MAY 12 — Three new multilateral infrastructure initiatives were launched late last year. The World Bank first established the Global Infrastructure Facility (GIF). Next was the China-led Asian Infrastructure Investment Bank (AIIB), which focuses on the financing of infrastructure projects in Asia.
The most recent was the Global Infrastructure Hub (GIH) established based on the G20 members’ agreement to launch the Global Infrastructure Initiative. GIH serves as a knowledge infrastructure platform rather than financing infrastructure service.
Indonesia has confirmed its membership in the AIIB and has expressed interest in participating in the GIH. Indonesia hopes to remove the infrastructure bottleneck that has become one of the biggest barriers to new investment.
The rationale of GIF establishment is that the public sector (governments) will not be able to meet the needs for infrastructure funding. On the other hand, there is US$33 trillion (RM119.34 trillion) owned by international institutional investors looking for better investments, which would be enough to support infrastructure projects under the public-private partnership (PPP) scheme.
China’s initiative to set up AIIB with authorised capital of US$100 billion has been prompted also by the big infrastructure-funding gap. Analysts expect AIIB will contribute greatly to reducing the huge funding deficit in infrastructure financing in Asia, which has been projected at US$8 trillion until 2020, while the World Bank and the ADB would be able to put up only US$223 billion and US$160 billion, respectively.
The GIH will serve as a platform of knowledge to the international community on sharing information/data on global infrastructure projects as well as encourage collaboration among governments, international development banks and the private sector to increase infrastructure development. Hopefully, upgraded knowledge, documentation processes, and applied best-practice will run parallel with the benefits that comes from improved efficiencies, bigger certainty and more transparency.
Given all that support from the international side, Indonesia has to be wise enough to maximize the benefits and utilise the financing resources offered. There are several issues faced within infrastructure development in Indonesia. First concerns the budget. Indonesia will need about US$80 billion for infrastructure financing for the next five years, while the government budget will meet only about 20 per cent of the need and the private sector is expected to fulfil the remaining 80 per cent financing.
On the other hand, capital is not a problem for developed countries. Data shows that institutional investors in advanced countries have been looking for new investment opportunities that provide higher returns and infrastructure development in emerging economies as Indonesia seem to offer a long-term, stable source of income streams.
We are experiencing very low-interest rates and starting to see the potential of infrastructure investment in developing countries as a better way to put their money. Based on the developed countries’ experience, PPP is the best scheme to finance infrastructure development because both the public and private sectors share the risks under a stronger legal framework.
Second, the quality of infrastructure also plays a vital role. The idea of simply increasing the amount of investment ploughed to infrastructure projects does not automatically guarantee that strong, sustainable and balanced growth can be achieved. Infrastructure development should contribute socially, economically and environmentally to the development of society.
Third, Indonesia is notorious for poor inter-ministerial coordination, which often causes overlapping problems in authority. Investors will see this issue as a risk to investment, thus increasing the cost of capital. The multilateral financing institutions therefore are expected to help Indonesia better prepare and structure its infrastructure projects to be offered to investors under the PPP scheme.
Early this year, a PPP centre was established under the Finance Ministry that is expected to strengthen inter-ministerial coordination in infrastructure development. But this centre seems to need technical assistance from such multilateral banks as the ADB and World Bank to prepare, design and structure infrastructure projects.
But the obvious challenge is that in global infrastructure practice, there are multifaceted differences in the bureaucracies of every country. One size does not fit all. A framework that succeeds in other countries might fail if applied in Indonesia. It needs time to find the most appropriate and applicable system for Indonesia. — The Jakarta Post
* The writer is an observer of development economics at the Finance Ministry.
** This is the personal opinion of the writer or organisation and does not necessarily represent the views of Malay Mail Online.
