Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey: Infrastructure Spending to Help Boost Asian Living Standards
November 7, 2011
- Call for infrastructure investment, financial sector development
- Warning against making commitments to costly projects
- Public-private partnerships touted as possible financing tool
Greater investment in infrastructure could help improve the standard of living in Asia, but policymakers must be wary of commiting themselves to costly projects, a conference in Tokyo heard.
Indian women work on a construction site. Infrastructure investment could improve life for all in low-income Asia, say experts (photo: G Bowater/Corbis)
LOW-INCOME ASIA CONFERENCE
Addressing an audience of policymakers, academics, the donor community, and the private sector at the meeting organized jointly by the International Monetary Fund and the Japan International Cooperation Agency (JICA) on “Sustainable Development in Low-income Asian Countries”, Sadako Ogata, the president of JICA said infrastructure investment, together with financial sector development would not only promote better quality of life, it could also aid social welfare.
Many countries in Asia are currently making large investments in infrastructure development, but Takatoshi Kato, President of the Japan Center for International Finance, highlighted the need to find appropriate sources of financing.
Funding investment
Donors and multilateral development banks have a role to play he said, and could also help countries prepare projects and prioritize competing needs.
Pointing to the findings from four countries (Brazil, China, Chile, and Korea) Jiangyan Yu of the IMF identified investments in electricity as an effective means of encouraging GDP growth. He said although investment in roads contributed to financial deepening and government revenue, it did not make a notable contribution to accelerating a country’s GDP growth.
The IMF economist said higher infrastructure investment was also consistent with macroeconomic stability but he cautioned against a buildup of large debts, and argued against government-directed lending, and encouraging banks to lend by loosening regulation.
Public-private partnerships
Many of the participants supported public-private partnerships as a useful financing tool for greater infrastructure investment, but there was widespread agreement that there needed to be strong mutual trust between authorities and the private sector for successful partnerships.
Yasuo Fujita, of the JICA research center, said financing sources might also include the public sector and the donor community. He added that the need for infrastructure investment was greater than the capacity to build them, so projects needed to be carefully prioritized, and carefully selected to complement one another.
The gathering also heard about the challenges facing the financial sector in low-income countries in Asia. Given the dominance of banks in the financial systems of these countries, Faisal Ahmed of the IMF said it was critical to safeguard bank soundness by strengthening supervision and reducing interference in lending decisions.
Higher-quality and better coordinated capital markets and bank supervisory agencies were needed to minimize financial stability risks, said Ahmed. He added that sound macro-policies complemented by proactive debt market development could help widen the investor base to finance infrastructure projects.
Despite significant progress in poverty reduction, income inequality over the past decade has increased by more in Asia than in other regions. During a roundtable discussion, Anoop Singh, Director of the IMF’s Asia and Pacific Department, said better social safety nets and more investment in health and education would be needed to make growth in low-income Asia more inclusive.