Multilateral and bilateral assistance aid infrastructure development-
While many of the advanced countries continue to grapple with the global economic slowdown, the countries of Southeast Asia have enjoyed robust economic growth. In fact, the region’s fastest expanding economies – Indonesia, Malaysia, the Philippines, Thailand, and Vietnam – have been able to retain the interest of investors. Nonetheless, it is imperative that the region ensures sufficient flow of investments, particularly into key areas such as infrastructure. Apart from governments, international development agencies have also played a crucial role in capacity building in the region, through the provision of both project funds and technical assistance.
Historically, the Asian Development Bank (ADB), the World Bank, and the Japan International Cooperation Agency (JICA) have been the key development agencies that have lent funds for the development of the infrastructure sector in the region. The financial support they have provided has been distributed across various segments of infrastructure, including energy, roads, ports, as well as water and sanitation.
Asian Development Bank
The Southeast Asian region has received substantial financial assistance from ADB, especially in the infrastructure segments of energy, transport, water supply, as well as information and communication technology (ICT).
In 2012, more than half of ADB’s lending in this region was for infrastructure projects. Moreover, in April 2012, the ASEAN Infrastructure Fund (AIF), in which ADB plays a threefold role as shareholder, co-financier, and administrator, was incorporated in Malaysia. The fund is designed to mobilise foreign exchange reserves for infrastructure financing in the region through AIF bond purchases by central banks. Further, to help the ASEAN Economic Community achieve its targets, ADB signed a new MoU for 2011–15 with ASEAN countries. Under the MoU, ADB will focus on facilitating connectivity, financial and capital market integration, environmental sustainability, macroeconomic surveillance, along with trade and investment in the region. Meanwhile, ADB also completed two decades of the Greater Mekong Subregion (GMS) Economic Cooperation Program with its member countries – Cambodia, China, Laos, Myanmar, Thailand, and Vietnam. As of end-2012, ADB, development partners, and the governments of member countries had invested $15.5 billion in GMS projects that are primarily targeted at infrastructure development.
ADB has also provided technical assistance to build capacity at the institutional level to ensure that its funds are utilised efficiently to meet development goals. For instance, ADB’s Country Operations Business Plan 2012–2014, signed with the Thailand government, involves building the institutional capacity of the country for public–private partnership (PPP) projects and capital markets. The collaboration includes support for the modernisation of the state railway of Thailand. In another instance, ADB has extended its support to the Philippines government to develop a stronger policy, legal, and regulatory environment for PPP projects. The support will also strengthen the capacity of the PPP Center of the country.
Moving forward, ADB’s priority area for funding in the region would be infrastructure development, particularly regional connectivity infrastructure. According to Arjun Goswami, Head, ADB’s Regional Cooperation and Integration Group in Southeast Asia, “This would include cross-border transport infrastructure, completion of the key road corridors in the region (such as in Myanmar), and intermodal transport links. In energy infrastructure, projects to be financed will include intercountry and intra-country power transmission projects, power generation projects, and alternative/renewable energy projects.”
With respect to countries, the bank will continue to focus on the less developed countries. Further, owing to the overall constrained supply of development resources and long-term finance, ADB will endeavour to leverage its financing activities. “Even currently, ADB continues to seek co-financing from various development partners and private sector entities. There is also a growing need to look into more complex requirements of project preparation and implementation in the region. This is on account of the emerging issues such as climate change and environmental impacts, and other non-economic aspects of projects. In this regard, significant resources are required to be allotted for ensuring environmental sustainability, climate change mitigation and adaptation, social and human resource development, monetary and financial reforms, and software development for facilitating trade and transport integration,” says Goswami.
ADB will also focus majorly on the operations in Myanmar, which has just emerged from five decades of economic and political isolation.
World Bank
The World Bank offers loans for infrastructure projects via its International Bank for Reconstruction and Development (IBRD) arm and also supports governments in the restructuring of infrastructure sectors. Further, through its private sector arm, the International Finance Corporation (IFC), the World Bank also assists firms in the infrastructure sector through the provision of credit and equity investment. Finally, the bank has a multilateral guarantee agency – Multilateral Investment Guarantee Agency – which insures private investors against political risk and breach of contract.
In 2012, the World Bank lent about $6.6 billion to the East Asia and the Pacific regions – $5.4 billion of IBRD loans and $1.2 billion of International Development Association commitments – along with $125 million in grants. The leading infrastructure segments that received funding were water, sanitation, and flood protection ($1.3 billion), and transportation ($1.1 billion). Other segments such as energy and mining received about $528 million.
The World Bank also has operations at an institutional level. For instance, in Indonesia, it is currently working on strengthening the Indonesia Infrastructure Guarantee Fund – a single-window institution that appraises PPP projects in the infrastructure sector that require government guarantees. World Bank assistance in this area will facilitate the strategic development of the necessary institutions and practices for the preparation, financing, and implementation of projects in the infrastructure sector.
Moving forward, the bank’s regional strategy will remain focused on the mitigation of global climate change and disaster risks in the region; removal of infrastructural bottlenecks; poverty reduction; and improvement of governance.
JICA
In just one year, JICA has extended financial assistance of about Yen 106.02 billion. Its lending activities have been primarily concentrated in Vietnam (seven projects), Indonesia (two projects), and Myanmar (one project), across various sectors, such as transport, roads, ports, energy, and telecom.
In a bid to support the region’s growth, JICA seeks to eliminate intra-regional disparities and promote urbanisation in the region. It also deploys Japanese technologies to enhance infrastructure development across various systems such as public transportation, energy and water supply, and waste treatment.
To address the vulnerability of the region to climate changes, JICA has initiated activities such as forest fire prevention; development of geothermal and other renewable energy sources; construction of urban high speed rail systems to alleviate traffic congestion and reduce motor vehicle emissions; and adaptive measures for regions critically vulnerable to the effects of climate changes. JICA is also promoting PPP projects by providing support to the specific government ministries and agencies that establish the relevant policies and regulations.
The way forward
In the years ahead, international development agencies will continue to play an instrumental role in the region’s development, particularly in the infrastructure sector. Besides providing financial assistance to the countries in the region, the activities of these agencies will also help to “crowd-in” much-needed private investment. Equally important will be the role of the regional governments in overcoming constraints such as delays in project execution, governance issues, and the underdevelopment of domestic financial markets. In the long run, these steps will not only help to expedite the construction of new infrastructure, but also enhance the growth and development of the region.
