MIGA Announces New Financial Crisis Initiative

MIGA Announces New Financial Crisis Initiative

WASHINGTON, DC, April 1, 2009 — The Multilateral Investment Guarantee Agency, MIGA, part of the World Bank Group, today announced a broadened initiative to support financial flows from banks to their subsidiaries in countries that have been hit by the global financial crisis.  The initiative will provide extended support to financial institutions seeking political risk insurance on cross-border investments for recapitalization or liquidity support to their subsidiaries in such markets.

Under the initiative, welcomed by MIGA’s Board of Directors, MIGA will be able to provide such guarantee support globally, of which up to $3 billion will be available for investments into the heavily impacted economies of Europe and Central Asia.  This follows and builds on the commitment made by MIGA in February, as part of the coordinated effort of support to the countries of Eastern Europe by the member agencies of the World Bank Group and other multilateral investors and official lenders.

Under the broadened initiative, MIGA is positioned to provide significant additional capacity for political risk insurance to banking sector investments in other regions. “Such investments, for both recapitalization and liquidity support of banks that have been subject to the financial stresses seen worldwide,  will be a necessary component of any successful stabilization effort”, says MIGA’s Executive Vice President Izumi Kobayashi. “MIGA will play an important role in the stabilization of financial systems that have faced an unprecedented global downturn.”

MIGA provides political risk insurance, and in particular can provide insurance against currency inconvertibility and transfer risk.  This can be valuable to banks considering investments into their subsidiaries operating in these markets, whether for recapitalization or for liquidity purposes, as such guarantees from a multilateral such as MIGA often allows them to expand otherwise restrictive country exposure limits.  Frank Lysy, Chief Economist of MIGA, notes that “MIGA insurance does not cover commercial risks.  But by covering cross-border transfer and convertibility risks, the guarantee support MIGA provides can address issues that under many bank regulatory regimes or internal risk management systems, would otherwise limit the investments banks can make in support of their local subsidiaries.” 

Under this expanded program, MIGA would in particular provide such guarantee support in the context of stabilization programs that are being supported by the International Monetary Fund (IMF).  The needs, and the risks, are especially great in such situations.  The support would also focus on investments that reflect a long term commitment by the banks to their subsidiaries.

“MIGA’s products and services are now more critical than ever before to bolster confidence in the financial sector.  By providing guarantees to cover investments in such institutions, MIGA can help address the economic and financial vulnerabilities of countries in these turbulent and challenging times”, says Kobayashi.  “We stand ready to provide effective and timely assistance to countries affected by the financial crisis.”

MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment into emerging economies to support economic growth, reduce poverty, and improve people’s lives. MIGA fulfills this mandate by offering political risk insurance (guarantees) to investors and lenders, covering risks including expropriation, breach of contract, currency transfer restriction, and war and civil disturbance. MIGA works actively with investors and host countries, helping to resolve disputes before they reach a claims situation. The agency also offers technical assistance to its member countries and provides free online investor information services. Since its inception, MIGA has supported nearly 600 projects in 100 developing countries, totaling $19.5 billion in coverage. MIGA’s gross guarantee exposure currently stands at $6.5 billion.

For information:
Mallory Saleson, msaleson@worldbank.org, 202.473.0844
Dmitro Derkatch, dderkatch@worldbank.org 202.458.2097