loan guarantees, government contingent support programs to rescue troubled energy suppliers, and excessive risks taken by SOEs due to soft budget constraints would all fall into this category of intervention. Contingent liabilities generate subsidies in a number of ways. Most visible is when claims are made on the government budget when loans default or insurance claims arise. But even earlier, if contingent liabilities become alarmingly large, the government’s sovereign credit rating may fall and its cost of borrowing may increase, with adverse fiscal and financial implications. OECD (2013b) examines various types of contingent liabilities, discusses their potential causes and effects, and outlines some suggested policies to mitigate fiscal risks. Quantification of credit subsidies can be complicated, and is often not performed in the same way across programs or government entities. To establish more rigorous and consistent valuation methods, the Massachusetts Institute of Technology launched the Center for Finance and Policy in October 2014. The Center focuses on governments’ role as financial institutions and financial system regulators. Building on work by Lucas (2014), the center will work to improve valuation of sovereign credit support. The OECD plans to include credit subsidies eventually in its inventories; doing so across the 34 OECD countries is expected to increase the resource requirements considerably.

Financial risk transfers through credit markets commonly include government loans, lower interest rates offered by state-owned banks than what the beneficiary firms could obtain in the market, and government purchase or provision of insurance at below-market rates. Often insurance programs hedge against accidents, attacks, natural disasters, and other external events. For example, the government of Chile in 2005 purchased insurance to hedge against diesel price increases on the world market (Bacon and Kojima 2006, 142). Subsidy baselines for loans should be based on market terms and rates for an enterprise of similar risk. It would not be appropriate to look only at loan defaults; there are subsidies even with full repayment because of concessional terms. Similarly, benchmarks based on treasury interest rates tend to reflect much lower default risks than what most energy enterprises receiving sovereign loans or guarantees face, and therefore understate actual credit subsidies. Administrative costs to oversee the credit program also need to be accounted for.

Some forms of government assumption of risks appear under direct expenditures. Examples include government support for orderly closure of mining operations through separation payments and retraining, decommissioning of extractive industry operations in the absence of industry-financed abandonment funds, and emergency cleanup of a major oil spill. Arguably among the least monitored is government assumption of other types of risks that do not incur immediate spending, such as limits on commercial liabilities.

# **Underpricing of government-owned assets**

If government-owned assets are sold or auctioned in a transparent, open, and competitive tender process, even if the payments received appear much lower than initially expected, they are deemed to represent the market’s valuation of the assets. Where the process is not transparent, open, or competitive, such conclusions cannot be drawn. This is particularly true where the payments received by the government seem out of line with the value of the asset, if the new asset owner is linked to highranking government officials, or both. The loans-for-share scheme in the Russian Federation in 1995–96, 28