ASEAN seeks to tap savings to fund infrastructure

By Monday November 10th, 2008 No Comments

KUALA LUMPUR, Nov 10 (Reuters) – Southeast Asian countries plan to set up an infrastructure finance mechanism, the latest move to extend regional cooperation in the face of the global financial storm, Malaysia’s deputy prime minister said on Monday.

Najib Razak said the 10 members of the Association of Southeast Asian Nations needed to co-operate to mobilise their large pool of savings to help fund infrastructure projects at a time when capital is scarce and budgets are under pressure.

‘As past experience has highlighted, the building of capacity to manage financial risks is very critical to contain the potential spill-over effects infrastructure projects may have on fiscal expenditures,’ said Najib, who will take over as Malaysia’s prime minister in March.

The smaller export-dependent economies of Asia are expected to see growth fall in 2009 and budget deficits look set to rise as they seek to offset lower growth.

In Malaysia, growth is forecast to slide to 3.5 percent of gross domestic product in 2009, the lowest level since 2001.

The move from ASEAN, which groups Cambodia, Malaysia, Indonesia, Singapore, Vietnam, Philippines, Laos, Thailand, Myanmar and Brunei, came after China announced a near-$600 billion boost to its economy.

The Asian Development Bank believes that regional spending needs on infrastructure could be as much as $583.1 billion from 2006-2015 and Najib noted that there was $340 billion a year in gross national savings generated each year in ASEAN.

But underdeveloped capital markets meant that money was not channelled efficiently and, while intra-ASEAN trade has boomed in recent years, regional cross-border capital flows were less efficient, Najib said.


Biswa Bhattacharya, special advisor to the Dean of the Asian Development Bank Institute, said that whilst there were huge infrastructure needs in Asia as a whole there were also massive reserves — not just in China and Japan but also in smaller countries.

‘The problem is not money but projects that are bankable,’ he told a conference in Kuala Lumpur on Monday. ‘We need to explore how we can mobilise these savings into infrastructure financing.’

Countries such as Thailand and the Philippines have said recently they will boost their spending on infrastructure projects, although Malaysia is in the process of cutting some.

In Indonesia, the government is currently in the process of offering almost 100 infrastructure projects for 2009-2011 such as electricity, toll roads, airports, railways and housing. Total cost is estimated at around $30 billion, one-third of which would come from the government.

Despite the rise in global aversion and an increase in the cost of capital, private sector funding remained available, Mak Hoy Kit, BNP Paribas (other-otc: BNPQY.PK – news – people ) associate director of equity research for Asia, told the conference.

‘A lot of it is about having bankable projects, the ability to reduce political risk and in keeping to the sanctity of contracts. That is what the private sector wants to see,’ he said.

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