Vietnam Granted Largest Loan Yet from ASEAN Infrastructure Fund
Last week, the ASEAN Infrastructure Fund (AIF) approved a US$100 million loan to finance a power transmission project in Vietnam while giving the green light to several other infrastructure projects in the region.
When the project is ultimately submitted to the Asian Development Bank (ADB) for approval, it will have the potential to receive an additional US$200 million in loans. The current loan is set to be the single-largest in the history of the AIF.
Established to meet the financing needs of infrastructure development projects across ASEAN, the AIF is funded by equity from ASEAN member states and the ADB, and aims to lend around US$300 million annually to various infrastructure projects. Since its establishment, the AIF has also enabled easier access to financial services provided by the ADB.
While the AIF already grants significant financial support to infrastructure development projects across ASEAN, the demand for capital investment in government-led infrastructure projects continues to exceed supply.
At the World Economic Forum (WEF), Vice-President of the AIF Stephen Groff stated that ASEAN countries will need US$60 billion per year to keep pace with the capital needs of infrastructure development projects through 2020. With a capital base of around $500 million, the AIF is currently unable to meet this rising demand.
To close this gap, the AIF announced plans to increase its capital via the issuing of a new bond, according to Bambang Brodjonegoro, Chairman of the AIF. It will also aim to attract central banks from East Asian countries, such as China, to purchase bonds.
A larger capital base would then enable the AIF to lend more money to private actors and state-owned enterprises (SOEs), as well as public-private partnerships (PPP).
Infrastructure projects foster economic development in rural regions by strengthening connections to developed areas and facilitating the free flow of goods and services. Because rural infrastructure projects are generally not very profitable for private enterprises, however, governments often play an important role in facilitating and funding these projects.
Although many ASEAN countries currently possess a savings surplus, savings are often tied to low-yielding securities in the U.S. and Europe, according to AIF VP Groff. This is why Southeast Asian countries often look to development banks such as the World Bank or ADB for project funds.
In order to achieve sustainable growth, the AIF believes that ASEAN member states must improve their financing mechanisms to attract private investment for infrastructure development projects and repatriate citizens’ household savings abroad.
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