Asean Connectivity: Political Will and Money

By Kavi Chongkittavorn 17 September 2012

If the Asean Connectivity proposal proceeds as planned, Asean will be a formidable economic power house in the world in the near future. For instance, if Asean today were a single country with 600 million people, it would be the world’s ninth largest economy. Population wise, it is the world’s third largest. As such Asean is the world’s fifth largest trading power after the EU, US, China and Germany.

But it is a big “if.” Such grandiose visions of a well-connected and integrated Asean are slow in materializing due mainly to the lack of funding for both “hard” and “soft” infrastructures.

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

The fund is rather small. The Asian Development Bank (ADB) calculated that Asean would need $600 billion over 10 years to materialize the MPAC—about $60 billion annually. Such an amount of investment is extremely high by Asean standards. The bloc members need to do more and redouble their efforts. For the time being, Malaysia has committed the largest amount at $150 million, followed by Indonesia with $120 million. The ADB, which will help manage the fund, pledged $150 million. Other Asean states are thinking about it. Burma plans to join next year with an initial contribution of $100,000.

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

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

Representatives from the private sector lamented the lack of consultation with the Asean governments on proposed projects. They argued that “top-down” decision-making does not augur well with the private sector which needs better information and clear policies, including their costs and benefits. The Asean decisions on certain projects, some of the investors contended, has discouraged their involvement from the very beginning.

Without sufficient data and incentives, the private sector is still reluctant to invest in numerous projects—over 700—throughout a region that stretches from Mumbai to Danang.

Large investment capital is available in private sectors both within Asean and its dialogue partners. They want to invest, but the Asean governments must create an enabling environment for their investments along with attractive incentives. Furthermore, they are willing to engage in public-private partnerships to fund what will be a huge infrastructure. On the cautious side, some forms of guarantee such as viability gap funding must be provided.

Whenever Asean discusses 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 is no additional support from countries which have substandard railways—no incentive to invest.

These railways are situated in Burma, Laos, Cambodia and Vietnam. Thailand, which is the hub of this railway link, still has to reconnect with its neighbors in both the west and the east to complete the regional railway network. Those missing links are just short distances. For instance, the portion in Burma is only 6 km while the one on the Cambodian side is 48 km. 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 and South Korea), as well as the US, Australia, India and Russia.

However, for the time being only Japan has acted, mapping out nearly three dozen flagship projects worth about $25 billion to enhance the connectivity in Asean. These projects when completed would link mainland and maritime Southeast Asia. China and South Korea have informed Asean that they have similar plans to contribute to regional connectivity.

As the deadline for the Asean Community approaches in 2015, the region’s 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 then that the foreign and economic ministers of Asean were arguing whether the start-up date should be Jan. 1 or Dec. 31.

Obviously, the economic ministers spoke volumes. Now the Asean Community is scheduled to begin at the end of 2015—some 365 days later than what the foreign ministers originally intended.

At this juncture, at least 33 percent of the economic measures, especially in services and investment, have yet to be implemented. 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 leadership, the envisioned community will be a defected one. Other “software” connectivity including institutional and people-to-people innovations will be further delayed.

This article first appeared in the Bangkok-based The Nation newspaper and has been edited for clarity. Kavi Chongkittavorn is assistant group editor of Nation Media Group and his views do not necessarily reflect those of  The Irrawaddy.