Hence, the Facility will help develop the regional swap and risk management markets by providing longer dated hedging tools to local companies, thereby contributing to the development of a broader and deeper financial market. Specifically, an increase in risk management transactions should contribute to improving liquidity and lowering bid/offer spreads in these markets. In addition, since only transactions which have at least one local currency leg will be eligible for inclusion, the Facility will contribute especially to the development of the local capital market.

The amount and reach of risk management products provided by international banks in the region is limited by the country and credit limits set by the credit committees of these banks. By providing credit enhancement for swap transactions in the region, IFC will enable Deutsche Bank to undertake longer dated swaps, as well as offer products to a wider range of credits than it would do otherwise or to clients with whom it has limited head room.

In the wake of the East Asian crisis, and within the broad framework of the World Bank Group’s strategic objectives of financial sector resiliency in the region, a key IFC priority in crisis-affected countries is the deepening and diversification of financial systems through institution building and the introduction of new financial instruments and mechanisms. In addition, the promotion of risk management facilities to support trade and investment flows in the region continues to be an area of focus for IFC in the light of the global slowdown and heightened risk perceptions about the region. The proposed project is fully consistent with this strategy.