Irwin, Timothy Cressey
Fiscal Affairs Department, International Monetary Fund
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Fiscal Affairs Department, International Monetary Fund
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Last updated January 31, 2023
Tim Irwin worked at the World Bank from 1995 to 2008, on among other things the regulation of utilities and the link between public financial management and privately financed infrastructure projects.
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Now showing 1 - 10 of 13
Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy(World Bank, Washington, D.C., 2004-04) Ehrhardt, David ; Irwin, TimothyMany private infrastructure projects mix regulation that subjects the private company to considerable risk, a government or regulator that is reluctant to see the company go bankrupt, and high leverage on the part of the company. If all goes well, equityholders make a profit, debtholders are repaid, customers pay no more than they expected, and the government is not called on to bail the company out. If all goes badly enough, however, the prospect of bankruptcy will loom. Unwilling to see the company go bankrupt, however, the regulator will have to permit an unscheduled price increase, or the government will have to inject taxpayers' money into the firm. In other words, the combination means customers and taxpayers bear more risk than would appear from the regulations governing the private infrastructure project. The authors examine how these problems have played out in five cases. Then they describe how governments and regulators can quantify the extent of the problems and, using option-pricing techniques, value the customer and taxpayer guarantees involved. Finally, the authors analyze three options for mitigating the problem: making bankruptcy a more credible threat, limiting the private operator's leverage, and reducing the private operator's exposure to risk. The authors conclude that appropriate policy depends on the tax system, the feasibility of enforcing bankruptcy, and the benefits of risk transfer from taxpayer to the private sector.
Publication(Washington, DC: World Bank, 2003) Brook, Penelope J. ; Irwin, Timothy C. ; Brook, Penelope J. ; Irwin, Timothy C.The chapters in this book examine the data on infrastructure and the poor in developing countries and consider how policies centered on private provision can address their needs. Many of the chapters focus on the extent to which the poor have access to infrastructure services of reasonable quality, for example, to water that is safe to drink, to a reliable source of electricity, and to a nearby telephone. Access to such services is, of course, not the only infrastructure issue that matters to the poor; the poor who already have access to modern services care, for instance, about the price and reliability of those services. However, in most developing countries access is the key issue. In these countries most of the poor have no access to standard infrastructure services provided by utilities. Instead they often pay high prices for lower-quality substitutes: they might buy water by the bucket from a private vendor and use candles instead of electricity for lighting. They would rarely make a telephone call. The lack of ready access to good basic infrastructure services can directly reduce the well-being of the poor.
Public Money for Private Infrastructure : Deciding When to Offer Guarantees, Output-based Subsidies, and Other Fiscal Support(Washington, DC: World Bank, 2003-08) Irwin, TimothyWhen governments seek private investment in infrastructure projects, they usually find themselves asked to provide grants, guarantees, or other forms of fiscal support. Often they prefer to provide support in ways that limit immediate cash expenditure but sometimes generate large costs later. Seeking to provide support without any immediate spending of cash, for example, governments often agree to shoulder project risks and sometimes encounter fiscal problems later. For example, in the 1970s and 1980s in Spain, the government was obliged to pay $2.7 billion when the exchange-rate guarantees it had given private toll roads were called (Gomez-Ibanez 1993). More recently, the Indonesian government agreed to pay $260 million as a result of its agreements, through the electricity company it owns, to bear demand and foreign-exchange risks in private power projects. Yet even when governments have chosen to provide cash subsidies they have not always achieved their apparent goals: for example, over 80 percent of the Honduran government's "lifeline" electricity subsidies go to customers who aren't poor (Wodon et al. 2003). In still other cases, governments' decisions not to provide support may have caused problems.
Publication(Washington, DC: World Bank, 2007) Irwin, Timothy C.Government guarantees can help persuade private investors to finance valuable new infrastructure. But because their costs are hard to estimate and usually do not show up in the government's accounts, governments can be tempted to grant too many guarantees. Drawing on a diverse range of disciplines, including finance, history, economics, and psychology, Government Guarantees : Allocating and Valuing Risk in Privately Financed Infrastructure Projects aims to help governments give guarantees only when they are justified. It reviews the history of government guarantees and identifies the cognitive and political obstacles to good decisions about guarantees. It then develops a framework for judging when governments should bear risk in an infrastructure project (seeking to make precise the oft-invoked principle that risks should be allocated to those best placed to manage them); explains how guarantees can be valued; and discusses how aspects of public-sector management can be modified to improve the likely quality of government decisions about guarantees.
Publication(World Bank, Washington, DC, 2007-03) Easterly, William ; Irwin, Timothy ; Servén, LuisFiscal adjustment becomes like walking up the down escalator when growth-promoting spending is cut so much as to lower growth and thus the present value of future tax revenues to a degree that more than offsets the improvement in the cash deficit. Although short-term cash flows matter, a preponderant focus on them encourages governments to invest too little. Cash flow targets also encourage governments to shift investment spending off budget, by seeking private investment in public projects-irrespective of its real fiscal or economic benefits. To evade the action of cash flow targets, some have suggested excluding from their scope certain investments (such as those undertaken by public enterprises deemed commercial or financed by multilaterals). These stopgap remedies might sometimes help protect investment, but they do not provide a satisfactory solution to the underlying problem. Governments can more effectively reduce the biases created by the focus on short-term cash flows by developing indicators of the long-term fiscal effects of their decisions, including accounting and economic measures of net worth, and where appropriate including such measures in fiscal targets or even fiscal rules, replacing the exclusive focus on liquidity and debt.
Publication(World Bank, Washington, DC, 2005-07) Boyle, Glenn ; Irwin, TimothyOutput-based payments are an important tool of government policy. Sometimes governments offer "output-based aid" to subsidize services sold to households. Because output-based payments are tied to the delivery of outputs, they have an obvious advantage over input-based payments. In agreeing to make such payments, however, governments assume a liability not unlike that created by taking on debt. Moreover, in some cases the payment amounts are subject to considerable uncertainty. As a result governments may benefit from estimating both the costs of these commitments, and the new fiscal risks they create-and comparing these costs and risks with those of alternative policies. Output-based payments come in many forms, as do the risks they present. However, measuring the risks and costs of output-based schemes is feasible but also, inevitably, mathematical. Quantifying risk necessarily involves some knowledge, and application of probability and statistics; estimating the cost of uncertain payments that occur at different points in time, requires asset pricing techniques from modern finance theory. Nevertheless, most of the important issues are conceptual, rather than technical.
Publication(World Bank, Washington, DC, 2003-12) Gray, Philip ; Irwin, TimothyEach year developing countries seek billions of dollars of investment in their infrastructure, and private investors, mostly in rich countries, seek places to invest trillions of dollars of new savings. Private foreign investment in the infrastructure of developing countries would seem to hold great promise. But foreign investors must cope with volatile developing country currencies. Many attempts to do so have created as many problems as they have solved. This note proposes that investors take on all financing-related exchange rate risk, even though this may mean higher tariffs for consumers as a premium for bearing that risk.
Publication(World Bank, Washington, DC, 2003-06) Gray, Philip ; Irwin, TimothyAmong the key risks facing foreign private entities investing in the infrastructure of developing countries is depreciation or devaluation of the local currency. Indeed, over the past 25 years developing country currencies lost 72 percent of their value relative to the U.S. dollar on average-and about a fifth lost more than 99 percent of their value. Sustainable private investment in infrastructure depends on addressing this risk well. Private infrastructure contracts in developing countries have usually passed much of this risk on to customers or the government. But because devaluations and large depreciations in developing countries often occur in the context of macroeconomic and financial upheaval, such risk allocations cannot always be made to work. The difficulty arises because the contracts raise prices precisely when the economy is suffering the most. If the government bears the risk because a state-owned utility is purchasing power from an independent power producer at prices denominated in U.S. dollars, for example, a contract will require steep increases in local currency prices just when the utility ' s revenues-and those of its owner, the government-are likely to be declining.
Publication(World Bank Group, Washington, DC, 2004-02) Irwin, Timothy ; Yamamoto, ChiakiMost government-owned utilities in developing countries perform poorly when judged as providers of electricity, in part because politicians and officials use their power, not to encourage the utilities to increase sales, improve the collection of bills, and cut costs, but to transfer resources to politically influential groups and, sometimes, extract bribes. To improve the performance of government-owned electricity utilities as electricity utilities, rules and practices must be changed in a way that reduces politicians' willingness or ability to use the utilities for political purposes and subjects the utilities to new sources of pressure to perform well. This paper considers ways in which a government might seek to achieve this goal without privatizing. It focuses on changes in corporate governance-that is, changes in the rules that structure the relationship between the company and the government as its owner. It concludes that governments should be cautious about the prospects for improvement without privatization-since, among other things, creating a truly arms-length relationship between the government and the utility will always be difficult as long as the government remains the utility's owner-but that improvements in corporate governance are still worth pursuing.
Publication(World Bank, Washington, DC, 2005-06) Boyle, Glenn ; Irwin, TimothyLong-term commitments to make output-based payments for infrastructure can encourage private investors to provide socially valuable services. Making good decisions about such commitments is difficult, however, unless the government understands the fiscal costs and risks of possible commitments. Considering voucher schemes, shadow tolls, availability payments, and access, connection, and consumption subsidies, this paper considers measures of the fiscal risks of such commitments, including the excess-payment probability and cash-flow-at-risk. Then it illustrates techniques, based on modern finance theory, for valuing payment commitments by taking account of the timing of payments and their risk characteristics. Although the paper is inevitably mathematical, it focuses on practical applications and shows how the techniques can be implemented in spreadsheets.