The United Nations’ Economic and Social Commission for Asia and the Pacific (Escap) released a study on 21 March, which said that the Asia Pacific region required an annual investment of $600 billion (Rs26.4 lakh crore) in infrastructure, of which it has got around $400 billion.
Kim Hak-Su , UN undersecretary general and executive secretary of Escap, was in Delhi to work on creating an entity that could bridge part or all of the deficit. He spoke to Mint’s Rahul Chandran about the need for India to play a larger role in creating a fund focused on infrastructure development in Asia. Excerpts:
What prompted the study on the gap in infrastructure funding?
Unlike in Europe, where countries together help in infrastructure development, in the Asian region, there is no cooperation in developing infrastructure, despite the fact that many countries face similar problems.
When I came here about a year ago, I met officials at the commerce ministry and told them that I was interested in ways of financing infrastructure. And they said, “Oh, we are very interested in infrastructure”. That is how this study was commissioned.
So, for the first time, member states of Escap undertook the study.
What is your take on the public-private partnership (PPP) model, that seems to be popular in india?
You have to realize that all infrastructure spending cannot be through the PPP model. It is just one of the models.
Our study indicates that the gap in financing available for infrastructure is about $200 billion annually for the region as a whole.
Private sector may not be able to provide that kind of investment. Besides, the private sector is, by nature, profit-seeking. But infrastructure is not evolved enough to generate sufficient profits to satisfy the private sector.
So, another idea that the Japanese have tried is to earmark revenue bonds for infrastructure.
In the meantime, people’s net savings reflect as (accretions to) exchange reserves, which, as a whole, is $3.5 trillion, most of which is kept in America or Europe.
We are saying that if we can get central bankers to invest even 10% of this in a fund,or create a special purpose vehicle (SPV) or a bank solely for infrastructure financing, the money will be put to better use.
By reinvesting our money, instead of buying American treasury bills, we will also create jobs. This experiment has been tried in Singapore, where the government retained reserves worth three months of imports and employed the rest for financing infrastructure. I think reserves worth six months of imports are adequate, but countries like India and China have much more.
Has Escap worked out a mechanism for using these funds?
We plan to get together a group of central bankers to find a way of using the amount, if we can convince member states’ bankers to part with their reserves. We all know they are a conservative lot. We can set up an SPV or a bank to mobilize these funds.
One of the names being floated for this is the Asian Investment Bank. Or we substantially increase investment by the Asian Development Bank (ADB), which currently has an annual lending portfolio of only $8 billion a year.
How far are you from establishing this?
First, senior officers of governments in the region should meet and hammer out a consensus. In May 2007, we plan to table a resolution to form an inter-governmental ministerial body, which will interact with economists, financial experts and institutions. Once a mandate is realised, Escap can start working on the specifics of setting up the agency. The process can take two-three years.
How do the other countries in the region view this plan?
Developing countries such as India, Pakistan, Sri Lanka and Bangladesh are very interested, but Japan, which is a major shareholder in ADB, has reservations. India has a huge role to play in using its clout to convince countries that have reservations. India should play the kind of leadership role that Japan played—despite objections by the United States and the World Bank—in pushing (for the creation of) ADB in the 1960s. I can tell that if India shows the commitment, and plays the leadership role it is playing now, the new entity could be based in Mumbai.