ADB to start $5b regional infrastructure project fund

Mustaqim Adamrah, The Jakarta Post, Manila, the Philippines | Thu, 03/12/2009 1:35 PM

The Asian Development Bank (ADB) is setting up a regional infrastructure fund that can be accessed by its members, including Indonesia.

The bank has managed to bring together funding pledges amounting to around US$5 billion, including from the Islamic Development Bank (IDB), with other possible funding sources still being explored, including from China and South Korea

The IDB has already thrown its weight behind the proposed ADB funding scheme with $1 billion, according to ADB Southeast Asian department director Jaseem Ahmed.

"We have an agreement with the IDB to work towards a joint infrastructure fund. We are also in talks with China and South Korea to see if they're willing to participate," Ahmed told reporters invited to the ADB headquarters last week.

"If we are able to get money from the IDB, it will be only for our joint member countries, which are around 10 or 11 members," he said.

Ahmed said the ADB had expected to finalize the funding scheme worth between $2 billion and $5 billion "sometime this year".

The fund would be available to finance infrastructure projects not only in Southeast Asia, but also in other Asian regions, he added.

The scheme has been planned in response to "a general understanding and belief that the Asian region needs more investment in infrastructure", according to Ahmed.

"Now we see that infrastructure can play an important role in sustaining strong economic recovery in the region," said Ahmed.

ADB expected to see Thailand, Malaysia and Indonesia among recipient countries, with the later accounting for a large volume, he said.

"We certainly believe Indonesia can usefully increase investment in infrastructure," said Ahmed.

"And I believe that the policy of the *Indonesian* government to increase infrastructure spending is to go for the kind of level that we saw before 1997," he added.

According to the ADB, Indonesia's outstanding debt to ADB has now reached about $22 billion since 1969, making it the bank's largest debtor. Indonesia, ADB's fifth largest shareholder, signed $1.1 billion of loans from the bank last year.

Just recently, the government has established a Rp 3 trillion ($250 million) Infrastructure Fund in cooperation with the World Bank and the ADB with a view to accelerating the implementation of long-delayed infrastructure projects.

The fund total so far, however, seems to be negligible compared to the Rp 1,430 trillion in new investments Indonesia needs for its infrastructure development in the next five years, but it can serve as seed capital and a catalyst for attracting private investors to the sector amid the current global credit squeeze.

In a bid to speed up infrastructure development and prevent mass layoffs resulting from the global economic downturn, the government has allocated Rp 150 trillion ($12.5 billion) for infrastructure projects this year, two thirds of which is due to come from the state budget and the rest from state enterprises.

Planned infrastructure development is crucial to Indonesia's economy, because of and to make up for the decline in exports and in foreign-direct investment.

These government-led infrastructure projects will be a major factor propeling the economy towards the 4.5 percent economic growth target in place for this year.

Finance Minister Sri Mulyani Indrawati has said the effect of the infrastructure stimulus should be felt at the latest by June.