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Asian Development Bank/World Economic Forum Public-Private Round Table on Financing for Development

Opening Remarks by
Haruhiko Kuroda
President
Asian Development Bank

18 June 2008
ADB Headquarters, Mandaluyong City

Introduction

Good morning, ladies and gentlemen.

It is a great pleasure for me to welcome you to ADB Headquarters, and to Manila. I would like to thank the World Economic Forum for taking the initiative to engage the Multilateral Development Banks in broad discussions on how we can best work with the private sector to address the challenges we are facing. We are proud to be a part of this dialogue, and appreciate that all of you have joined us for a frank exchange of views.

This session comes at an opportune time for ADB. Our recently launched long-term strategic framework, Strategy 2020, provides a roadmap for our work in the coming several years. One very important element of the new strategy is its focus on stimulating greater private-public sector investments in the region. To this end, we intend to scale up our support for private sector development to 50% of our annual operations by 2020.

I have said many times that the Asia and Pacific region stands at the threshold of great opportunity. But it will take large and sustained investments to bring the region fully into its own. And those investments will largely have to come from the private sector.

Multilateral Development Banks and the Private Sector

The importance of the private sector to Asia's future development – and to poverty reduction – cannot be over-emphasized. The private sector can indeed play a huge role in generating the jobs, services and financing needed for economies to grow and for poverty to be eliminated. Government can facilitate private sector activity, and it can provide social support to underpin it. But when governments fall short in their efforts to create an inviting climate for private investment, the private sector will perceive the risks to be too high.

This is where multilateral financing organizations such as ADB can play a strategic and catalytic role. We can help create the proper climate for private sector growth and development, with sound regulatory and legal frameworks, by facilitating investment and by exerting influence on proactively engaging in policy dialogue. In short, we can act as a bridge between the public and the private sectors, helping both sides to work more effectively together.

Investment needs in the Asia and Pacific region are huge – and growing. Our recent assessment shows that ADB's developing member countries need at least $3.7 trillion over the coming 10 years for infrastructure alone. At the same time, the region has built up over $2 trillion in foreign exchange reserves and domestic savings that could be deployed, at least in part, to meeting this investment demand.

Currently, the private sector accounts for only about 20% of infrastructure spending, while 70% comes from public funding, and the remaining 10% from Official Development Assistance. This is not a sustainable model; the private sector share needs to increase dramatically. One of the basic problems facing private investors is the general lack of good quality information on projects, and lack of projects that are appropriately structured. To remedy this, we are working with our developing member countries to build capacity and systems, and helping to directly design projects. At the same time we are working with investors and financiers, including many of you here today, by mitigating financial, political, environmental and social safeguard risks within project structures.

Related to this is our support for the development of domestic and regional financial markets. Until recently, the use of foreign currency denominated debt to finance infrastructure projects was the rule in Asia. This exposed projects dependent on local currency revenues to exchange risk—the double mismatch problem that sparked the 1997 financial crisis. What is needed is long-term bond market development and investment guidelines that enable banks, insurance companies, pension and provident funds, and other financial institutions to finance infrastructure projects.

Local and foreign currency bonds help deepen the markets, channel the liquidity and establish long-term pricing benchmarks. ADB's $10 billion Asian Currency Note Program launched in 2006 is a noteworthy example. We have also issued local currency bonds in many countries to support project financing needs. And we promote the development of best practices in the financial sector, especially in the areas of corporate governance and risk management of banks and investment funds.

A final area I would like to touch on is ADB's direct support for private infrastructure investment. We support private sector-led power generation, transmission, distribution and energy efficiency projects (and particularly renewable power such as wind, hydro, biomass, etc.); energy sector projects, including pipelines and LNG terminals; water and waste management projects; transportation sector projects from ports to airports to airline systems to roads and rail systems; mining sector projects; and telecommunications, particularly rural telephone services and some of you represent our clients in these sectors. We also very selectively finance other sectors of the economy. In doing so, we increasingly seek to be a direct risk sharing partner with the private sector and more effectively leverage our own investment at the transaction level, through the application of our credit enhancement instruments. For example, ADB has recently overhauled its guarantee and syndication instruments, with a view to make them more responsive to market needs. ADB is also looking at a number of other initiatives to increase cofinancing, which some of my colleagues will share with you later today.

Concluding Remarks

Let me close by saying that ADB's 40-year track record in the region has earned this institution a reputation as a trusted and honest broker and a true partner in development. This allows us to build bridges across the public-private sector divide. Indeed, ADB is, in my view, uniquely placed among the MDBs to fulfill this bridging role. Our sovereign, non-sovereign, private sector, and guarantee operations are all under one umbrella, within the same balance sheet, enabling us to combine different modes of support into a single project, if needed.

As Asia's partner in development, we would like to work with you to address together the tremendous challenges that are still remaining. In this spirit, I very much look forward to hearing your views and suggestions today, and hope we will have a frank discussion.