Indonesia should finance infrastructure in rupiah

At the just-concluded Infrastructure Summit, the government used the opportunity not only to offer 91 infrastructure projects worth US$22 billion over five years to investors, but also to take input from top executives of global companies and international funding bodies. Tan Sri Francis Yeoh Sock Ping, CEO and managing director of Malaysia's YTL Corp. Bhd. talked with The Jakarta Post's Zakki P. Hakim about the summit.

Question: What are the lessons can we learn from Malaysia's success in building its infrastructure?

Answer: In Malaysia, we have tremendous experience in this. Our former prime minister Mahathir Mohammad was very courageous in introducing new models of privatization.

But privatization also means a lot of changes of attitude in the nation, and in the way business is done, and also with people as consumers.

The good thing about Mahathir's leadership in the first five years -- although there was a lot of resistance to his changes -- was that when the change was done, people finally saw economic growth and jobs. Now we have a lot of Indonesian workers in our country. We don't have unemployment problems.

He (Mahathir) also wanted to implement new models on how infrastructure should be built. He always believed the private sector could do a better job and he tried to come up with regulations that were fair to allow this environment to exist.

How did Malaysia model its infrastructure development, and what is the role of the private sector?

In the past, privatization -- as in the private sector leading in important infrastructure as a business -- was new to Asia. In Western economies it is already well understood, where the private sector develops infrastructure and they get returns on their investment. In Asia, people did not know how (infrastructure development) was going to be done. But in YTL, we realized from what we studied that all the solutions for Asian infrastructure development have been too expensive.

It is very simple because all the formulas and solutions for privatizing infrastructure in Asia came from the West.

In every business in the world, from cars to computer manufacturing, things are being miniaturized at double the power and half the price in 18 months. But when it comes to infrastructure things are much more expensive.

Why is it that basic utilities like water, housing and electricity are more expensive for developing countries, where the per capita income is low?

Western economies can't handle the risks in developing Asian countries, and they cannot not finance these countries' risks for more than three to five years.

And even if they do want to do it, then they have to hedge to reduce the country risks. You add it all up and it becomes too expensive.

What did Malaysia do?

In YTL we found a solution, and in Malaysia it was quite simple. It was just that it had never been done before. We have a lot of money in pension funds. Malaysia has a high savings rate, about 40 percent, so there is a lot of money in the banking system, untapped.

Since there was no experience in doing infrastructure development using local funding, nobody did it. So why couldn't we? So, we did the first 15-year bond with the Employment Prominence Fund (EPF).

Then, we introduced something else, an infrastructure project listing on the stock exchange, where we could list a company and go out into the world seeking capital to invest in a project.

This is important to understand. In the past, if you wanted to list a company and seek capital from global investors you needed to have a viable track record.

But we came up with an idea. If we had a long term concession with the government actually "protecting" this concession, then the world would be more likely to invest with you.

I managed to raise US$800 million in one month, compared to 12 months trying to get this thing enacted on the stock exchange.

Do you think Indonesia can use the same solution?

I don't see why Indonesia can't finance its infrastructure in rupiah. It can. We have done it in ringgit. In Malaysia, it was the same. When I did the first fund in ringgit, the argument was that there was only enough money to do one project, and that was mine, while there was competitors trying to get the same money.

All the world said I must move faster than the others, otherwise the money would dry up. There was only room for one. It was between 1995 and 1996. It was for the first independent Paka and Pasir Gudang power station of 1,200 Megawatts.

What I am trying to say was, there was so much cynicism and lack of understanding, (people thinking) that there was only room for one project and whoever got in first, won. That was not the case. I told them the opposite. If I succeeded in doing this first, then everybody else would be financing (all their projects) in ringgit, every single infrastructure project.

Our early project was to do 1,200 megawatts, since then 10,000 megawatts have been financed using ringgit. Not only in power, in every other infrastructure project, and we do not borrow from overseas. No more U.S. dollar financing. To some extent we do not have U.S. dollar debt exposure, even in the 1997 monetary crisis, Malaysia never had a huge foreign debt.

But if we followed the Western models of borrowing in U.S. dollars, we would be in as much trouble as Indonesia or South Korea and Thailand. We did not. One big difference is that we have used a different formula, a very simple formula to tap money in pension funds.

Using this system, how much has Malaysia benefited?

Today, because of the way we finance infrastructure, you can see that infrastructure in Malaysia is now very advanced. There is no lack of money to invest in infrastructure projects in our country. In fact, we are having the reverse problem now.

Every month, there is billion ringgit more (being contributed to pension funds) as well as 1.2 billion ringgit from private insurance firms. That's why our government is allowing us to go out to invest in Indonesia and elsewhere. It's a nice problem to have.