(DP 1999-14) Estimating the Philippine Government's Exposure to the Risk from Contingent Liabilities in Infrastructure Projects

Abstract

In its desire for closure in critical infrastructure projects undertaken by the private sector, the Philippine government has routinely assumed various risks by way of guarantees. These guarantees not only relate to core guarantees, such as foreign exchange and legal risks, but also to non-core guarantees associated with infrastructure projects, such as market and construction risks. This papers argues that the present practice of estimating, monitoring and accounting for government exposure and assumption of risk severely understates the true exposure and risk arising from the unfettered provision of guarantees. Alternative modalities for estimating exposure and risk are initially proposed, and these are drawn from applications in the financial sector. Nevertheless, further refinements in techniques and methods are needed.