IFR’s annual ADB roundtable, held as part of the Asian Development Bank’s annual meetings hosted this year by Yokohama, took place at a significant moment. This year marked not just the 20th anniversary of the Asian financial crisis but more importantly perhaps the 50th anniversary of the founding of the Asian Development Bank.
In the case of the latter, it was certainly right and fitting to focus on the enormous and extraordinary strides Asia has made since the mid-1960s in its economic development; notwithstanding a lot still needs to be done.
In the case of the former, there’s similarly a lot to commend in terms of the policy tools that have been created and implemented; regulatory evolution; and government-to-government collaboration and cooperation that stand if not to prevent future crisis scenarios then certainly lessening their impact.
But just as there are more chapters to be written in the story of Asia’s economic development, Asia still lacks deep and liquid domestic capital markets. And that will retard the process of ensuring that Asia’s colossal domestic savings pool can be recycled regionally.
At a time when regional and global banks are hamstrung by onerous regulation that among other things impedes their willingness to lend, the process to form an Asian capital markets union (which in effect is what ASEAN, China, Japan and South Korea are seeking to achieve under the Asian Bond Markets Initiative) is perhaps more pressing than the process so beloved of policymakers in Europe.
The formal title for this year’s ADB meetings was “Building Together the Prosperity of Asia”. Under that broad canvas, infrastructure was the pre-eminent theme. The ADB itself had, prior to the annual meetings, neatly set the scene for discussions: its ‘Meeting Asia’s Infrastructure Needs’ report is a timely reminder of the financing needs the region requires to generate not just sustained and stable growth but environmentally sustainable and inclusive growth too.
This remains a critical priority of the ADB’s new long-term Strategy 2030. One of the conundrums around the infrastructure story is how to meet the colossal financing gap, which the ADB itself has highlighted. Specifically, the question is how to engage private capital to provide additional financing through PPPs, over and above government and multilateral engagement. This is exercising the minds of policymakers, politicians as well as public finance and private sector participants.
IFR convened a superb panel to deliberate this and other core Asian capital markets topics in front of a packed room. Speakers gave the subjects a spirited going over in just 90 minutes of discussion, which is no mean feat. The mood of the panel was broadly upbeat but by no means complacent on regional capital markets developments generally, and infrastructure financing in particular.
If banks are expected to retreat somewhat from project lending, then a combination of partial multilateral guarantees and credit enhancements, increased corporate bond issuance from infrastructure corporates and SOEs, project bonds and securitisation, an uptick in government borrowing, and a re-allocation of fiscal receipts are all expected to go some way to closing the gap.
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