ASi" kUCTURE FlOR DEVELOPMENT

Cofinancing Facility (ECO)-to cover soveregn mediation through capital markets. Infrastructure
risks associated with infrastuture projects. This fa-. developers and private (especially contractual)
cility, designed to improve developing country ac- savers share a long-term horizon. Bringing compaticess
to international capital markets, has been used ble savers and investors together is the task of capifor
the Hub River Project in Pakistan and a thermal tal markets. At the same time, the financing of infrapower
project in China.-The Multilateral Investment structure projects improves appraisal capabilities
Guarantee Agency (MIGA)-another World Bank and expands risk-diversification possibilities for
affiliate-has also provided guarantees for several local commercial banks, equity and bond markets,
infrastructure projects.
and institutional investors such as insurance comn-
:. . =; - -- - . - ~~~~~panies and pension fuinis. Exploitation.of these-
Institutions and instruments for resource p a p f E o t
mobilization................... links can be promoted - through prudent regulation,.
-.- mobllashon.------
improved disclosure and reporting standards, and
If the trend tDward private investment in infra- the development of credit-rating capabilities and
structure is to continue, financial markets will have credit risk insurance.
to respond by providing the necessary long-term
- = - , . . - . - . 17~~~~~~~~l,Xstrucfure
resource Paralleling the innovations described
deuelopnieat bat& ..-
above in the structuring of contractual agree- In many countries, spealized development banks
ments-which are critical to making a project fi- are a conduit for funds used in infrastructure projnanceable-lessons
have been learned about deliv- ects, especially for municipal infrastructure such as
ermg long-term finance through alternative water, solid waste collection and disposal, and local
institutions and instments.
roads. For municipalities, borrowing fiom such
Both foreign and domestic sources of capital will institutions supplements local taxes and central
need to be tapped. Reliance on foreign savings re- government transfers and is intended to cover flucmains
a necessity for many countries with inade- tuations in expenditure or to prevent large shifts in
quate domestic savings. But there are limits to the revenue requirements.
capaity- of any economy to access funds from In developing countries, such specialized infraabroad,
particularly for debt finance. External bor- structure development banks have suffered from all
rowing must be serviced laigely by domestic rev- the negative features associated with govemment
enues. Overall balance of payments constraints and ownership, such as inefficient targeting and subsithe
sheer size of infrastructure investments imply, dization of lendin& interference in operations, and
for most countries, that a sustained infrastructure corruptionL Inadequate diversification of risk has
program wiil have to be accompanied by a strategy also led to periods of heavy demand followed by
for mobilizing domestic funds. In turn, an increas- substantial slack Moreover, the banks' traditional
ing share of domestic savings will need to come function as conduits of government funds is inconfrom
private sources as governments reduce their sistent with the trend toward less reliance on-govinvolvement
in infrastructure. - errnent budgets and imcreased use of private sav-
As the dominant owner and supplier of infra- ings to finance infrastructure.
structure, however, govemments will continue to be In industrial countries, with stronger traditions
a major user of funds, as well as a conduit for re- of autonomy and solid appraisal capabilities, infrasources
from multilateral development banks. Mu- structure banks have performed better. In Japan,
nicipal governments (esponsible for large and postal savings have constituted the pnmary source
growing urban infrastructure) represent a major of long-term funds used bv such institutions as the
source of demand for financial resources. To meet Japan Development Bank (1DB) to finance infratheir
needs, new initiatives are being tried, indud- structure. The JDB has been crucial to past infraing
the revitalizing of existing ifrastructure Iending structure development, and even today, with the
institutions. Govemments are also creating special- move toward public-private partnersNhips, it continized
infrastructure funds (discussed later) as a tran- ues to play a major role in financing, often at highly
sitional measure to make long-term financing avail- subsidized rates. In Europe, municipal banks-ob-
-able where- private financing is -not likely to be tning their resources from contractual savings insufficient
Specialized infrastructure banks and stitutions -and other long-term sources-have genfuncds
are imperfect mechanism that need increas eraily performed well where local governments
ingly to acquire marketlike discipline, and their have had operational independence.
value needs to be assessed periodically. . Few municipal banks in developing countries,
Synergistic links can develop between private in- however, have shown a capacity-for sustained infrastructure
projects and domestic financial inter- vestment, largely because of undercapitalization,.
102.