It's probably the largest investment insurance agency in the world. It stands liable for investments worth US$3.4 billion. It operates in more than 100 countries. It's been in business for nine years. And it's never had a claim. It's the Washington, D.C.-based Multilateral Investment Guarantee Agency, a sister organization of the World Bank which has issued almost 300 contracts worldwide from Coca-Cola bottling plants in Kyrgyz to hotel complexes in the Caribbean. Dedicated to insuring against non-commercial risk, MIGA's 220 current clients pay their premiums to protect them against the man-made hazards of expropriation, currency transfer restrictions, and war. "Several of MIGA's clients have asked MIGA to intervene, using its good offices with the host government, to mediate investment disputes. As a result of the intervention, the disputes were resolved," said Philippe Valahu, MIGA Regional Manager, Asia and the Pacific. While MIGA is independent of the World Bank and makes guarantees with the backing of its own capital base of one billion Special Drawing Rights (about $1.1 billion), a case might be made that the absence of any claims results from the deterrent effect of MIGA's affiliation with the World Bank. Indeed, if a government appears on the verge of expropriating an investor's assets, but has benefited from World Bank funding, MIGA's association with the bank may have an ameliorating effect on the intentions of the government in question.

International investors will frequently insure just a small part of an overall project with MIGA to deploy a "trip-wire effect."

"In today's market, there are an increasing number of projects, such as mining or infrastructure, in which no single agency can guarantee the project as a whole," said Mr. Valahu. "Investors will bring in export credit agencies as well as MIGA, albeit for a very small percentage."

A case in point is a $1.1 billion gold/copper mine project in Argentina, Minera Alumbrera, which required bank loans close to $350 million. Political risk insurance was required for the full package. As a result, five agencies are involved. MIGA's stake is $12 million. MIGA was created by 29 governments in the wake of the debt crises of the 1980s in the belief the heavily indebted countries needed to rely more on private enterprise and foreign investment so as not to compound their indebtedness. Central to their initiative was the perception that if there was to be support to investment in developing countries, a multilateral agency was needed, not one which was tied to a specific country. "Each export credit agency provided some support to corporations but each was guided by national requirements." said Mr. Valahu. "What was needed was a compliment, a multilateral agency." The second element in MIGA's creation was to provide a mechanism to aid developing countries' outbound investment, particularly investment between developing countries. "MIGA has facilitated Korean investments in China, for example," said Mr. Valahu. "Also a number of Korean companies are investing in the former Soviet Union and might be interested in using MIGA services. Indeed, MIGA covers not only investments from Part 1 to Part 2 countries, but also Part 2 to Part 2 countries."

MIGA won't get involved in tobacco, gambling, liquor, nuclear power projects; moreover, any business the agency does support must abide by World Bank environmental guidelines. Apart from these areas, the fields MIGA does get involved in are broad and range from tourism to power generation, as long as the investment is in country which is a World Bank member. "One area where MIGA has been active is in the financial sector, accounting for approximately 33 percent of our portfolio; ING Bank and Citibank are among our clients," said Mr. Valahu. "We will typically insure a loan to a branch of theirs in a developing country to cover currency conversion, remittance, transfer, expropriation or for the contingency their assets may be temporarily frozen in a crisis."

MIGA can insure various forms of foreign investment including equity, shareholder loans, loan guarantees issued to commercial banks by equity holders, non-shareholder loans, and management contracts. When MIGA insures non-shareholder loans, i.e., loans made by financial institutions, a shareholder contribution in the project needs to be insured concurrently. Overall, Mr, Valahu says that MIGA through its protective function has served to stimulate international investment. "Over nine years in 350 projects we have insured US$3.3 billion out of a total of US$20 billion worth of projects. So, we're acting as a catalyst," Mr. Valahu said.

Useful numbers:
MIGA ph. +1-(202) 473-6167
     fax +1-(202) 522-2630

by Charles Duerden