The Multilateral Investment Guarantee Agency—MIGA

And we really did not hit it off … many were the reasons, and at one moment I even told my colleagues that if we were the shareholders of a private MIGA, we would have long ago asked for the keys—to close its doors. Let me try to explain my reasons for such misgivings.

MIGA’s purpose is to provide various political-risk insurance so that investors will be willing to invest in developing countries where they, or the markets, perceive that the risks of misdoings, such as illegal expropriations, are too high. This mission sounds all very well and has in fact been partially carried out by all those official export agencies through which governments of developed countries have tried to assist their exporters in selling their goods to difficult markets.

But and this is just the first big but, the developing countries that are being guaranteed through MIGA are themselves shareholders of MIGA, and so this leads to some very strange and incestuous relations that are hard or impossible to administrate. Think of it as a grandchild selling insurance against the risk that any of his grandfather’s misdoings might cause. If the grandchild tells the world his grandfather is OK, which he should, then no one will buy the insurance at the rate he is quoting; but, it would not be right either to tell the world that his grandfather is not that OK, just to sell the insurance at the right price. The perversity of having to signal to the market low risks but not too low rates, without any reference price available, represents for MIGA, in my opinion an unsolvable conflict of interest.

My second but takes off from where the previous one ended. Because the grandchild, having two grandfathers, can also not be seen as telling the world that one of them is worse than the other, in terms of the political mischief he could do, this now leads to the need for absolute confidentiality about the pricing. Now, you tell me, applying the most generous version of Murphy’s Law, where will an organization end up if the price of the products it is selling must be kept confidential, even to their Directors. 

Once, when I wanted to understand a specific MIGA request better, I was forced to sign all types of confidentiality agreements, but even then, just being able to analyze one case at a time, without being able to place it in any perspective by comparing it to the other cases, it turned out to be a quite useless exercise. By the way, I was told that I was only the second ED of MIGA who had ever looked at the specifics of case. In fact, because of the confidentiality issue, the EDs never approve any operation of MIGA and they have to settle for a “we concur,” a sort of blind man’s consent. As confidentiality goes squarely against the transparency which the WBG so much preaches, I guess that this is also an unsolvable conflict.

My third but has to do with whom MIGA can provide with insurance. Although the finance that is provided with a guarantee against political risks by the export agencies must be related to goods and services provided from the agencies’ own country, the buyers can be anyone. MIGA though can only offer its political-risk insurance to foreign investors, thereby giving them an additional competitive advantage in relation to the local investors, as clearly the insurance provides access to cheaper financing. It is clear that differences in relative competitiveness will always exist but perhaps it should not be for the WBG to stoke that fire. At least in theory this but could be solved by amending the statutes of incorporation: if the Bank preaches globalization, then it should treat all investors as equals. 

My fourth but is a minor but, but still a relevant one. In order perhaps to calm any of the previous doubts, MIGA always makes a big splash about guaranteeing that its guarantees promote development and growth. That might very well happen, but there is no way MIGA can guarantee it. The premiums charged by MIGA does simply not allow for any major analytical effort, and in reality, it is the client who in his application form describes his development impact, and the government, of the county being guaranteed against political misbehavior, that attests that this is so. As I do not know of any comparable export-credit agencies that would be required or have the resources to do the assessments of development impact, profitability or environmental effects before extending its coverage, there is perhaps nothing to do about this, except saving the costs of the charade.

So, should there be a future for MIGA? I am not really sure, but as it sometimes harder to kill these organizations than create new ones, perhaps MIGA could start to look into alternative specializations such as sub-sovereign financing or international mortgage finance.

Finally, I should make clear that my concerns about MIGA as an institution should not be construed as a criticism of those working there, as I much commiserate with any management expected to carry out such a crazy and confusing mandate.