Mr. Watanabe argues that the future of project finance in Asia has improved, but government guarantees and legal reform are necessary before foreign investors are willing to risk large sums in developing Asian economies.

Tsugumichi Watanabe is a partner at Milbank, Tweed, Hadley & McCloy LLP. A member of Milbank's Global Project Finance Group and based in its New York office, Mr. Watanabe has extensive experience representing commercial banks, export credit agencies, and sponsors in project financings in Asia, Latin America, the Middle East, and Russia.

Project financing in Asia is now at a turning point. The last two years have seen the first major crisis period in what had become the most popular method of financing Asia’s infrastructure needs as it became a growing economic force on the world scene. In past Harvard Asia Business Conferences, project finance was the subject of a number of panels, and student attendees were always eager to hear what worlds they could conquer if they became "project financiers." However, only one scheduled panel at the 2000 Conference featured project finance, reflecting a downturn in interest. Admittedly, it is true that pure project financings in Asia are few in number these days, but the very uncertainty that now characterizes the Asian economies offers a number of opportunities for the adventuresome.

The Asian financial crisis has had differing effects on the participant economies. While some countries such as the Philippines have more or less weathered the crisis with comparatively little damage, others, such as Korea and Thailand, have swooned and then recovered. Still others like Indonesia continue to struggle. Japan, the region's largest economy, has achieved almost no growth throughout the entire period, although the crisis did spur a positive trend toward deregulation.

Since the beginning of the Asian crisis, international investors have searched for "bargain- basement" opportunities in Asia, but it is only in the past year or so that such acquisitions have begun to close in earnest. The track record has varied by country. Japan, the biggest market for investors, has finally deregulated to the point where non-Japanese can hold meaningful investments in a number of industries. However, other Asian countries have been less successful in encouraging long-term foreign investment, and some will continue to be avoided by private investors for years to come.

What does this landscape mean for project finance in Asia and potential project financiers? In countries such as Japan or Korea with mature, developed economies, there was never much opportunity for new "green field" projects to be developed. However, the increasing openness to foreign investment in these countries means that more opportunities will become available for foreign investors to purchase revenue-producing assets and then operate them at a higher efficiency than prior owners. For example, in Japan a non-Japanese utility affiliate might team with Japanese investors to purchase power-producing assets from Japanese utilities or manufacturers. The acquisition could be financed on a limited-recourse basis, and the financing could be repaid by increasing the output of the assets. The challenge here will be to overcome regulatory hurdles and determine how to import and successfully use corporate financing and organizational (including tax) techniques that have already been effective in other countries such as the United States.

In countries that have a need for new infrastructure projects, the task will be to create financing structures that mitigate non-commercial risk to a level that international investors, more cautious than in years past, can tolerate. In countries such as Thailand and the Philippines that have a developing local bank network, risk might be mitigated by combining local and offshore borrowing while simultaneously utilizing currency, interest rate and other derivative instruments. This kind of strategy would reduce risks to more manageable levels, especially in projects where cash revenue is denominated in local currency. Financings like these offer opportunities of the first order to those with an interest in structured financing.

Finally, in countries where recovery seems distant, it is likely that there will be a period of government-to-government assistance to jump-start recovery. Infrastructure projects, whether in construction or already completed, in countries such as Indonesia will likely need foreign government assistance in order to restructure at an economic level that makes sense for all parties. Once such projects are restructured, there may be a period of direct government-to-government assistance to resuscitate industry sectors in order to bring back foreign private-sector investment. And even after foreign investment returns, governmental support in the form of political risk coverage from export credit agencies and multilateral agencies is likely to play an important role in financing any further expansion of those industry sectors. Project finance in these settings will mean navigating the complex interplay between government support, private sector financing and foreign direct investment. This opportunity will favor those with backgrounds in government policy, economic development and business law.

In sum, Asia will provide many opportunities for newly minted graduates with degrees in business, law or government who have a yen for project finance. While there will be no single track to success as a project financier (if there ever was one), the term has taken on new breadth and will encompass the fields of mergers and acquisitions, corporate reorganizations, government regulation of industries, structured finance and government-assisted support. Project finance in Asia over the next few years will offer opportunities for young graduates, but these opportunities will have to be sought out and conquered. The chance of success may be lower, but the opportunity may be greater than ever before.