PH should closely watch IFC reforms

Photo Credit: Reuters

AS has been widely reported, the World Bank Group recently initiated a sweeping program of reforms throughout its organization. One of the areas the Philippines should watch closely is how those reforms are manifested in the World Bank’s private sector arm, the International Finance Corp. (IFC), because early indications are that planned changes will present significant opportunities for the country.

The IFC is a global development institution like its parent the World Bank, but it focuses on the private sector in developing countries rather than governments and government institutions. Its primary mission is to provide financing, technical assistance and other advisory services to businesses in support of broader goals of eliminating poverty, supporting sustainable development and climate change response, and encouraging bottom-up economic growth.

Examples of some of the work the IFC has done in the Philippines include advising the government on the structuring of public-private partnerships (PPP) for infrastructure projects; providing risk guarantees to local banks for the financing of projects such as renewable energy; supporting agribusiness investment, particularly in the Bangsamoro region; and supporting the creation of agricultural insurance products, among many others.

Under the broader World Bank reform drive, which in the simplest possible terms can be summarized as, “find ways to provide more funding to those who need it,” the IFC is looking to increase its investments (which fund its lending and other financing products), take on more risk, expand its support for smallholder farmers and small businesses, do more trade financing and working capital loans to help bridge financing gaps, as well as ramp up its work to make projects investible, IFC’s Managing Director Makhtar Diop said in a recent interview. The IFC is also focusing on ways to increase contributions from institutional and private sector investors, in particular by creating new funds that they can invest in. As IFC’s average returns on its own investments are about four percent, these instruments are likely to be quite attractive, particularly to public institutional investors for whom safety is a critical factor.

All of this is still in the idea stage, of course, as the World Bank annual spring meeting was held just last month, and the new World Bank president will not start his job until June 30. But what happens at IFC should present at least two significant opportunities for the Philippines, one broad and one rather specific.

The broad opportunity is in the prospects of tapping financing for a much wider range of development initiatives, good ideas and proposed projects that might have otherwise fallen through the cracks, so to speak; either being too small to warrant IFC attention under its old framework, or too commercial-oriented to be eligible for funding under non-private sector programs of World Bank or other institutions. This includes, for example, wider support for agriculture and small business, particularly socially oriented enterprises and those that can create jobs, alternative energy and transport projects (the problematic effort by the government to modernize the nation’s jeepney fleet comes to mind), and smaller infrastructure projects.

The more specific opportunity is IFC’s attractiveness as a stable investment. In spite of lingering and largely still unanswered skepticism as to its usefulness or necessity, the government seems determined to create the so-called Maharlika Investment Fund (MIF) sometime this year. The stated purpose of the MIF is to support development in the Philippines, and so presumably, its resources will be invested in instruments that provide a return that can be used for that purpose.

In that context, investing in IFC, particularly if the institution does create more flexible, less project-specific investment funds, would seem tailor-made for the MIF. Its investments could conceivably be put back into the country as IFC-funded projects, and earn the MIF a return on top of it. The IFC’s solid track record of earnings from its own investments should be more than enough to convince decision-makers here of the reliability of any instrument the IFC might offer.

In fact, we would recommend that, given the mission of the IFC and the very similar overall objective of the proposed MIF, investment of a certain fixed percentage of the MIF’s resources in the IFC should be made mandatory in the law that creates the MIF, should it be passed by Congress.

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