A new infrastructure bank for Asia could be set up as a result of an in-depth study into funding by the ASEAN+3 group of nations, Emerging Markets has learned.
The idea of a new Multilateral Financing Mechanism for Asia has been mooted before and, with the ADB facing funding constraints as a result of shortfalls on its investment income, it is coming back into focus.
“China believes this is a very important issue [and that] infrastructure development must be a priority” for Asia, Chinese vice finance minister and co-chair of the ASEAN+3 meeting Zhu Guangyao told Emerging Markets.
ASEAN+3 finance ministers and central bank heads meeting on the sidelines of the annual meeting referred to infrastructure financing simply as a “possible area” for cooperation by the 13-nation group. But documents seen by Emerging Markets indicate that thinking is quite well advanced.
The documents suggest that a new “self-owned” multilateral financial institution in Asia “could better meet the common needs of regional economies” compared to one owned in and beyond the region, but that it might face “political problems and lack a sound business model.”
China, South Korea and Indonesia have been lead countries in studies already underway on a possible Asian infrastructure bank. The three are due to present a preliminary draft of a new study by next month, documents show.
This study will review the options for beefing up the resources of existing multilateral development institutions in Asia, establishing a new infrastructure bank or expanding private sector participation in infrastructure via public-private partnerships.
Asia’s infrastructure needs in the decade to 2018 have been estimated by the ADB at a colossal $8 trillion, including domestic and cross border transportation, power and other infrastructure facilities.
This dwarfs the roughly $20 billion annually spent by the ADB and co-financiers on infrastructure and other projects, plus a similar amount by the World Bank, leaving a huge potential funding gap.
Yet, the ADB is situated in one of the world’s richest regions where countries such as China, Japan, South Korea and India have huge financial resources, the ADB’s vice president for knowledge management and sustainable development Bindu Lohani told Emerging Markets.
The problem, he said, is that the emerging economies in Asia have the financial resources to fund infrastructure projects but lack knowledge of how to build and manage them according to the highest international standards, while the ADB has management expertise but is short on resources.
So far, Lohani added, there is no consensus yet among the ADB’s 67 member countries or even among the 48 of them situated in Asia on how to resolve this dilemma. “But there is one thing on which they all agree, and that is that we need to find more money for infrastructure in Asia,” he said.
The Asian Infrastructure Fund (AIF) owned jointly by the 10 ASEAN states and the ADB is already operational but is small – some $500 million – in size and will take a number of years to establish a working track record while “the need for new resources is now,” said Lohani.
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