Role of Multilateral Development Banks (MDBs)

MDBs such as the Asian Development Bank (ADB) and the World Bank continue to play an important role in financing and sustaining infrastructure activities in ASEAN.

In view of the ongoing global financial crisis, MDBs need to play a much bigger role by providing additional resources more effectively and flexibly to support growth through infrastructure development (Kuroda 2009). MDBs, as well as bilateral organizations such as the Japan Bank for International Cooperation (JBIC), can help address gaps in financing if private sector funds prove inadequate, by mobilizing long-term funds through capital markets and co-financing, and stimulating market activities through the issuance of prime name credit papers and local currency bonds. They can facilitate regional cooperation for the provision of regional public goods; promote greater transparency and information dissemination; and contribute to policy dialogue. Finally, they can help improve the flow of private savings and capital into infrastructure investments by (i) developing bankable projects; (ii) designing appropriate, innovative financial instruments; (iii) assisting countries to enhance their technical capacity and knowledge, (iv) enhancing financial market depth efficiency, liquidity, and adherence to international and regional standards or best practices; and (iv) promoting further financial integration in ASEAN.

The ADB, in particular, needs to enhance its support to ASEAN infrastructure development, while continuing to play the roles of (i) a money bank, by providing loans and guarantees, and catalyzing private sector financing (e.g., raising funds in international capital market and lending funds with small spread); (ii) a knowledge bank, by providing policy and technical advice; (iii) a capacity builder for legal regulatory, policy and procedural components; and (iv) an honest broker, by coordinating multiply stakeholders. Indirectly, it can support infrastructure development by supporting the improvement of the overall investment climate and bond markets, particularly local currency bonds.

The ADB can help eliminate currency and maturing risks by provide long-term local currency loans through long-term swap arrangements. It can strengthen local-currency infrastructure bond markets by issuing local currency bonds with long-term maturities. Moreover, it can create and administer an ASEAN Infrastructure Financing Fund to intermediate official and private funds into infrastructure and other priority regional projects; this would include the use of sophisticated financial market products and concessionary finance.

MDBs should continue to provide technical/research assistance to the ABMI Working Groups to help strengthen ASEAN bond markets. This will help ASEAN countries recycle its massive savings and foreign reserves for “bankable” infrastructure projects.

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