Liquidity is not enough

Home to organisations such as the World Bank Group, Washington DC is a hub for global infrastructure investment. Andrew Davis speaks to Intesa Sanpaolo’s Chief Representative Officer in the city, helping Italian companies secure contracts on the international stage.

Andrew Davis


Luigi Ruggerone’s appointment as Intesa Sanpaolo’s first official representative in Washington DC – in October 2015 – did not involve a major relocation. He had just completed a two-year stint as Senior Financial Expert at the Washington-based International Monetary Fund (IMF). In his new role he is spending a lot of time dealing with development institutions based in the US capital.

Ruggerone’s task in Washington is two-fold.

First, enabling Intesa Sanpaolo to become more involved in financing big infrastructure projects around the world that the World Bank Group co-ordinates through the International Finance Corporation. Second, helping Intesa Sanpaolo’s Italian corporate clients to tender for and win work on these projects.


The International Finance Corporation plays a central role in mobilising state and private-sector funding and expertise to undertake global infrastructure investment, producing a wide range of commercial opportunities.

"There are a huge number of small and medium-sized Italian companies that are very good at what they do, but don’t have the size and strength to operate confidently in the international arena", he says. “My role within Intesa Sanpaolo is to help them move through the process.”
Photo: Mr. Luigi Ruggerone, Resident Representative at Intesa Sanpaolo.

Investing in infrastructure is key

Infrastructure has climbed the agenda at organisations such as the World Bank and the IMF. Indeed, while Ruggerone was working at the latter, it published an edition of its annual World Economic Outlook with an entire chapter devoted to the need for greater investment in infrastructure.


“Since the financial crisis we’ve seen a very slow recovery, due to a very low level of demand matched by a very low level of investment,” he says. Part of the answer, many officials at the World Bank and IMF believe, is to pursue more large infrastructure projects such as harbours, dams, power grids, subway systems, hospitals, schools and so on, that will create direct employment, increase productivity, and economic growth and generate an attractive return for their investors.


It is clear, Ruggerone says, that there is no shortage of money to fund such projects.

“The world is full of liquidity – interest rates have never been so low for so long in modern history. The problem is not financial resources.
The problem is good ideas.”

By this he means projects that not only make economic sense for all stakeholders, but also respect the environmental and the social fabric of the host countries.

The risk of dollar debt

However, while Intesa Sanpaolo is keen to increase its involvement in the projects the International Finance Corporation sponsors around the world, Ruggerone also sounds a strong note of caution about the state of the global financial system – and especially emerging markets.


This is because companies in some of these markets have taken on a great deal of dollar-denominated debt over the past few years that they could struggle to support if their own currencies were to devalue significantly against the dollar. It’s a process made more likely by the Federal Reserve’s move to begin increasing US interest rates, which is expected to lead to further appreciation of the dollar.

“Emerging markets are a very serious source of concern for the global economy and for global financial stability."

If we were to witness an increase in payment arrears, non-performing loans or the number of defaults by large corporations in the emerging markets, that would probably spark a tremendous wave of risk-aversion that could have very serious consequences for financial markets and for investors in general,” he warns.

New horizons

For Intesa Sanpaolo, therefore, managing risk is an absolutely critical challenge, which is why the bank believes that diversifying its exposure away from an overwhelming concentration on Italy and becoming more involved in projects in other parts of the world will ultimately strengthen its business.


Equally, part of Ruggerone’s role in Washington is to help Intesa Sanpaolo’s Italian clients along the same path – to reduce their reliance on the Italian economy. His two years working at the IMF have equipped him with a keen understanding of the risks facing the world economy and financial system, as well as close contacts with the leading global economic think tanks based in DC.


It is a helpful relationship. Working with the International Finance Corporation enables Intesa Sanpaolo to reach well beyond the borders of Europe and to manage the risk of doing so effectively. The corporation’s position as a preferred creditor gives it much greater protection in the event that a sponsored project becomes problematic or fails.

“If you participate in large infrastructure projects under the umbrella of the World Bank, you can benefit from their preferred creditor status,”
Ruggerone explains.

“Washington is a very good place to reach out and find opportunities – but also to keep a very close eye on the risks.”

Are our current economic models wrong?

As an international economist by training, Luigi Ruggerone is conscious of the stresses that exist within the global financial system. He also worries that economists’ current tools for analysing and explaining them may not be up to the task.

As well as the clear dangers he sees in emerging markets, particularly due to high levels of dollar-denominated corporate borrowing, Ruggerone believes that there are problems building up closer to home. “My strong impression is that the pattern of consumption and saving has also dramatically changed in the developed world,” he says, “so there is probably something that economists are missing in their models.” The pain that low oil prices cause to producing nations are not being offset by increased spending and consumption among net oil importers.

“This is not happening, so where are these savings going? Where is the extra cash? It’s not going to consumption and it’s not going to investment, so it’s probably dormat in financial portfolios, waiting for interesting oportunities.” This process is already highly visible in the US, he argues, but its implications are not well understood. “This is what concerns me: we are missing something. We need to add new variables to our models. If we keep using the same lines of reasoning we have been using until now, we are certainly missing out on something – and this is very dangerous.”

Related stories.