Region needs US$950b to fund growth

PUBLISHED : Thursday, 28 July, 1994, 12:00am
UPDATED : Thursday, 28 July, 1994, 12:00am

ASIA will need an estimated US$950 billion in capital to fund its massive infrastructure requirements to the end of the century, according to the Asian Development Bank (ADB.) ''In the past, most of the developing member countries have allocated about five per cent of their Gross Domestic Product (GDP) on infrastructure,'' said Eustace Nonis, deputy director of the ADB's infrastructure department.

''We estimate this will have to rise to seven per cent by the end of the decade.'' Mr Nonis said the region's massive needs would lead to a higher private sector involvement in infrastructure funding and development.

''All these countries will need to mobilise resources from within and outside their economies. It is a matter of getting your policies right and opening up to the private sector. Governments really need to encourage the private sector.'' Mr Nonis said the Philippines - the ADB's home base - had made good progress in opening up to private investment, particularly in the areas of power generation and telecommunications.

The ADB is a development finance body with more than 50 member countries. It is aimed at promoting economic and social progress in the Asia Pacific.

According to the bank, the region imports about US$20 billion per year. Up to the end of the century, it will need about US$350 billion for power projects, the same amount for transport, US$150 billion for telecommunications projects and $100 billion for water and sanitation.

In its lending for infrastructure projects, the ADB seeks to boost economic growth by eliminating bottlenecks. Its other objectives include: Promoting balanced regional growth; Enhancing efficiency and productivity through public sector reform and other measures; Sustaining facilities and services through appropriate tariff structures and cost-recovery systems; Ensuring its strategies are environmentally sound; Maximising regional co-operation.

The ADB's voting power and capital base is dominated by the United States, Japan, China and Australia.

Up to the end of last year, it had lent US$20.6 billion for infrastructure projects, or 43 per cent of its total lending.

Power projects have consistently taken up the biggest share of the ADB's lending. Railway and telecommunications lending has been increasing in recent years but within the transport and communications sector, road transport has tended to attract the most funding.

Besides outright loans, a key part of the bank's infrastructure development strategy is what it calls technical assistance.

This is essentially lending with strings attached - technical conditions such as introducing more modern technology in a railway system or holding fares at a level where cost recovery is realistically possible.

As at the end of last year, the ADB had made 542 such technical deals in the infrastructure sector involving US$186 million or about 26 per cent of all technical assistance loans.

''The bank comes in as a capitalist,'' Mr Nonis said. ''We try to look at the policies and reforms required and have to make the borrower aware of things like cost recovery.'' Often, governments build railways or other systems for political reasons and do not make a full effort to set prices so that they will recover their costs.

The ADB tries to insist on realistic pricing strategies.