Infrastructure funding shortfall dims lights on Asian growth

Infrastructure funding shortfall dims lights on Asian growth

Martin Abbugao, Agence France-Presse, Jeju, South Korea

A shortfall in the massive funding needed to build roads,
ports, power plants and other infrastructure in Asia could dim
the lights on the region's brightening economic growth, experts
said Saturday.

While there are signs funds were returning to the region, the
experts urged authorities to develop alternative sources of
financing such as the bond market and increasing the
participation of local banks for long-term lending.

They also said more needed to be done to carry out reforms to
meet global standards in terms of enforcing contractual
obligations and transparency to entice lenders to re-enter the
market.

"Without the roads, without the lights turned on, you won't
have the GDP (gross domestic product) growth that people are
expecting," said analyst John Bailey of international credit
rating agency Standard and Poor's.

Foreign funding for infrastructure development dried up
between 1997 and 1999 as a result of the financial crisis, which
burnt international lenders after borrowers defaulted on their
loans.

Asian Development Bank (ADB) president Tadao Chino said recent
estimates put Asia's infrastructure investment requirements at
more than US$250 billion a year in the medium term.

"The need for external financing is tremendous," Chino said in
a speech at the opening of the ADB's two-and-a-half-day meeting
gathering the elite of the region's financial and banking
sectors.

"The financing shortfall is a serious constraint to the
region's continued economic growth and development, and to
achieving the medium-term development goals."

He said infrastructure is "critical" for sustained economic
growth and its impact extends to other sectors as roads and power
generators for example can bring development and basic services
to the rural areas.

Standard and Poor's said infrastructure finance volumes to
Asia have grown steadily in the past few years, following a
"dramatic decline" during the financial crisis.

"We are now beginning to see developers and banks return to
Asia as the current economic recovery starts to fuel demands for
large infrastructure projects," Bailey told reporters on the
sidelines of the ADB meeting.

"It is important to say that this is not yet a full recovery.
But it goes a long way from the Asian crisis," he said at a news
briefing on the sidelines of the ADB meeting.

Surinder Kathpalia, head of Standard and Poor's in Singapore,
said one of the critical issues in the next phase of Asia's
development is investment in infrastructure.

"Unless these investments are financed, this could possibly
choke growth going forward," Kathpalia said.

Bailey cited the case of China where power blackouts still
happen because of under-investment in the energy sector.

"We've seen that the market still remains cautious about
infrastructure projects in some parts of Asia... Some of the
painful lessons (from the financial crisis) are still in the
lenders' and bankers' minds," Bailey said.

Lenders are now "increasingly bringing in more institutions
such as the ADB and other multilaterals to diversify risks and
are getting more aggressive about getting political risk
insurance," Bailey added.

He said most developing markets in Asia still have weak legal
environments which often prevent the enforcement of contractual
obligations.

Legislations remain ambiguous and are rapidly changing, while
disclosure levels are below international standards.