Trump's $1tr infra plans no problem for Asia investment, says ADB's Nakao
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Trump's $1tr infra plans no problem for Asia investment, says ADB's Nakao

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ADB president tells Global Markets that, despite a vast financing needed for infrastructure development, Asia should not fear US spending plans or rising US rates.

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The Asian Development Bank’s president, Takehiko Nakao, has dismissed fears that rising interest rates in the United States along with US president Donald Trump’s promised major infrastructure spending initiatives could draw global funds away from Asian projects.

In an exclusive interview with GlobalMarkets, Nakao also said that while foreign funds were needed to finance Asia’s vast infrastructure spending requirement, investment from domestic corporate and other investors would become increasingly important in the future.

The ADB estimates in a new report that the Asia Pacific region needs annual spending of $1.5tr between now and 2030 in order to maintain current growth and reduce poverty. This rises to $1.7tr annually, or $26tr in total, if projects are adapted for climate change.

Much of this is expected to take the form of public-private projects (PPP) but with Trump having promised infrastructure projects worth $1tr in the US and Europe and Japan also embarking on spending, fears have grown that global investors could prefer these destinations to Asia.

Nakao discounted this idea however. “I don’t think PPP projects in Asia can be affected by the infrastructure spending of the US,” he told GlobalMarkets. “There is a huge amount of money in the world and leverage can be increased.

“So, if there is a safe and profitable PPP project in Asia I don’t think it would be so much affected. This move by the Trump administration [ to champion infrastructure spending] will not change the landscape.”

No rate hike fear

Infrastructure spending prospects in Asia are also often linked to the issue of rising interest rates elsewhere, Nakao noted. “But my view is that with infrastructure investment or foreign direct investment [in general] a change of interest rates by the Federal Reserve Board by 0.25% each time will not have much impact,” he said.

The ADB president acknowledged that the figures given in the bank’s latest infrastructure report — which are roughly double those estimated in an earlier ADB report (2009) — were “more estimates than targets”. But they give an order of magnitude on required spending, he said.

He also noted that while emphasis is put on the need for external financing for Asian infrastructure, domestic private firms are likely to be become increasingly involved, citing infrastructure investments by San Miguel and the Ayala Group in the Philippines where the ADB is located.

“In many developed countries, railways, power, and communications have been provided mostly by private companies under concessions from the government. Most of the infrastructure in advanced nations was built by private companies, which means PPP because the government is always involved in granting concessions.”

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