JBIC’s Expert Team of
Global Analysts and Economists;

Analyzing Sovereign Creditworthiness of Foreign
Governments, a Vital Process for Overseas Financing

Kenji Hosono

Deputy Director General &Senior Economist
Division 2Country Credit Department
Credit, Assessment and Risk
Management Group (then)

Senior Advisor (then)Country Credit Department
Credit, Assessment and Risk
Management Group

that may affect their credit conditions, basedon information collected from international
agencies such as the Asian Development Bank,IMF and World Bank, in addition to informationfrom the governments of countries covered byeach analyst, local financial institutions andHosono In order to carry out a project inthink-tanks. When our analysts visit foreigncountries on business, they conduct interviews
other countries such as emerging countries,and exchange opinions with government officials
it is extremely important to understand theand private-sector persons who are closely
situation of the host country and to evaluate
involved in deciding the policy direction of athe credit standing of its government. There arecountry, such as officials and persons of thetwo major elements that need to be analyzed
Finance Ministry, central bank and local financial
for measuring the credit risk of a government.
institutions. Furthermore, the analysts organize
Economic aspects including the real economy,
regular policy dialogues with governments offiscal and financial conditions and international
important countries to discuss macroeconomic
balance of payments position are one element
policy as well as changes in the business andof credit risk assessment for the government.
trade environment.
The other elements are political aspects suchas the stability of policy implementation. In
Hosono The situations of emerging countries
our department, there are about 20 analysts
are changing so dynamically that it is a very
who constantly monitor the situation of about
exciting aspect of our work to observe those
100 countries, particularly those where JBIC
developments. As economic structure and policy
has already financed a project or may consider
differ among countries, we conduct research andfinancing in future.
monitoring from various perspectives.
Yasui Our analysts monitor political andYasui When forecasting the trends of
economic trends in foreign countries every day
emerging countries, our major topics this year
are interest rate hikes in the U.S.,
which affect the international flow offunds, and the trade friction particularly
between the U.S. and China. Ourattention is also drawn to the trends
of presidential elections to be held in
Russia, Egypt, Mexico and Brazil. We
will keep watching the direction of the
new governments of those countries as
the development of a policy to achievefiscal soundness is a major factor forevaluating country creditworthiness.
Economists of the Country Credit Department analyzing and evaluating theConstantly monitor ing thecreditwor thiness of foreign
governments from economic andpolitical perspectives

creditworthiness risk of foreign governments

Building closer relationships withforeign governments helps JBIC
increase its ability to provide
prompt and flexible responses
Hosono The global networking ability of ourdepartment helps JBIC strengthen its capability
to make a response to changing internationalsituation in a speedy manner. We can quickly
observe changes in countries and accessemerging countries when the global economy
changes. As we are monitoring about 100
countries, we can also compare their present
and previous situations in a cross-country
manner. This research approach enables us tobuild broad knowledge of situations in various
countries of the world.
Yasui When I was working in JBIC’srepresentative office in Brazil, the networkof contacts developed by the Country Credit
Department was fairly useful in arranging talks
with officials of the Brazilian government. In
the course of the dialogues with the Brazilian
government, we learned what policies andsystems will be implemented by the government
to respond to the changing global economy. I
believe that those dialogues were beneficial
to both JBIC and the Brazilian government.
Exchanging information and views with JBIC
served not only as a catalyst for the Brazilian
government to attract investment from Japan,
but also as an opportunity for them to learn
precedents of Japan and other countries.
Hosono/ Yasui We at the Country Credit
Department will make our efforts to maintainrelationships with foreign countries andcontribute to JBIC’s mission to provide financial
support in a proactive manner.

Press and External Affairs Division, Corporate Planning Department, Corporate Planning Group, Japan Bank for International Cooperation

Note: Sovereign risk: Risk associated with the ability and willingness of a foreign government to make debt repayments. When evaluating sovereign risk, it is necessary to analyze the economic situation of acountry, including its fiscal conditions and international balance of payments position, as well as the political situation such as the stability of policy implementation.

4-1, Ohtemachi, 1-chome Chiyoda-ku, Tokyo 100-8144, Japan Tel. +81-3-5218-3100 URL: https://www.jbic.go.jp/en/

The Country Credit Department analyzes and evaluates the sovereign risk (Note) of foreign governments. Evaluating thecreditworthiness of the government of a host country is a characteristic function of JBIC, as the credit risk of a foreign
government is an important factor to be assessed for the stable implementation of projects in foreign countries such as emerging
countries. In this report, Senior Advisor Hosono (then) and Deputy Director General & Senior Economist Yasui (then) of theCountry Credit Department talk about the functions and roles of their department.

November 2018

Yutaka Yasui

JBIC

November 2018

Today

Japan Bank for International Cooperation

JBIC Today

SpecialFeatureGlobal Financial Stability and JBIC’s Mission :A Decade after the Global Financial Crisis
in 2008

News in Depth“All Japan” Rantau Dedap Geothermal
Power Project in Indonesia
JBIC’s Expert Team of
Global Analysts and Economists

JBIC Today

SpecialFeatureCauses and responses to changing international financial crises-

Looking back on financial crises and JBIC’s responses for the past 30 years

of Japan. Here, we will classify global financial crises in the past into three different
categories based on the cause of the crisis and will focus on four major crises over past 30
years. In this report, Yo Kikuchi, Director General of the Country Credit Department at thetime of this interview, conducting analysis of the international finance and economic conditions of each country, explains details of these four financial crises.

This year marks the tenth year since the Global Financial Crisis in 2008 that was caused by the collapse of the U.S. investment bank Lehman Brothers on September 15 the same year. Having experienced many crises in the past, international financial markets now show concern about a type and timing of possible next crisis in the future. With one of its missions being“Preventing disruptions to international financial order or taking appropriate measures with respect to damages caused bysuch disruption,” JBIC has been addressing global financial crises since the days of its predecessor, the Export-Import Bank
返却

Debt Crisis
A debt crisis occurs when a government cannot repay its accumulated external debt.

Currency depreciation due to inability to repay external debt

Repayment
Foreigncountries

CountryA[ Main source of crisis: Government of a debtor country ]

Year

1982

Latin American Debt Crisis

2

Bank A返却

A currency crisis is caused by a sharp depreciation of the currency of a country. In general, the government and local companies in acountry borrow from other countries in foreign currencies such as U.S.
dollars. When they make repayment of those overseas borrowings,
they need to convert their local currencies into U.S. dollars. In particular, a country with less creditworthiness in terms of its ability tomeet its financial obligations borrows mostly in short-term fromabroad. If the currency value of a country declines due to the deterio-

Year

Bank B

1994

Foreigncountries

CountryA

Currency value of
Borrowing
Country A

country ]ration of its economy, the amount to be repaid to overseas
lenders in terms of local currency suddenly becomes higher than the amount of repayment expected at the time ofborrowing. For this reason, there is a case where a country might not be able to repay its debt to overseas creditors as a result of the plunge in its currency even though
the country was considered to have the ability to fulfil its
debt obligations at the time of borrowing.

Year

A financial crisis
occurs when the financial sector
Fear of financial system instability
becomes impaired due to a sharp decline in thecreditworthinessof financial
institutions.
Bank C
Currency
Bank A value
Bank ofB

Repayment

Bank CCountry A

Declining creditworthiness[ Main source of crisis:
Private financial sector ]Fear of financial system instability

Bank ABank B

Bank C

Declining creditworthiness

The earnings of financial institutions decrease when they have increasing non-performing loans to corporations and other entities due to worsening economic conditions.
If financial institutions owe external debt as well, there will be growing concern overtheir ability to repay. Moreover, an increase in the number of financial institutions in
the face of declining business performance would raise fears over the collapse of thedomestic financial system. This might provoke depositors to withdraw their deposits
from banks and ultimately send the financial market into meltdown in the worst case.

1997

Year

Asian Currency Crisis

Mexican Peso Crisis (also known as the Tequila Crisis)

Director General (then)Country Credit Department
Credit, Assessment andRisk Management Group

Financial Crisis

Financial sector instability due to currency depreciation

Borrowing Declining creditworthiness[ Main source of crisis: Government and financial sector of a debtor

A debt crisis occurs in a situation where a government increases its borrowing from foreign countries more than it can absorb, and becomes unable tosustain their debt repayment. While the external debt-to-GDP ratio is used as
an indicator to measure the debt burden of a country, it merely shows the tendency of external debt accumulation. Therefore, it is very difficult to predict
the outset of a debt crisis.

返却

CrisisRepaymentFear of financial system instability
A currency crisis occurs when the currency value
Foreign
Countryof a debtor country falls sharply.
countries
A
Currency value ofCountry A

Borrowing

Currency

Yo Kikuchi

2008

Global Financial Crisis of 2008

Cause of crisis

Default of governments of Latin American countries

Cause of crisis

Sudden devaluation of the Mexican peso

Cause of crisis

Sharp depreciation of the Thai Baht

Cause of crisis

Bankruptcy of Lehman Brothers

Characteristics

The Latin American debt crisis is a typical example. From the mid-1970s, governments of Latin American countries promoted economic development including infrastructure construction by obtaining huge loans
from financial institutions in developed countries. In
the early 1980s, however, they struggled to repay theiraccumulated debt in U.S. dollars as a result of interest
rate hikes by the Reagan Administration in the U.S. andwere put into default one after another. For about thenext 10 years, investments and loans to Latin America
by developed countries decreased and the economiesof the region continued to face stagnation.

Characteristics

The Mexican government increased its short-term borrowings
from investors in other countries including the U.S. to cover its current
account deficits arising from fiscal expansion. Mexico was also facing
domestic political instability, causing investors to be skeptical about
the country’s ability to keep the fixed exchange rate system. Triggeredby rising interest rates in the U.S. from February 1994, funds flowedback into U.S. bond market and Mexico’s foreign reserves dwindled.
Unable to maintain the fixed exchange rate system, Mexico moved toa floating exchange rate system in December of the same year, which
resulted in the sharp depreciation of the peso. The Tequila Crisis,
caused by funds outflow from Mexico, was a sort of precursor to the
Asian currency crisis.

Characteristics

The Asian Currency Crisis is different from other financial crises that happened before because private sectors in addition to the government owed debts to foreign countries. In 1997, overseas investors pulled funds from Thailand on concerns over the overvaluation of the Thai Baht and the continuing large inflow of short-term funds into the country.
This caused the country to be unable to maintain the fixed exchange rate system, pushingdown the currency sharply in July the same year. The financial sector in Thailand fell intochaos and foreign companies operating in Thailand including Japanese companies had nolonger access to foreign currencies. The impact of the crisis spread to other Asian countries including Indonesia, Malaysia and South Korea. The Asian Currency Crisis had aspects of both currency and financial crises.

Characteristics

The Global Financial Crisis in 2008 was triggered by the burst of the
housing bubble in the summer of 2007 in the U.S. and the losses on subprime
mortgage securities in the autumn of 2008. The materialization of a hugeamount of credit risk that is transferred through credit derivative instrumentsfrom one counterparty to another caused many European and American financial institutions to face a difficulty in raising funds and created instability
in the financial markets. The “once-in-a-century” financial crisis rapidly engulfed the world economy through the stagnant real economy and slump in
the volume of trade transactions.

Measures

Developed countries including Japan provided newmoney (lending) to borrowing countries in Latin America tohelp them solve their debt problems in the medium-to-longterm in their efforts to promote structural reforms and reconstruct their economies. JBIC offered long-term loans tothese Latin American countries for them to regain debt
sustainability in collaboration with the World Bank. This
was a turning point for Japan because the country took astep in committing to the international debt strategy byhelping developing countries stabilize and restructure
their economies in cooperation with international organizations, while putting its significant trade surplus to use
for recovery of the economies in the face of the debt crisis.

Measures

The Mexican government asked the IMF for financial assistance,
while implementing its emergency economic measures such as reducing the fiscal deficit and holding down wage increases. The U.S. andthe IMF provided Mexico with funds totaling 50 billion dollars, which
helped ease the currency crisis. This international financial aid package was agreed on February 1, 1995, taking just one month after the
Mexican government announced its emergency economic measures
on January 3. It was reported as a consequence that the contagion of
the Mexican peso crisis into other countries in Latin America was relatively short-lived. This suggested that a currency crisis requires animmediate response. The international financial support provided to
Mexico served as an important lesson for responses to the Asian currency crisis, in which Japan played a leading role.

MeasuresThailand, Indonesia and South Korea that had experienced a rapid outflow of funds received financial assistance under international framework agreements by the IMF, the World Bank, the AsianDevelopment Bank as well as other countries around the world. The agreements to provide international financial support were made on condition that these Asian countries implement their own
macroeconomic adjustment program. Japan expressed its intention to provide the largest amount offunds among countries supporting the crisis-affected countries in Asia. The IMF agreed to implement
the Stand-by Arrangement for Thailand’s macroeconomic adjustment program on August 20, 1997.
Following this, JBIC made a rapid response to helping Thailand carry out the adjustment program byproviding financing in parallel with the IMF. Throughout the period of the crisis, JBIC offered a financial
aid package totaling 3.5 trillion yen to Asian countries as well as Japanese companies operating in
the region. In particular, the financial assistance to Asian countries was made under the New Initiative
to Overcome the Asian Currency Crisis (also known as the “New Miyazawa Initiative”) announced by
the Japanese government in October 1998.

Measures

The international community first worked urgently to stabilize the financial system. Subsequently, however, as the crisis started to affect thereal economy, each country cooperated in implementing fiscal expansion
and monetary easing. Amid these global efforts, JBIC provided various financial assistance to help stabilize the global financial system, including: recapitalizing major banks in developing countries through the Bank Recapitalization Fund (to which JBIC contributed two billion dollars); providing guarantee
to Samurai bond issuances by governments in developing countries; andmaking loans totaling 2.4 trillion yen to Japanese companies operating overseas affected by international financial turmoil.

November 2018

JBIC Today

November 2018

JBIC Today

3

JBIC Today

Special Feature

Asian Currency Crisis

JBIC’s Financial Support
JBIC offered large-scale financial support to client companies and Asian countries

Major East Asian countries had continued growing until the Asian Currency Crisis was sparked by the sharp depreciation of the Thai Baht in July 1997. The crisis spread to other Asian countries, causing a decline in their currencies anda severe recession. The Japanese government expressed its intention to offer the largest amount of financial assistanceamong all developed countries. JBIC, in collaboration with international organizations, extended support to stabilize
the macro-economy of Asian countries, while providing financial support to Japanese companies and banks affected by
the currency crisis. Here, we will look back on the background and financial responses to the Asian Currency Crisis.

Support for client companies
To support Japanese companies affected by the Asian currency crisis, JBIC provided support worth 1,371.9 billion yen in total as part of the economic policy of the Japanese
government in February, April and November in 1998. (See the table below for a summary of the amount provided to each country.)

Support Cases
Providing financial support to client companies via Japanese banks
Besides providing direct financing to Japanese companies, JBIC set a dollar-denominated credit line (two-step loans) for Japanese financial institutions that had been forced to shrink
their loan business. It provided 10 Japanese private banks with a total of 1,570 million dollars to help them continue to supply dollar-denominated financing to Japanese overseas affiliates.

Background and Causes
Short-term funds inflow into and outflow from Thailand
Active inflow of short-term funds
into Thailand

1
2

Emergency support for Thailand (Parallel Financing with IMF)
In August 1997, JBIC provided a loan for the government of Thailand to finance the country’s import, in parallel with the IMF which agreed to implement the Stand-by Arrangement(SBA) for supporting the country’s macroeconomic adjustment program. JBIC’s loan amounted to 480 billion yen (4 billion dollars), which is the same amount provided by the IMF.

Initial assistance to other Asian countries (February to June 1998)

After the U.S. shifted to the strong dollar policy in 1995, the Thai Baht which was
pegged against the dollar became overvalued because the value of the Thai Baht moved
in tandem with the dollar. This resulted into the loss of export competitiveness andimport increase, and accelerated a large amount of capital inflow to the country in ashort period of time in order to finance the expanded current account deficit.

Overvaluation of the currency

JBIC offered a loan totaling 40 billion yen (300 million dollars) to The Industrial Finance Corporation of Thailand and Export-Import Bank of Thailand to help local companies in Thailand
secure funds for capital expenditure and operating funds required for industrial production and return to their smooth export activities. Additionally, JBIC provided loans to the governmentof Indonesia and Export-Import Bank of Korea amounting to 170 billion yen and 130 billion yen, respectively, to finance the import of raw materials and parts needed by local exporters.

The New Initiative to Overcome the Asian Currency Crisis (also known as the “New Miyazawa Initiative” (October 1998)
The Japanese government announced to provide a package of financial support measures to Asian nations totaling 30 billion dollars. Of that total, 15 billion dollars were to be
used for medium to long-term funding for the recovery of real economies of Asian nations and the remaining 15 billion dollars were to be reserved in case of short-term funding needs
arise for implementing their economic reforms. JBIC offered mid- and long-term assistance in the form of loans amounting to 9.4 billion dollars (as of the end of September 1999) toIndonesia, Korea, Malaysia, the Philippines and Thailand. This led the Thai economy with negative growth rate for two consecutive years to return to positive growth of 4.6% in 1999.

Thailand’s current account balance worsened and there was growing concern about its
ability to maintain the economic structure that depended on short-term funds fromabroad. This led foreign investors to stop investing in Thailand and withdraw their money from the country.

Foreign investors’ skepticism about
continuing foreign funds inflow

3

Support for Asian countries

As economic development accelerated in Thailand, a large amount of short-term funds
started to flow into the country around 1990. Amid the increase in funds inflow fromoverseas, local financial institutions continued to expand lending to domestic businesses including the real estate sector which started to take the form of a bubble.

■ Total financial assistance from JBIC
708.1

Exhaustion of foreign reserves andadoption of the floating rate system

4

Total amount:
3,526.9 billion yen
Thailand

708.1

708.1

5

410.6

Thailand was unable to maintain the fixed exchange rate system due to a lack of foreign reserves, which prompted a move to the floating exchange rate system in July 1997. This drove
down the value of the Thai Baht significantly and the Thai economy entered a serious recession. Companies went bankrupt one after another and the unemployment rate surged.

410.6
410.6
393.4
Turbulence in Asian financial markets and functional decline
in the banking
sector
254.3

ImpactThailand

410.6
410.6

Indonesia

254.3

393.4

93

207.6

10.9
For Asian countries:
Indonesia
SouthyenKorea
2,155 billion
South Korea
Philippines

708.1
708.1

93

South Korea

480.2
123

195.5
254.3

393.4

（0）

Philippines
Malaysia
Thailand

Malaysia
OthersIndonesia

195.5

10.9
10.9

Philippines
Indonesia
Indonesia

708.1

410.6
207.6 195.5
123

650.4
650.4
123

207.6

393.4
93
254.3 393.4
254.3

10.9

ThailandThailandFor client companies:
650.4
1,371.9 billion yen

650.4

10.9

ThailandIndonesia

254.3

650.4

393.4

93

Malaysia
South Korea
South Korea

Phili
Philipp

650.4

480.2

93

（0） 10.9

OthersSouth Korea(Unit: Billions of yen)

The currency crisis spread to other Asian countries[ Impact on Japanese overseas affiliates companies ][ Contagion of crisis ]Other Asian countries also experienced a rapid outflow of funds, causing sharp currency depreciations anda recession in those economies, asis the case with Thailand.

South Korea

Thailand

Malaysia

November 2018

JBIC Today

Shortage of funds to import raw materials locallySignificant decrease in profits due to decline in export

Real GDP growth rate (1998)

4

Extending diverse forms of timely support

Difficulty in obtaining foreign currencies from local banks

Difficulty in export production due to inability to procure raw materials

Philippines

Indonesia

The Role of JBIC

Japanese manufacturers were gradually affected

Thailand ▲ 8.0%
Indonesia ▲ 13.7%
South Korea ▲ 5.8%

Difficulty in obtaining the local currency due to slumping banking sector
Worsened business conditions such as delay in salary payment to employees

666.7

666.7

381.9

381.9
FY 2009

FY 2010

FY 2009

FY 2010

Immediately after Thailand announced its decision to end the fixed
666.7 our Country Credit Department staff
exchange rate system in July 1997,
381.9
flew to Thailand to gather information about the situation of the country. In
the next month, JBIC decided to provide Thailand with a loan up to 480
2009
2010
billion yen (4 billion dollars) inFYcooperation
withFYthe
IMF. It was important
to try to minimize theimpactof thecrisis by financial
making a prompt
decision.
TSLs
through
Japanese
institutions
Meanwhile, JBIC provided assistance at the microeconomic level toJapanese corporates in Thailand, which required foreign currency funds byassessing the impact on their activities and demand.
455.7
121

57.8

FY 2008

FY 2009

121

1.7

FY 2008
FY 201057.8
FY 2009

The role expected of JBIC was to fully understand the situation of
758.1
countries affected by the crisis from both macroeconomic and microeco-455.7
666.7
nomic perspectives in order to prepare for various forms of support in an
121
666.7
57.8
2.9
381.9
1.7
integrated manner. I believe that381.9
JBIC
has the capability
to extend appropri121
FY 2009manner inFYcollaboration
2010
FY 2008
FY 2009 57.8
FY 2010 1.7
ate support FY
in a2008
timely and flexible
with interna121
57.8
1.7
tional organizationscommitted
tothe stabilityof international finance,
FYfor
2009
2010
FY 2008
FY 2009 countries
FY 201Loansprojects
in FY
developing
countries
Loans forprojects in developed
FY needs
2009 of governments
FY 2010 developing countries, private-sec- FY 2008
FY 2009
FY 2010
identifying
theTSLs throughJapanese financialininstitutions
Loans
for projects
Interview
with in developing countri
through
Japanesefinancial
institutions
Loans Director
for projects
in developing countries
torTSLs
financial
institutions
lendingmoney
General758.1 to businesses and Japanese com758.1
panies operating455.7
in Asia.666.7
Kikuchi
381.9

1.7
FY 2010
FY 2008

2.9
FY 2009

2.9

FY 2008
FY 2009
FY 2010
FY 2010
FY 2009
FY 2010

TSLsinstitutions
through Japanese financial institutions
Loans
for projects in developing
Loans for projects in developed countries
TSLs through Japanese financial
Loans for projects in developing
countries
Loanscountries
for projects in developed
TSLs countries
through Japanese financial institutions

121

57.8

2008 Today FY 2009
November 2018 FY JBIC
5Loans for projects in developing c

JBIC Today

Special Feature

Global Financial Crisis of 2008

JBIC’s Financial Support

The bankruptcy of the U.S. investment bank Lehman Brothers in September 2008 caused chaos in the market, resulting
in serious difficulty in fund raising by financial institutions in the U.S. and Europe, the plunge in stock prices as well as the yen
appreciation against the dollar. At the beginning of the crisis, the impact on countries other than the U.S. and European countries was expected to be modest, but the crisis rapidly spread across the globalizing world and Japan was no exception frombeing affected. The international community accelerated its efforts to secure the stability of the financial system. As part ofthese global efforts, shortly after the outset of the crisis, JBIC provided financial support to developing
708.1countries and Japanesecompanies with overseas operations. We would like to look at the causes and effects of the Global
410.6 Financial Crisis in 2008.
410.6
393.4

JBIC provided various assistance to stabilize the financial system and support client companies

Support for client companies
Loans for major client companies operating in developing countries (December 2008 to March 2011)
708.1

254.3

ThailandIndonesia
ThailandOverheating of the U.S. mortgage loan market

12
3

Collapse of the housing bubble

Bankruptcy of Lehman Brothers
greatly impacted financial sector

In the U.S., the housing boom was created by the low-interest policy introduced in the early 2000s. As
housing prices rose, mortgage finance corporations increased subprime loans to individuals with poor creditworthiness and low income. The majority of subprime loans was sold to investment banks and was thenrepackaged into mortgage-backed securities to be sold to institutional investors in the U.S. and Europe.
The U.S. Federal Reserve raised interest rates on concern over a housing bubble with overheating
housing prices. As a result, interest rates for housing loans were pushed up. Housing prices started
to decline in response to waning demand of home buyers, which also made it difficult for low income
workers who purchased a house through the use of a subprime loan to make repayment.
Continued defaults on subprime loans spurred defaults on mortgaged-backed securities in the global markets. The subprime loan problem expanded from a local housing market to the capital markets
around the world. Financial institutions that owned subprime loans and investment banks that issued a large number of mortgaged-backed securities showed rapid deterioration in their financial
666.7
standing. Although the U.S. Treasury Department announced its decision to inject public funds into
381.9
government-sponsored housing finance corporations, a leading investment bank Lehman Brothers
went into bankruptcy on September 15, 2008.
FY 2009

4
5

Spread of financial crisis to other global markets

FY 2010Impact
The crisis spread across the world[ Impact on the world ][ Impact on Japan ]At the beginning of the Global Financial Crisis in 2008, the economies of developing
欧州危機
リーマンショック
countries were viewed as remaining relatively stable based on the notion of “decoupling”, which discusses that the growth of developing countries is not necessarily influenced by the financial instability in developed countries. In fact, however, both developed countries led by the U.S. and emerging countries have strong links to each otheron the real-economy front (exports to the U.S.) as well as on the financial front (global
LehmanShock the rapid spread
GlobalofRecession
capital flows), which
prompted
economic and financial instability to
global marketplaces.
no exception from being influenced, although the
Global FinancialJapan
Crisiswas
in 2008
banking sector in the country did not have a large exposure to U.S. subprime market.

Japan was also affected by a downturn in the global economy

6

November 2018

JBIC Today

Global Recession

650.4

480.2

254.3
JBIC launched254.3
a financing facility that provides loans andguarantees to Japanese companies including
countries, as a special
207.6
207.6enterprises and SMEs operating in developed
195.5 mid-tier
195.5
123
123
93
93
measure for10.9
supporting those companies affected by93
the turmoil10.9
of local bond markets in developed countries.
10.9

Two-stepSouthloans(TSLs) for client companies
operating(AprilIndonesia
2009 to March 2011) OthersSouth
Thailand
Korea
Korea
Philippines
Indonesia
South
Korea overseasMalaysia
Philippines
Malaysia

Sinking global stock markets and declining consumer spending

Sharp appreciation of the yen against the dollar

Poor performance of large exporters due to yen appreciation

Damage to Japanese companies including SMEs inside and outside the country

207.6

（0）

Philippines
OthersJBIC offered TSLs, via Japanese banks, to Japanese companies operating overseas particularly mid-tier enterprises, SMEs and second-tier enterprises in the face of difficulties inraising funds in the U.S. dollars.

Support for developing countries
IFC Bank Recapitalization Funds (established in November 2008)
The Funds are a private equity and subordinated debt funds aimed at recapitalizing major local banks in developing countries for their economic and financial stability. JBIC contributed
two billion dollars to the Funds, along with the International Finance Corporation (IFC), a member of the World Bank Group.

”Guarantee and Acquisition toward Tokyo market Enhancement (GATE)” facility (announced in May 2009)
JBIC supported Asian developing counties in the face of difficulty in issuing sovereign bonds due to the turbulence in the global financial markets to access sources of financing in themarket. Through the launch of the GATE facility, JBIC was set to provide a guarantee up to 500 billion yen to the issuance of yen-denominated foreign bonds (Samurai bonds) by governments
in Asian countries. Under the GATE facility, JBIC supported the Samurai bond issuances by the issuers including the government of Indonesia and Philippines.

■ Total financial assistance from JBIC
(Unit: Billions of yen)

666.7
455.7

666.7

FY 2009

381.9
121

57.8

1.7

FY 2008
FY 2010

FY 2009

FY 2010

TSLs through Japanese financial institutions TSLs through JapaneseLoansfor projects
in developing countries
financial
institutions
The bankruptcy of Lehman Brothers sparked credit uncertainty of leading financial institutions. In reaction to this, the New York stock market plummeted and the U.S. economy fell into a deep recession.

Increased fears over financial
instability in the U.S.

Global Financial Crisis in 2008

708.1
650.4

650.4

Loans and guarantees
for client companies
operating in developed countries(December 2008
480.2 to March 2011)
410.6
393.4
393.4
（0）

Causes
Housing bubble inflated bysubprime mortgage loans

JBIC provided loans directly to major Japanese companies to support their subsidiaries in developing countries, as an exceptional measure to support their overseas business activities
during crisis.

121
FY 2008

57.8
2009
FY FY
2008
FY 2009

758.1

758.1
455.7

381.9
1.7
FY FY
2010
FY 2009
2010

121

57.8
2.9

1.7

FY
FY 20082009

FY
FY 20092010

FY 2010

2.9
FY 2010

TSLs
Japanesefinancial
institutions
Loans forin developed
countries
Loans
for throughprojects
inprojects
developing
countries

FY 2008

Loans
for projectscountries
in developing countries
Loans for projects
in developed

For client companies

For developing countries

Projects in developing countries
180.6 billion yen
TSLs via Japanese financial institutions 1,048.6 billion yen
Projects in developed countries
1,216.8 billion yen

IFC Recapitalization Funds
GATE Facility

2 billion dollars
Up to 500 billion yen
etc.

The Role of JBIC
Minimizing the impact based on the lessons learnt from the Asian Currency Crisis
To support Japanese companies that struggled with obtaining funds, JBIC financed
their overseas businesses via Japanese financial institutions, in addition to direct loans
to their projects in both developing and developed countries. Since the Asian Currency
Crisis, JBIC has been consistent in assisting Japanese companies to recover their business activity as early as possible, through both direct loans from JBIC and those provided
through Japanese banks.
On the other hand, contribution to the IFC Recapitalization Funds in collaboration
with IFC was JBIC’s new effort to respond to the crisis by investing in a global equity fundinstead of providing a loan. The purpose of the Funds is to recapitalize major banks indeveloping countries by absorbing losses on their non-performing assets and restore theirfinancial soundness.
In addition, JBIC’s support for Samurai bond issuance by the Indonesian government
was another major assistance. As the crisis spread to developed countries in Europe,

there was concern that even the IMF might run out of funds to assist countries affectedby the disruption in the financial markets. After the Asian Currency Crisis, JBIC followed
the Japanese government’s initiative to develop local bond markets in Asia, which also
led to support for governments in Asian countries trying to access to utilize capital markets for raising funds.
The Global Financial Crisis in 2008 was a once-in-a-century
event. As described above, JBIC actively provided comprehensive financial support to minimize the impact of the crisis. JBIC
established the Strategic Research Department in August 2018.
In order to respond to a financial crisis in a timely and appropriatemanner, it is also required to recognize signs of the crisis. JBICInterview withwill continue to closely watch international economic trends andDirector General
Kikuchiprovide appropriate support in the years to come.

November 2018

JBIC Today

7

JBIC Today

Special Feature

The 2008 Global Financial Crisis in Retrospect

The Rabigh Project: maintaining
stable operations after weathering
the financial crisis, and now looking
ahead to its future prospects

mand for petrochemical products started to improve after mid-2009, thanks
to the effects of the economic stimulus measures implemented in countries
around the world.
- What difficulties did you face in obtaining financing?
Nozaki We never had difficulties in obtaining financing after the global financial crisis in 2008. Based on the lessons learned from the Asianfinancial crisis, we diversified our financing methods, being early among
Japanese corporation to arrange committed credit lines*1 from both Japanese and foreign banks, and we also increased our issuance of commercial
paper.*2 We remained highly aware of crisis management after the Asianfinancial crisis, knowing that anything can happen at any time.
*1 An agreement between a bank and a borrower to set a certain credit line in advance*2 A commercial paper is a debt instrument issued by a corporation, particularly for securing short-term
financing. The commercial paper is issued as a promissory note at a discount from face value.

Summary of the Rabigh Project
The Rabigh project comprises an integrated oil refinery and petrochemicalcomplex in Saudi Arabia. This oil refinery plant is operated by Petro Rabigh,a joint venture company established by Sumitomo Chemical and Saudi Aramco, a Saudi Arabian national petroleum company. This is a huge project inwhich Petro Rabigh has received investment totaling about USD 9.8 billion
for the first project phase and about another USD 9.1 billion for the second
phase. This oil refinery plant manufactures petroleum products such as
gasoline and petrochemical products such as polyethylene.

Sumitomo Chemical Co., Ltd. (Sumitomo Chemical) celebrated the 100th anniversary of the commencement of its operations in 2015. One of the company’s main business sectors is its Petrochemicals & Plastics Sector, and this business is
supported by Rabigh Refining & Petrochemical Company (Petro Rabigh) located in Saudi Arabia. Petro Rabigh is one of thelargest integrated oil refinery and petrochemical plants in the world. After construction started in 2006, it had to overcome
the global financial crisis in 2008, and production began at its first plant in April 2009. With stable operations, the plant isgenerating steady profits today. In this report, Kunio Nozaki, senior managing executive officer of Sumitomo Chemical,
looks back on those days when he was in charge of obtaining financing for the Rabigh project as the general manager of
Sumitomo Chemical’s finance and accounting office at the outset of the global financial crisis in 2008.

- Back then, did you foresee a situation like the global financial
crisis in 2008?
Nozaki I cannot say I was fully mentally prepared for such a situation, but
I started to have a feeling that a financial crisis might happen every time I
heard news of investment firms in the US effectively going bankrupt or about
the risks of subprime mortgage loans. Canaries are kept at the entrance ofcoal mines to detect toxic gases and warn miners of danger, and in thatsense, I felt I could hear the canary warnings about the financial markets.

- What were the impacts on the Rabigh Project?
Nozaki As this project was a huge long-term investment for the next 30
or 50 years, we were determined to complete it by any means. Fortunately,
the operations of the project are now becoming stable, and it is anticipatedto generate real profits from now on. We expect this project to generatea source of funds for investing in the business areas that we focus on,
such as the environment and energy, ICT (information and communication
technologies), and life sciences.
- How would you evaluate JBIC’s support?
Nozaki When negotiating with Saudi Aramco regarding the establishment of a joint venture, we felt very secure because JBIC was involvedin the negotiations as well. We greatly appreciate JBIC for its support inproviding us financing in a prompt manner.
- You presumably built a stronger management structure as a result of surviving this global financial crisis?
Nozaki After the global financial crisis in 2008, we continued to experience a lot of hardships, such as the impact of the prolonged European debt

Kunio Nozaki
Senior Managing Executive
Officer
Sumitomo Chemical Co., Ltd.

8

November 2018

JBIC Today

Photo 1: Sumitomo Fertilizer Manufactory, the predecessor of Sumitomo Chemical, established in 1913 to produce fertilizers from sulfur dioxide generated in copper smelting. Sumitomo’s business philosophy has been
passed down from these origins.

■ JBIC’s support for Petro RabighFiscal year

Details of support
Project finance for Petro Rabigh (up to

March 2006

USD2.5 billion for the first phase of the
project)
Financing for Sumitomo Chemical (up to

March 2009

- What impact did the global financial crisis have on the businessenvironment?
Nozaki Demand for petrochemical products noticeably declined afterNovember 2008. I reported the business performance and prospects at
a board meeting as the executive officer of the finance and accounting
office. I had to make downward revisions in the earnings estimates foreach month after November 2008. It was winter, and I remember the board
meeting was being held in a chilly atmosphere. Hiromasa Yonekura (thenRepresentative Director & President), however, was unperturbed, saying,“Everyone in the petrochemicals business unit is doing their best. There
are times when we experience hardships in our business.” Fortunately, de-crisis after 2010 on our other businesses, and the issues and challenges ofworking with managers from many different countries on the Rabigh project.
We overcame those challenges, however, and were able to maintaina sense of unity as a company. I believe that this was because all of ouremployees were able to move forward while reflecting on our business philosophy of ”Benefit self and benefit others, private and public interests are
one and the same,” which means striving to benefit not only Sumitomo’s
own business, but also the country and society as a whole.
When the company did not perform as well as intended, the management team invited the division heads to a meeting to share information
about the current situation of the company. During this meeting, again weall reflected on Sumitomo’s business philosophy, and then set objectives
for each division to resolve the issues facing the company.
In 2015, we celebrated the 100th anniversary of the commencementof Sumitomo Chemical’s operations. This ship (Photo 2) was designed tomark the occasion, and it symbolizes our determination to make a newstart and address future challenges and growth based on our history overthe past 100 years. We will continue to overcome challenges that mightcome our way in the future, such as financial crises, and will contribute tosociety by uniting all of our employees to work together under Sumitomo’s
business philosophy.

USD300 million for the first phase of the
project)
Financing for Sumitomo Chemical Asia

March 2009

Pte. Ltd., a Singapore-based subsidiary(up to USD80 million for the sales of
products manufactured by Petro Rabigh)Project finance for Petro Rabigh (up to

March 2015

USD1,998 million for the second phaseof the project)

Photo 2: On the ship are various facilities and products of the Sumitomo Chemical Group, including the Besshi Copper Mine, which was
the origin of Sumitomo Chemical’s business.

November 2018

JBIC Today

9

JBIC Today

Special Feature

The Asian Currency Crisis andthe 2008 Global Financial Crisis in Retrospect

Indonesia’s Experience
with Two Financial Crises
Impact of Two Financial Crises on Indonesia
The Asian currency crisis: Started in Thailand in July 1997 andInterview with His Excellency
Mr. Arifin Tasrif, Ambassador
Extraordinary andPlenipotentiary of the Republicof Indonesia to Japansoon engulfed Indonesia and other Asian countries, disrupting theircurrency valuations and economies. It resulted in exchange rate collapse andserious recession in Indonesia, with the rupiah plummeting at a much fasterpace than other Asian currencies.

The 2008 Global Financial Crisis: Affected by the widespread
failures of financial institutions in the United States and Europe, theeconomic growth rate abruptly slid into negative territory in many
（億USD）
emerging
markets.
In contrast, the Indonesian実質GDP成長率の推移
economy has been on a（%）
国内総生産
12,000 growth track, achieving a growth rate of 4% or higher - albeit 15
sustained
experiencingアジア通貨危機
a temporary decline.
リーマンショック
10,0008,000

105Indonesia has experienced two international crises. The first was the Asian currency crisis that arose after aperiod of sustained strong economic growth in the first half
6,000 of the 1990s. Then the Global Financial Crisis 0in2008 jolted the country and other emerging markets that had growing economic ties with the United States. We
4,000 about how the country dealt with these hardships.
-5
spoke with H.E. Arifin Tasrif, Indonesia’s Ambassador to Japan,
2,000Asian Currency Crisis- How was Indonesia affected by the Asian currency crisis?
Many businesses faced funding problems and went bankrupt.
Domestic consumption decelerated and there was a significant
decrease in purchasing power. An unprecedented 16 banks wereliquidated and a further 48 banks had their operations suspended.
- What caused such extensive damage?
We did not anticipate Asian currency crisis, and were not prepared. The capital outflow occurred quite suddenly. While both the
public and the private sectors were eager to borrow large sums offoreign currencies amid a fast-growing economy, the government ofIndonesia did not have a system in place to monitor the financial
sector and inspect domestic financial institutions.

10

-10

enhancing the soundness and transparency of monetary policy. At
0-15
1996time,
1998 in2000
2004 200620082010 20122014
the sameorder2002
to rebuild
privatefinancial
institutions,the※国内総生産（出典:世界銀行）（出典：IMF）
government took initiative
to develop a 実質GDP成長率の推移
scheme under whichthedomestic financial sector is monitored, in addition to consolidating
and reorganizing the private financial institutions. To implement reforms
in financial and other sectors and fiscal consolidation, we made useof support from such international organizations as the IMF, theWorld Bank and the ADB as well as those from Japan, including JBIC.
Besides, aiming to strengthen international cooperation for preventing and responding to future crises, we have joined the Chiang Mai
Initiative1, which is a set of bilateral currency swap arrangements.
1: Chiang Mai Initiative: Adopted at a May 2000 meeting of ASEAN+3 finance ministers in Chiang Mai, it
provides for, among other things, the launch of a network of bilateral currency swap arrangements.

Global Financial Crisis of 2008

- How did Indonesia respond to the Asian currency crisis?

- What impact did the 2008 Global Financial Crisis have on
Indonesia?

Shortly after the crisis, as the rupiah could not maintain the
fixed exchange rate system, Indonesia shifted to a floating rate system.
Against such a backdrop, we amended the Indonesian Central Bank
Act to ensure the independence of the Central Bank, thereby

As we consolidated the domestic financial system after the
Asian currency crisis to withstand a major upheaval, we have become
prepared and ready for economic disruption. Thanks to this financial
system reform, only one bank failed due to the Global Financial Crisis

November 2018

JBIC Todayin 2008. We also minimized the impact of the financial crisis, maintaining a growth rate of 4% or higher, although that was lower thanthe pre-crisis levels (Figure 1). On the other hand, the manufacturers,
who perform key functions in the industry, suffered from a sharp risein crude oil prices which spread globally just before the Global Financial Crisis. At that time, I was CEO of a national fertilizer company, and I had difficulty in securing additional operating funds fromfinancial institutions. Fortunately, we could continue fertilizer production as the crude prices fell back to pre-crisis levels in about fourmonths. From those two crises there are important lessons that Indonesia took in the financial sector. Indonesia is now better at handling a crisis through the regulations and new strategic financial
institutions such as the Financial Services Authority (OJK) and the
Savings Guarantee Institution (LPS). Additionally, there is also a reinvigorated coordination between those new institutions and the Finance Ministry and the Indonesian Central Bank.

GDP

（億円）
1,000
1,000
800
600
400800

350

200

350

0
600 2009 /7

600

600

600

600

15

1,000

550

● Support Scheme for Samurai Bond Issuance

Foreign Governments
andGovernmental Agencies
Samurai
Bond
Issues

2012 /11

2015 /8

JBIC

Partial Acquisition(unit:billion yen)

Issue amount

100
10

5

2016 /6［Objectives/Effects］•Attracting foreign issues to the Tokyo market•Expanding and deversifying investment
opportunities for Japanese investors•Enhancement of the Tokyo market(Samurai bond market)

Indonesia

80
60
40

35

20

35

0
2010 /11

Guarantee● JBIC’s Support for Samurai Bond Issued by Government ofReal GDP growth rate(%)

Asian Currency
Global Financial
発行金額
JBICの保証供与
1,000
CrisisCrisisSamurai bonds are yen-denominated bonds issued in the Japanese
f i n a n c i a l m a r k e t b y a f o r e i g n g o v e r n m e n t o r c o m p a n y. P r o c e e d s f r o mthese issues are paid in Japanese yen at the time of issuance. Under its
financial support facilities, JBIC provides a partial guarantee for andacquires part of the samurai bonds issued.

Tokyo Market■ Figure 1:
Indonesia’s GDP and GDP Growth Rate
(Unit:billion dollers)
1,200

Figure 2:
Support for Samurai Bond Issues by JBIC

0

400

-5

200

-10

July
2009

Guaranteed by JBIC
100

100

PartialAcquisition

PartialAcquisition

60

60

60

60

55

November
2010

November
2012

August
2015

June
2016

JBIC provided continuous support for Indonesia to return to international
financial markets. In July 2009, the government of Indonesia issued its first
Samurai bond with guarantee from JBIC. After issuances of Samurai bonds
guaranteed by JBIC three times, the government of Indonesia successfully
issued such bonds without guarantee from JBIC in August 2015.
2. MASF: Market Access Support Facility
GATE: “Guarantee and Acquisition toward Tokyo market Enhancement” facility01996 1998 2000 2002 2004 2006 2008 2010 2012 2014-15

GDP data (source: World Bank), real GDP growth rate data (source: IMF)

- What were your impressions of raising funds in international
financial markets?
After the Global Financial Crisis in 2008, Samurai bond issues
have been helpful for our government as a means of raising funds insecurities markets (Figure 2). Although we temporarily experienced
some difficulty in government bond issuance due to turmoil in international financial markets, we received guarantee support fromJBIC for a cumulative sum of 210 billion yen under its Samurai bondissue facilities such as MASF and GATE 2. Thanks to JBIC’s financial
support, we could attract investment from overseas investors, enabling us to accumulate foreign reserves. Furthermore, investor confidence has strengthened through our continued presence in Tokyo
market and, in August 2015, we successfully issued Samurai bonds
without JBIC’s guarantee. I believe JBIC has played the part of
sherpa (mountain guide) who helped us reach a high pinnacle oftrust and confidence in international financial markets. JBIC is also
playing a crucial role in further solidifying bilateral relations between Japan and Indonesia.

- This year marks the 60th anniversary of Japan-Indonesia
diplomatic relations. Could you tell us your aspirations andexpectations for strengthening bilateral relations?
For Indonesia, Japan is a valued partner because Japan is playing a major part in economic development through investments andtrade. On the other hand, Indonesia is increasing its attractivenessas a manufacturing base with a population of 260 million people
and a pool of highly skilled workers. Supported by JBIC, we aremaking steady progress in improving our infrastructure. During the
1980s, I was involved in a fertilizer plant construction project, working closely with Japanese companies. Through this experience, I
was impressed by their superior quality, high reliability, the strict
observance of delivery schedule, a strong sense of commitment andgood teamwork. I truly hope that Indonesia will continue to be agood business partner with Japan. In particular, I would like Japanesemanufacturers to tap into Indonesia as a gateway to ASEAN
countries. In addition to its support at the time of financial crises,
JBIC is performing vital functions in linking Japan and Indonesia insuch fields as resource development, infrastructure provision andthe expansion of the manufacturing sector. I look forward to seeing
the role that JBIC will play with new ideas in the future.

November 2018

JBIC Today

11

JBIC Today

Special Feature

The 2008 Global Financial Crisis in Retrospect

Striving to meet
expectations of
Crisis-hit corporates

pers (Note), or borrowing from local banks. As the damages on
SMBC was less significant than that on financial institutions in Europe and the U.S, we received numerous requests for providing loans
from diversified industries, including both Japanese and non-Japanese companies as well as project owners. We felt great expectations to us. However, it was indeed difficult to provide loans unlimitedly because we had also been impacted by the Crisis. It was a very
tough situation and we had very prudent discussions, and tried tosupport especially Japanese customers’ financing activities as aJapanese bank. We made our best efforts to respond to as many
requests as possible with courtesy.
Note : A commercial paper is a debt instrument issued by a corporation, particularly to secure short-term financing (within 30 days). The commercial paper is issued in form of a promissory note at a discount from face value.

- How did you use the financing instruments offered by JBIC?

Amid the global financial turmoil after the collapse of
the U.S. investment firm Lehman Brothers in 2008,
Japanese financial institutions proactively supported
their customers in providing financing despite themarket disruption. We had an interview with Ryuji
Nishisaki, Senior Managing Executive Officer of Sumitomo Mitsui Banking Corporation (SMBC), which holds
primary customer portfolio of Japanese companies
with overseas operations, regarding the situation during this Crisis and how SMBC went through as a Japanese financial institution.

Turbulence in financial markets andcorporates rushing to loan requests
Overcoming the unprecedented crisis- Immediately after the outbreak of the Crisis in 2008,
how did you see the expanse of financial instability spreading into the market ?

Ryuji Nishisaki
Senior Managing Executive Officer
Sumitomo Mitsui Banking Corporation (SMBC)
Head of Financial Solutions Unit, Deputy Head of International Banking
Unit, Served as General Manager, Corporate Banking Dept.-V, Europe
Division in London at the time of the Global Financial Crisis of 2008.

12

November 2018

JBIC Today

Nishisaki The Crisis had an influence on not only financial institutions in the U.S. which was the epicenter of the Crisis, but also
those in Europe. This led to disruption in the inter-bank monetary
markets. As a result, banks in Asian countries also suffered fromobtaining U.S dollar funds. The impact of the Crisis seemed much
more serious than the Asian currency crisis back in 1990s. We really did not know which banks had how much non-performing assets.
I remember that we were afraid of the extensive influence and there
was some skepticism about global financial markets.
- Your customers might have been badly affected too.

Nishisaki Our customers with overseas operations faced a challenging fund raising environment in those days, because the market
situation was not favorable for them to get access commercial pa-

Nishisaki As the support we could do alone was limited, JBIC’s
financial support schemes in U.S. dollars were of great help for us.
We built up a task force team inside the bank, and supported customers’ overseas business in various industries in collaboration with
JBIC. In particular, we received financing from JBIC totaling morethan 600 billion yen equivalent in the form of two-step loans provided via us to overseas affiliates of Japanese companies. Additionally
JBIC provided direct loans to support our customers’ overseas businesses via their headquarters as well as directly to overseas projects

in advanced countries. The amount of co-financing with JBIC waslarge, so we were very much busy in those days with dealing with theloan requests from various companies in the world.

Continuous support for customers in
expansion of overseas business- How the findings and lessons learned from the Crisis
were used?

Nishisaki First of all, we reassessed the level of our tolerance forrisks and developed our risk management ability by strengthening
the Risk Appetite Framework (RAF). The next countermeasure wetook was to establish a system where we can quickly detect any
aberrant value in the market based on our increased capability tocollect and analyze data through constant market monitoring.
- SMBC has increased its global presence, as evidenced
by being ranked high in the project finance league table.
What are your prospects for the future?

Nishisaki In recent years, it has been observed that not only large
scale companies are advancing to overseas market but tertiary andquaternary parts suppliers especially in the automobile industry arealso expanding into foreign markets, and therefore the needs in supporting such customers is increasing drastically. Currently, proportion of SMFG’s profit of overseas
business accounts for more than
30%, and this figure is expected to
grow further. Under such situation,
our willingness to engage in support
for customers seeking to expand
abroad remains unchanged from thetime of the Crisis in 2008.
SMBC has strength in the areasof overseas project finance and infrastructure finance e.g. in the area of
renewable energy, power generation
as well as water desalination, which I
am responsible for. On the other
hand, competition between companies in those areas becomes fiercer
and regulations on the capital adequacy ratio for financial institutions
are being tightened as well. Against
this backdrop, we wish to further
contribute to quality infrastructure
exports where Japanese companies
have competitive edges, by collaborating with JBIC through appropriate
risk allocation.

November 2018

JBIC Today

13Behind the scenes of media coverageNews in Depth“All Japan” Rantau Dedap Geothermal Power Project inIndonesia; Successful and Expeditious Launch throughExperience and Knowledge of Supporting Geothermal Power
Generation Business in the Country

Project Financing for Rantau Dedap Geothermal Power Project in Indonesia
Supporting Japanese Companies in Expanding Renewable Power Generation
Business in Collaboration with ADB and Other Financial Institutions
The Japan Bank for International Cooperation signed on March 23, 2018,a loan agreement for project finance amounting up to approximately USD188
million (JBIC portion) with PT Supreme Energy Rantau Dedap (SERD), an
Indonesian company invested in by Marubeni Corporation, Tohoku ElectricPower Co., Ltd., and other sponsors for the Rantau Dedap Geothermal Power
Project in Indonesia.
The loan is co-financed by private-sector banks as well as by the AsianDevelopment Bank (ADB). Nippon Export and Investment Insurance (NEXI)
provides insurance for the portion co-financed by the private-sector banks.
The total co-financing amount is approximately USD539 million.
In this project, SERD will construct, own and operate a geothermal power
plant with a gross capacity of 98.4MW in South Sumatra, Indonesia. The

electricity generated from this plant will be sold to PT PLN (Persero), a stateowned power utility in Indonesia, for a period of 30 years.
This loan supports an overseas infrastructure project in which Japanesecompanies not only participate as investors, but also operate and maintain apower plant over a long period of time, using advanced Japanese technologies. This loan thereby contributes to maintaining and strengthening the international competitiveness of Japanese industries.
In addition, this loan is expected to contribute to the economic growth ofIndonesia through a stable power supply, while helping the country to prevent global warming.
* Press release of JBIC, March 28, 2018

Although Indonesia has the second largest geothermal resources in the world, current geothermal utilization in the country remains at
only 5% as development of geothermal power takes long time and requires plenty of funds to explore geothermal resources. There issurging demand for electricity in the country on the back of economic growth. In response to such demand, the Indonesian government
plans to expand the share of geothermal energy in total power generation in the country to 21% by 2026.
In the past, JBIC supported two geothermal power projects in Indonesia through project financing, which are the Sarulla project reported
in the May 2014 issue of JBIC Today, and the Muara Laboh project reported in the March 2017 issue. The Rantau Dedap geothermal power
project is the third project JBIC has supported in Indonesia.
In this report, JBIC’s staff members will explain about the details of the project, including how past experience helped bring this projectto success, and its characteristics.
An article related to this project was published in the morning edition of The Nikkei on March 28, 2018.

Group photo of the project’s participants at the ceremony for the project-This is the third geothermal power project in Indonesia where
JBIC provides support through project financing. What are thecharacteristics of this project?
Oishi Marubeni and Tohoku Electric Power participate in this project as
sponsors. For Tohoku Electric Power, this is their first geothermal power
project overseas. In addition, other Japanese companies such as Fuji
Electric and West Japan Engineering Consultants, Inc. are also involvedin the project. With the largest global market share of geothermal power
generation equipment, Fuji Electric participates as an EPC (Engineering,
Procurement and Construction) contractor in this project. West Japan
Engineering Consultants, which has world-leading specialized knowledge in the geothermal power generation business, provides technicalsupport for the project. As you see from my explanation, this project is an“all Japan” project.
Another characteristic of this project is the speed of closing the finance documentation. Since JBIC and other lenders joined negotiations
for finance documents with sponsors in November 2017, it took less thanfour months to sign the documents. Most of this project’s participants had
experience in the recent precedent project, the Muara Laboh geothermal
power project, so we shared a common viewpoint and had an effective
discussion while negotiating for this project. This is why we could achieve
the signing of finance documents within such an extremely short time.
Furthermore, the Indonesian government always dealt with us ingood faith. We believe it was because they regarded JBIC as an important partner with a proven track record of supporting numerous projects
in Indonesia. We recognized that Japan and Japanese companies have14

November 2018

JBIC Todaya strong presence in Indonesia implementing various important projects
in the country in the fields of manufacturing, gas power generationand LNG developments.
Anan As for due diligence on geothermal power project, in addition torisk analysis for power plant projects in general, it is necessary to confirm
whether the supply of steam and hot water provided from the geothermal
reservoir is stable throughout the loan period. I was also in charge of the
Muara Laboh project, and I believe that our past experience of supporting
geothermal power projects in Indonesia helped to successfully sign thefinance documents under such a tight schedule for this project.
-Unlike any other financing schemes that have been supported
by JBIC so far, this time, were there any new type of risks taken
by JBIC?
Tsuchiya The unique aspect of this project was that the period of guarantee provided by Indonesian Government for PLN’s obligations under
PPA was shorter than the loan period. This means that, later in the loan
period, lenders including JBIC had to take PLN’s offtake-risk (such as therisk of PLN’s non-payment). Since it was the first time for JBIC to takesuch an offtake-risk without government guarantee in Indonesian IPP (independent power producer) projects, we frequently flew to Indonesia andhad an intensive direct dialogue with Indonesian Government to confirm
Indonesian Government’s intention to support PLN and conducted due
diligence on credit worthiness of PLN.
Oishi JBIC’s great strength lies in its ability to take such additional risks
in order to support infrastructure projects overseas. We have accumulat-

ed experience in project financing in various fields not limited to geothermal power projects, and we have strong connections with government
agencies of host countries. Taking advantage of such strength, I believethat it is important that JBIC takes risks in providing long-term financing
for projects without a government guarantee because it may be challenging for private-sector financial institutions alone to take such risks.
-Please tell us about the future prospects.
Anan Indonesia has high potential of use of geothermal power generation and the Indonesian government plans to utilize geothermal energy
as one of the main source of power generation. We will continue to proactively support new projects in the country.
Oishi In its “Export Strategy for Infrastructure System” (revised in
FY2018), the Japanese government emphasizes the importance of Japanese companies expanding overseas business for infrastructure systems, including the design, construction, operation and management of
infrastructure. The government expressed its intention to strategicallypromote Japanese companies to expand their business in the field ofgeothermal energy particularly in Indonesia. The government also announced its “Overseas Deployment Strategy for the Power Sector” in
October 2017, stating that it will provide financing support for overseas
power generation projects through JBIC. JBIC will continue to proactively
support projects that are expected to promote Japanese government’s
strategies, such as the Export Strategy for Infrastructure System and Actions for Cool Earth: ACE 2.0., an initiative aimed at helping developing
countries to address climate change.

Tohori Tsuchiya
Division 3 (then)
New Energy a nd
Power Finance Department I
Infrastruvcture andEnvironment Finance Group

Yohei Oishi
Deputy Director
Division 2 and Division 3
New Energy andPower Finance Department I
Infrastructure andEnvironment Finance GroupMayuko Anan
Deputy Director (then)Division 3
New Energy andPower Finance Department I
Infrastructure andEnvironment Finance Group

November 2018

JBIC Today

15