Ana-Mita Betancourt, Director and General Counsel, Legal Affairs and Claims Group at the Multilateral Investment Guarantee Agency (MIGA), sat down with Geraldine Mataka, managing member of robert wray PLLC, to discuss her career in international economic development and business, and why it’s such an exciting time to be a part of the MIGA team.
Geraldine Mataka: You’ve been at MIGA for a year now. Have there been any big surprises?
Ana-Mita Betancourt: I feel as if I’m still in the honeymoon phase! I think the big surprise is how dynamic MIGA has become. I arrived at MIGA shortly after the Council of Governors approved significant changes to the MIGA Convention and after the Board of Directors approved changes to the Operational Regulations. These changes allow us to offer new coverage; for instance, we can now cover standalone debt and certain existing investments. We also have recently developed new products, such as the non-honoring of sovereign financial obligations coverage. Besides the new General Counsel, MIGA also has seen other changes in its senior management in the past year—a new Chief Economist, new CFO and a new Chief Operating Officer, who has just arrived. In addition, we’ve opened a new regional hub office in Asia and a new office in Europe. With these products and offices, we’re reaching out to our clients differently and extending our developmental impact. It’s a very exciting time to be at MIGA.
GM: That’s great. When I was looking at the Annual Report page on your website, one of the things that I noted was that it was a record breaking—
GM: —year for MIGA—
AB: Historic high. We’re very proud of that.
GM: —$2.1 billion in investment guarantees. What factors do you think contributed to this record breaking year?
AB: The main driver for our record high volume is the new flexibility that we obtained through the Convention and Operational Regulations amendments, as they’ve allowed us to offer the new products I mentioned. During this last fiscal year we also saw a large number of new clients, and issued our first contracts in Iraq, Kosovo, Liberia and the Republic of Congo. Our hub in Asia is also building up a robust pipeline. And we are all working hard to respond to the changes in the Middle East and North Africa region!
GM: It was also noted on your website that in the past fiscal year, the covered projects were mostly in the financial sector industry. Do you see the allocation changing in the coming year or do you think that it would continue to be focused on the financial sector industry?
AB: We anticipate ongoing diversification of our pipeline and have already seen it as of the fiscal year that closed as of June 30, 2011. Following the financial crisis, MIGA focused intensely on the financial sector as part of the World Bank Group’s efforts to support the sector. In fiscal year 2011, a large part of our financial sector volume relates to development of a new product that we are calling capital optimization coverage. This past fiscal year, MIGA’s Board approved coverage for the ProCredit Group Central Bank Mandatory Reserves Coverage project. MIGA is covering 14 banks in 14 countries against the risk of expropriation of funds held as mandatory reserves with host country banks. This allows ProCredit to obtain capital relief and free up equity that can be injected into its subsidiaries to provide loans and financial services to micro, small and medium enterprises. This is an innovative coverage. Going forward, we can already see that the portfolio is diversifying more and we expect continued diversification. We measure diversification in terms of sector and by region.
GM: That’s interesting. In connection with the larger scope of noncommercial risk coverage that you seem to be able to provide subject to board approval, would it make sense for MIGA to provide comprehensive noncommercial risk coverage for losses like natural disasters or epidemics?
AB: MIGA’s mission is to encourage the flow of foreign direct investment into developing countries—our job is to attract investors into difficult operating environments through the issuance of guarantees against political risks. Although the MIGA Convention refers broadly to “non-commercial risk,” our strength is in assessing and mitigating political risks such as expropriation or civil disturbance, breach of contract and now non-honoring of sovereign financial obligations. Our board-approved strategy focuses our efforts on projects in the poorest countries, on projects in conflict affected environments, on complex projects in infrastructure and extractive industries and in investments between developing countries (which we call “South-South investments”). There are a number of other facilities and instruments within the World Bank Group that are positioned to provide disaster-type relief. It makes more sense for MIGA to leverage its strength in the market and support developmental projects that are consistent with the strategy approved by our board.
GM: Non-honoring coverage is dwarfing more traditional PRI coverages in many an underwriter’s portfolio. Is that happening or do you expect it to happen at MIGA?
AB: No, we expect to maintain a diversified portfolio in terms of our product mix, including as to our non-honoring of sovereign financial obligation coverage. We diversify because MIGA has a mandate to be self-sustaining and measures its capital adequacy and risk bearing capacity carefully. The non-honoring cover is just one of the products we offer and is still a relatively new product for us. We are excited about the development impact of the product—we have closed a couple of non-honoring projects, including supporting the expansion of Istanbul’s metro system and a transportation project in Tunisia. The market is excited about this coverage. That we know. And we’re excited to be able to offer it as it can contribute significantly to a country’s development agenda, especially in infrastructure financings. We see it as a dynamic product, inasmuch as we are getting feedback from the market as to how it has been designed and we want to be open to this input so that we can continue to refine and improve with this and all our products.
GM: Do you think MIGA’s status as a member of the World Bank affects MIGA’s exercise of recovery actions against other World Bank member countries?
AB: MIGA’s core strength is its ability to support the investments it covers by addressing potential disputes with governments. This strength derives from MIGA’s status as a member of the World Bank Group, which provides us with access to government officials at high levels, on-the-ground insights about the local conditions and a huge amount of data. Before a dispute even develops into a claim, MIGA works with investors and host countries to avoid escalation of the dispute and support the parties in problem-solving. We have participated in more than 90 pre-claim situations since MIGA was founded. If a claim does ensue, MIGA will pay the investor and then seek salvage against the host country. This is contemplated in the MIGA Convention. We have never had a dispute with a claimant. In fiscal year 2011, we paid one claim as administrator of the Afghanistan Investment Guarantee Facility.
GM: Where do you stand relative to, say, other national agencies and private insurers who have the same exposure and claims?
AB: MIGA’s membership in the World Bank Group provides significant advantages in preventing a troubled situation from becoming a claim, in resolving claims once they do arise and in our salvage efforts. We’ve paid six claims since inception.
GM: But before a claims situation, there is an advantage?
AB: Absolutely. That’s our value-added: collaborating with investors and member countries to keep development projects on track.
GM: What is MIGA’s current approach to pledge of shares?
AB: The famous pledge of shares dilemma! If we are insuring a sponsor that has pledged its shares, MIGA’s standard and preferred approach is to require that, upon payment of an expropriation claim, MIGA receive unencumbered shares. As you know, this is where the dilemma arises—the lenders are not easily persuaded to release their lien on the shares. Since 2007, we have taken the view that in certain cases we are willing to consider receiving encumbered shares. Some of the conditions include our being comfortable with the lender group and our analysis of the local law. I’m not surprised the discussions around this issue continue since it was first identified many years ago. There is no easy solution. We are currently studying the issue, trying to take a fresh look and considering whether to commission some thorough analysis that will advance the matter.
GM: It’s a very tough issue.
AB: It’s truly a dilemma: sponsors and lenders have different interests. We’d like to contribute to finding a viable approach for all.
GM: Have you encountered any lenders that have been willing to bend a bit on this issue?
AB: We’ve seen a continuum of approaches from “let’s deal with it later” to lenders agreeing to release their shares. But relative to the number of projects we support, the issue does not come up as often as folks might think.
GM: We’ve been doing some work with fair market value (FMV) and wanted to ask you this: to what extent do you think MIGA would be willing to depart from book value compensation, other than what comes out of an award? Would you consider an FMV compensation basis? Or are there other alternative approaches to straight book value?
AB: Our Operational Regulations already provide for the possibility of FMV as one of the ways we would calculate compensation. Deciding whether to agree on a FMV or net book value basis is an underwriting decision. We are flexible when considering the needs of our clients and what makes sense for a project when issues of this sort are raised.
GM: What was your favorite job before you got here?
AB: Well, you know…this is a terrific job…
GM: [laughing] OK, well what was your worst job?
AB: [laughing] Typically people will respond by saying: “Oh, when I was in high school, I had to do x, y, and z.” I guess the older you get, the more you go back to the values you were raised with. Coming from a family of immigrants, we valued education and service to others. In my 30-year career, to the extent that I’ve been learning, I’ve enjoyed my jobs. To the extent that I felt that I’ve been able to serve, to make a contribution, I really have gotten a lot out of my positions. I feel very fortunate that I’ve had a career trajectory that combined the public and private sectors and that I’m at the World Bank now. I am really excited and proud about being in the World Bank. It’s not something that I could have ever dreamt about or imagined when I started my legal career, certainly not when I was growing up in Puerto Rico.
GM: That leads us to the next question: what’s your next step?
AB: I just got here! [laughter]. I am learning a lot at MIGA; I am passionate about development, it’s intellectually stimulating and I work with a terrific team. And it’s fun. I don’t think many lawyers can say that about their jobs!
GM: A lot of these questions have been operational and not very much related to the legal aspect of your role here at MIGA, but I think maybe it was our attempt to try to have a broad reach with our readership. But for me, as a lawyer, I was curious and I wanted to know what you think, in terms of your position at MIGA versus some of the positions you’ve held in your career, whether you see a difference in the fact that it’s part of the World Bank, in approach or thinking or in solutions to issues that arise?
AB: That’s a great question. One of the things that strikes me about the World Bank is the emphasis on knowledge: knowledge management, knowledge sharing and the role that the Bank can have in contributing to countries by sharing and disseminating that knowledge. The emphasis is on reaching out to our countries in a way that can add value and help them generate sustainable solutions. MIGA places great emphasis on its knowledge management and thought leadership through our flagship report, conferences, lessons learned, media presence and training opportunities.
GM: What are some of the biggest legal issues that you’re dealing with right now or that you’ve been dealing with since you came here?
AB: The main issue is how to promote innovation, given the amendments to MIGA’s Convention and the new flexibility in our Operational Regulations. My task is to advise MIGA on how best to incorporate these new parameters into our products and contracts. For instance, this past year, we developed additional amendments to our Operational Regulations to reflect the Convention changes and we created the template contract for the non-honoring of sovereign financial obligations coverage. One of the interesting projects we closed in June was a guarantee for $450 million covering a “Murabaha” financing facility for a telecommunications provider in Indonesia. In order to support the Islamic financing arrangements, we had to adapt and innovate in our guarantee contracts, go beyond a conventional approach.
GM: With respect to going over the Convention and everything since then, there’s a lot of new territory in MIGA that you’re covering. As far as decisions that you’re making now and their precedential effect on future issues that arise, is there a way that MIGA processes these issues, where what you decide now could have an effect ten years from now, and they say, “Well that was decided then and this is how we’re going to do it”?
AB: Another great question. Yes, we are facing novel issues almost daily and it’s very interesting. My challenge is to build on the available precedents while spurring innovation and promoting flexibility in light of changed circumstances. Managing documents and creating a way of recording, retaining and retrieving decisions is an important component in this process. Another important issue is being aware of the potential ramifications of decisions, including as to reputational risk and the application of a decision to a different scenario. The legal department plays a very important role in this process. It’s important that each generation within an institution have the benefit of past decisions and the ability to refine, improve and grow the analysis. An institution like MIGA that values lessons learned and is willing to innovate is in a good position when novel issues arise.
GM: What is the right relationship between the underwriters and the lawyers? What are the tasks that properly belong to the underwriters and what tasks properly belong to the lawyers?
AB: Lawyers in an in-house legal department have a strong working relationship with their in-house business clients because of their knowledge of the business and the ease of communication among teams. The legal team at MIGA works with underwriters from the business development stage, throughout the underwriting, approval, negotiation and drafting stages, supports the monitoring team and handles claims. The MIGA lawyers thus have a “soup to nuts” role in deals and advise not only on operational issues, but also on the policy, country risk and financial aspects of deals and institutional activities. We pride and measure ourselves by how we add value in transactions and advisory roles. We do so not only by offering legal advice, but also by identifying risks and drawing on our experiences to offer our judgment and insights. Underwriters appreciate the close working relationship with and the knowledge and judgment of the legal team. On some issues, like pricing, it’s clear that the underwriters need to take the lead. Other issues, such as drafting, require more input from the lawyers. And there is always a grey area along the continuum that benefits most from good communication and trust between the lawyers and underwriters. Keep in mind that the project team at MIGA includes also economists and colleagues who handle the environmental, social, integrity, communications and financial angles of a deal. Given the many disciplines that are involved, working effectively as a team is critical.
GM: One more: what are the main differences between your policies and other PRI policies?
AB: The main difference is what we bring to our clients because we are part of the World Bank Group. If a problem arises in a project, we can act quickly and effectively to engage with the government and with the investor to try to address it. This is a strength that the private sector doesn’t have.
GM: Can you tell us a little bit about the upcoming conference?
AB: MIGA’s Legal Department is for the first time participating in World Bank Group’s Law, Justice, and Development Week, which is November 14, 15, and 16. MIGA is sponsoring a headline event on November 14 at 3:45 p.m. in the Preston Auditorium, where we will be gathering representatives from the public and the private sectors to talk about global risk management in today’s changing landscape. Our keynote speaker is a prominent economist who also was a member of the first government in the Czech Republic. We have invited a professor from Wharton who specializes in political risk management; a banker and managing director from Standard Chartered, who is coming from Dubai, because part of the focus is on the Middle East and the North Africa region and the changes in the region; an international project finance partner from a leading international law firm who is based in London; and a general counsel from a global investment firm. It will be a very diverse and dynamic panel, and our goal is to get a lot of audience engagement, so I hope to see you there with lots of questions. I’ll be calling on you! [laughter]. The Law, Justice, and Development Week also includes other interesting sessions, including one on political risk insurance. We’re excited about these opportunities to learn, share our knowledge and showcase MIGA’s legal team.
GM: Thank you, Ana-Mita.
AB: Thank you very much. ■