Japanese financing for Southeast Asia’s infrastructure development-
Japanese investments in infrastructure have provided a growing source of funds to meet the massive demand in this sector in Southeast Asia. Many significant infrastructure projects in the region have gotten off the ground in recent years, thanks to these investments.
In 2011, Japan invested over 260 billion yen in the infrastructure of the member countries of the Association of Southeast Asian Nations (ASEAN). This figure reached over 310 billion yen by the third quarter of 2013. Most of these investments were made in the transport equipment segment (including metro coaches, machinery, and equipment). Other transport segments and the communications sector also received substantial funds. However, petroleum and construction attracted only a small portion of the total Japanese investments in the region’s infrastructure.
Overview of Japanese financing in the region 
Japanese financing is extended to ASEAN countries primarily through the Japan International Cooperation Agency (JICA) and the Japan Bank for International Cooperation (JBIC). While JICA provides funds in the form of Official Development Assistance (ODA) loans and grants, JBIC provides export-import financing in the region. In 2013, JICA provided 298.38 billion yen for infrastructure projects in the region, which exceeded the 262.8 billion yen offered in 2012 by 13 per cent. The number of projects supported increased from seven in 2012 to 19 in 2013. Nearly 60 per cent of the funds went to Vietnam, followed by the Philippines with 19 per cent. The remaining 21 per cent went towards the financing of projects in Indonesia, Myanmar, Cambodia, and the Lao People’s Democratic Republic.
Roads and airports received more than half of JICA’s investments in Southeast Asia’s infrastructure sector in 2012 and 2013. The urban transport, railway, and water and sanitation segments obtained significant financing. For instance, in 2013, the Capacity Enhancement of Mass Transit Systems in Metro Manila Project in the Philippines received the highest ODA of 43.25 billion yen. However, power, ports, and telecommunications have yet to receive comparable funding.
Through its assistance, JICA has sought to eliminate intra-regional disparities and promote urbanisation in the region. To promote urbanisation, JICA aids the local governments in formulating and developing urban master plans. Meanwhile, the agency is placing greater emphasis on projects implemented through public–private partnerships (PPPs). It is extending support to government ministries and agencies in the region to help them to create a conducive policy landscape for PPPs. In this way, the much-needed private sector funds will also be utilised for infrastructure building.
Forging a symbiotic strategy
In 2013, Japan endorsed a policy that sets out a clear goal of increasing real gross national income by working on infrastructure projects overseas. Its lending for infrastructure development in foreign countries often goes hand in hand with the awarding of contracts to consortiums controlled by the Japanese. Essentially, the funds provided by JBIC are “tied”: they require the borrower to use Japanese technology and equipment to implement infrastructure projects, thereby boosting Japan’s exports.
In its implementation of this policy, Japan has accorded top priority to the ASEAN and East Asia regions. Japan’s commitment to this policy is reflected in its move of writing off outstanding debt from Myanmar worth $1.8 billion, while providing fresh loans to the tune of $500 million for development works in the country.
Moreover, Japan has invested in the dollar-denominated Pan Asia Bond Index Fund, which enables it to purchase local currency bonds issued by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Recently, Japan boosted bilateral currency swaps with Indonesia, the Philippines, and Singapore, with the aim of instituting similar swap agreements with Malaysia and Thailand. These measures have provided the respective governments with additional funds, thus allowing for greater public lending for infrastructure projects. To date, government funding is still the main source of infrastructure financing in Southeast Asia. For the Southeast Asian nations involved in the swaps, the agreements also act as “safety nets”.
“Yen financing” to gain pace
Japan intends to stimulate its economy by increasing its political and financial presence in Asia. In this respect, Southeast Asian nations offer a large pool of unexplored opportunities. Given the looming infrastructure deficit in the region, Japanese financial aid is likely to play a greater role going forward in addressing this concern. The Japanese government announced in December 2013 that it would provide about 2 trillion yen of ODA to the ASEAN region over the next five years. A centrepiece of the new aid package is the support for the development of regional infrastructure that would facilitate the planned integration of ASEAN economies by 2015. Under the aid package, 70 infrastructure projects in the region will receive Japanese funding. Ultimately, Japanese financing is a mutually beneficial proposition that will not only benefit the infrastructure sector in Southeast Asia, but also provide an export boost to Japan-based corporations.
