Global Development Bonds (GDBs)

1. Global Development Bonds (GDBs) BRIEFING DISCUSSION June 2005 Financing for Development Initiative New York, June 22-23,2005 John E. Mullen, GlobalNet Financial Solutions LLC 202-429-2720 jmullen@globalnetpartners.com Michael Eckhart, Solar International Management, Inc. 202-429-2030 meckhart@acore.com

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

3. Sustainable Development Map of the World Proportional to Population "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

4. Indicative Financing Trends International Commercial Bank Lending and Capital Markets Financing for Developing Countries Debt Flows to Public-Sector and Private-Sector Borrowers in Developing Countries International Finance CorporationA Loan / B Loan Lending Program Infrastructure Finance: Total Debt and Equity Source: J. Robert Sheppard, J.R. Sheppard & Company LLC, from World Bank, IFC, 20004 and 2005

5. Lower Upper EstimateEstimate Estimated Annual Funding Requirement for Infrastructure: Electric Power: US$ 140 B US$ 160 B Water US$ 111 B US$ 180 B Transportation: US$ 125 B US$ 165 B Telecommunications: US$ 58 BUS$ 105 B Total: US$ 434 B US$ 610 B Current Sources: Current self-funding: US$ 200 B US$ 200 B ODA: US$ 60 BUS$ 60 B Funding gap US$ 174 B US$ 350 B Private participation: US$ 50 BUS$ 50 B Gap US$ 124 B US$ 300 B Indicative information: Current Capital Under Management (2004): US Pension fund assets US$ 7,775 B US Life Insurance Companies US $ 4,160 B US Mutual Funds US $ 963 B Total US$12,898 B Current Participation by US Institutional Investors: Estimated Foreign Securities Holdings (2004): Pension funds US$ 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 The Need for Infrastructure Funding – and Lack of Current Participation by US Institutional Investors • Observations: • 1 Infrastructure funding need is substantial • US Institutional Investors are not participating at • scale today, and lack appropriate instruments 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 2005 - 2010) 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)

6. 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) Description:Global Development Bonds