A new $485 million infrastructure fund has been launched by nine members of the Association of Southeast Asian Nations (ASEAN). The nine members – Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam – have contributed a total $335 million to the fund. The Asian Development Bank (ADB) is providing the remaining $150 million.
A statement announcing the fund’s launch said it hoped to have around $13 billion in lending capacity for infrastructure financing by 2020, including co-investment from the ADB. A “unique feature” of the fund is that it will eventually issue debt eligible for investment from central bank reserves.
The fund will aim to finance around six major infrastructure projects per year within the region, with selection based on “sound economic and financial rates of return, and the potential impact on poverty reduction”.
“ASEAN nations possess substantial foreign reserves but these funds have largely been invested outside of ASEAN, and outside Asia,” said ADB president Haruhiko Kuroda in the statement. “By establishing the ASEAN Infrastructure Fund, ASEAN is taking a major step towards investing more of its resources on its own development needs.”
The statement pointed out that the ASEAN economies need approximately $60 billion per year to fully address infrastructure needs. They have “only a fraction” of the roads and railways found in Organisation for Economic Cooperation and Development (OECD) countries, and “dramatically lower” electricity and clean water coverage.
Malaysia was the main driving force behind the fund, chairing a series of meetings since July 2010 in order to get it established and then committing a $150 million equity investment – the largest amount commited by any ASEAN member. The fund will be based in Malaysia as a limited liability company. Indonesia provided the second-largest contribution of $120 million.
While private sector funding is seen as essential for large-scale infrastructure financing in the ASEAN countries, investors perceive a high degree of risk. The new fund, by providing financing for a portion of public-private partnerships, intends to mitigate these risks.
The ADB will act as administrator for the fund, to “ensure that safeguards and due diligence are an integral part of financed projects”.