Development Banks and Post-Crisis Blues in Investment Finance

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August 19, 2013 by apicomely

Finance Minister takes stock of economic situation as rupee slips below 62 mark

Kaushik Basu trashes talk of approaching IMF for a loan to rescue Indian economy. (Reuters)

Some combination of bond issuance and bank lending is what usually works best in debt finance of greenfield investments in new projects and creation of new productive assets. Banks are better equipped to address issues of information asymmetries, particularly at early stages of project design and in the case of complex financing needs — like infrastructure — whereas arms-length relationships through bond issues can extend the investment financing. As I have argued elsewhere — currency war and peace — the mere abundance of international liquidity of latter years has not been conducive to an equivalent creation of new productive assets in developing countries. As the retrenchment of cross-border bank long-term lending does not seem to be reversible in the near future, other vehicles will need to assume a bigger role: (…) institutional investors with long-term liabilities — such as pension funds, insurers, and sovereign wealth funds — may be called upon to assume a greater role in funding long-term assets.

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The three hour long meeting was attended by Secretaries of departments of Revenue, Expenditure, Financial services and Disinvestment. Sources said the Finance Minister took stock of the functioning of various department and sought suggestions from officials for improving the economic situation. The agenda for next three months was discussed, another source said. The meeting comes in the backdrop of rupee touching an all time low of 62.82 to a dollar and the stock markets too witnessing a decline. “It was a performance assessment and way forward,” a source said.

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