Focus On Infrastructure Financing Will Help Narrow Economic Disparity Among Members

By Azizul Ahmad KUALA LUMPUR, April 1 (Bernama) -- ASEAN finance ministers have taken the right step by emphasising, among others, infrastructure financing as a vital component towards the realisation of the ASEAN Economic Community as it will hasten the narrowing of economic gap among the 10 members. It is imperative that measures are taken to utilise quickly the US$485.3 million ASEAN Infrastructure Fund (AIF) for projects such as power transmission, airports, roads, bridges as they promote connectivity and attract foreign direct investments. The wide economic gap among member countries, with Singapore's gross domestic product's (GDP) 55 times that of Cambodia, ought to be narrowed if ASEAN were to function as an effective regional economic grouping like the European Union (EU) where the maximum disparity is only six times among members. The AIF is a dedicated fund established by the Asian Development Bank (ADB) and nine ASEAN member countries in 2013 to finance projects in ASEAN member countries that are expected to promote infrastructure development. ASEAN region encompasses a broad range of cultures, languages, political systems and demographics, and the diverse landscape may explain some of the difficulties in forging closer integration. Besides focusing on infrastructure development, ASEAN has also chosen a pragmatic approach in pursuing 'financial integration' as a path it wants to follow unlike the EU's single currency which now seems impossible, given the differing levels of economic development. It is without doubt that the financial integration path ASEAN chooses to take would help the region overcome the present fragmentation of national financial sectors caused by national regulations and the absence of mutual recognition and common disclosure requirements. The inaugural ASEAN Finance Ministers' and Central Bank Governors' Meeting (AFMGM) in the capital recently in principal agreed that AIF members should further top-up the fund shareholders' equity to further address selected ASEAN infrastructure investment needs. The AIF provides financing to sovereign or sovereign-guaranteed projects in the ASEAN region and had so far supported three infrastructure projects last year. A Bernama check with the ASEAN Secretariat showed that US$165 million from the fund has been approved to finance a power transmission project and a sanitation project, both in Indonesia, as well as a power grid development project in Vietnam. Another 23 infrastructure projects costing US$3 billion are in the pipeline for approval. The Asian Development Bank (ADB) estimated that the region requires US$60 billion in annual investments for road, rail, power, water, and other critical infrastructure, to help ensure continued economic growth, job creation and poverty reduction. The AIF is an innovative ASEAN initiative to mobilise the region's resources for its infrastructure development needs, it said. In addition to equity contributions from its members, the AIF plans to raise additional funds for its operations by issuing debt from 2017. Credit rating for AIF's new bonds would not become an issue as ADB, being a shareholder of AIF, is AAA-rated by Standard & Poor's, Moody's and Fitch based on its strong fundamentals. Funding for ASEAN infrastructure in the future could also be made easy with the availability of the newly set up China-led Asian Infrastructure Investment Bank (AIIB), which aimed at having an initial authorised capital of US$50 billion as unveiled last year by China President Xi Jinping. ADB President Takehiko Nakao had expressed readiness to collaborate with AIIB to finance infrastructure development in the region. "This region would then have a lot of money for infrastructure," he told Bernama on the sidelines of the AFMGM recently. Nonetheless, Nakao hoped that AIIB would adhere to the international standards on safeguard policy on environment and social impact as well as procurement system. --BERNAMA