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Asean Connectivity: Political will and money

Publication Date : 17-09-2012


If the Asean Connectivity proceeds as planned, Asean will be a formidable economic power house in the world in the near future.

For instance, today if Asean were a single country and well connected with 600 million people, it is the world's 9th largest economy.

Population wise, it is the world's third largest. As such Asean is the world's 5th largest trading power after the EU, US, China and Germany. But it is a big "if." Such grandiose vision of connected and integrated Asean is slow in coming due mainly to the lack of funding for both "hard" and "soft" infrastructures.

Since last September, Asean has been able to mobilise a mere US$485 million dollars under its ambitious Asean Infrastructure Fund (AIF) to help finance projects identified by the Master Plan of Asean Connectivity (MPAC), approved by the Asean leaders in 2010. The fund is rather small.

The Asian Development Bank calculated that Asean would need US$600 billion in 10 years to materialise the MPAC - about $60 billion annually. Such amount of investment required is extremely high by the Asean standard. Asean members need to do more and redouble their efforts. 

For the time being, Malaysia has committed the biggest amount of $150 million followed by Indonesia with $120 million. The ADB, which will help manage the fund, pledged $150 million. Other Asean countries are thinking about it. Myanmar plans to join next year with an initial contribution of $100,000.

Thailand also plans to contribute the fund knowing full well the huge benefits of fully connected Asean but it has to overcome domestic hurdles and approved by the National Assembly. Asean Secretary General, Dr. Surin Pitsuwan Asean said in a recent interview that he hoped this fund would attract other Asean members to follow suit and most importantly their private sectors. By 2020, the fund is expected to offer $4billion in loans and estimated $13 billion worth of total leverage.

At a recent international symposium on the realisation of MPAC organised by the Jakarta-based Economic Research Institute of Asean and East Asia (Eria) in Phnom Penh, it was clear that private sectors in the region were still in the dark when it came to information pertaining to the MPAC projects and what are needed.

Representatives from private sectors lamented the lack of consultation with the Asean governments on proposed projects. They argued that the "top-down" decision-making do not augur well with private sectors which need better information, clear policies including cost and benefits. The Asean decisions on projects, some of investors contended, has discouraged their involvement from the very beginning.

Without sufficient data and incentives, private sectors are still reluctant to invest in numerous projects—over 700—throughout the region that stretches from Mumbai cutting across the Bay of Bengal through Thailand's central plain and meandering pass the land-locked Suvannakhet to Danang at the other end.

Large capitals are available in private sectors both within Asean and dialogue partners. They want to invest but the Asean governments must ensure the enabling environment for their investment along with attractive incentives. Furthermore, they are willing to engage in the public-private partnership to fund some of huge infrastructures. On the cautious side, some forms of guarantee such as the viability gap funding must be provided.

Whenever Asean discussed connectivity these days, they are embarrassed by snail-paced progress on past projects. For instance, one of the principal infrastructure projects initiated in 1995 was the Singapore-Kunming railway link, which is still under construction. It was supposed to be completed years ago.

Somehow, there are no additional support from countries which have substandard railways - no incentive to invest. These railways are situated inside parts of Myanmar, Laos, Cambodia and Vietnam.

Thailand, which is the hub of this railway link, still has to reconnect with its neighbour in both the west and east to complete the regional railway network. Those missing links are short distance.

For instance, the portion in Burma is only 6 kilometers and the one on the Cambodia part is 48 kilometres. It is laudable that the Yingluck government has placed high priority on huge infrastructure projects such as the Dawei deep sea port development and the high-speed train linking Thailand, Laos and China. But other smaller projects that could be completed without much cost have been neglected.

Obviously, the "hardware" infrastructural projects get all the attention for the time being. Many dialogue partners have expressed interest in the MPAC including the plus three countries (China, Japan, South Korea), US, Australia, India and Russia. However, for the time being only Japan has already mapped out nearly three-dozens flagship projects worth about $25 billion to enhance the connectivity in Asean.

These projects when completed would link the mainland and maritime Southeast Asia. China and South Korea have informed Asean that they similar plans with different focus to contribute the regional connectivity.

As the deadline of Asean Community approaches in 2015, the Asean leaders are getting nervous as their countries and citizens are still not ready. More than they would like to admit, hundreds of action plans under the economic, political/security and socio-cultural pillars have not yet started.

It is not surprising that the foreign and economic ministers of Asean were arguing whether the start-up date of AC should be on January 1 or December 31. Obviously, the economic ministers spoke volume. Now the AC will begin at the end of 2015 or 365 days later than what the foreign ministers intended at first. At this juncture, there are at least 33 per cent of economic measures, especially in services and investment, Asean members have yet to implement.

Kudos must go to the economic ministers as they know the grouping's reality well, especially when it comes to nasi goreng and curry. Without extraordinary pushes from the Asean leaders, the envisioned community will be a defected one. Other "software" connectivity includes institutional and people-to-people will be further delayed.


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