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Interview - W.Bank eyes post-war political risk insurance

  • Could provide provide political risk cover to investors

* Looking for $100 mln to underwrite $500 mln investment

* Palestinians, Iraq, Afghanistan, Africa could benefit

* Hopes should cement peace, deter new conflict

By Peter Apps, Political Risk Correspondent

LONDON, Dec 4 (Reuters) - The World Bank is looking at a $100 million political risk insurance scheme for countries recovering from war to boost private investment, senior officials from its investment guarantee agency said.

Foreign investors use political risk insurance to cover themselves against loss of assets through political unrest, violence, expropriation, nationalisation and other government actions.

But the risks in states only just emerging from war have been seen as simply too great for private insurers.

The World Bank's Multilateral Investment Guarantee Agency (MIGA) wants to use donor money as a cushion to protect companies in the event of loss, hoping this will allow them to enter the market and support new investment.

"It should help a number of post-conflict countries," Izumi Kobayashi, MIGA executive vice president, told Reuters on the sidelines of a conference in London on Thursday. "Iraq, Pakistan, Afghanistan, Sri Lanka, for example."

The proposal will go to the World Bank's management and donors during 2010 and could be operational the following year, she said.

Other potential beneficiaries could include the West Bank and Gaza, Liberia, Sierra Leone and Democratic Republic of Congo, officials said.

MIGA -- which provides political risk insurance backed by the World Bank -- estimates that $100 million set aside to pay out in the event of loss would facilitate roughly $500 million of investment -- a considerable sum, particularly in the poorest post-conflict zones such as West Africa.

PREVENTING NEW WAR?

"There is also a lot of evidence that if we get private investment flowing, that should reduce the risk of a return to conflict," said MIGA chief operating officer James Bond.

Rich donor countries so far seemed enthusiastic, he said, hoping the scheme would prove a particularly efficient use of aid money as it would attract an even greater amount of private investment.

In Iraq and Afghanistan, he said, the sums involved would be a drop in the ocean compared with the cost of Western military deployments and should yield near-immediate results in terms of infrastructure, investment and job creation.

Some political risk insurers have begun to cover projects in both countries in recent years, although primarily only on an extremely short-term one-year basis covering the period during which Western forces are expected to stay.

Bond said one aim would be to get private firms involved in the earlier stages of reconstruction currently performed by aid groups or government-backed Western development agencies.

"A lot of the infrastructure work that is needed after conflicts -- water supply, accommodation -- could be done privately," he said. "It would also be done in conjunction with partners. Whatever the World Bank does would be done together with the rest of the UN system."

Across the world, he said political risks to investors could well increase as the world rebalanced itself after the financial crisis, potentially leading to greater levels of instability and unpredictability.

That in itself could drive more investors towards buying political risk insurance rather than simply hoping to self-insure, he said. (Editing by Tim Pearce)

((Reuters messaging: peter.apps.reuters.com@reuters.net; email: peter.apps@reuters.com; telephone: +44 20 7542 0262))