_31 Why Infrastructure Financing Facilities Often Fall Short of Their Objectives_ different reasons - new type of instrument, lack of government ownership - the development of the facility had taken four years, the Mexican peso crisis had occurred and banks' bond issuance, the raw material for the facility, had come to a virtual standstill rendering the instrument almost useless.<sup>58</sup> 82. Notwithstanding the fact that the change in macro-conditions was the main factor in the cancellation of the facility, inadequate implementation capacity, insufficient government ownership and the risk of adverse signaling also hampered the efficient operation of the facility. The fund management may have lacked the required skills to handle and market the facility's products and the management of the facility remained unsatisfactory especially with regards to process and controls.

83. Many government officials tended to be skeptical about the value of public support to back-stop prime rate commercial banks and the stated long-term beneficial capital markets effects, as well as the actual functioning of the fund. All this translated into a slow progress in developing the facility. Finally, there was a powerful, though unintended constraint on participation by strong banks: accessing BF, a public market institution, was feared by strong banks to provide a perverse market signaL<sup>59</sup> They were concerned that their making use of facility's instruments would have a negative signaling effect, indicating to market participants that they were in a financially vulnerable position.

# **E. Moldova: "Pre-Export Guarantee Facility (PEGF)"**<sup>**6 0**</sup>

84. _Rationale and Objectives._ In the mid 1990s, Moldovan exporting firms faced severe financing constraints as neither the local banking system nor export credit agencies offered them working capital financing.<sup>6</sup> ' Many foreign traders and input suppliers had indicated that they would be willing to cover the commercial risk of supplying inputs on credits if the Government could credibly guarantee that it would not change regulations and rules retro-actively, regulations and rules which may adversely affect the repayment capacity of their borrowers. Against this background, the PEGF had a developmental objective and was established to provide a credible guarantee' against country and political risk to enable viable local firms to attract foreign private financing for pre-export financing.

85. _Sectors Targeted/lInstrument/Risk Targeted._ The guarantee was targeted at import supply companies, commercial lenders, and trading companies and provided coverage against political risk. It was to cover damages caused by government actions or inaction 58 The development of the instrument was also not based on a thorough capital market and demand analysis that could have provided some guidance for the design of the instrument and the actual demand. See Implementation Completion Report (1998).

> 59 A survey carried of potential clients carried out by Salomon Brothers found a "poor perception of banks that do participate". Implementation Completion Report.

60 See for more detail: Onno Ruhl, Alfred Watkins, "A Pre-Export Guarantee Facility in Moldova - Mitigating Political Risk in Transition", The World Bank, Public Policy fir the Private Sector, Note No.64, December 1995. The World Bank, Report No. P-6502 MD, 1995.

**61** If export credit agencies provide cover they require a full govemment counterguarantee covering both commercial and political risk.