Stimulus helps growth in the Asia-Pacific region. Steve Skinner reports

External funding and government stimulus packages are set to help the Asia-Pacific region maintain growth in 2009. Steve Skinner reports.

The Asia-Pacific region has, like most, been hit by the global economic crisis. While the expected recovery rates differ from country to country, positive GDP growth continues across the region.

"The region's growth is expected to fall to +3.4% this year, from record growth of +9.5% in 2007," said Asian development Bank (ADB) president, Haruhiko Kuroda.

"With strong national and regional efforts, and a mild recovery expected in the global economy next year, developing Asia should bounce back to growth of +6% in 2010," he added.

"Asian-Pacific countries need to work together to strengthen the investment climate, promote regional trade and build a ‘seamless infrastructure' across the region," said Mr Kuroda. "Increasing infrastructure investment should remain a priority for governments during the current global financial crisis."

The ADB and Asian Development Bank Institute (ADBI) published a paper in May titled ‘Infrastructure for a seamless Asia' in which it estimated that between 2010 and 2020 the region will need to invest US$ 8 trillion in infrastructure projects.

Mr Kuroda said, "While some of the existing infrastructure is world class, much of it is below average and represents a bottleneck to growth."

Investment

In Vietnam, the government has agreed financing for its Thanh Hoa city comprehensive socio-economic development project.

The project is part of a nationwide plan to promote sustainable development in Vietnam's mid-sized cities and includes road and bridge construction and rehabilitation. "This integrated approach will promote sustainable development and help achieve our objective of arresting population drift," said Hubert Jenny, senior urban development specialist with ADB's Southeat Asia department.

Meanwhile, the government backed Indonesian Infrastructure Financing Facility (IIFF) recently attracted US$ 140 million of investment from the ADB for urgent infrastructure development in the country.

Arjun Thapan, director general of ADB's Southeast Asia department said, "There is a huge gap between needed infrastructure investments and the available financing. This situation has significantly constrained the expansion of crucial infrastructure in Indonesia.

"This IIFF infrastructure development is expected to help close the gap."

Senior minister of state for National Development in Singapore, Grace Fu Hai Yien has announced plans to spend between SGD 10 to SGD 20 billion (US$ 11.9 to US$ 13.2 billion) on infrastructure projects in 2009.

Ms Fu said the government also expected to invest a further SGD 15 to SGD 17 billion (US$ 9.9 to US$ 11.3 billion) in 2010 and 2011 for building and infrastructure projects.

"Here in Singapore we are taking the opportunity of this downturn to build our own highways to prepare for the next phase of Asia-centric growth," said Ms Fu. "The upgrading of our infrastructure is a key part of our growth strategy."

The total value of construction contracts awarded in Singapore reached a record high of SGD 34.6 billion (US$ 23.9 billion) in 2008. The demand was fuelled by a strong performance in the private sector as well as significant growth in the public sector, especially relating to housing and infrastructure projects.

Singapore's Building and Construction Authority (BCA) reported that total public sector demand in 2008 expanded to SGD 14.5 billion (US$ 10 billion), up + 154% on the SGD 5.7 billion (US$ 3.9 billion) recorded in 2007, while private sector spending remained strong at SGD 20.1 billion (US$ 13.8 billion).

Stimulus

A weak housing market in Korea will act as a brake on construction activity. To alleviate this, a stimulus package should help offset weak investment in the private sector.

Tax cuts and additional spending, mostly for infrastructure, were included in a KRW 33 trillion (US$ 25 billion) stimulus package passed by the government in November 2008. In addition, the 2009 government budget has earmarked KRW 24.7 trillion (US$ 19.5 billion) for infrastructure investment, an increase of +27% on 2008.

In Thailand fiscal stimulus including increases in public investment will bolster the economy, although this won't lead to growth. Of the large infrastructure projects prepared several years ago, the government intends to focus on extending mass transit rail lines in Bangkok, with work on one line scheduled to start imminently and the second line in the second half of this year.

The ADB believes the government needs to accelerate the rollout of public infrastructure projects, which has fallen behind schedule during the past three years of political turbulence.

A World Bank investment climate assessment of Thailand in August 2008 found that development of the private sector is hampered by deficient infrastructure, as well as a heavy regulatory burden and shortage of skills.

A World Bank spokesman said, "Investment in public infrastructure is needed to maintain the economy's competitiveness in the longer term. Greater private sector participation in infrastructure could be achieved through reforms in the regulatory environment to encourage PPPs."

In China a CNY 4 trillion (US$ 586 billion) stimulus package was passed by the government in November 2008 for spending on infrastructure and housing as well as for social development such as health care.

To further boost confidence, the Chinese government announced ambitious plans a month later to strengthen cooperation between Guangdong province and the semi-autonomous cities of Hong Kong and Macau in an effort to transform the Pearl River delta into a centre for high technology industries and services.

Guangdong province has been studying the idea of a special cooperative region since early 2008 with the aim of establishing a free trade zone encompassing Hong Kong and Macau.

Early priorities are to extend the road and rail links and accelerate construction of the long-planned 29 km US$ 5.5 billion Hong Kong-Zhuhai-Macau Bridge, construction of which was scheduled for late this year or early in 2010.

The Philippines has announced a PHP 330 billion (US$ 6.9 billion) fiscal package for spending on infrastructure and social programmes to alleviate the impacts of the economic slowdown. Spending is intended to be fast-tracked in the first half of this year.

Similarly, Indonesia announced a IDR 73.3 trillion (US$ 6.8 billion) package focussed on tax cuts and infrastructure projects. Infrastructure projects account for approximately 13% of the package and will focus on labour intensive works involving water supply, low cost housing, roads and ports.

A further 1% of funds will be allocated to extend the community empowerment programme which encourages village-level participation in planning and carrying out rural infrastructure projects.

Malaysia has introduced two stimulus packages totalling RM 67 billion (US$ 18 billion) to fund infrastructure, encourage private investment and support families and employment.

Sunrise

The slowdown in the Asia-Pacific region is being countered by considerable government stimulus initiatives. With infrastructure projects being targeted for much of the funding, the prospects for a return to more normal levels of growth in 2010 remain promising.