Asian Growth and Recovery Program

1. Objective:

Accelerating the pace of corporate and bank restructuring is critical to restoring growth and revitalizing the private sector in Asia. While governments have made progress in putting in place frameworks to guide this process, there remain significant impediments to necessary restructuring, including the lack of sufficient financing to recapitalize insolvent banks and weak incentives for debtors and creditors. Unless banks are able to recognize appropriately the extent of their loan losses and are prepared to participate in workouts, companies will be unable to emerge from their burden of bad debts and new financing will not flow, thus postponing the restoration of economic growth. A strategy to accelerate the pace of restructuring will therefore require the combination of a determined effort to overcome policy and institutional constraints and additional financial resources to underwrite the costs of accelerated implementation. These efforts will complement policies to revitalize demand and economic activity, and actions to mitigate the adverse social consequences of the crisis.

The proposed Asian Growth and Restructuring Program (AGRP) would be designed to assist governments in the region finance the cost of bank recapitalization. The resources mobilized by the program would be provided to those countries which implement comprehensive and integrated restructuring frameworks linking bank recapitalization and corporate restructuring. Such assistance would help to limit the extent to which governments are forced to choose between funding budgetary programs designed to alleviate the impact of the crisis on the poor and unemployed and supporting the restructuring of financial institutions and corporations that is necessary to jump start growth, job creation and economic recovery.

2. Participants: The World Bank, the Asian Development Bank, Japan, the United States, and other economies interested in participating in the program.

3. Purpose of the use of resources mobilized by the AGRP: The AGRP temporarily will assist countries in financing bank recapitalization. It will be considered on country by country basis whether the program could be used to help mobilize private sector funds to finance the provision of super-priority working capital to companies in restructuring.

4. Menu of Financing Modalities: Financial support for the program facility from bilateral and multilateral sources could take a variety of forms (guarantees, loans, purchases of bonds, etc) and would use innovative and cost effective financing structures to mobilize additional private capital.

• The United States, Japan, the World Bank and the ADB are working together to establish the program facility and identity sources of funding. We initially will target mobilizing $5 billion in bilateral and multilateral support, which would be expected to raise substantial additional amounts of private capital.

5. Beneficiaries: The AGRP will cover Asian countries that need assistance in financing bank recapitalization and are tackling the restructuring of corporate debt and the operational restructuring and recapitalization of the banking system in an integrated manner in conjunction with World Bank or ADB programs.

6. Policy Framework: The AGRP could be used to support bank and corporate restructuring programs with the following elements:

• Reliable mechanisms for binding resolution and settlement of disputes between creditors and debtors, and the removal of inappropriate legal, regulatory and tax impediments to restructuring.
• Accelerated implementation of strengthened corporate and bank disclosure and transparency requirements, measures to strengthen corporate governance, and improved supervisory and regulatory standards.
• Appropriate burden sharing for equity and debt holders.
• Effective incentives for the timely completion of each step of the financial and operational restructuring process.
• Credible strategies for the timely disposition of non-performing assets and any equity that public sector entities acquire as part of the restructuring process.
• Strengthened social safety net programs to complement accelerated restructuring and mitigate the negative social effects of the crisis, particularly on the poor and unemployed.