Multilaterals must work harder to fill the dire shortfall in Asian infrastructure investments, according to Rashid Kaldany, the newly-appointed Director of the Infrastructure Department at the International Finance Corporation (IFC).
He takes up his new role after directing the World Bank/IFC Oil, Gas, Mining, and Chemicals Department for the past seven years. To date, health, education, and local financial markets have been priority sectors at the IFC, but the Corporation is now seeking to provide greater infrastructure assistance. “We are hoping to expand our activities from $250 million per annum to close to $1 billion in three years,” Kaldany told Emerging Markets.
However, with the Asian Development Bank (ADB) arguing that the region needs to double current levels of investment to $3 trillion over the next ten years, Kaldany concedes that “the needs of this sector are mind-boggling. Financially, we can only provide a drop in the ocean.” Nevertheless, he underlined the IFC’s role as an honest broker between governments and the private sector: “we can help structure their relationships and provide an advisory role.”
Specifically, he hopes to see more innovative capital-raising structures employed, following the example of the IFC’s 10-year RMB 1.13 billion Panda bond issue in the Chinese domestic market in 2005, which was primarily used to finance local infrastructure firms. “Our support should be a catalyst to help mechanisms such as private equity to raise funds.” In this context, Bill Streeter, head of Asia-Pacific International Public Finance at Fitch Ratings, believes MDBs should focus on their credit enhancement role to stimulate private investments in this sector. This would offset the exchange rate risks and regulatory concerns that are currently discouraging foreign participation in emerging Asia’s project finance initiatives.
Bob Bestani, Director General of Private Sector Operations at the Asian Development Bank (ADB), concurs with Kaldany’s view that infrastructure and private sector relationships should become the focus for multilaterals in the region. “Money is not the core product of any multilateral institution; our strength is to provide an enabling environment for the private sector and government to work together.” According to the ADB, many countries will fail to meet their economic growth targets due to lagging investments in the infrastructure sector, creating a political impetus behind plans to refocus MDB activity.
Against this backdrop, Kim Hak-Su, UN Under-Secretary-General and Executive Secretary of the Economic and Social Commission for Asia and the Pacific (UNESCAP), is prepared to consider more radical proposals, such as the creation of a dedicated infrastructure investment bank or finance corporation for the region. “This is one way to utilize the region’s large amount of savings and foreign exchange reserves,” he concludes.