Growing Together: Economic Integration for an Inclusive and - escap
Growing Together: Economic Integration for an Inclusive and - escap
Growing Together: Economic Integration for an Inclusive and - escap
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that c<strong>an</strong> account <strong>for</strong> externalities, both<br />
positive, such as network externalities, or<br />
negative, such as emissions of pollut<strong>an</strong>ts or<br />
other damaging environmental effects <strong>an</strong>d,<br />
there<strong>for</strong>e, it is best placed to provide the<br />
fin<strong>an</strong>cing.<br />
However, even if governments wish to invest<br />
in infrastructure, they may have limited<br />
capacities to do so. One constraint could be<br />
difficulties in accessing funding or a desire<br />
to limit the size of the public debt. Although<br />
public debt ratios are not particularly high in<br />
the Asia-Pacific region, governments wishing<br />
to take on signific<strong>an</strong>tly more debt to invest in<br />
infrastructure would need to ensure that they<br />
c<strong>an</strong> do so in a sustainable way in projects with<br />
high social returns. In general, government<br />
fin<strong>an</strong>cing is desirable as long as the social<br />
return is higher th<strong>an</strong> the private return.<br />
Beyond that, government expenditure c<strong>an</strong><br />
lead to <strong>an</strong> inefficient allocation of funds.<br />
National development b<strong>an</strong>k lending<br />
M<strong>an</strong>y governments invest in infrastructure<br />
through national development b<strong>an</strong>ks. This<br />
may help reduce governments’ budget<br />
constraints because development b<strong>an</strong>ks are<br />
generally funded not only from government<br />
budgets but also by issuing governmentbacked<br />
bonds – although the guar<strong>an</strong>tees<br />
still constitute a contingent liability <strong>for</strong> the<br />
government. Development b<strong>an</strong>ks have<br />
institutional adv<strong>an</strong>tages since they c<strong>an</strong><br />
employ specialized personnel to m<strong>an</strong>age<br />
funding <strong>an</strong>d lending activities.<br />
In addition to funding national infrastructure<br />
projects, national development b<strong>an</strong>ks<br />
typically invest in other developmentrelated<br />
activities, such as agriculture, rural<br />
development <strong>an</strong>d public services, <strong>an</strong>d fin<strong>an</strong>ce<br />
small <strong>an</strong>d medium-sized enterprises or<br />
micro-enterprises. Some development b<strong>an</strong>ks<br />
are extremely large <strong>an</strong>d during the global<br />
fin<strong>an</strong>cial crisis were used <strong>for</strong> countercyclical<br />
spending. The Brazilli<strong>an</strong> Development B<strong>an</strong>k<br />
(BNDES) is the world’s largest <strong>an</strong>d most<br />
effective development b<strong>an</strong>k. In 2010, it lent<br />
more th<strong>an</strong> five times as much as the World<br />
B<strong>an</strong>k (table IV.2).<br />
Bilateral <strong>an</strong>d multilateral agencies<br />
Poorer countries tend to rely on bilateral<br />
<strong>an</strong>d multilateral agencies <strong>for</strong> investment in<br />
infrastructure. Some of these agencies offer<br />
support, especially to the neediest countries,<br />
in the <strong>for</strong>m of gr<strong>an</strong>ts, but more typically they<br />
provide long-term lo<strong>an</strong>s, usually co-fin<strong>an</strong>cing<br />
with national governments, other agencies or<br />
the private sector. In Asia <strong>an</strong>d the Pacific, ADB<br />
is one of the principal multilateral sources.<br />
It signs country partnership strategies with<br />
governments <strong>an</strong>d subsequently offers them<br />
funding <strong>for</strong> infrastructure projects according<br />
to country allocations <strong>an</strong>d sectoral priorities.<br />
Most ADB lo<strong>an</strong>s are on commercial terms<br />
from its ordinary capital resources (OCR), but<br />
the B<strong>an</strong>k also offers lo<strong>an</strong>s on concessional<br />
terms through its Asi<strong>an</strong> Development Fund.<br />
The ADB also fin<strong>an</strong>ces private-sector projects<br />
without government guar<strong>an</strong>tees, though in<br />
2010, such lending made up less th<strong>an</strong> 15 per<br />
cent of its new lending. Such lo<strong>an</strong>s are also<br />
often accomp<strong>an</strong>ied by technical assist<strong>an</strong>ce to<br />
help design <strong>an</strong>d implement projects.<br />
In addition to supporting national governments,<br />
the ADB promotes regional<br />
cooperation in infrastructure. The CAREC<br />
programme, established in 1997, <strong>for</strong> example,<br />
focuses on infrastructure projects in the area<br />
of tr<strong>an</strong>sport, energy, trade facilitation <strong>an</strong>d<br />
customs services. Since 1991, there have also<br />
been proposals to set up a North-East Asia<br />
B<strong>an</strong>k <strong>for</strong> Cooperation <strong>an</strong>d Development with<br />
the participation of China, the Democratic<br />
People’s Republic of Korea, Jap<strong>an</strong>, Mongolia,<br />
the Republic of Korea, <strong>an</strong>d the Russi<strong>an</strong><br />
Federation, but the idea has yet to bear<br />
fruit. More recently, the leaders of Brazil, the<br />
Russi<strong>an</strong> Federation, India, China <strong>an</strong>d South<br />
Africa (BRICS) proposed at their March 2012<br />
Summit in New Delhi to establish a BRICS<br />
Development B<strong>an</strong>k to fin<strong>an</strong>ce infrastructure<br />
development in developing countries.<br />
Private-sector funding<br />
Infrastructure investment also comes from<br />
the private sector. Indeed, this is generally<br />
more efficient th<strong>an</strong> public disbursement,<br />
particularly when the fin<strong>an</strong>cial returns<br />
are likely to be high <strong>an</strong>d investment costs<br />
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