the Mexican market. More recently we did a transaction for the City of Johannesburg. This, again, was a guaranty that was provided along with the Development Bank of Southern Africa. This supported a bond issue in the South African market. Both these transactions happen to be guarantees, but we could certainly do loans, and we are planning on doing loans in the near future.
I should mention that our unit is actually a joint World Bank-IFC unit so, although we’re operating off IFC’s balance sheet, the unit itself is a World Bank-IFC effort.
MR. BELLINGER: ADB has made an equity investment not directly into a subsovereign but into a guaranty facility that provides guarantees for municipal bonds. This is called the Local Government Unit Guaranty Corporation in the Philippines. As of January 21, ADB has invested $1.3 million for 25% of the equity. USAID is reinsuring them. They have not done many transactions, four for about $300 million. To date, their role is to provide comprehensive guarantees for municipal bond obligations.
MR. PITNEY: I was on ADB’s credit committee when that was screened. Local Government Units have been established in the Philippines pursuant to a national law. As I recall, about 60 of them had been established, but only a small handful are creditworthy. The idea was to start with the creditworthy ones. It’s reassuring to hear that this has actually progressed and that ADB has actually made the investment.
MR. HANSEN: So, ADB’s support was by way of equity investment. That’s an interesting variation of our theme of municipal project finance.
MR. BELLINGER: Yes. According to a press release just out, this is the first time this has been done. I’ll quote it:“The investment in the Philippines marks the first time that ADB is assuming risk on a subsovereign commercial obligation without the backup of a central government guaranty.” And, as you all know, ADB does not require government guarantees for its private-sector program.
MR. TUMMINIA: Ex-Im Bank authorized one project under the subsovereign program that was announced by the board in August 2000. The project was for the City of St. Petersburg. It was to be a $15-million project. It went about as close as it could possibly go to being operative. Then, there was a change in government, and the city cancelled the project.
That is our only experience to date under the subsovereign program where Ex-Im takes a direct risk of a city, oblast or region as opposed to asking for a guaranty from a bank or the sovereign or securing project revenues. In the case of the City of St. Petersburg, there was no bank or sovereign guaranty. There were no project revenues. It would have been pure city risk.
MR. HANSEN: How about a project revenue-based loan? Would you consider that?
MR. TUMMINIA: I think so. Ex-Im Bank has been trying. Margaret and I represent the Eastern Europe-Eurasia part of the world where we think that the subsovereign program is very appropriate and could some day be very, very important for exporters. It’s a slow go, though. Jumping ahead to the question on what the problems are with municipal financings, I think the governments that we’re dealing with are just not really used to this type of public-sector financing, so they are wary. They are suspicious. They think at some level that, if the project goes bad, Ex-Im’s going to come hat in hand to the central bank and that they are going to be stuck for something they didn’t approve. And that is understandable. We, of course, explain to them that is not how it works, but we think we would like to see projects based on the risk of the city, the oblast, and based on project revenues of some kind. We see it as a great future.
MR. HANSEN: It calls for the opposite of a central government support letter, perhaps a central government hands-off letter.
MR. TUMMINIA: Exactly.
MR. HANSEN: I understand that, at OPIC, there has been some debate over whether, in the non-honoring guaranty program, the guaranty that OPIC would be counter-guaranteeing had to be a guaranty of a central government, which was the original idea, or whether it could be a guaranty of some lesser public entity. With this approach the OPIC product could be very much like a partial risk guaranty program supporting subsovereigns. I’ve heard rumors of a couple of such deals in the pipeline. Let’s assume eventually you get to do a deal. What would you expect it to look like? Do you have any idea where the lower-hanging fruit might be?
MR. TUMMINIA: The types of projects that we see the greatest interest in from either the US exporter side or from the foreign buyer side have been in the areas of water, waste treatment, power, and then social services infrastructure like medical facilities and schools. The St. Petersburg transaction would have modernized the lighting in the city schools and done some other work around the city’s primary and secondary schools. Lately it seems waste treatment and waste-toenergy have caught on. People are really very interested in that.
MR. HANSEN: It looks like IFC is leading this pack in closing such deals. Sumeet, where do you see your pipeline coming from?
MR. THAKUR: We’re looking at deals in a number of markets. We’re looking at follow-on transactions in South Africa and Mexico building on our experience there. We’re also looking to do transactions in east Asia, south Asia, and a few more transactions in Latin America as well.
MR. HANSEN: May I ask you the other side of that coin? What are the high hurdles to getting those deals done?
MR. THAKUR: One of the biggest challenges that all of us face in this sector is that wherever possible these transactions should be local currency financed since clearly, the revenue streams are for the most part local. Unfortunately, local currency financing is not possible in all markets with the existing instruments. So that’s an area where all of us have to think creatively to try and see if we can come up with solutions that really meet our clients’ needs. Also, it is important to distinguish between effective demand and potential demand. I think the number of creditworthy municipalities and local entities
that are willing to borrow on commercial terms while large, may be more limited than all of us think at the outset.
MR. BELLINGER: Ken, if I could just speak from my recent MIGA perspective. When I was based in Paris, we were trying to utilize MIGA’s ability to cover subsovereign turnkey projects. I was personally involved with two waste-treatment projects in Cairo involving European concessionaires. We did three site visits. We had the benefit of USAID. The biggest problem we had was getting sufficient information from the
Beautification Authority of Cairo to enable us to issue the guaranty. At the end of the day, we took comfort in a variety of other things and, from what I gather, MIGA in fact did issue insurance to the Spanish company called Drogados.
MIGA has also offered coverage for streetlights in the Czech Republic, two and a half years ago, taking the payment risk. Also in Gabon, one of the projects that I was working on was a vocational school where one was taking the payment risk of the school, which was a state-owned company. But we’ve also looked at airports in Syria, and dredging projects in a variety of African countries.
MR. HANSEN: In these projects, MIGA was typically insuring private equity investments or loans?
MR. BELLINGER: The coverage was requested by the commercial banks. They wanted payment cover so we were looking at covering breach of contract by projects that were 100% state-owned. There was no foreign equity.
MIGA’s convention states that MIGA can provide coverage for turnkey projects under certain circumstances provided that the contractor is tied somehow to the performance of the project. So, whether with a performance bond or bearing responsibility for the success of the project three years after completion, MIGA management had agreed that in a number of projects, we could cover the fees under a turnkey contract that qualifies as quasi-equity. That enabled us to cover third-party debt.
As you can imagine, once it had been agreed that we could do this, there was a series of projects. There is a project in Russia for which MIGA has issued guarantees. And then streetlights in the Czech Republic and also the Drogados waste-treatment project in Cairo.
MR. HANSEN: This suggests that traditional lending is not the only option for municipal projects. Other support options may include putting in equity or providing a political risk guaranty.
MR. BELLINGER: Note that, at the end of the day, these “political risk guarantees” are, in effect, payment guarantees. MIGA’s breach-of-contract coverage really becomes a payment guaranty. If you look at IGA’s annual report for the 100% state-owned hospital in Romania, MIGA’s 100 million euro commitment was a payment guaranty. Technically, it is arbitration-covered, but it does cover nonpayment of the award. At the end of the day, you are covering nonpayment. It is arbitration-covered, but it does cover nonpayment.
MR. BASANES: To complement, we here at the IDB have not yet done operations with subnationals without a central government guaranty. We are exploring the possibilities. We are in a period of consultation within our institution and with different stakeholders, but we are trying to get into doing operations of this kind. Of course, we face the same impediments that have been mentioned, such as the inability to provide financing in local currency. We believe that is a big impediment. Politics and central government awareness are also concerns.
We think that the way to go, at least to start with a program like this, would be to rely on revenues generated by specific projects and not general revenues of subnationals. The projects that we are looking into for the time being are typically water and waste-treatment projects.
MR. HANSEN: It keeps coming up that it would be helpful to do these projects with local currency. Local currency financing to a municipal project would present two novel nuts to crack — subsovereign risk plus devaluation risk — but, if you can get comfortable providing local currency loans and guarantees, presumably you will be a step ahead in supporting subsovereign projects. So what’s the problem
with offering local currency financing?
MR. TUMMINIA: I think the first problem for Ex-Im Bank was payment of a claim. The payment process involved other parts of the US government like the Treasury Department. For years I think Treasury did not want to pay out a claim in a currency that was other than the US dollar. I think Ex-Im was only using a hard currency before 2003. So, though the loan might be made in francs, yen or marks, the claim itself had somehow to convert into a dollar.
That has since changed to some extent. Treasury has actually abdicated any role over this process, and so Ex-Im Bank now is in the position of actually figuring out on its own what the best way to do this is.
Unfortunately, we haven’t fully resolved how to approach this, whether the claim should be converted to dollars or can be kept in the local currency. I think that we are moving that way. I think some of the currencies have been chosen. The hard currencies I don’t think are a problem, but soft currencies like the ruble are more problematic.
I think that we are moving that way, although I don’t think that Ex-Im has yet made a decision about some of the key aspects of managing local currency risk. That is one of the biggest problems. If we were to be able to offer a rubledenominated loan and, in the event of a default, the loan could stay as a ruble loan, then I think it would be a little bit easier for us to get some of these deals through.
MR. HANSEN: Federico, what’s keeping IDB from doing a local currency guaranty?
MR. BASANES: Well, we haven’t done one yet. We are exploring the possibility. As a matter of fact, we had a workshop with some of the institutions on this call to discuss the way they are doing it.
Our charter allows us to do so, though we need board approval. We need to hedge the foreign exchange rates, of course, and we are looking into different ways of doing that. One constraint, of course, is the development of the capital market of certain countries. In order for you to be able to hedge the exchange rate risk, you need a swap market or you need to be able to issue in the local currency.
Still, we believe we are going to be able to move in that direction soon and, once we do, subnationals would be a natural client.
MR. PITNEY: While I was at ADB, two things were done to address partially the funding problem that Mr. Basanes was describing. One was a US dollar-Philippine peso swap that ADB did with the central bank of the Philippines. ADB entered into a swap by which ADB provided US currency in exchange for Philippine pesos for a 10-year period at the end of which they would swap back into their currencies. The proceeds of the swap, the $200 million equivalent in pesos, will be on-lent by ADB to single-A rated foreign banks, and to Philippine banking institutions meeting other acceptable criteria. These participating banks will, in turn, make longterm, fixed-rate loans for certain categories of projects approved by ADB. The second thing that ADB did was to issue rupee bonds in India to finance the private sector loan and guarantee operations of ADB at a point when they had a reasonably robust private sector pipeline. So they solved the funding problem in those two ways in at least those two countries.
MR. BELLINGER: I think there hasn’t been too much by way of either partial risk or partial credit guarantees of local currency loans. ADB can, however, make loans in local currency, as well as guarantee local currency loans. In fact, an internal paper was prepared late last year that identified some of the issues. I believe, however, that the obstacles can be overcome and am hopeful that, in the next year, we will see more of these.
MR. PITNEY: I know that, as of June last year when I left, ADB’s first rupee loans were just waiting clearance of conditions precedent. I imagine that at least one or two of them by now have cleared those conditions precedent. Also there is an equity investment in local currency funded by a local currency issue that has been done already.
MR. HANSEN: Sumeet, the IFC lends local currency. Is that part of what you’re doing in the municipal shop?
MR. THAKUR: We operate using all of IFC’s product lines so, in whichever market that we can provide local currency financing, we can certainly use it to finance municipal projects.
MR. HANSEN: Yet the nonavailability of local currency financing appears to be among the impediments to getting municipal deals done. If that is a broad issue, your municipal shop should be a big user of local currency financing. Is that true? Do you expect local currency financing to become an important part of what you will do?
MR. THAKUR: Absolutely. In some markets we may have no choice but to finance in hard currency, but I think that there should be well articulated reasons for going with a hard currency option. There are two issues with regard to local currency financing. One is obviously the existence of a market that allows you to deploy local currency products and the second is local laws that in many jurisdictions require one to structure local currency financing because a lot of municipalities are not allowed legally to borrow in hard currency. So, it’s not just a choice or a credit preference. In many markets it is a legal requirement.
MR. HANSEN: That’s a good example of the special legalproblems that sometimes arise when dealing with local governments. There is also the political risk of interference with local projects by the central government. For instance, you might think you are doing a revenue-based municipal project, but suddenly new legislation diverts those revenues to some other national purpose.
You mentioned before that the central governments feared that local projects could become a national burden. Has the other side of this coin been a problem, that local governments may not be autonomous enough?
MR. THAKUR: This is obviously a critical issue for us. In the transaction we have processed and are currently reviewing, we are clear that we are not relying on sovereign guarantees and that the decentralization framework is one that we are comfortable with.
MR. HANSEN: So you make them comfortable that you are not going to turn to them, but how do they make you comfortable that they aren’t somehow going to undermine the project?
MR. THAKUR: That’s part of the credit judgment that one is making and obviously one looks for the decentralization and broader institutional framework as part of the credit assessment. Where fiscal transfers play a major role, one looks at the past history of fiscal transfers and evaluates how
predictable these transfers have been. That’s a part of our due diligence.
MR. HANSEN: Does anyone else have any experience with or perspective on whether central governments themselves are impediments to financing municipal projects?
MR. BELLINGER: MIGA requires host country approval when it issues cover for breach of contract for subsovereign risk. That document specifies what we are doing. In some countries, however, particularly India, we simply have not been able to get those country approvals. MIGA cannot issue the cover without that approval.
MR. PITNEY: In my experience, Ken, definitely, the central governments are sometimes part of the problem. Provincial authorities in China have a history of agreeing to particular project arrangements, sponsors or lenders clearing those things with the central government only to have the central government turn around three years later and say well, we know that we approved all those things but now circumstances have changed. This nearly scuttled a major provincial project.
So although that case did not involve a municipal authority per se, it did involve a local power bureau and what the central authorities unapproved was the so-called new tariff regime. They said circumstances have changed and tariffs are too expensive; you will reduce them across China notwithstanding the contracts with independent power producers.
MR. HANSEN: Referring back to what Sumeet said, that’s a case-by-case due diligence issue. But, in a place like China, it’s probably a pretty big due diligence issue.
MR. PITNEY: This is a little bit off-piste because that’s traditional project financing, but there is no reason it couldn’t happen, for example, say, with water tariffs for municipalities, where project bankability is in part based on guarantees of tariff payments.
MR. HANSEN: How about the other side of the coin, which Paul raised, that problems that arise with municipal projects will become an albatross around the central government’s neck? The question was raised over the weekend whether, as a legal matter the central government is responsible for local government financial obligations. I’m pretty comfortable the answer is “not necessarily” — that is, not unless the local actions somehow constituted violations of international law. The mere failure to make a payment doesn’t do that. But a legal right to disavow responsibility is no assurance that the central government could do so without cost. So the question is whether central governments may be concerned
that local projects will be more trouble than they are worth. Is it possible that a principal impediment to getting these deals done is preferences in the countries themselves?
MR. PITNEY: In China, municipalities are forbidden to take on debt. That is slowly starting to erode but it is still a significant impediment. The central government essentially allocates the municipalities’ limited bond issue rights. Last time I looked, it was quite limited.
MR. HANSEN: How about rights to take advantage of the revenues of locally-organized projects? Is that also centrally regulated in China?
MR. PITNEY: I can’t think of any specific national government stricture on getting the benefits from the local projects; however, there is the constant struggle between the central government and the provinces and the cities on how much of their revenues they get to keep, but that’s a general budget thing rather than a project-specific thing.
MR. THAKUR: I don’t usually work on China, but I do know that companies set up by local governments in some circumstances are allowed to borrow. owned by the central government. ADB has been approached
for waivers for Laotian projects. So the negative pledge has been an issue there generally. It has probably not been an issue in a municipal setting simply because, to my knowledge, ADB has not done any municipal deals in Laos.
MR. HANSEN: Has anyone had any sense of any willingness by the World Bank or other multilateral development banks to grant waivers in order to encourage successful financing of subsovereign projects?
MR. PITNEY: I think ADB was one of the most cautious at granting the negative pledge waiver. Part of the reason is because the US Treasury and, at times, other treasuries vehemently opposed waivers of the negative pledge. In fact, they forced a negative pledge policy from the World Bank and at times sought the same at the Asian Development Bank. They decided, however, that the ADB is more conservative than the World Bank’s policy. I think, Ken, the answer is that the ADB would support a negative pledge waiver if it believed that there was a very significant developmental impact to such a municipal project.
MR. HANSEN: Next question: is there a regional aspect to this? Are the prospects for these deals stronger in one part of the world or another?
MR. BELLINGER: I have seen projects in Colombia, involving water, quite a few from Algeria and throughout the Middle East, and in Africa. Again coming back to the MIGA payment guaranty product, once there was a sense that MIGA could insure turnkey operations with subsovereigns, there was a host of available projects in Africa, such as waste treatment and dredging. We saw in, I think it was Slovakia,
something like 30 municipalities looking into doing streetlights. I think it’s a question of, if you build it, they will come.
MR. HANSEN: It sounds like it could be responsive to circumstances that could erupt almost anywhere. The next point actually is implied by much of our conversation: what sectors are appropriate for municipal project finance? Water, obviously. Also, waste treatment. Any sense of other lowhanging fruit with respect to financeable municipal projects?
MR. THAKUR: We are looking at municipalities on a more corporate basis, so any creditworthy municipal financing for local roads, electricity or solid waste could be supported. Revenue-generating projects are in some.
MR. HANSEN: This is something I keep hearing, that the ability of emerging market cities to be taken seriously in financial markets is new, but it’s progressing.
I want to ask Paul and Margaret how this stands in the former Soviet Union.
MR. TUMMINIA: If we take away the Baltics, I think it’s still fairly difficult for any local government, whether it’s a city or whether it’s an oblast or an autonomous region, to borrow. The Russian law makes it very, very difficult. And it has become more difficult recently, not less.
As far as we understand, the City of St. Petersburg and the City of Moscow are really the only two local Russian authorities that can borrow foreign funds, at least until the current law changes. Among any of the other 87 constituent local legal entities, I think you would be hard pressed to find a legal borrower.
MR. HANSEN: So, another reason to be focused on local currency lending as an option is that in some places it has the advantage of being legal?
MR. TUMMINIA: Yes, things get much easier if you can lend in rubles. There are a few other glitches, I think, under the Russian law. I recall not being able to accelerate a subsovereign loan upon a payment default. In the other 11 former Soviet republics — with the exception of Ukraine and the City of Kiev — I think you would be hard pressed to be able to find the possibility of doing a subsovereign loan; you really cannot do it legally.
MR. HANSEN: Let’s go to a different issue — the relevance of the multi-lateral development bank negative pledge obligations. Though made at the level of sovereign borrowing, do they interfere with municipalities offering collateral? Have you found negative pledges by central governments to stand in the way of municipal deals?
MR. THAKUR: We have no specific transactions where the issue has come up; however, I think that’s an important issue.
MR. PITNEY: I would second that from my time at the ADB — particularly in the countries where foreign creditors have been very concerned about the bankability of deals and in countries that lack a strong, well-managed central bank. I know that the World Bank group has been very concerned that some of the former Soviet countries may be in breach of negative pledges. The ADB has also been quite concerned
about negative pledges being breached in a number of projects in places like Laos, where theoretically everything is circumstances more appropriate and easier to do, but in many cases that may not be an option, so I think one has to look more broadly than just revenue-based projects and look at all municipal and other subsovereign infrastructure.
MR. HANSEN: Let’s look introspectively for a moment. Are impediments to subsovereign lending to be found in the charters, policies, and procedures of your respective institutions that need to be addressed in order effectively to support subsovereign projects?
It sounds like the negative pledge is potentially one thing we’ve already identified. It sounds like MIGA has made real progress overcoming what could have been charter-based impediments to supporting financings of municipal projects.
MR. BELLINGER: Typically, however, MIGA projects have involved equity coverage. The only turnkey project that MIGA was working on was a school. In fact, if you look at MIGA’s annual report, you have to read between the lines. Support may, for instance, be for a shareholder loan by a bank to its local subsidiary against the risk that a city fails to repay a loan to the subsidiary. The MIGA annual report would note that the breach-of-contract coverage is offered for a “banking project.”
MR. HANSEN: So you insure the upstream loan against the downstream risk?
MR. BELLINGER: Correct, and that’s been done on a number of projects.
MR. HANSEN: At Ex-Im, you mentioned that the institutional constraints to local currency lending posed by the Treasury Department’s opposition have been resolved. How about the statutory requirement of finding a “reasonable assurance of repayment”?
MR. TUMMINIA: We’re still working through foreign currency lending from the programmatic side, that is, what is the product that we can offer. Clearly the reasonable assurance issue is always going to be there. It is the 800-pound gorilla in the room. From the Ex-Im Bank side, what we decided is to look only at subsovereigns that are rated. We are only looking at a city, a region, a municipality or province that has a rating of B- or higher or B3.
MR. HANSEN: Federico, how about IDB? Is it just a business problem of finding reasonable terms for a reasonable project or are there also institutional barriers within the IDB to doing municipal projects?
MR. BASANES: We are in a dialogue right now internally within the institution. We are looking into what product we can offer. We are also in the process of talking about these things with our board. As far as I know, there are no restrictions in our charter that would prohibit us from doing any of this. It is just a matter of taking different things into consideration and putting out a product that we can deliver. So we are in that process right now.
MR. HANSEN: And OPIC?
MR. PITNEY: Last year OPIC’s statute was amended specifically to allow local currency guarantees, provided that OPIC’s eligible project and eligible investor requirements could be satisfied in a particular municipal project. I don’t see anything that would preclude OPIC from doing them. In fact, we have been talking to a lot of different parties about doing this. I think our concern at the moment is that generally Treasury doesn’t really want to get into the business of multi-currency risk. But that’s just my sense on dealing with it for the last two to three months on an interagency US basis.
MR. HANSEN: For the final question, I’d like to ask each of you to look into your crystal balls and predict where your institutions might be a year from now. That is, how many subsovereign financings (without recourse to a sovereign) will you have closed by the end of the year? Sumeet, how about you? IFC seems to have a head start.
MR. THAKUR: Obviously I have to preface my remark with all the appropriate caveats, but we are fairly optimistic about doing a couple of deals this year.
MR. HANSEN: How about Ex-IM?
MR. TUMMINIA: I would guess that we might be able to see one or two, maybe not totally closed but authorized, by the end of the calendar year. Probably not in the former Soviet Union; I would say either Turkey or Central Europe would probably be the most likely candidates.
MR. HANSEN: OPIC?
MR. PITNEY: My sense is that the relevant project officers are optimistic that they will be able to get some approved this year. Whether they will actually go to closing by fiscal year end is another matter.
MR. HANSEN: Chris and Henry, how about ADB?
MR. PITNEY: Director General Robert Bestani is working on some of the institutional constraints. What he has to confront, frankly, are certain views about acceptable projects for the private sector operations group. In other words, there is a certain amount of resistance, for example, if something looks a little too “public sector” for the private sector to support, but he is doing his best to challenge these sorts of reservations.
I think with the public-private partnership dialogue in the last five or six years, these old notions of what’s an acceptable project are being steadily eroded. ADB’s charter permits it to make guarantees with or without sovereign support and you can do everything under one roof. In other words ADB is not separated into three different groups like IFC, MIGA and the World Bank group, there is no constitutional impediment to doing something well structured on the subsovereign side. Chris mentioned at the beginning of the call the Local Government Unit project, but there they have invested in a corporation that guarantees, if I’m not mistaken, the Local Government Unit’s bond issues. I think that’s a small but interesting project that pushes the envelope responsibly.
MR. BELLINGER: The press release I referred to earlier says ADB plans on doing more private projects to help municipalities in ADB’s developing countries gain access to private capital. Then it goes on to say that ADB expects to provide technical assistance to designated municipalities and local water utilities to prepare them for issuing bonds in the commercial markets, focusing on Thailand, India and the People’s Republic of China.
MR. HANSEN: Federico, it sounds like IDB maybe has the longest horizon here?
MR. BASANES: I think so. Recognizing again all the caveats, now our expectation is that, within a year or a year and a half, we will get authorization to start doing local currency financing and subnational lending. But after getting the authorization, you still have to put together a few deals so I think it’s a longer road for us.