Wednesday, October 05, 2011

Building South Asia’s Infrastructure

ADB: Innovative Fund to Pave Way for Infrastructure Boom
Asia One: ASEAN Launches $650m Fund to Build Infrastructure
Bernama: ASEAN Infrastructure Fund Set to Pave Way for Infrastructure Boom
Brunei Times: US$500m Infrastructure Fund for ASEAN Launched
Business World: ASEAN Infrastructure Fund Seen Fueling Regional Boom

The Association of Southeast Asian Nations (ASEAN), made up of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, launched a $500 million fund on September 24, 2011 to finance infrastructure projects that will better interconnect the region and improve access between the region and surrounding countries with larger economies. The Asian Development Bank (ADB), the Manila-based regional financial institution, will oversee the fund.

The ASEAN countries created the fund after observing that China, a country with which they have tenuous political relations, has been looking to exert more influence over them by increasing its investment in the region. As a result, the ASEAN countries have agreed that they need to invest more within the region to avoid becoming overly reliant on China’s money. They also believe that the region’s lack of highways, railroads, and an efficient electric grid is inhibiting economic growth by increasing production costs.

The ADB will administer the fund and be responsible for choosing and overseeing all of the projects that receive money from the fund. The ADB will select projects based on evaluations of their potential economic and social impact. Initially, member country contributions will make up 70% of the funds, and the ADB will contribute the remaining 30%. The fund will lend about $4 billion total through 2020, but the ADB projects that the countries will need a combined $60 billion for infrastructure projects over the next decade. The fund will serve as way for the ASEAN countries to effectively use the region’s $700 billion in foreign currency reserves. The countries also hope the fund will entice much-needed private investors who have been reluctant to invest in infrastructure projects in these countries because of the perceived high risk of long-term infrastructure transactions.

If successful, this co-venture between ASEAN and the ADB will encourage major economic development in the Southeast Asia. Improving infrastructure will reduce production and transportation costs, which should lead to increased trade and revenue. In addition, the infrastructure will improve the lives of millions of people in the region by increasing access to water and electricity.

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