A shortfall in the massive funding needed to build roads, ports, power plants and other infrastructure in Asia could dim the lights on the region's brightening economic growth, experts said yesterday.
While there are signs funds were returning to the region, the experts urged authorities to develop alternative sources of financing such as the bond market and increasing the participation of local banks for long-term lending.
They also said more needed to be done to carry out reforms to meet global standards in terms of enforcing contractual obligations and transparency to entice lenders to re-enter the market.
"Without the roads, without the lights turned on, you won't have the GDP growth that people are expecting," said analyst John Bailey of international credit rating agency Standard & Poor's.
Foreign funding for infrastructure development dried up between 1997 and 1999 as a result of the financial crisis, which burnt international lenders after borrowers defaulted on their loans.
Asian Development Bank (ADB) president Tadao Chino said recent estimates put Asia's infrastructure investment requirements at more than US$250 billion a year in the medium term.
"The need for external financing is tremendous," Chino said in a speech at the opening of the ADB's two-and-a-half-day meeting gathering the elite of the region's financial and banking sectors.
"The financing shortfall is a serious constraint to the region's continued economic growth and development, and to achieving the medium-term development goals."
He said infrastructure is "critical" for sustained economic growth and its impact extends to other sectors as roads and power generators for example can bring development and basic services to the rural areas.
Standard & Poor's said infrastructure finance volumes to Asia have grown steadily in the past few years, following a "dramatic decline" during the financial crisis.
"We are now beginning to see developers and banks return to Asia as the current economic recovery starts to fuel demands for large infrastructure projects," Bailey told reporters on the sidelines of the ADB meeting.
"It is important to say that this is not yet a full recovery. But it goes a long way from the Asian crisis," he said at a news briefing on the sidelines of the ADB meeting.
Surinder Kathpalia, head of Standard & Poor's in Singapore, said one of the critical issues in the next phase of Asia's development is investment in infrastructure.
"Unless these investments are financed, this could possibly choke growth going forward," Kathpalia said.
Bailey cited the case of China where power blackouts still happen because of under-investment in the energy sector.
"We've seen that the market still remains cautious about infrastructure projects in some parts of Asia ... Some of the painful lessons [from the financial crisis] are still in the lenders' and bankers' minds," Bailey said.
Lenders are now "increasingly bringing in more institutions such as the ADB and other multilaterals to diversify risks and are getting more aggressive about getting political risk insurance," Bailey added.
He said most developing markets in Asia still have weak legal environments which often prevent the enforcement of contractual obligations.
Legislations remain ambiguous and are rapidly changing, while disclosure levels are below international standards.
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