Indonesia should finance infrastructure in rupiah<\/p>\n
At the just-concluded Infrastructure Summit, the government used
\nthe opportunity not only to offer 91 infrastructure projects
\nworth US$22 billion over five years to investors, but also to
\ntake input from top executives of global companies and
\ninternational funding bodies. Tan Sri Francis Yeoh Sock Ping, CEO
\nand managing director of Malaysia's YTL Corp. Bhd. talked with
\nThe Jakarta Post's Zakki P. Hakim about the summit.<\/p>\n
Question: What are the lessons can we learn from Malaysia's
\nsuccess in building its infrastructure?<\/p>\n
Answer: In Malaysia, we have tremendous experience in this.
\nOur former prime minister Mahathir Mohammad was very courageous
\nin introducing new models of privatization.<\/p>\n
But privatization also means a lot of changes of attitude in
\nthe nation, and in the way business is done, and also with people
\nas consumers.<\/p>\n
The good thing about Mahathir's leadership in the first five
\nyears -- although there was a lot of resistance to his changes --
\nwas that when the change was done, people finally saw economic
\ngrowth and jobs. Now we have a lot of Indonesian workers in our
\ncountry. We don't have unemployment problems.<\/p>\n
He (Mahathir) also wanted to implement new models on how
\ninfrastructure should be built. He always believed the private
\nsector could do a better job and he tried to come up with
\nregulations that were fair to allow this environment to exist.<\/p>\n
How did Malaysia model its infrastructure development, and
\nwhat is the role of the private sector?<\/p>\n
In the past, privatization -- as in the private sector leading
\nin important infrastructure as a business -- was new to Asia. In
\nWestern economies it is already well understood, where the
\nprivate sector develops infrastructure and they get returns on
\ntheir investment. In Asia, people did not know how
\n(infrastructure development) was going to be done. But in YTL, we
\nrealized from what we studied that all the solutions for Asian
\ninfrastructure development have been too expensive.<\/p>\n
It is very simple because all the formulas and solutions for
\nprivatizing infrastructure in Asia came from the West.<\/p>\n
In every business in the world, from cars to computer
\nmanufacturing, things are being miniaturized at double the power
\nand half the price in 18 months. But when it comes to
\ninfrastructure things are much more expensive.<\/p>\n
Why is it that basic utilities like water, housing and
\nelectricity are more expensive for developing countries, where
\nthe per capita income is low?<\/p>\n
Western economies can't handle the risks in developing Asian
\ncountries, and they cannot not finance these countries' risks for
\nmore than three to five years.<\/p>\n
And even if they do want to do it, then they have to hedge to
\nreduce the country risks. You add it all up and it becomes too
\nexpensive.<\/p>\n
What did Malaysia do?<\/p>\n
In YTL we found a solution, and in Malaysia it was quite
\nsimple. It was just that it had never been done before. We have a
\nlot of money in pension funds. Malaysia has a high savings rate,
\nabout 40 percent, so there is a lot of money in the banking
\nsystem, untapped.<\/p>\n
Since there was no experience in doing infrastructure
\ndevelopment using local funding, nobody did it. So why couldn't
\nwe? So, we did the first 15-year bond with the Employment
\nProminence Fund (EPF).<\/p>\n
Then, we introduced something else, an infrastructure project
\nlisting on the stock exchange, where we could list a company and
\ngo out into the world seeking capital to invest in a project.<\/p>\n
This is important to understand. In the past, if you wanted to
\nlist a company and seek capital from global investors you needed
\nto have a viable track record.<\/p>\n
But we came up with an idea. If we had a long term concession
\nwith the government actually \"protecting\" this concession, then
\nthe world would be more likely to invest with you.<\/p>\n
I managed to raise US$800 million in one month, compared to
\n12 months trying to get this thing enacted on the stock exchange.<\/p>\n
Do you think Indonesia can use the same solution?<\/p>\n
I don't see why Indonesia can't finance its infrastructure in
\nrupiah. It can. We have done it in ringgit. In Malaysia, it was
\nthe same. When I did the first fund in ringgit, the argument was
\nthat there was only enough money to do one project, and that was
\nmine, while there was competitors trying to get the same money.<\/p>\n
All the world said I must move faster than the others,
\notherwise the money would dry up. There was only room for one. It
\nwas between 1995 and 1996. It was for the first independent Paka
\nand Pasir Gudang power station of 1,200 Megawatts.<\/p>\n
What I am trying to say was, there was so much cynicism and
\nlack of understanding, (people thinking) that there was only room
\nfor one project and whoever got in first, won. That was not the
\ncase. I told them the opposite. If I succeeded in doing this
\nfirst, then everybody else would be financing (all their
\nprojects) in ringgit, every single infrastructure project.<\/p>\n
Our early project was to do 1,200 megawatts, since then 10,000
\nmegawatts have been financed using ringgit. Not only in power, in
\nevery other infrastructure project, and we do not borrow from
\noverseas. No more U.S. dollar financing. To some extent we do not
\nhave U.S. dollar debt exposure, even in the 1997 monetary crisis,
\nMalaysia never had a huge foreign debt.<\/p>\n
But if we followed the Western models of borrowing in U.S.
\ndollars, we would be in as much trouble as Indonesia or South
\nKorea and Thailand. We did not. One big difference is that we
\nhave used a different formula, a very simple formula to tap money
\nin pension funds.<\/p>\n
Using this system, how much has Malaysia benefited?<\/p>\n
Today, because of the way we finance infrastructure, you can
\nsee that infrastructure in Malaysia is now very advanced. There
\nis no lack of money to invest in infrastructure projects in our
\ncountry. In fact, we are having the reverse problem now.<\/p>\n
Every month, there is billion ringgit more (being contributed
\nto pension funds) as well as 1.2 billion ringgit from private
\ninsurance firms. That's why our government is allowing us to go
\nout to invest in Indonesia and elsewhere. It's a nice problem to
\nhave.<\/p>",
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"sponsor": "Okusi Associates",
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