Rethinking Catalytic Roles of ODA
November 30, 2008
HIROTO ARAKAWA
- Table of Contents I. Background:
Financial Flow to Developing Countries
II. Challenges Ahead
III. Rethinking Catalytic Roles of ODA
2
I. Background
Financial Flow to Developing Countries
1. Impact of Current Financial Turmoil
Real GDP Growth and Trend (%)
Source: IMF staff estimates (World Economic Outlook Update, November, 2008)
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I. Background
Financial Flow to Developing Countries
2. Impact of Current Financial Turmoil
Overview of the World Economic Outlook Projections
(unit: %)
Private flow to developing
countries seems to
decrease in 2008 and
2009 due to the
slowdown of GDP growth
rate.
4
Source: IMF staff estimates (World Economic Outlook Update, November 2008)
I. Background
Financial Flow to Developing Countries
3. Who’s Major Players?
ODA
OOF
PRIVATE FLOWS
NET PRIVATE GRANTS
(unit: 100 million $)
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
*2007 data is based on estimation.
Source: OECD. Stat Extracts, DAC1 Official and Private Flows, 2008
* 2008?
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I. Background
Financial Flow to Developing Countries
4. Characteristics
Private Flow
ODA
Could be Large and Small
according to Economic
Situation
Gradually Increasing
but yet Small
Volatile
Stable and Predictable
Profit-oriented: Tend to specific
sectors and countries
Could touch upon Policy &
Institutional Reform for better
administration
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II. Challenges Ahead
Trend of Development Agenda and Way Forward
Before
Asian Currency Crisis
in 1997
Infra-development:
Public-led Private
Sector Investment
Before
Financial Crisis
in 2008
Way Forward
2008 and beyond
ODA further promoted
private investment
・Huge Infrastructure
+ Pro-poor Growth:
Inclusiveness
+ Revalue of
Infra-development
Basic Human Needs
demand
(Acceleration of PPP)
・Global Climate Change
MDGs (2000)
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II. Challenges Ahead
Huge Infrastructure Demand
-East Asia: $200 BILLION/ year (2006-10)
(Connecting East Asia, ADB/JICA/WB, 2005)
-Africa: $20 BILLION/ year (An Africa Action Plan, WB, 2005)
Implication from East Asian Economic Growth
led by Private Sector Development, encouraged by Infrastructure
Development, supported by Public Finance
Inclusive Development Model
(“Connecting East Asia” (ADB/JICA/WB flagship study))
Coordination
Poverty
Reduction
Inclusive
Growth
Development
Accountability
and
Risk Management
Growth
Determinants
Service
Access
Infrastructure
Access
Determinants
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II. Challenges Ahead
Conceptual Figure:
Expected Share of Private Investment with PPP
MIDDLE
LOW INCOME
COUNTRY
Share of
Finance
GRADUATION
INCOME COUNTRY FROM ODA
HIGH INCOME
COUNTRY
PRIVATE INVESTMENT
ODA LOAN
Expected
share of
private
investment
with PPP
ODA GRANT
PUBLIC
INVESTMENT
Income Level
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II. Challenge Ahead
“The Growth Report:
Strategies for Sustained Growth and Inclusive Development”
(Commission on Growth and Development, 2008)
(1) The Common Characteristics of High, Sustained Growth
- Strategic integration with the world economy
- Mobility of resources, particularly labor
- High savings and investment rates
- Capable government committed to growth
(2) Policy Ingredients of Growth Strategies (should be customized, though)
- High levels of investment
- Macroeconomic stability
- Urbanization and rural investment
- Effective government
- Competition and structural change
- Export promotion and industrial policy, etc.
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II. Challenge Ahead
World Development Report ’09
“Reshaping Economic Geography”
1. Geographic Transformations: “3D” Needed for Progress
(i) Higher Densities
No country has grown to high income without urbanizing
(ii) Shorter Distances
Growth seldom comes without the need to move closer to density
(iii) Fewer Divisions
Growth seldom comes to a place that it isolated from others
2. Challenges for policy makers
How to get both unbalanced growth and inclusive development?
> Economic Integration (from spatial targeting to spatial integration)
> Infrastructure development:
Important tool to improve spatial connectivity
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III. Rethinking Catalytic Roles of ODA
1. Huge Infra-Demand: Mobilization of Private Capital
(1) Enabling Environment for Private Investment
- Reforming Policy & Institution / Investment Environment
(2) Risk Mitigation for Private Investment
- Mitigating “Risks”
Political Risk, Implementation Risk (ex. land acquisition),
Demand Risk, etc.
- Burden Sharing (ex. “Bottleneck Facility”)
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III. Rethinking Catalytic Roles of ODA
Model: Mobilization of private capital catalyzed by ODA
（Case of PRSC and related ODA projects in Vietnam)
ODA grant/loans, technical assistance
for capacity building
ODA
Private
Enabling Environment
Investment climate
•Legal reform for Investment, FDI, BOT(PPP), procurement
•-do- for SOE reform, equal footing between private & public
ODA grants/loans
to induce
investments
Actions in PRSC Matrix
Capital market development
•Market infrastructure (legal system, settlement system),
•Capacity building for market players (SEC, privatized SOEs)
ODA technical assistance
Infrastructure development
by public sector
(governments, municipalities, SOEs, PPPs)
Enabling Environment
to develop borrowers’
credibility and debt capacity
Enabling Environment
Private sector investment
Private capital
Fund raising from capital markets and
private financial institutions
Private capital
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III. Rethinking Catalytic Roles of ODA
Policy and Institutional Reform : PRSC in Viet Nam




Improvement of business
investment environment:
Legal reform for Investment, FDI,
BOT(PPP), procurement, SOE
reform, equal footing between
private & public
5 Banks initiative in procurement
Prime example: Public
Procurement System
Local Competitive Bidding
Project Level
Now LCB Standard for use in
Vietnam’s overall procurement
systems
With JICA’s well-focused T/A
Public Expenditure Management
(PFM, MTEF)
JICA
“5 Banks”
WB, ADB,
AFD, KfW
Donor Coordination
Govt.
of
Vietnam
UN, DFID
and others
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III. Rethinking Catalytic Roles of ODA
Phu My Electrical Power Project in Vietnam
Generation Systems (thermal power plant)
Japanese Company
Investment
Phu My 1
Phu My 2
Phu My 3
Private Financial Institutions
JBIC
ODA Loans
Project Financing
JICA
Transmission Lines / Distribution Systems
Loans
WB & ADB
ODA’s roles on the ground:
(i) Mitigating Risk for Private Sector
JICA’s ODA loan assisted the 1st generation plant for aiming demonstration
effects for the 2nd plant financed by private investment.
(ii) Reforming Policy & Institution / Investment Environment
JICA co-financed PRSC, which paves the way for equal treatment for
domestic and foreign firms.
(iii) Assisting “Bottleneck Facility”
JICA’s ODA loan assisted transmission line (“Bottleneck Facility”) for
making BOT works.
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III. Rethinking Catalytic Roles of ODA
2. Global Climate Change
･ Multi-sectoral approach
・ Mitigation/Adaptation
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III. Rethinking Catalytic Roles of ODA
1. Approach: Climate Change and ODA
Policy Dialogue with Partner countries
ODA
Private
Climate Change ODA
agreement on policy matrix for climate change
Implementation of climate change
policies based on agreed matrix
Identification of
necessary investments
Mitigation and
adaptation projects
Enabling Environment
Private sector investments
for sustainable growth
Technical assistance
(advisor/expert)
to monitor implementation
and develop next steps
ODA grants/loans
to induce investments
Private capital
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III. Rethinking Catalytic Roles of ODA
2. INDONESIA：Climate Change Program Loan
Pillar 1： Mitigation
1.1：LULUCF
(Land Use, Land Use Change
and Forestry)
-Reforestation
-REDD
-Forest management
Pillar 2： Adaptation
1.2：Energy
-Power plant
-Industry, domestic and
commercial
-Others
2.1：Water Resource
Management, Water Supply
and Sanitation
2.2：Agriculture
-Watershed management
-Water supply and sanitation
Pillar 3： Cross-cutting Issues
3.1：
Understanding
the Impact of
Climate Change
3.2：Mainstreaming
Climate Change in
the National
Development
Program
3.3：
Improving
Spatial Plans
3.4：CDM
3.5：Co-benefits
3.6：Fiscal
Incentives
3.7：Early Warning
System
Assistance to executing agencies (line ministries)
Project
Multi-donor fund
and
other donors’ projects
TA
Project
TA
Project
TA
Project
TA
mutually complementary
relationship
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