Russell Duke
Chairman of National Standard Finance, LLC
Global Sovereign amp; Infrastructure Investors

Why do certain infrastructure projects move forward and other projects stay on the drawing board or stall?  How do you decide which projects to choose?  What role does policy play? And, of fundamental importance — how do you pay for it?

There are several academic theories about decision-making in government. A well-recognized model was developed by John Kingdon, Emeritus Professor at the University of Michigan, in the 1980s. He reasoned that decisions result from the flow of three "streams": the problem stream, the policy stream and the politics stream. When these streams come together, a "policy window" opens, which triggers change. Business, political and cultural leaders who promote specific solutions are policy entrepreneurs.  These entrepreneurs recognize approaches that could solve problems and act to move those solutions onto the political agenda.  As discussed below, to succeed and maintain credibility, policy entrepreneurs must develop a realistic sense of the market's ability and willingness to fund the project, because even good projects will fail without adequate resources.

The problem stream activates when specific facts are recognized as a problem that need correcting. For example, a government may note that, "lack of adequate power prevents business development and lowers the standard of living for our citizens."  Another example might be: "poor port facilities hamper international trade."  Every government on earth faces a plethora of problems; the important question is: which problems should set the agenda for governmental action? Usually this is a President-level decision, with ministers, political appointees or Presidential staff providing advice and promoting one item over another.  However, ideas can come from anywhere, and some problems can become more important due to circumstances such as a natural disaster, a change in technology, or new international trade relationships. Also, new political regimes within a country or even in neighboring regions can affect the need for policy change. Recently we have seen that fluctuations in the value of different currencies have affected the ability to contract loans, obtain leases, or trade with nations whose exchange rates become unpredictable or shift the financial burdens among partners in unexpected ways.

The policy stream concerns organized forces that develop and promote certain policies, defined as goal-oriented courses of action.  These actors can be local interest groups, influential advisors and government staff.  Shared goals may drive policy actors to form cohesive groups; for example, health care providers may benefit jointly from policies that promote any aspect of better health care.  Other groups may share overarching goals but may compete for resources at the level of implementation. Transportation serves as an example of this type of group, with its subgroups of roads, rail, air and water transport sharing only some overlap.  Closely knit communities act more expeditiously than those with scattered aims and unreliable members.  Often these groups rely on specialists to help them frame issues.

Some policy streams compete with others for importance, or at least for priority.  These can be difficult decisions to make.  For example, a government may want to improve electricity delivery to current users and extend power supply to new areas. It might therefore conclude that it needs to improve the electrical grid that delivers power.  However, a better grid is useless without increased power for that grid to carry.  So power generation and power delivery need to be coordinated.  Once this codependency is understood, there may still be precedent conditions, like adequate roads necessary for equipment to install new power distribution systems, so highway planning may have to come first.  Each of these policy areas will have its own advocates and expert advisors.
The third stream, the political stream, is made up of the public mood, pressure group campaigns, election results, ideological distributions in the cabinet, and changes of administration.  These dynamic elements impact agendas and determine what issues rise as priorities. Changes of important participants or alterations in national mood or interest group configurations can force revisions to policies and reconfigure an organization's capabilities.  Consensus is built through bargaining among participating groups. Groups must be willing to compromise on aspects of their agenda to keep a good policy undamaged.

When the problem stream, policy stream, and political stream come together over a certain issue, a "policy window" opens up in which new legislation may be passed, or new initiatives can be advanced.  When a problem rises to the top of a government agenda, if appropriate policies are available to deal with the problem, and the political will exists to apply those policies, a project can move forward.

Where does financial evaluation enter this picture?  Just because a policy may be desirable or a project sorely needed, it will collapse without adequate financing, even if the political will is there to advance the project.
The earlier in the process financial viability comes into consideration, the better is it for all parties.  Large scale projects that are approved but fail to garner adequate funding either cannot proceed or need to be seriously modified to be able to fit the available budget.  A good project cut in half because of financial shortfall may not be "half as good" as the whole project - it may not work at all.  You can't have half a refinery, or half a football stadium.  To state the obvious, projects should be scaled to fit a pragmatic budget at the outset, with government and project developers working hand in hand.

Strong relationships with players in the international financial market enable government officials to understand and evaluate the likelihood of getting financing before presenting projects to the market.  A government that presents a series of hypothetical and unrealistic projects to the market will soon lose credibility and not be taken seriously by financial sources.  Finance ministers should develop good links to the international financial community so that credible and reliable financial sources can provide feedback on scope of work and possible financial underwriting. Competition for financial resources is international; policy entrepreneurs now act on a global stage.

Future articles will discuss other theoretical aspects of how government and financial institutions interact.

Russell Duke is Chairman amp; Managing Principal at National Standard Finance, LLC. Mr. Duke can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

By Alito L. Malinao

MANILA, Oct. 1 (Xinhua) -- While international rating agencies continue to harp on the strong economic fundamentals of the Philippines, the country has remained low in competitiveness ranking within the Association of Southeast Asian Nations (ASEAN), according to the World Economic Forum (WEF).

In WEFs Global Competitiveness Index (GCI) 2015-2016, which was released recently, the Philippines was ranked 47th among the 140 economies assessed by the WEF.

The Philippines actually moved up five notches in the WEF-GCI ranking compared with that of last year when it was ranked the 52nd.

The WEF Global Competitiveness Report is an annual publication that measures the productivity and competitiveness of countries around the world using statistical and survey data of major economic indicators.

But the Philippines has remained in the 5th place in competitive ranking among ASEAN member countries, only slightly higher than Vietnam, which is relatively new in opening its market to foreign investments.

The WEF-GCI ranks Singapore the first place in ASEAN, followed by Malaysia in the second, Thailand in the third and Indonesia in the fourth.

In the WEF ranking, Singapore was ranked the 2nd place, Malaysia, the 18th, Thailand, the 32nd and Indonesia, the 37th.

Singapore was second in the overall WEF-GCI ranking while Vietnam was the 56th.

The WEF said the conduciveness of the countrys business environment continued to be hampered by what it termed as problematic factors that include inefficient government bureaucracy, inadequate supply of infrastructure, corruption, complexity of tax regulations and high tax rates.

The lowest ranking that the Philippines got was in infrastructure wherein the country placed the 90th.

This pertains to the quality of roads, railroad, ports and air transport infrastructure, among others.

These were practically the same reasons cited as to why the Philippines has also lagged behind other ASEAN economies in the inflow of foreign direct investments (FDIs).

In its latest report, the Bangko Sentral ng Pilipinas (BSP), the countrys central bank, said as of the first half of this year, the net FDI inflow into the country reached only 2.02 billion US dollars, which was even down 40.1 percent from the same period in 2014.

In contrast, FDI inflows to Indonesia for the first half of 2015 amounted to 13.66 billion US dollars, the highest in the region. The amount corresponds to 31 percent of all FDIs that flowed into ASEAN.

Data from financial sources showed that in the first half of 2015, Vietnam garnered 7.53 billion US dollars and Malaysia with 7.01 billion US dollars, or 17 percent and 16 percent respectively from the FDI inflows to ASEAN.

The recently-released Open Markets Index (OMI) of the International Chamber of Commerce (ICC) has ranked the Philippines among those in the bottom of the 75 economies that it assessed.

The Philippines is still deemed by the international investor community to have trade restrictive measures and a protectionist regime, the ICC said.

Despite these unfavorable assessments, Standard amp; Poors (Samp;P), an American rating agency, has tagged the Philippines as the world s strongest major emerging market, citing its buffers that would insulate the economy from external shocks.

In a report this week, Samp;P said Asian economies in general were more resilient to adverse global trends than Latin American counterparts. Countries in the region are expected to fare well in the face of a slowdown in China, Asias biggest economy.

Latin American sovereigns are, on average, more vulnerable than sovereigns in Asia, Samp;P said.

Samp;P said the Philippines will be the least affected by worsening global conditions among countries covered by the Samp;P report.

Aside from the Philippines, the least vulnerable countries in Samp; Ps ranking are Poland, Mexico, Pakistan and Hungary.

The Samp;P said the major risks to emerging markets in Asia and other regions would be the tightening of global liquidity conditions that could result from the US Federal Reserves much- awaited rate hike and the unwinding of high levels of debt built up during years of loose monetary conditions.

MADRID Faced with a deep recession in Brazil and weak margins in Spain, Santander (SAN.MC) boss Ana Botin is expected to stress the banks focus on cost cutting as she seeks to persuade investors this week that profitability is improving.

Botin, who took over as chairwoman from her late father Emilio Botin 12 months ago, is holding Santanders first investor day in four years on Sept. 23 and 24, at a time when challenges are mounting again for the euro zones biggest bank.

Despite a 7.5 billion-euro (£5.4 billion) cash call in January, Santanders core capital ratios remain in the spotlight and lag the levels reached by many major European peers.

Analysts will be looking for reassurance from Santander during the two-day event in London over its plan to grow by lending more and by winning over clients, rather than through acquisitions as used to be its trademark.

The bank will have to increase cost cuts in Brazil and in Spain and be more cautious in the way it lends in the Latin American country to improve the groups profitability in the medium term, said Carlos Peixoto, analyst at BPI.

Santander has already raised its cost cutting target for the 2014-2016 period by 500 million euros to 2 billion euros, and could hike this goal again, financial sources said.

Santander declined to comment.

Brazil will be crucial for Santander to balance its cost and profitability equation, even as the country battles deepening economic and political turmoil.

Its unit there makes up 20 percent of its profit, on a par with its UK business and more than its Spanish home market.

High office costs in Brazil make it especially inefficient when compared to Brazilian rivals, analysts at Citi said -- but trimming them could make all the difference.

If Santander Brasil announced credible cost efficiency measures at the investor day, we would expect earnings upgrades at the group level, Citi said in a note.

Citi also said Santander could possibly raise its 2017 group profitability target -- measured as return on tangible equity (ROTE) -- to 13-15 percent from 12-14 percent. Santanders ROTE stands at 11.4 percent.

Santanders share price has dropped some 30 percent during Ana Botins time in charge, underperforming the broader Spanish blue chip Ibex index.

Many analysts have applauded Botins overhaul of management at the firm and her bid to improve its capital base, but a dividend cut has also hurt shares.

(Writing by Sarah White; Editing by Mark Potter)

As the global community prepares to embrace a new global development framework christened the Sustainable Development Goals (SDGs) this month, it is vital that lessons be drawn from the shortcomings of the predecessor framework, the Millennium Development Goals (MDGs), which is coming to a close at the end of this year. #160;

Looking back, at the 56th session of the UN General Assembly in 2001, the UN presented the MDGs in the form of a list of common goals for the world community to achieve by 2015 based on the Millennium Declaration as agreed in 2000.

The list comprised of 8 goals, 21 Targets and 60 Indicators in various areas of human endeavour. Since then, remarkable progress has been made towards achieving the MDGs.

For instance, the UN MDG Report 2015 states that the proportion of people living on less than $1.25 has decreased from 47% in 1990 to 14% in 2015 (from 1.9 billion to 836 million).

This indicates that Target 1 of halve the proportion of people living on less than one dollar a day has been reached. The story is similar in a number of other MDGs where global trends show positive results.

Unfortunately, the poor do usually get lost in averages, a point acknowledged in the UN MDG Report 2015 which states that progress across all MDGs has been limited and uneven across countries leaving significant gaps.

Millions of people are being left behind, especially the poorest and those disadvantaged because of their sex, age, disability, ethnicity or geographic location (UN 2015).

Gender inequality still persists in all spheres of socioeconomic undertaking while millions of poor people still live in poverty and hunger, without access to basic services, and many countries, particularly on the African continent, are unlikely to meet the targeted two-thirds reduction in child mortality by 2015.

The reduction in maternal mortality has been slow and mortality remains alarmingly high. In sub-Saharan regions and Southern Asia, where 80% of people in extreme poverty live, progress in reaching MDGs has generally been very limited.

There is a risk of countries cherry picking on what to implement and thereby missing some of the key transformative aspects of the agenda.

Despite these setbacks, the global successes of the MDG agenda prove that global action works and is the only path to ensure that the new development agenda leaves no one behind.

Several reasons have been raised regarding shortfalls in progress towards the MDGs which include the non-consultative nature of the MDGs at the design stage, unmet official development assistance (ODA) commitments by richer countries towards poorer ones, inadequate resources, lack of focus and accountability and insufficient interest in sustainable development.

In response to these reasons, the new global framework was extensively consultative and involved a broad range of stakeholders across the globe. The SDGs are premised on the recommendations of the High Level Panel of Eminent Persons which spells out five key cornerstones for the SDGs.

First, "leave no one behind" after 2015, this implies a move from reducing to ending poverty; second, put sustainable development at the core of each of the goals through the integration of social, economic and environmental dimensions of sustainability; #160;third, transform economies for jobs and inclusive growth; fourth, build peace and effective, open and accountable institutions for all; and fifth, forge a new global partnership which will be underpinned by solidarity, cooperation and mutual accountability.

There are 17 SDGs and 169 targets in the new international agenda which will be the bedrock for shaping the next global agenda on economic, social and environmental development for the period 2015 to 2030.

The SDGs are focussed on building productive capacity and give more weight to economic and environmental factors which were raised as key elements in the 'Common African Position (CAP) on the post-2015 development agenda' launched in June 2014.

The intention of the CAP was to engage African stakeholders to deepen their understanding of the post-2015 process, and provide a platform where all of Africa speaks with one voice, and act in unity to ensure that Africa's voice is heard and its views fully integrated into the global development agenda.

The CAP is constructed around six pillars: Structural Economic Transformation and Inclusive growth; Science, Technology and Innovation; People-Centred Development; Environmental Sustainability, Natural Resources Management and Disaster Risk Management; Peace and Security; and Finance and Partnerships. #160;

Being generic, these CAP pillars fit snugly into the global SDG framework, which implies that Africa's voice was indeed heard, in some instances. Two major questions stand out in the new development agenda.

First, given the large number of Goals which are quite extensive, covering a large territory, how are countries going to implement the SDGs and collect enough data to track progress in the 169 targets? Indeed with 17 Goals, nothing will be a priority. There is a risk of countries cherry picking on what to implement and thereby missing some of the key transformative aspects of the agenda.

Secondly, as opposed to the uni-directional slant of the MDGs whereby resources would come from the richer North to the poorer South as articulated in MDG 8, the SDGs will apply equally to all countries and respond to the CAP which argues that financing this development framework should take into account a blend of financial sources, including improving traditionally low tax collection rates, stemming illicit financial outflows from Africa, recovering stolen assets, tapping global financial markets, stepping up intra-African trade, South-South cooperation and public-private partnerships.

Osten Chulu is United Nations Development Programme Senior Economist

LONDON Thousands of jobs cuts, business closures and billions of euros of capital raising are all on the cards as the new bosses of three of Europes biggest banks respond to pressure to devise new strategies to revive them.

Credit Suisse (CSGN.VX) Chief Executive Tidjane Thiam, Deutsche Banks (DBKGn.DE) John Cryan and Standard Chartereds (STAN.L) Bill Winters are putting the final touches to their plans, which Thiam and Cryan will unveil next month and Winters is expected to deliver in early December.

All have been in charge roughly 100 days - a period when new chief executives typically formulate strategy after meeting investors, regulators, politicians, customers and staff.

Big job cuts loom in a bid to cut costs and improve profitability - their main target.

Cryan is to cut 23,000 staff, or about a quarter of headcount, mostly from disposals, financial sources told Reuters earlier this month.

Winters could axe several thousand, sources said, although they said no final decisions had been made and much will depend on disposals. Meanwhile Thiam has said he plans to use his engineering background to take a hard-nosed look at efficiency.

Senior management ranks are also being shaken up - Winters has named a new management team and is cutting layers of bureaucracy to simplify and speed up decision-making while Thiam immediately brought in a long-time confidant as his chief of staff and moved a couple more staff.

Santanders chairwoman Ana Botin (SAN.MC) said this week changes she had made in her first 12 months had laid the foundations for the bank we want for the next 10 years, and said 21 of her top 31 management team are new or have new roles.

Thiam, Cryan and Winters, all in their early 50s, each needs to undo mistakes made by predecessors and shrink their banks to reduce complexity and get out of business areas that no longer make money. Other banks, including CEO-less Barclays (BARC.L) and Italys UniCredit (CRDI.MI), are also going through the process, but new CEOs are under pressure to come in with a fresh view to take bold action.

All are high caliber, but they need to hurry up and make decisions about their business and markets while they are still learning a lot about them, one senior banker said.

All three CEOs declined requests for interviews. But here is their thinking on key issues, according to public comments and interviews with sources at banks, investors and analysts:


The three CEOs have all gathered with their boards and senior bankers this month - opting for hotel retreats in Bavaria, Switzerland and Singapore - to discuss plans.

They have made some big changes in their first two to three months and given broad signals on where their priorities lie in messages to staff and at second-quarter results.

Winters halved his banks dividend after a slump in second-quarter profits laid bare the scale of the challenge he faces.

Cryan said he planned to stick with Strategy 2020, which includes reducing the size of the investment bank and selling its Postbank retail bank and cutting other parts of the retail chain. He also said there were plenty of businesses that could still be changed quite significantly.

And all three are expected to cut their investment bank operations, especially fixed income trading.


Thiam has impressed with a confident start, analysts said. The multi-linguist has said he would be ruthlessly selective about what the bank does, driven by adding shareholder value.

Thiam, a former Ivory Coast government minister who previously ran UK insurer Prudential (PRU.L) for six years, wants a capital-light bank and is expected to put more focus on Asia.

This is a CEO with a track record, a very successful track record at Prudential. He's seen as a remarkable asset allocator, particularly in terms of distributing capital towards regions where he sees growth, and reducing capital headed for areas in which he doesn't see the same growth, said Guy de Blonay, a manager of the Jupiter Global Financial Opportunities Fund. He owns shares in Credit Suisse and was previously an investor in Deutsche Bank and Standard Chartered.

Winters, a dual US and British citizen who ran JPMorgans (JPM.N) investment bank and was a member of a UK government commission that recommended how banks should be made safer, said Standard Chartered was a special bank but has its problems.

It had been too focused on growth and not on returns for investors. Its risk assessment had been poor and it had been too slow to take hard decisions, whether on costs, people, or strategy, he told analysts.

Cryan, a former UBS (UBSG.VX) finance director, also said complexity and costs were stifling his bank.

This is the first time ever that you had the feeling that somebody is talking straight, said one person familiar with the bank. But the problem is he has to deliver soon.

At his first supervisory board meeting as CEO in July in New York he kept quiet and took a lot of notes, but at this months meeting in Bavaria he talked a lot and listed all the problems and weak points for the bank - but without giving his solutions, according to people at the meetings.


Meanwhile all three banks could do with more capital, analysts say. Each has a capital solvency ratio above its regulatory requirements, but are relatively weak compared with rivals.

They could opt for a major rights issue, a less disruptive smaller fundraising of several billion dollars or try to build equity capital by retaining earnings and cutting assets - less painful but potentially holding back on any growth plans.

However, depressed share prices at Deutsche Bank and Standard Chartered make a highly dilutive rights issue unlikely, analysts and investors said. Deutsche Bank already raised 8.5 billion euros last year, while Winters might prefer a quick-fire share sale to raise $3 billion, they said.

Thiam is more likely to raise cash swiftly, bankers reckon, and he told staff on his first day the bank needed a strong balance sheet to help it through rough times.

Credit Suisses common equity capital ratio of 10.3 percent of risk-adjusted assets is well below that of arch-rival UBS and investors said raising $6 billion or more should be supported if it is accompanied by a positive growth story when he steps up on Oct. 21.

(With additional reporting by Kathrin Jones in Frankfurt and Joshua Franklin in Zurich; Editing by Greg Mahlich)