ASEAN establishes infrastructure fund
By Chris Sleight26 September 2011
The Association of Southeast Asian Nations (ASEAN) is to create a fund to finance major infrastructure projects across the region. The fund is targeting US$ 4 billion of lending to projects totalling US$ 13 billion by 2020.
The ASEAN Infrastructure fund is being set up with initial equity of US$ 485 million. This comprises US$ 335 million from its member states - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam - with an additional US$ 150 million from the Asian Development Bank (ADB).
ADB president Haruhiko Kuroda said, "ASEAN nations possess substantial foreign reserves but these funds have largely been invested outside of ASEAN and outside Asia. By establishing the ASEAN Infrastructure Fund, ASEAN is taking a major step towards investing more of its resources in its own development needs."
The ADB estimates that ASEAN needs to spend some US$ 60 billion per year to address the region's infrastructure needs across road, rail, power and water resources. ASEAN chair and Indonesian finance minister Agus D.W. Martowardojo said, "The ASEAN Infrastructure Fund will help ensure the 600 million people who call our region home will have greater access to energy, clean water and sanitation, and better forms of transportation."
Malaysia is the largest contributor to the fund with a US$ 150 million contribution, followed by Indonesia's US$ 120 million. The fund will be based in Malaysia, incorporated as a limited liability company. The fund will be administered by the ADB, and the Bank says it will ensure that safeguards and due diligence are an integral part of financed projects.
The target of leveraging US$ 13 billion worth of investment by 2020 is based on the premise that the fund's US$ 4 billion lending commitment will be accompanied by ADB loans for 70% of each project's value. The fund is aiming to finance around six projects per year and will select them on their likely rates of return and potential to reduce poverty.
ASEAN also says that the fund will also eventually issue debt which will be rated high enough for investment by central banks.