Language:
English
Pages:
1 Online-Ressource (53 pages)
Parallel Title:
Erscheint auch als de Castro, Luciano How to Deal with Exchange Rate Risk in Infrastructure and other Long-Lived Projects
Keywords:
Currencies and Exchange Rates
;
Currency Fluctuation Risk
;
Exchange Rate Risk Insurance
;
Finance and Financial Sector Development
;
Government Exchange Rate Risk Protection
;
Infrastructure Economics and Finance
;
Infrastructure Finance
;
Private Participation in Infrastructure
;
Public Procurement
Abstract:
Most developing economies rely on foreign capital to finance their infrastructure needs. These projects are usually structured as long-term (25-35 years) franchises that pay in local currency. If investors evaluate their returns in terms of foreign currency, exchange rate volatility introduces risk that may reduce the level of investment below what would be socially optimal. This paper proposes a mechanism with very general features that hedges exchange rate fluctuation by adjusting the concession period. Such mechanism does not imply additional costs to the government and could be offered as a zero-cost option to lenders and investors exposed to currency fluctuations. This general mechanism is illustrated with three alternative specifications and data from a 25-year highway franchise is used to simulate how they would play out in eight different countries that exhibit diverse exchange rate trajectories
DOI:
10.1596/1813-9450-10568
URL:
Deutschlandweit zugänglich
Permalink
