Growing Together: Economic Integration for an Inclusive and - escap

Information technology services tend to be more expensive in the poorest countries. On average,
less than 20 per cent of people in Asia and the Pacific have access to the Internet. Traffic volumes
on the Internet in the region are expected to continue to increase exponentially both within and
between subregions. The region, therefore, needs to invest in additional terrestrial fibre-optic
cable routes and in the capacity of new Internet hub cities. As these new Internet hubs do not
need to be clustered around the congested megacities of Asia, their establishment could provide
opportunities for more inclusive and geographically balanced development. Overall, the region
still lacks infrastructure commensurate with its growing global influence, or its expected surge in
Internet traffic. This would require more systematic intergovernmental cooperation to provide an
organizing framework for expanding ICT connectivity, including through cooperation in satellite
technology.
Enhancing regional financial cooperation
Asia-Pacific regional cooperation in finance has mostly been confined to mechanisms to provide
short-term liquidity, but much potential remains unexploited. The Asia-Pacific region boasts vast
reserves. However, these reserves are largely invested outside Asia and the Pacific in low-yielding
securities in advanced economies. This can be attributed to the region’s poorly developed regional
financial architecture. In addition, a substantial amount of the region’s private savings are held in
other parts of the world. In 2008, they were valued at $7.4 trillion, accounting for 23 per cent of
invested assets worldwide. Only 16 per cent of the Asia-Pacific portfolio securities investment ends
up in the region owing to the small size of the securities markets. All countries would benefit from
the pooling of regional funds to provide liquidity, boost trade financing and increase investments
for infrastructure.
The establishment of Asian Development Bank (ADB) in the 1960s and the Asian Clearing Union
in the 1970s are examples of initiatives taken in the region to promote financial cooperation. A
number of new ones have been added recently. However, most of them are in early stages of
evolution and need to be scaled upto become more effective. For example, the Chiang Mai Initiative
Multilateralization could play a key role in assisting member countries with short-term liquidity
support. But thus far it has hardly been utilized because of its link with the International Monetary
Fund conditionality beyond a 20 per cent threshold. Plans are in the works, to double the size of
the initiative’s funding from 120 billion and expand its operations to include a surveillance and
monitoring office. However, the initiative’s coverage needs to be expanded beyond the ASEAN+3
countries to other systemically important countries of the region and others and set up a quick
disbursal facility to effectively serve as a regional lender of last resort.
The Asian Bond Fund and the Asian Bond Markets Initiative are also important initiatives to
develop regional bond markets and mobilize financing for lesser developed countries. However,
the scale of these initiatives needs to be expanded, and their coverage needs to be extended
beyond ASEAN+3 countries. Therefore, it will take some time before Asian bond markets offer
substantial sources of financing for infrastructure development.
In the area of infrastructure financing, an important recent initiative is the ASEAN Infrastructure
Fund being set up in Malaysia with an initial equity base of $485 million and support of ADB.
The fund aims to catalyse more than $13 billion in investments by 2020 through co-financing. In
2010, the SAARC Development Fund was set up in Bhutan with paid-up capital of $200 million to
finance infrastructure projects, including feasibility studies, but it also has social and economic
windows. Investing in infrastructure across the Asia-Pacific region promises not only high rates
of financial return, but also opportunities to diversify risk. Existing forms of investment, such as
lending by ADB, could be complemented with a new large-scale lending facility for infrastructure.
This facility could help coordinate other sources of lending such as by multilateral and bilateral
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