1 Global Development Bonds (GDBs) June 2005 BRIEFING DISCUSSION John E. Mullen, GlobalNet Financial Solutions LLC Michael Eckhart, Solar International Management, Inc Financing for Development Initiative New York, June 22-23,2005

2 Contents 1.Sustainable development 2.Indicative financing trends to developing countries 3.The need for infrastructure funding 4.Global Development Bonds – a description

3 Sustainable Development "Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” World Commission on Environment and Development, 1987 Map of the World Proportional to Population

4 Indicative Financing Trends Debt Flows to Public-Sector and Private-Sector Borrowers in Developing Countries Infrastructure Finance: Total Debt and Equity International Finance Corporation A Loan / B Loan Lending Program International Commercial Bank Lending and Capital Markets Financing for Developing Countries Source: J. Robert Sheppard, J.R. Sheppard & Company LLC, from World Bank, IFC, and 2005

5 The Need for Infrastructure Funding – and Lack of Current Participation by US Institutional Investors Lower Upper Estimate Estimated Annual Funding Requirement for Infrastructure: Electric Power:US$ 140 B US$ 160 B WaterUS$ 111 B US$ 180 B Transportation:US$ 125 B US$ 165 B Telecommunications:US$ 58 B US$ 105 B Total:US$ 434 B US$ 610 B Current Sources: Current self-funding:US$ 200 B US$ 200 B ODA:US$ 60 B US$ 60 B Funding gapUS$ 174 B US$ 350 B Private participation:US$ 50 B US$ 50 B GapUS$ 124 B US$ 300 B Indicative information: Current Capital Under Management (2004): US Pension fund assetsUS$ 7,775 B US Life Insurance CompaniesUS $ 4,160 B US Mutual FundsUS $ 963 B –TotalUS$12,898 B Current Participation by US Institutional Investors: Estimated Foreign Securities Holdings (2004): Pension funds US$ 15 B Insurance companies US$ 92 B Mutual funds US$ 37 B Banks & savings institutions US$ 30 B All other US$ 48 B –Total US$ 222 B Sources: Source: J. Robert Sheppard, J.R. Sheppard & Company LLC Based on (a) Estimates prepared by The World Bank and (b) calculations made from World Bank data, except upper estimate for water is from the Camdessus Report (telecommunications estimates for ) Sources: J. Robert Sheppard, J.R. Sheppard & Company LLC based on (a) Foreign securities holdings: calculated from Federal Reserve data and Merrill Lynch report on world bond market (b) total asset data: Watson Wyatt (pension);Insurance Information Institute (insurance); Investment Company Institute (mutual funds) Observations: 1Infrastructure funding need is substantial 2.US Institutional Investors are not participating at scale today, and lack appropriate instruments

6 Description: Global Development Bonds GDB Concept: A new asset class Objective: to mobilize capital from U.S. investors, especially institutional investors, for sustainable development Defining characteristics: –Qualifying Countries –Qualifying Uses –Qualifying Issuers / Managers License and Monitor (not case-by-case) by candidate participating agencies: –OPIC –Export-Import Bank –Millennium Challenge Corporation –SEC Implementation: Private sector credit enhancement: –Special purpose vehicles –Diversification: geographical, asset type, originator diversity –Over-collateralization –Tranches -- 3 to 5 or more, e.g. highest rated AAA, lowest = equity Government Enhancements to reach BBB: –Political risk insurance –Foreign exchange risk mitigation –Currency convertibility –Currency devaluation facilities Structural alternatives under consideration to reach AAA rating: –Single purpose Surety Corp. (next page) –Monoline insurers: BBB to a AAA (following page)