 Ladies and gentlemen, good morning and welcome to the Center for Strategic and International Studies. If I could encourage you those in the back to please take their seats, we'll get started. Thank you for joining us this morning. My name is Scott Miller. I'm the shawl chair in international business. We're on the international business program here at CSIS. And we're delighted to have you here this morning to discuss APEC and the infrastructure investment opportunities and challenges. As I begin, I'd like to thank the two other organizations who are co-sponsors of this program. The National Association of Manufacturers and the National Center for APEC. We've been pleased to work with them as partners. You'll see their representatives throughout the morning, and we're delighted to have this working relationship with them. Also I want to acknowledge that today's event has been made possible by a grant from Chevron. My growth and job creation rely on long-term investment in critical infrastructure in energy and transport and water communications in particular. The McKinsey Global Institute estimates that between now and the year 2030, which is 18 years from now, just to keep pace with population growth and GDP growth, the world will need to invest 57 trillion with a T dollars in critical infrastructure. Now to put that in perspective, the past 18 years, the world has invested about 30 trillion, so it's a 60 percent increase over the next 18 years versus the previous rate in order just to keep up with the growth of population and GDP. In infrastructure, as in most kinds of investment, demand typically exceeds supply. That's especially true since the 2007-2009 global financial crisis, and the consequence of slow growth in developed economies and fiscal deleveraging that takes place in the United States and elsewhere. The Asia Pacific Economic Cooperation Group has focused on investment in the Asia Pacific for nearly 20 years. It was 1994 that APEC began its investment experts group. An APEC Business Advisory Council, the business component of APEC, has intensified work on this program since 2008. In 2011, the APEC Business Advisory Council and the National Association of Manufacturers published a report called Investing for Growth, and in 2013, this year, the work plan of the APEC Business Advisory Council includes developing a checklist for the enablers of infrastructure investment. Today's conference will examine the benefits of infrastructure investment and consider views from the U.S. private sector on both the challenges and opportunities in the Asia Pacific region. To start things this morning, we are delighted to host His Excellency Jose Cuisia, ambassador of the Republic of the Philippines to the United States. The ambassador has been in Washington as ambassador to the White House for just a little over two years. He has a long career in banking and insurance prior to his appointment as ambassador, and he served ably as both the commissioner of the Philippine Social Security System and as a governor of the central bank of the Philippines. We are delighted to be with him this morning. He will look forward to his presentation and follow with a panel discussion. Mr. Ambassador. Thank you, Scott, for that very kind introduction. Distinguished panelists, Mrs. Scott Miller, our distinguished guests, ladies and gentlemen, good morning to all of you. As you will see, I am focusing on opportunities and challenges in infrastructure investment in the Philippines because that is what I am most familiar, as I mentioned, to Scott Miller. I hope my other panelists will cover other countries and hopefully APEC as a whole. Thank you to CSIS and to Mr. Scott Miller for inviting me to share with you the infrastructure challenges and opportunities in the Philippines. In 2005, well, let me first show you the outline of my presentation today. Here you will see I'll cover infrastructure challenges in the Philippines with Governor's agenda of the Keen administration, opportunities in infrastructure projects, attracting investments in infrastructure, and the Philippines' hosting of APEC 2015. In 2005, the World Bank conducted a study on the infrastructure challenges in the Philippines and found the following infrastructure challenges, low spending on infrastructure, inefficient use of existing resources, poor business environment, unsatisfactory public sector performance, lack of long-term planning and coordination of infrastructure, lack of a healthy framework for suitable financing opportunities for infrastructure, and a decrease in private sector involvement. The response of the Philippines to these infrastructure challenges was follows, increased infrastructure spending from 1% in 2005 to 2.6% of GDP in 2012, and the intent was, of course, to continue to increase these up to about 5% of GDP, which is the benchmark, by 2016. It also adopted the five Rs, right project, right quality, right people, right cost, and right on time. These are the, of course, guiding posts. Business environment, transparency, and anti-corruption was, of course, strengthened, streamlining, and online processes were, of course, adopted also by the government. Now the underlying principle of the Philippines' transformation is President Sakino, good governance is good economics mantra, embodied in the Philippine Development Plan, our goals to accelerate sustainable infrastructure development and achieve inclusive growth. Okay. Okay. Thank you. Yeah. Sorry. So you see from this slide the improving economic environment in the Philippines, we're proud of our 6.6% GDP growth in 2012, the highest in Southeast Asia, and next four years where the government is projecting a growth of 7% to 8%. Through improved revenue and tax efforts, we're increasing resources for infrastructure spending and social spending. As you will see from this slide, the last two years particularly, there's been a significant increase in terms of tax revenues. The improved business climate has led to increased investments, manufacturing being among the top five investment sectors. You'll see from this slide, better competitiveness rankings, we improved 10 notches to 65th place in this World Economic Forum Global Competitiveness Report 2012-2013. So over the last two years, we've improved by 20 notches from 85 to 65. We climbed to 61st from 77th in the World Economic Freedom Report and improved to 97th from 107th in the Heritage Foundation 2013 Index of Economic Freedom. As I mentioned here, manufacturing has been among the top five investment sectors. It has grown from 442 to 672 billion in terms of the improved investments, or in terms of the level of investments over the last five years. The signing of the Framework Agreement on the Bang Samoro, this is the new entity that's being established in the south in Mindanao, and the signing of a final peace agreement which we hope will take place sometime this year will lead to just and lasting peace in Mindanao, opening vast opportunities for business and investment. All infrastructure sectors have calibrated their work programs to focus on Mindanao and ensure overall inclusive growth. In terms of our energy sector, the Philippines is seeking to increase power generation and is actively promoting renewable energy investments. There are incentives that have been provided, including income tax holidays, duty-free importation of renewable equipment, machinery, equipment and materials, net operating laws, carryover and other incentives. Areas in Mindanao are now being offered for oil, gas and coal exploration and development. A large part of the infrastructure budget is allocated to national roads and highways with convergence with other sectors such as tourism. As you will note from this slide, about 70 percent of the total budget of 144 billion is being allocated to highways. But there are also allocations for basic education facilities, as well as health facilities. The Philippine government has also placed high priority on transport. Because of increase in resources, most projects are locally funded. However, we still continue to rely on ODA or for foreign assisted projects. There are a number of foreign assisted projects as indicated here, like the Puerto Princesa Airport Development, New Bohol Airport Development Project and the Bus Rapid Transit System for Cebu City, as well as the Maritime Disaster Response Helicopter Acquisition Project. Water has been considered an under-invested sector despite the successful privatization of water to service Metro Manila. There's still a great need to apply integrated water resources management and to rationalize financing for millennium development goal commitments. Telecoms has been largely liberalized in the 1990s, but opportunities exist in internet and broadband connectivity, especially urban centers outside the capital. As you will see here, 79 percent of the country has fiber-based backbone network for domestic and international broadband connectivity. The cellular mobile telephone service is by far the most dominant telecom service and increasing e-government systems, 94 percent of the web presence among national government agencies. There is a need to promote more private sector investment in waste management, housing, health and education. For example, there are untapped opportunities and incentives in solid waste management and there's a huge buck lag of housing units despite high need and demand. There's no doubt we want to invest more in infrastructure through smart and transparent spending and promoting public partnerships projects which have attractive investments. For preferred activities such as agriculture and shipbuilding, incentives such as tax breaks and duty exemptions apply for three to six years depending on the status of the project, if it is a pioneer project or if it is just an expansion of an existing project. These incentives apply to preferred and mandatory activities under the investment priority plan 2012. These incentives are further enhanced under the public-private partnership program. Repayment schemes are also available through a share in revenue. Under the BOT law of 1994, the proponent may likewise be repaid in the form of a share in the revenues of the project or other non-monetary payments such as but not limited to the grant of a portion or percentage of the reclaimed land, for example, I think that's just one example of a non-cash payment. Subject of course to the constitutional requirements with respect to the ownership of land. You're looking at nine, well, these are again investment incentives applicable to public-private partnership projects. You're looking at nine ongoing public-private partnership infrastructure projects for 2013 and it is happening in different parts of the country. These include a roadway, the Anghari South Luzon Expressway link road project, the LRT line one south expansion, the Naya Expressway phase two modernization of the Philippine orthopedic center, rehabilitation and O&M of Angat hydroelectric and so forth. So there are quite a number of PPP projects that are now ongoing. Infrastructure funds are also being developed. One is the Philippine Infrastructure Alliance for Infrastructure or PINA, P-I-N-A. In July 2012, the Asian Development Bank approved an equity investment in a 625 million private equity fund focused exclusively on Philippine infrastructure projects. Another in progress is the ASEAN Infrastructure Fund. Last of October 2012, 450 million dollars has been raised with 20 percent from ASEAN countries and the rest funded by ADB to promote regional connectivity. There are also financing options from American institutions such as the Millennium Challenge Corporation like Simbank and OPIC. The Millennium Challenge Corporation, for example, funded a 214 million dollar out of the 434 million dollar compact project or compact grant to finance a 224 kilometer rehabilitation of a secondary national road development project in eastern summer, one of the most depressed provinces in the country. The Philippines led by APEX senior official and the secretary Laura del Rosario initiated an informal discussion between senior officials on infrastructure at the sidelines of the first ABAC meeting 2013 in Makati. The aim of the informal dialogue was to come out with ways to move Indonesia's proposal on infrastructure connectivity forward. For the Philippines in particular, it was an opportunity to take a lead role in infrastructure issues in preparation for its hosting APEC in 2015 and making sure that there was no redundancy and that APEC builds on its past work rather than reinvent the wheel. While the Philippines is looking at infrastructure development as a priority, APEC 2015 preparations are still at an early phase. Thematic issues and priorities will be further defined after domestic and APEC consultations are undertaken. My presentation, thank all of you for your attention. Thank you. Thank you, Mr. Ambassador. That was a very comprehensive presentation and noted a couple of things. First, very impressive progress by the Philippines in economic reform and the improvement in the competitiveness and economic freedom indices are particularly impressive. I also concluded while I was listening to the Ambassador that a program similar in scope is probably going on in all 21 APEC economies at this point. You have a very impressive overall program, you have a budget, you have a plan and multiple approaches. The other thing that was interesting about the Ambassador's presentation was the many different approaches to getting the infrastructure development, including public-private partnerships. While that's somewhat unfamiliar in the United States, I will tell you that the United States is, believe it or not, doing infrastructure and public-private partnerships. If you want to watch this happen, go to Louisville, Kentucky. In Louisville, Kentucky, there are two bridges being built between Indiana and Kentucky over the Ohio River. They were ones in the city, ones out in the suburbs. Because different states, Kentucky controlled the city bridge and Indiana controlled the bridge out in the suburbs, they had different approaches and Indiana law permits public-private partnership. So what you have are two bridges being built on the same timetable with the same general contractor. It's an Illinois general contractor building both bridges, one of them classic public-sector infrastructure financing, the other public-private partnerships. So watch this space, see who's done on time, see who's done under budgets and what might happen in this circumstance. But it's a great bit of a laboratory of democracy going on in the city of Louisville. But the public-private partnerships are becoming a more and more important piece of what's going on to close the gap between demand and supply in infrastructure. I'm pleased to be joined by two panelists this morning. My colleague Ted Osias, who is a senior State Department visiting fellow here at CSIS, Ted is a longtime Foreign Service Officer. Most recently, the Deputy Chief of Mission at the U.S. Embassy in Jakarta, but also served as political counselor in New Delhi before that and has had sort of a career-long tour through across Asia. Also would welcome Cameron Kahn. Cameron is Program Director for Global Infrastructure Fundance Center of Excellence, which is part of the World Bank Group in Singapore. Since 2004, Cameron has run the Singapore office. He's been with the World Bank since 2004, opened the Singapore office in 2009. And prior to 2004, he had a successful career as an investment banker. So we look forward to hearing from both of them. I'd like to start with Ted, who will talk about infrastructure development in Indonesia based on his past postings. And then turn to Cameron for a broader Asia-Pacific perspective. I have a few slides, too. I'm going to just go ahead. I want to thank Scott very much for inviting me. It's a real honor to be on this panel with Ambassador Kresha and Cameron Kahn. And I thought I'd just spend a few minutes on some of the opportunities. Thank you. Then investors might want to consider in Indonesia the world's fourth-largest nation and its third-largest democracy. And first, let me be clear about the information I'm going to present. When I was DCM at our embassy in Jakarta, our economic team led by Councillor Jim Caruso observed that Chinese, Japanese, and Korean companies led the way in FDI and infrastructure. Last month, a team of us from CSIS went to Indonesia, and the ambassador, Ambassador Marciel, US Ambassador in Indonesia, reminded us that when Indonesia launched its ambitious master plan for acceleration and economic development, its economic ministers visited Seoul, Tokyo, Beijing, and not the United States. So that struck us as problematic, that they didn't even consider when asked, why didn't you go to the United States? They said, well, we didn't think any American companies would be interested. That's a problem. The economic master plan is a 15-year, $1 trillion infrastructure development plan that includes public-private partnership tenders, and it will require about $700 billion in private financing. But as I said, when the ambassador asked, well, what about American companies, the response was, we don't think they're interested. So we thought we've got to do something about this, and we embarked on a project to highlight the infrastructure investment opportunities in Indonesia's second-tier cities. It seemed that a lot of US companies were reluctant to venture out of Jakarta, and we wanted to make it easier to provide a context and to provide connections for potential investors. So this led first to an MOU between the Ministry of Industry and the Department of State for cooperation on infrastructure development for industrial purposes, and very soon after we signed the MOU, a US company and the state oil company, Pertomina, formed a joint venture to build a $2 billion coal ethanol plant, which will result in $500 million in US exports. It didn't really take that much effort to get to that point. So that suggests to me there are many more opportunities that haven't yet been exploited. So why Indonesia? And if I could, if I can go back, I will, because oops, I'm going the wrong direction. Let's see, previous, no, previous, I want to see all of Indonesia, nope, it wants to stay in South Sumatra. Well, I'm going to talk about all of Indonesia, you can look at South Sumatra. Indonesia's economy has been growing at a rate of 6.6 percent, and the World Bank expects it will continue to grow about, actually it's been growing at about six and a half percent, the World Bank expects it will hit 6.6 percent this year. The per capita income of Indonesia is $3,500. There's a very fast growing middle class of more than 120 million people hungry for consumer goods, and Indonesia has a stable banking and financing system that is supplying credit to these consumers. Almost 60 percent of that GDP is from domestic consumption, but the US is largely not part of that picture. The master plan for economic development that I mentioned includes more than 500 projects throughout the country, as well as six developmental corridors aimed at creating economic clusters in various industrial sectors. Now, I'll be honest, Indonesia has been pretty slow to implement this plan. A year after it was launched, there have been groundbreakings that represent just 10 percent of its total value. On the other hand, any project that can be seen in any way as infrastructure will have the full, throated support of the government. This plan recognizes that development is needed off the island of Java. In fact, and I think we see this in many of the APEC economies, innovation in Indonesia often doesn't come from the capital. I know we sometimes see that in our own country. Innovation comes from dynamic local entities, such as those found in South Sumatra and East Kalamantan. And I'm just going to use South Sumatra as one example. There are many. And the report that our team produced includes many, many opportunities, but I think there's only time for one today. But let me mention that some of the US companies that are very active in Indonesia are doing quite well. Caterpillar, Mattel, Goodyear, GE, Cisco, and Conoco are among the many, the US companies that are doing quite well in Indonesia. And in just a few minutes, if I can get it to go up right, I'll show you a few, I'll go over just a few lessons from these companies about how to achieve success when doing business in Indonesia. But here is South Sumatra. The provincial capital is Palembang, and that's one of Indonesia's wealthiest cities. The province's gross regional domestic product averaged 5.3% from 2008 to 2011 and 6% in 2012. The governor of South Sumatra, Alex Norden, has made as one of his signature achievements, free education. Literacy rate for this region is 100%, and South Sumatra's strategic position, again, let's see if I can go back. No, I have one the other way, the strategic position is also significant. It has the potential to become a transport hub for intra-Indonesian trade as well as international trade. The province has large coal resources and reserves, and is expected to be a growth center for Indonesia. It has very solid energy infrastructure such as power grids and gas pipelines to neighboring region. It has enormous geothermal potential. I don't know how many people know this, but an enormous proportion of the geothermal potential in the world is in Indonesia. And a huge percentage of it is in South Sumatra. There's also tremendous potential for railway and port expansion, and the province has a very strong agricultural base. There are also challenges. Doing business in Indonesia isn't considered easy all the time, and in South Sumatra itself, while it's home to 70% of Indonesia's oil palm plantation area, and 65% of its natural rubber production, productivity is low. There's a coal bed methane industry, it is still in its early stages. But Chinese, Korean, Japanese companies are headed there and they're making money. And I think, maybe naively, but I don't think so. I think US companies should be part of this mix. So we are seeing, USA Inc is seen by people in Indonesia as a superior brand in terms of our reliability, our quality, and our integrity, not only in South Sumatra, but in all of Indonesia. But we have to be there, we have to be present, and we have to earn the business. If this is at all of interest, you will see many other examples of infrastructure opportunities throughout Indonesia on this website. And let me leave you with just a few final thoughts about doing business in Indonesia. One, you have to show up. You have to socialize your business, develop constituencies, court your community. And when I say show up, I think showing up is showing respect. And I think it's very important to do that in Indonesia. I think this probably applies to other APEC economies as well, but I want to speak to Indonesia in this presentation. Second, you have to do due diligence. You can't really just sort of waltz into Jakarta, sign a deal, and then sit back and reel in the profits. You need to know your partner if you have one. Some companies have been very, very effective in partnering with local companies. Caterpillar is an example. You have to know who you'll do business with inside and out, and then you have to be patient and you have to persevere. If you're lucky and you have a great local partner as Caterpillar does, terrific. If you don't have a great local partner or you choose not to go that route, you need a very strong local network. And Indonesia really is all about relationships. Fourth is you need to give back. And that can be in the form of training, education, capacity building, corporate social responsibility. The way I look at this, Indonesia was colonized by a rapacious multinational company. And it's no wonder that they're a little suspicious as to whether benefits will be shared. They're used to companies coming in, extracting resources and leaving. The companies that have done best, and I mentioned some of them early on, are the ones that have shown that they're also committed to capacity building, committed to stay the course to educate their future workers and to be part of the community. And then finally, stick to your guns on clean corporate governance. US companies are held to a very high standard and not only via the Forum Corrupt Practices Act. Indonesians respect our reputation for being clean and transparent and we need to keep earning that respect. So thank you very much. You look forward to your questions at the end of the panel. Thank you, Ted. I think your five lessons apply to life, not just in Indonesia. I appreciate that. Cameron, could you give us a little broader perspective on Asia Pacific? Thank you, Scott. Thank you, Ambassador, and thank you, Ted, for a very good, to get us started off in a very good way. I'm going to address three things. And first of all, I have no slides. I thought I'd set history of World Bank presentation without PowerPoint. I will first talk about the conversation which Ted just started, which is why is the US not there? And I'll speak to you both as an American as a World Bank staff working in certainly East Asia in the APEC region over the last eight years. And then I'll talk to you about the challenges in that part of the world to attract private capital from countries like the United States. And then I'll tell you what APEC is doing and where are the different programs and how they might be of interest to you for you to follow. First, the US situation. I mean, I'll break it down into two areas. One is more US side of things, which people like Ted are really making a real effort to create the awareness for this opportunity for American firms and also through the embassy and other government agencies, also creating even playing fields so the American firms can actually compete properly. The other side of the equation is, you know, what the region is doing to attract firms from countries like the US. So on the US side, I must say first, it starts with our own positioning. Frankly, if you look at Scott mentioned one example of PPPs happening in the US, and there are a few scattered examples here and there, but frankly over the last decade or two, we are well behind the curve and when it comes to innovative financing techniques for infrastructure. We have relied too far too much on public budgets. We are seen as not necessarily the most innovative countries when it comes to financing infrastructure. We have the most efficient, well-known, robust municipal bond market in the world, bar none. There's nothing compared to that. So we have that already in place long time ago, but we haven't really built on that. And people can look at that and say, you know, there's tax exemption and so on, that may or may not work in every country. So we have that advantage, but we haven't really moved too far. So I wanted to make the point that US is not necessarily seen as the beacon for innovation when it comes to financing infrastructure. And for our firms to go out and win business in this field, we need to actually look in-house a little bit more than what we have perhaps done over the last decade or so. And the second thing that is relevant is that the marketplace has changed quite a bit when it comes to infrastructure financing and emerging economies. It used to be very much a bank-led market where banks, you know, long-term loans grow the market. Used to have a lot of lawyers and loans and that was how you got project financing done. And in that, where all these operating companies, the people who actually build infrastructure project and operate them. The market right now is led by private equity funds. So it is not led by banks. A lot of the European banks, US banks have sort of, I don't want to say retreated, but pulled back a little bit. The operating companies who had infrastructure assets had their hands full managing the assets they have. It's a very big investment to undertake. So most of the market that is moving forward is being moved forward by the private equity funds. And so that's one of the reasons why some of the big developers, infrastructure developers from the US have really sought more refuge in the Middle East and so on where public sector provides the big funding and they can go in with the contract and make money. So there's a reason why so many American firms are not there, which is more related to where the business is. Then the third issue is cost competitiveness. We have a lot of regional banks that are very active. We have sovereign wealth fund that are very active. And so it becomes a little bit of a competitive marketplace for American firms or firms from other places in Europe and North America to come and compete in Asia. And so that, I wanted to just table that because that is not a trivial thing. If there's a bidding process and you're competing, how competitive can you be? We do have a brand, as Ted mentioned, absolutely American firms are seen as the most professional and high quality players. But with high quality come relatively higher prices and need for returns. And so that has to be balanced. On the ASEAN side, the number one issue is deal flow. There are not that many projects out there that one can say, okay, well, I'm gonna have 20 deals coming out of country X, therefore, and maybe five or 10 coming out from all these regions. So I have a total of maybe let's say 50 transactions I can go after every year. So it makes sense for me to set up an office, have a team and so on. That kind of deal flow is not there yet. So if you are a big global firm and these are tough times, you have to think twice about, okay, do you wanna have a presence or not? And as Ted mentioned, in these markets, you have to be there. You have to show face, you have to build a relationship. So that's another angle. Now let me just tell you the challenges which kind of relate to this deal flow issue. Most of this region, as you all know, has gone through substantial political change over the last decade and a half or so. Indonesia being a fantastic example, it's practically a new country since the 90s. New constitution, new political system, new everything. I mean, imagine going through, like what we went through as a country after the revolution, it's a completely different thing. You have decentralization, you have a role for local governments, you don't have a very strong center. A lot of responsibility for infrastructure has now been devolved to sub-national governments. And that's why some of the innovative work is happening at the sub-national level. Central government is still trying to figure out what role they play, how much power they have and how much power they actually don't have. So this decentralization has swept all across the emerging economies, including Asia and certainly East Asia. So China, a lot of people who don't know China get very confused. I've been working in China for about seven, eight years. It's one of the most decentralized countries in the world. We think of China as, it's quite the opposite if you haven't really spent some time in China. Local governments have tremendous power and room to innovate in China. They can set their own, even, you know, the central government is pulling back a little bit, but they could even set their own taxes. They can set up their own most favorite nation kind of structures for companies to come in and innovate. And so all that innovation is not coming out of thin air. It's coming out because there's an institutional room created for people to innovate. Some may go too far, clearly. And have, and will continue to. But it also provides you room for some very interesting innovations, certainly in infrastructure. And in the Q&A session, I can give you some examples of the types of things we've seen. Now on the deal flow, what's happening? Why are there not enough projects coming to the market? And this is, you know, the Aquino Administration has really addressed this issue and is very, very aggressively going after that. And I must say Philippines is one of the, and I'm not saying this a master because you're here. It really is a star in East Asia in terms of quick turnaround and the Philippines Development Report that just came out certainly shows the progress that Philippines has made. They've set up a PVP center. They've got deals going. They've got, they have done things that other countries have been talking about. But don't forget, Philippines had a head start on a lot of these countries. Philippines had a PVP center way back in the early 90s. I remember working on that. So, you know, this is what happens with political change. They were so far ahead. They lost quite a few years. But now that you have the right institutional structure, they've moved fast, very, very fast. Imagine the marketplace as this table and you have four corners. So on one corner, you have the government and the government basically does not have the capacity yet to prepare projects that can be called quote-unquote bankable. That a private investor could say, okay, this is a deal I can understand. It's prepared to international standards. I feel comfortable investing in this. So therefore I'll go through the bidding process for this. They don't have the capacity. They don't have the institutional structure. And in many cases, the line agencies who are responsible for preparing these deals don't have the budget to prepare. You'd be surprised how many times I have discussions with finance ministers saying, you know, there's a half a billion dollar toll road deal. They want to prepare and they want to get private investment. And I tell the minister, yes sir, but your team that is preparing this thing doesn't even have $300,000 to prepare this project. So how do you expect this to happen, right? On the other corner, you have advisors, people like PricewaterhouseCoopers, all these great consulting firms, McKenzie's and whatnot. They know how to prepare projects to international standards. But these guys live on fee. So they're waiting for government to sign a deal with them and say, okay, here's a contract for you to prepare. So they are sitting on the sideline as well. What I'm describing to you is what in economics we call corner solutions. But in a funny way, these are pure corner solutions, right? So you got government on one corner, you got the advisors on the other corner. Then you have on the side private equity guys and they're saying, okay, I've got money, I've got the loaded gun, where's the deal? Show me a deal, I'm ready to bid, right? There's no deal. And then you have the banks and the banks are saying, I have money, I'm reluctant, but I have money for the right project, I'm willing to go, but I'm not gonna go until the private equity guy moves forward. So if somebody puts equity, then I'm happy to come behind them and provide debt. But I'm not gonna go and lead on my own because being a debt player anyways, you are once removed. So you wanna be more in the equity ownership kind of situation. And the solutions are sitting smack in the middle, right? And so the challenge now is for governments to try to figure out how do we bring all these four corners together? How can the government play a proactive role to bring people closer to realizing these transactions? And various governments are doing various different things, setting up PPP centers, setting up different institutions. Indonesia, for example, we have helped Indonesia set up a guarantee fund for infrastructure. And it's designed specifically to take away the transaction risk. So Indonesia, as you see, the long-term growth prospects look fantastic in Indonesia. Everybody wants to invest in Indonesia. Everyone wants to, as they say, ride the curve, the long-term curve. But where to park your money is not so easy, particularly in infrastructure. So the risk associated with working with government agencies is very high. So we helped set up this very customized guarantee fund, which is not just a blanket guarantee of the central government. It basically is designed to improve the performance and incentive structure for the line agencies. So for example, if I'm a private firm and Ted is the government agency, and let's say, Scott, you are the guarantee fund. If the government agency says, I will provide land or do XYZ for you by such and such time, if you don't do that, then in my contract, I stipulate the penalty per month or what have you. And when there's a default, the fund will pay me. But most importantly, the fund then has a backdoor recourse through Ministry of Finance to recoup its money. And that's designed to keep the line agencies honest. So when they promise something, when they sign something, they actually deliver. The problem is, in a big country like that, for private sector, it's very difficult to sue the government. It's very difficult if they don't honor their obligation to kind of take them to court because that ends your past and future endeavors in that country. So governments are trying that. We're also helping a number of governments set up what we call viability gap financing schemes, which is to say, let's say there's a project that costs $100 million, but if it was at 100 million, it's not very attractive, meaning it doesn't pay enough. The returns will not be high enough. But let's say at 80 million, it would be very attractive to private sector. So it makes sense for government to provide the 20 million through a transparent, consistent manner and then let the private sector fund the remaining 80 on its own. And so these types of programs are now being implemented. Again, innovations do try to bring people closer to that solution, but I will stop here. I think I've already gone over my quota, but in the Q&A we can discuss further. Thank you. Thank you. Thank you, Cameron. Very interesting and it's a very helpful perspective for a US audience that here in the heart of innovation we're losing out in innovation and infrastructure, which is in a world like East Asia that is growing at 6 to 8% a year, that's a big loss. So thank you very much. What I'd like to do now is turn to questions from the audience. Would it like, yes sir, just a second. Four rules for the questions. One, wait for the microphone to arrive, because we are podcasting and webcasting this event. Second, introduce yourself and your organization. Third, direct your question if it's too specific individual on the panel. And fourth, what I call the Alex Trebek rule, make sure your question is in the formal question. Thank you, yes sir. Thank you, Scott. My name is Hong Fung Foe with the Department of Commerce. I do Vietnam, Laos and Cambodia. Deal flows that are of course not smooth as yet. So that's why I'm particularly interested in Mr. Khan's four corner solutions there. I wanna say that there are ways that we're trying to look at this and to see what kind of role the government and namely US government has in trying to pull together those different players in order to provide for the deal flows to happen. One thing that I'm particularly concerned with is the fact that as you all mentioned, US companies don't seem to in the eyes of the customers be there. So what are your suggestions for us to be able to affect changes so that the perception first will change and then actuality hopefully will follow. Thank you. Can you take one other question while we're stopped here, yes sir? I'm Mr. Lloyd from University of Maryland. I'd like to address my question to Mr. Khan and Mr. Ambassador Quiche as well. He is of the Indonesian and Filipino diaspora, especially in North America and Europe are very interested to invest back to Indonesia and the Philippines. But unfortunately we have a big problem in especially in the south part of the Philippines like Muslim insurgency, communist problems and should investors come to the Philippines what are the assurances that they would not be kidnapped or tortured or extorted or things like that much as we wanted to invest in issues like infrastructure or railway or health for example. So we just want to be sure so that we don't put all our eggs into one basket and everything got broken. Thank you. Okay, it's a very difficult question actually what can the US government do? And I say that it's difficult not because it's technically difficult but we have to be cognizant of how much budget we have and how much of our resources can we actually spend. You've seen our foreign ops budget has declined or has been diverted to certain other priorities. So within that context you have to be realistic about what you can do. There are a couple of things that can be done which don't require that much budget. One is I think supporting people like Ted and the ambassador in Indonesia and other foreign missions that we have to really show senior level presence on commercial issues and not just political issues. That's, you know, I've had discussions with the master in Singapore and other countries and I always say, you know, commerce, commerce, commerce we will win or lose East Asia based on our positioning on commerce, not on political stuff. It's a very, very tough road to hoe if we go down that track because of very obvious reasons that I think all know. Some of these countries do not yet have an even playing field. I mean, I'm not gonna name them but there are issues there. And so the more senior level presence you have the more dialogue and engagements you have the better your chances are that you will not only do service to yourself meaning us, US, but we will be doing service to those countries as well. The Guarantee Fund that we set up, one of the many objectives was to create an even playing field. They used to have separate MOUs with different countries where if you were bidding in the same project you could have a firm from Country X which would have different situation financially because it had a guarantee from its government or it had a special arrangement in Indonesia which some firm from another country did not have. So this Guarantee Fund basically creates an even playing field. Now that kind of stuff we did from the World Bank engagement side because we think it's good for Indonesia to have an even playing field so they can attract the right kind of firms. But not all countries have such things and the Philippines has worked very hard to even the playing field but it's still tough. Sometimes on a project by project level. So that's one thing we can do. It doesn't require too much. It just requires this issue to be included in our set of agendas with that country. And I'm not sure, Ted can comment on that. I'm not sure that these infrastructure and these types of commercial dealings are really front and center in our dialogue yet and I think they could be. The second area is technical advice which the US government provides less and less off and that goes back to that resource issue and so on. And I think that probably we need to be engaged. I used to be at USCID many, many years ago and I've seen how far the agency has moved over the last decade or so from these types of engagements and I think we really need to rethink our priorities. Just very quickly, I also wanted to say from the APEC side, there's an initiative to help on this at least the government institutional side. So as Ambassador mentioned, we've been working with Indonesia to put in place a program that is a three-year program. You know, one of the problems with APEC is that every year there's a new chair and every year there's almost like a reset button so the agenda changes. So for infrastructure finance, we have agreed and I think Indonesia is now really moving forward is we connected the dots between Indonesia this year, China next year and the Philippines the year after. So we have one program deliverables in each of the three years so that by the end of 2015, we would have a concrete results and the results actually are to try to move the entire region towards certain basic thresholds of legal institutional frameworks that can support private investment in a very transparent and at an international standard. So and I'm very thankful to Philippines because Indonesia was on board but we needed to get Philippines on board for the last leg and I think now getting China on is going to be easy because they are very big on this agenda as well. Very good point. Mr. Baster, you wanna talk about the diaspora? Yeah, well, thank you for that question. Certainly there are numerous opportunities. I talked about the large projects but there are also numerous opportunities for Philippine Americans to invest in small businesses. We see one example, for example, tourism facilities. There's so many tourism facilities that have been set up, Luzon, Visayas. And even Mindanao, these are being set up by Koreans, Taiwanese, and of course, local investors too, Filipinos. There are franchises, for example, that have sprouted all over the country, McDonald's franchises, Jollibee and so on. Quite a number of, in fact, Filipino Americans have already been investing in the country. So now if you ask about Mindanao, I think I would wait until that final peace agreement has been signed, which we hope will be done this year. Because of the turmoil over the past four decades, the investments in Mindanao have been very limited. Only in major cities like Davao, again, the Oro, and of course they have avoided the cities where there have been conflicts over the past four decades. But with the signing of this peace agreement, which we hope will be sometime this year, tremendous opportunities will open up in Mindanao too. Thank you. Thank you. Yes, sure. I just, I'll briefly, I wanna answer Fong's question because I think it's very important. I completely agree with Kamran that our, we will succeed or fail based on our economic engagement with Asia. The pivot, the Indo-Pacific pivot will not work if it's just military. It will only work if it has an accompanying, effective, successful economic engagement strategy. What can we do as government to help? Well, one thing, and I put here the onus on us, is we have to be coordinated. Very often, as a senior official in an embassy, I would have TDA one week, Ex-Im a few weeks later, OPIC a few weeks later. No one shows up in time for the deals. They show up when it's convenient when they've got a budget, a travel budget to show up. That does not work. We have to be effective USA Inc. We have to be coordinated. We have to be in the middle of the table, making all the pieces of the deal come together. One of the things that the economic team did in Indonesia is we organized, and after putting out this report, we organized visits to Surabaya, Bandung, East Kalimantan, South Sumatra. We took US companies to the second tier cities, introduced them to the provincial planning officials, to the people whom we already knew, leveraged the fact that we'd already made investments, sometimes USAID investments or MCC investments in those regions, so that we could open the doors, we could get people in to see the top people. The problem is, not enough US companies are showing up. So we set up these trips, and one or two companies will show up to go on them. In my view, we have to show up. We will not succeed if we don't show up. Thank you, Ted. And on that, I'm sorry, we've run out of time for the first panel. The people will stick around. You've been generous with your time this morning. It's my job to keep this program on time. So please join me in thanking the first panel. Camera. This is what I do for a living. Thank you for your very kind words. Not at all, thank you. Not at all. All true. I just exchange my... Thank you, Ambassador. Thank you. I just exchange emails. I understand. Okay. Thank you, Ted. I appreciate that. We'll move forth with it to the second panel. So those of you who are able to stay and refill your coffee cup, please do it in relative calm. Thank you. I'd like to continue by introducing our second speaker, Mr. Karan Bhatia. Ambassador Karan Bhatia is about to join us. So please have a seat. After years of working on Capitol Hill, I feel an intense need for a gavel. Thank you. Our speaker for the business panel is Ambassador Karan Bhatia, who serves as Vice President and Senior Counsel for Global Government Affairs and Policy for the General Electric Company. In this role, Karan oversees G's engagement on public policy issues with governments around the world and works to expand the company's global presence. Before joining G, Karan was well known to those of us in Washington as Deputy U.S. Trade Representative, a presidential appointment with a rank of ambassador, overseeing trade policy primarily in Asia. He is well known as the lead negotiator and the deliverer of the U.S.-Korea Free Trade Agreement, the largest U.S. Free Trade Agreement since NAFTA. And prior to his service at USTR, he was also an Assistant Secretary at the Transportation Department. Karan is a great representative of a great American company and is always worth your full time and attention. So with that, please welcome Karan Bhatia. So I, too, am not using PowerPoint, so I know my limitations. So, look, thanks so much. Scott, thank you. I really am delighted to be here today at this event which is hosted by three of my favorite institutions, CSIS, NAM, and the National Center for APEC. CSIS and NAM have been longstanding partners of General Electric and we're delighted to really do anything with them, particularly delighted that they've recently added Scott and Linda as key members of their superb teams. And the National Center is an institution that's very near and dear to my heart. I just left the board after four years and it's managed to do just fabulous work for American companies interested in APEC and in the APEC process, so kudos to them. And I would submit that today's topic, the challenges and opportunities of infrastructure investment is so weighty that it requires three institutions of this renown to take it on. In all seriousness, it is a big topic. It's attracted a lot of thought and discourse, particularly since the global financial crisis. As countries have looked to infrastructure as sources of jobs, as drivers of competitiveness, I did a quick count and by my count, in the last year alone, you've had at least half of the G20 heads of state and three Nobel prize winners deliver speeches or address this topic in some form, not to mention dozens of esteemed economists and development theorists and journalists and you guys today get me. So congratulations on that. But look, rather than pregnosticate about what comes ahead and we just had a fabulous panel dive into some of the details, what I thought I'd simply do this morning is try and put out some facts, share a few thoughts that we have General Electric on this topic and hopefully that'll inform the panel discussion that would follow. And really I just wanna make three points this morning and I'll explore each in a little depth. The first is whether you're in the infrastructure business or not, certainly General Electric is, but whether you are or not, this topic matters and it matters a lot. And it matters because it has a critical impact on both the economic and political health of a country. Secondly, this discussion in some ways couldn't be more timely because for a variety of reasons, there's really a paradigm shift underway in global thinking about infrastructure, about how it will be built and how it'll be financed. And then lastly, I think now is a particularly appropriate time for governments to reflect upon what their role is vis-a-vis the private sector in this space and what some of the key policy priorities for them should be. So with that, let me just dive in and start in that first point. Whether you're in the infrastructure business or not, I think the question of how the world is gonna meet its infrastructure needs is of enormous importance. First and foremost, it's important because of the unmistakable correlation between infrastructure and economic growth and wellbeing. I can bore you all with the umpteen studies, all of which tell you that the best thing a country can do to sustain long-term economic growth is invest in its infrastructure. I can cite the World Bank report that estimates that an additional 1% of world GDP spent on infrastructure would increase global GDP by 2% and that GDP in developing countries would increase by almost 7%. Or I could cite the McKinsey study that an additional 1% in GDP spent on infrastructure would translate into an additional 3.4 million new jobs in India, 1.5 million new jobs in the United States, 700,000 new jobs in Indonesia, et cetera, et cetera. But these statistics you can rope through but they are at the end of the day pretty dry. So I was trying to look for a few statistics of things that hit a little bit closer to home and indeed here in the United States where infrastructure is as much of a challenge as elsewhere around the world. Air traffic delays. Air traffic delays in the United States have increased by almost 50% in the last 20 years. Anybody who has traveled has sat on the tarmac, I'm sure, at National or LaGuardia, gritting their teeth and thinking it used not to be this bad and indeed it used not to be that bad. The average has increased from an average of 41 minutes in 1990 to almost an hour today. An economic cost that the FAA has estimated to be at about $100 for every man, woman, and child in the United States. Power outages. Power outages, which are often attributable to an overtaxed and outdated power grid, result in the average American losing power for more than 214 minutes a year. Average cost, economic cost, $265 per person. Traffic congestion. Traffic congestion, the product of overtaxed highways and road infrastructure resulted in American drivers last year spending 5.5 billion hours, billion hours sitting in traffic last year, which translates into a little over $800 per person in lost time and wasted fuel. So in short, these three areas of infrastructure weakness in the United States. Air traffic delays, power outages, traffic congestion add up to a total cost of about $350 billion to the U.S. economy, which is basically equal to the combined revenues of IBM, Ford, and Cargo combined. And that's just the United States, right? Globally, the costs of infrastructure poverty are far greater to take one sector energy. The International Energy Agency has estimated that 1.3 billion people around the world lack access to electricity, including seven out of 10. Seven out of 10 people in Sub-Saharan Africa. The economic costs of that are almost beyond calculation in terms of businesses never built, investments never made, children who die because clinics lack power to refrigerate medicines or sterilize instruments or run basic tests. So to sum up, infrastructure matters because it's key to economic wellbeing and economic growth. As a closely related matter, I would submit that infrastructure matters because as we've seen very powerfully in the Middle East in the past few years, weak infrastructure creates conditions of social disharmony and political volatility. There have been a number of studies that have shown that investment in infrastructure tends to lower income inequality and conversely lack of infrastructure investment raises income inequality earlier this year. The IMF put out a very interesting study in which they ran regression analyses looking specifically at the ASEAN five countries and found that this thesis was proven quite clearly. So infrastructure matters because it's key to economic growth because it impacts social and political stability. And lastly, because, and Scott alluded to this in his opening remarks, because we're talking about a heck of a lot of money here. McKinsey estimates 57 trillion, trillion with a T will be required between now and 2030 just to keep up with global growth. Again, to put this in a little bit of perspective, that's 10 times Japan's GDP last year, approximately 150 times the aggregate cost of the U.S. interstate highway system from its inception or approximately $10,000 for every person on the planet. So this is a subject that matters. It matters simply because we're going to have to put a substantial share of the global's productive resources into infrastructure if that economy is going to continue to function. And no region of the world is going to need that more than the APEC region. The Asian Development Bank estimates that approximately a third to a half of this demand is going to arise from countries in the Asia Pacific region. Or again, just to make this a little more concrete, take just one sector in one country, aviation in China. China plans to build 70 new airports and add 1,000 aircraft within the next three years. That's the equivalent in three years of adding all the airports in California and the fleet of American Airlines and U.S. Airways combined. Which is why, I would submit, you see big infrastructure companies like General Electric as focused as we are today on APEC and the Asia Pacific region. And we will continue to be. Point one, it matters. Point two, there's a paradigm shift underway in thinking about how infrastructure is going to be built and how it's going to be financed. My first point in this regard is that infrastructure is becoming much more global than it was before. And more global in several respects. First, there's more focus on infrastructure in countries that were a year to four ignored. Over the past 18 years, advanced economies have been responsible for more than 70% of global infrastructure investment. Over the next 18 years, emerging and developing economies are likely to account for 40 to 50% of all infrastructure spending. So there's clearly a shift in the focus of where the infrastructure spending is going to happen from the developed markets to the emerging markets. Secondly, it's becoming more global in the sense of who's actually undertaking the infrastructure projects. For many years, infrastructure has really been a bastion of local parochialism. Infrastructure projects in many cases weren't only not global, they were in many cases not even national, they were profoundly local. Today, I think you're seeing an increasingly global set of relationships take on these challenges with governments demanding globally competitive pricing and world-class technology. Just as an example, GE recently concluded a power generation deal to sell turbines to Indonesian companies. But the EPC was from a third country, the financing was from a fourth country and the service providers were from four additional countries. So you can see there's truly a global network that goes in and it gets deployed on infrastructure projects. Finally, I'd say it's more global because you see more infrastructure targeted on international connectivity. Governments appreciate that to be globally competitive in attracting the kind of industries they want, high-end manufacturing, services and innovation, they've got to have the physical infrastructure to enable the country to connect into global production networks. So you're seeing more and more global approach to what kind of infrastructure is being built. The second big change that's happening is in the area of infrastructure financing. We had a good discussion about that before, so I'm not gonna belabor it, but suffice it to say that in the public sector side and many developed countries, the availability of public sector infrastructure funding is simply more constrained than it was before. On the private sector side, you've also seen a change. European banks that were once significant players have been forced to retreat. You do see more private equity and sovereign institutions like export credit agencies are playing an increasingly critical role. And here too, you're seeing change. You're seeing ECAs from countries like China and Brazil that a decade ago were barely present in the global market, now being significant players. The third big change I would suggest you're seeing is new technology. You know, the quintessential example of this obviously has been in the communications industry, where there's been the substantial change of moving from wireline communications to wireless communications. But today I believe you're seeing similar technology revolutions affect other areas, including one near and dear to the heart of GE in the energy sector. And there you're seeing at least three significant changes I would submit to you. One is the abundant availability of gas, particularly from unconventional sources. The second is changes in transmission and distribution, what many of you have heard of as the smart grid. And the third, you're seeing a rise in distributed power, the creation of off-grid solutions that I submit are gonna have a huge impact on development around the world. So in sum, you've got an increasingly global nature of infrastructure, you've got changes in financing and changes in technology making this a period of substantial change in the infrastructure business. So now let me turn to my third and final point, which is recognizing that infrastructure has been and will continue to be a partnership between government and industry. What are the most important things that a government can do to attract private sector engagement? I know this is one of the things that APEC has very much been looking at with its set of principles, which I commend. I would just flag five things for you quickly. The first and perhaps most important thing is a clear and durable political commitment to infrastructure. Infrastructure projects are not only expensive, they are long-lived, often 40 years or more. And this combination of high cost and long life often means that the political risk of changed government policies can create a very powerful disincentive to infrastructure investment unless there is a clear political will to proceed. And so the question becomes how do you abate that political risk? And certainly you look at how you structure the deal, you'll look at political risk insurance, but above all, you look for clear statements from the government of a durable commitment to move forward. Now, how you get that kind of political commitment is beyond the scope of this panel or these remarks, but I will say that in terms of how it's expressed, what we've seen is that written documents, vision documents or five-year plans, things like that are actually quite helpful to the private sector, to enabling them to understand the direction in which government policy is going. To take one example that was highlighted before, Indonesia's 15-year master plan for the acceleration expansion has been quite a helpful document, for instance, in laying out their economic development strategy and informing and assuring the private sector. Second point, the second thing that I would urge governments to focus on is regulation of infrastructure that is transparent, speedy and reasonable. Infrastructure is a regulated business. The private sector gets that, the private sector accepts that. We understand that infrastructure intersects with core government interests, like national security and public welfare, and that accordingly it is going to be regulated. It's safety, it's security, environmental impact, it's economics, we understand that. All that we ask for is that it be transparent, that it be reasonable and that it be speedy. And I particularly put an emphasis on that last characteristic, speed. Speed is probably the single biggest frustration that I hear from business people in my company. It's not the existence of regulation, but it's the slowness of getting decisions made, and that in fact is perhaps the most pernicious killer of infrastructure projects. Third, good transparent procurement processes. You know, if there's a single area where there's a mismatch between the importance of the issue and the level of focus and resources placed on it, I would submit that that issue is government procurement. There may be no function more important to the economic success of an entity, be it a corporation or a developing country than its procurement function. Procurement is typically responsible for between 13 to 17% of the GDP of OECD countries, and in developing countries can be as high as 70%. But whereas in the private sector, and companies like ours sourcing or procurement is a critical function staffed by highly regarded seasoned professionals, in far too many governments around the world, procurement, to be honest, is something of a backwater. It's often staffed by those who are less competent, and in some cases even cronies of those in political power. I would submit to you that procurement agencies must be treated on a par with the most important ministries, for instance the Ministry of Finance in each country, and requires a cadre of trained professionals, technology, and auditing. Number four, produce good talented workforces. The perception is that infrastructure doesn't require skilled workforce. The very concept of a shovel ready project connotes that infrastructure can remain a sector for the undereducated. I ask if any of you have ever happened to peek inside a gas turbine or an aircraft engine or an MRI machine. The fact is that the infrastructure today is high tech. It's complicated to design, to build, and to operate. And so infrastructure companies, no less than IT companies or pharmaceutical companies or service providers depend upon a well educated and technologically capable talent base. Last, grow the market. Grow the market through sound economic policies, whether it's macroeconomic policies, fiscal policies, monetary policies, and trade policies, and I put an emphasis on the latter, are all drivers of infrastructure investments. So where does this leave us? Let me go back to where I began. Economically and politically, the demand for infrastructure means that we're entering, I believe, a new age for infrastructure. Energy, transportation, healthcare, communications, increasingly these are being viewed, rightly I would submit, as core human rights. Now how these services are provided is gonna differ substantially from before. You're gonna have different players, different technologies, different funding, but the private sector, I think, is gonna play a bigger role than ever before, and governments are gonna play a key role in good government policies, whether in regulation or procurement or trade or education, are also gonna have a key fundamental impact. And with that, thank you all very much, and I think we've got a panel coming up, so. Thank you, Koran. Good morning, everyone. My name is Linda Mngedy-Demsey. I'm the Vice President for International Economic Affairs at the National Association of Manufacturers, the NAM. We represent 12,000 companies here in the United States that manufacture small, medium, and large, including our friends here at GE. We are very proud to be working with our friends at CSIS, the National Center for APEC, on this project, helping to meet the world's infrastructure needs is and should be an increasing source of growth for manufacturers, manufacturers here in the United States, and frankly, manufacturers around the world, in terms of output, efficiency, innovation, and jobs. Koran, thank you for those illuminating comments to get us started on this panel. To help us take us a little bit further, we're going to have a discussion with Koran and David Earhart, sorry, the Chief Executive of Castiglia Advisors. As you can see from David's bio, he works extensively on private finance and regulation as it relates to infrastructure, particularly utilities, and he's worked on a whole number of those. He has authored numerous reports and articles that really delve into a lot of the issues that we've touched upon in both panels today, including a very comprehensive study for the World Bank on deterring corruption and promoting growth in the water area. David, I know you have some slides to share, so why don't you start with that, and then we'll continue the discussion. And thanks for help getting the slides ready, that's wonderful. So Castiglia, we're one of those consultants that Cameron mentioned, waiting for fees from government. Luckily we have got some fees, actually, and that's enabled us to do some projects from which we've learned some things which I'd like to share with you today about how do we get toward the center of the table away from our separate corners. Look, the overview is pretty simple, and I think it mirrors what a lot of people have been saying. Focusing on Southeast Asia, there's rapid growth and not just growth, urbanization, which is key for infrastructure. There's increased private finance, which is unlocking the ability to actually invest in infrastructure, and this is creating a lot of opportunities for EPC work and for financing. We see Asian firms, some European firms, but we don't see so much of the U.S. firms and that's something I'd like to consider at the end why that might be. But just rocking through it, of course we all know where Southeast Asia is and I think we've by now all heard about the growth that's going on, 6% growth GDP per annum growth, quite typical. I'm glad to see the ambassador pointed out the Philippines has ticked up from 4% in 2011, which is what we have here to 6% again or over 6% GDP growth in 2012. I also have there, gross fixed capital formation. So you can see, for example, in Indonesia, $271 billion of gross fixed capital formation, so total investment in the economy last year. It's a lot of money. And what I think is very interesting is the urbanization. I mean, East Asia is experiencing the most rapid urbanization in history. And when people come together in cities, they need much more infrastructure. Cities are much more infrastructure intensive than living in the countryside. And so, for example, in the Philippines, you're adding a million urban inhabitants each year. In Indonesia, it's 3 million new urban inhabitants each year. If you think about it, the population of Washington, DC is something like 700,000. The population of the Washington metropolitan area is 5 million. So you're adding cities that are comparable in size in Washington, in a way, in each of these countries each year, of course, through the growth mostly of existing cities. Now, what is happening is, as the ambassador highlighted in the case of Indonesia, governments are putting more emphasis now on privately financed infrastructure. I think the fiscal situation of these governments in Southeast Asia is improving. And there's an ability to pay for infrastructure services among the population and in government. But governments don't always have the money to invest the billions and billions of dollars upfront. And they're also looking for quality and accountability in the delivery of infrastructure projects, which many governments are realizing can be better achieved through privately financed infrastructure in which investors make money when infrastructure services are delivered. Now, it's not, we can't run through everything that's going on in the region, but I just want to share with you a few projects that my company is involved in in one way or another now. And you'll see from that, a very small sample of the whole, what a significant opportunity this is. So in Indonesia, we work, we're privileged to work with the Indonesia Infrastructure Guarantee facility that Cameron mentioned earlier. And through that, we're involved in a couple of projects, a little one billion dollar highway project in Medan in Sumatra. Central Kalamantan coal rail, dedicated coal railway in a river port, estimated cost $3 billion. Water projects like that, the Umbilan Springs Project, which may finally be moving forward, a billion dollars. So these are very significant projects and there's many more. I have to say with Indonesia, it has, the country has developed a slight reputation for delay because in 2002, the government came out with a very nice list of infrastructure projects and took them on a big international road show. And then for several years, none of those projects were actually developed. And this may have created some skepticism about other government plans. I think that there's still a lot of delay in Indonesia, but there is increasing government capacity, which we think will lead these projects to move forward on something close to the timetables that I'm showing here on the slides. Another place we're working is Vietnam, working on the unexpressed way near Hanoi, for example. Estimated cost, $2.5 billion. We're doing market soundings for that now, if anyone's interested in bidding on that, let us know. And there's also smaller deals like many hydro projects. Smaller deals, just $50 million. I think the ambassador took us through 11 projects currently under procurement, privately financed projects currently under procurement in the Philippines. I just want to mention a couple that we know about, $1.25 billion for the extension of one of the elevated rail systems in Metro Manila and the operation of the existing part of that line, an unsolicited proposal for a whole new rail line MRT-7. Expansion at the old Clark Air Force Base, which is now a special economic zone, one of the things they need is an expansion in the water supply system. So a lot of opportunities, real projects privately financed. Who is going after these opportunities? Well, it's hard to give a definitive picture. There's so many companies involved. But what we did is we thought, well, we can do a semi-scientific approach here. Let's take all of those projects that I just showed you and look at who is the proponent, in the case it's a single-source project. Or who's on the shortlist? And let's look at the nationalities of those companies. See that Philippines is the leader with six. There's Philippine companies involved in most, in all the Philippines projects, obviously, but Philippines companies like Manila Water are also active in the region. There's Japanese companies, Indonesian companies. I've put up the logos of all the companies that are not from Indonesia, Vietnam or the Philippines, but are bidding on those projects. There we see Japanese companies, Korean companies, a British company, a Chinese company, no American companies. And that leads us to the question, where's Team America? And it could be that American companies, which are extremely capable, rational businesses, have decided that this is not a good market. And there's some reasons to decide that. I mean, American companies may have become rather risk averse. I would say they might have phrased it as we have very good systems for managing and controlling risk. They're rather high-cost in some areas, in some kinds of turbine manufacturing or in construction, obviously, compared to Asian competitors, they're far away. There's sometimes the relationships that are extremely important in business everywhere do slip over into cash payments, and that's more difficult sometimes for American companies than some other companies. And there may be just better opportunities elsewhere. So perhaps American companies are right to stay away. Or perhaps not. Because there are some real advantages that Team America should have in parts, at least of this market, the deepest capital market in the world. Fabulous at integrating stuff. You don't need to make everything and construct everything to project-manage financial engineer and put together great deals. A reputation for quality was mentioned. Iconic reference projects. People all over the world respect. So maybe what's needed is a strategy. And maybe more of a Team America strategy. So thank you. Thank you, David. Appreciate those comments. Some very interesting points laid out. Koran, did you have some initial comments here? You are, as representing an American company, clearly involved. But a lot of the things that David mentioned, and I'll certainly say, American companies are looking for strong governance, strong transparency. And we do have strong and well-enforced anti-corruption rules here in the United States. How do you see what's happening in Asia? Is that meshing with David's analysis of these projects? I think David's analysis is good. The chart that shows companies or countries, David, I'm assuming those are the EPC contractors, others, who would be the actual sort of the developer, the bidder of record, is that right? Exactly, the bidder of record. That's either going to be the financial company or the EPC company, that's right. So take a company like GE, for instance. We're not in that business. We don't do the bricks and mortar on the ground. We do do a lot in infrastructure. And I think what you would say in general is that I think where American companies have traditionally fit into this equation, there certainly are some American EPC contractors and so forth. But let's face it, the biggest players in that space around the world now are increasingly from the markets that are represented on David's chart. I will say that companies like GE, Caterpillar, others, are very much in the infrastructure business, but we are suppliers to those companies. And point one, point two, I think his point is exactly right, which is that American companies have, for many years, relied on the domestic market. And it's been the biggest market. It's grown very strongly. Healthily over the 50, 60 years post-war, there wasn't as much need to be in global markets around the world. That era has changed. That era is over. And I think whether you are a manufacturing company that supplies to projects like these, or whether you're a service provider itself, you are going to need to look at these markets and redeploy resources and just become much more comfortable in these markets. And I agree with everything that he put on board with that. The only slight point that I might not quibble with, but sort of footnote is, I do think the FCPA issues, in some ways, cut in both directions. Because while I do think that traditionally the perception is that our competitors around the world may not play by the same rules in terms of that transparency arena, we have actually found, GE has found, that in some ways, the FCPA and the reputation for cleanliness there actually can be an advantage in dealing with governments. Because you now have so many countries around the world and governments around the world deeply concerned about corruption and the reputation for corruption that they actually will sometimes look for companies where they know they're not going to face that risk. And so we've had governments around the world say to us, you know, we selected you, you're not the cheapest company, but we want to go with you because we don't want subsequently to be accused internally in our own political system for having been bought off. So I do think that's a slight footnote that I'd add, but otherwise I think it's a compelling presentation. Great, let me ask one more question and turn it quickly to the audience. One of the items that we in business are continuing to see are governments around the world and particularly in the Asia Pacific seeking to force benefits to their local economy through infrastructure and other projects. And doing so in ways that cause concern, I think for many in the business world, telling contractors, telling EPCs, you have to use so much domestic content, you have to use so much, you have to develop your technology here and then transfer it. How does that work in some of these projects? Obviously the infrastructure project is trying to build infrastructure to benefit the local economy. We heard in the first panel the very clear desire and necessity that it also produced some growth and jobs in that local economy as it's going on. How do you, from the corporate side, from the financing side, look at this and how do we help these projects go forward in ways that frankly help everybody? Go ahead. Well, yeah, that's a great question. I think I have to say my thinking in this is it evolved a bit as I've worked in the area more because initially I thought, well, look, what's the point of that? You just want to get the best deal so we want competition and if the best deal is all foreign, it's fine. If there's a power point, sorry, a power plant that is, its job is to supply power to the grid. So why does it have to do what they do in the Philippines, for example, and have a local benefit component that has to benefit the community that it's in? I've realized that's something of a naive perspective, I would now say. All of this stuff is political and politics is the biggest risk in infrastructure. So to be sustainable, you have to bring the constituencies with you. And so if localization requirements are seen as making sure you have support from key stakeholders, then it's probably quite good business. Same stuff happens in the US. People were very worried when Spanish and Australian firms started buying up US toll roads like the Indiana toll road and the Chicago Skyway. Like what are they going to do? Roll it up and take it back to Australia? I don't think so, but people were very worried about that. You see a lot of talk here in the DC area, for example, about opposing highway expansions because of infrastructure equity that the, because people have pointed out, well, you know what, these off lanes often go into poor neighborhoods. Well, why don't we make sure the poor neighborhoods benefit? That's kind of what the Philippines is doing when they say, if you build a power plant, make sure you do something for the village next door as well. So within measure, I'm okay with it. I guess my perspective as far as, you know, we as a company believe in localization. We believe in creating a local presence in all of the places we are around the world. And I think that's not just good corporate citizenship. That's good business. Because the reality is that the era where you built the product, the locomotive, whatever it is, stuck it on a barge, shipped it halfway around the world is over. That just doesn't work anymore. You've got to be present, you've got to be local. So a company like GE does a substantial amount of the input that happens anywhere around the world on our product actually does happen locally. I think the question, Linda, that you get to, and it's a very good question, is what's the right role for government in forcing that degree of localization and what's the degree of flexibility that needs to be built into those policies? And I think that's where we have two potential concerns as you look into the long distance, which is if every country in the world is going to have a set of forced localization requirements and those requirements become very high, you are effectively either forcing companies to replicate their supply chains in 150 countries around the world, which is not commercially or otherwise viable, or retreat from that market. And I don't think we're at that point anywhere around the world, but I think we're seeing concerning trends in that direction. And then the second is how flexible should governments be in the application of these? And I think that's where we really need to see progress is recognize that contributions come in many different ways rather than sort of building X part of Y object in a local government. But writ large, look, we recognize that any of these infrastructure projects is gonna have to, part of it is gonna have to be making a major commitment to the country. And I think American companies have demonstrated time and again, that that's what they do when they go abroad. We have time for just one or two questions. So same rules as before. We'll have one up here and then one back there. And if I could ask you both to introduce yourselves and ask the questions and then we'll have the panel take both at the same time. Thank you, Linda. Hi, Ambassador. It's good to see you. Good to see you. I'm John from the Chinese Embassy. I'm the commercial minister consular of the Embassy. And several years ago, I used to be the APEI senior economic official for several years. And I found today's discussion. Okay, okay. Thank you, thank you. I found today's discussion is quite useful and interesting. And as we all know, next year, China will be the health economy for APEI, APEI 1214. So we are now working on the agenda for the next year. We do not want to make any changes. We want to keep the continuity for the APEI agenda. So I found the infrastructure is a very good topic. And our panelists, our speaker taught quite a lot the infrastructure issue at the national level. I just wonder, I want to know if you have any suggestion for the international or regional cooperation, for example, under the framework of APEI. So I think that will be quite valuable for the Chinese year next year. Thank you very much. Hello, thank you. Willie Wilson, Wilson International. I seem to recall in the 1990s, there was in fact quite a bit of US investment going into infrastructure projects in Asia. Among others, I worked on telecoms in the Philippines, power in Indonesia. And we saw, for example, all the utilities, the non-regulated arms of the US utilities moving in. That doesn't seem to be around anymore. And I wonder if there's a reason beyond the things on your chart, which might be the short-term attitude of US capital markets and whether you think that has had an effect. Go ahead, ask the question very quickly though, because we're gonna run out of time. I'm from Tianjin Foreign Studies University. I'm currently a senior high school student. I'm very impressed by the fact that Team America is delivering infrastructure projects in the Southeast Asia. But I also believe that, as David mentioned earlier, all things are very political and all things are kind of connected. And I believe China is also one of the stakeholders in this case. So just my personal opinion. And I believe that in the state school that China and the Philippines a little dispute in terms of territory. And I believe that the situation used to be pretty intense. So my question is, to which extent does the US company or government believe that the infrastructure investment and trading the Philippines will inflight its relationship with China? And yeah, that is all. Thank you. Okay, well, great questions. I, you know, infrastructure is a funny thing to, when we think about it across APEC because there's not gonna be much infrastructure that spans borders throughout APEC. So it may be what we need to do is first we'll think about making markets work better. How do we facilitate financial flows and contracting in infrastructure across APEC? That would be interesting. And then perhaps some specific regional projects, for example, the greater Mekong sub-region energy integration strategy that Asian Development Bank has been working on and which involves two of China's southern provinces along with the other countries of the Mekong Delta might be interesting ones to take up in that framework. Yeah, why, it's quite true that the US used to be much more involved. Morant Global, for example, had some, well, it had 2.2 gigawatt of power in the Philippines which they sold as soon as the local, the home company came out of bankruptcy because the management team wanted to focus back on the US. To be fair, I think some US companies got burnt by the Asian currency crisis and some slightly forced contract renegotations that followed, but otherwise, I'm not sure. I mean, I really would like to know why there was that interest in the 90s and it's not being followed up on now. Thank you. I will respond to Minister Zhang's question just very quickly because I think it's very appropriate for this gathering about APEC which is what a regional agenda might look like. I guess I would sort of flag four things and I know China has been already thinking quite seriously about what the agenda would be and I think there's been great effort applied in that regard. I'd say the four things. One is there have been a variety of regional trade initiatives that have been pushed through APEC, for instance, around environmental goods. There's potentially going to be, I think, some discussion about other sectoral regional arrangements that are very closely related to infrastructure. In other words, goods that might contribute to power transportation or communications and so forth. So I do think bringing those through to conclusion would be a helpful agenda item. A second that I know is on the agenda is this issue of local content requirements and I think that would be an important subject to try and get some discipline around because it really does potentially lead to a very dangerous beg or thy neighbor kind of outcome in the alternative. The third is investment and there's been great work done on investment principles. Linda, I know you've been involved, Chevron and others I think as well and that's an important area. And then the last that I'd come back to that I mentioned before is procurement. This issue of procurement and procurement standards. I think not only are there things that could be done in terms of standards and rules or best practices that might be agreed there, but also capacity building, which I think is key. And again, I wouldn't want to let this occasion pass without mentioning Philippines has done such superb work in raising its standard and transparency here. Ambassador Cuesha, I know it's been a major advocate for that. So I think that potentially serves as a good model. Well, thank you. And I think that's about all the time we've got and getting into some of the more detail that I know the audience would like to we're at. I'd like to thank our panelists here today, David and Koran. And in just a moment, we are going to have director Louie from the ExSim Bank close off our conference. All right, folks, we have just a few more moments to get back to your seats. Well, I now have the wonderful pleasure to introduce director Pat Louie, who is a member of the board of directors of the US Export-Import Bank. Abordened by President Obama in May of 2011 and unanimously approved later that year by the US Senate, director Louie comes to the bank with such an extensive experience and background in the Asia Pacific and APEC itself, including being part of the host committee for the United States hosting of APEC in Hawaii in 2011. Prior to her time at the ExSim Bank, director Louie has been deeply involved in the Asia Pacific market, helping to expand market opportunities, commercial and economic engagement. And I am so happy that she was able to join us here today and give us some closing remarks. Thank you. Thank you very much. And let me extend my special thanks to CSIS, to the National Association of Manufacturers and NCA PIC for the invitation to be here today. And also to His Excellency Ambassador Kuisha and Ambassador Bahia and other speakers in the prior sections. I enjoyed it very much. And actually I think that there's a great deal of themes that pull through the different parts of the program. As you've heard, the infrastructure opportunities offer great prospects, not only for enhancing the development of the economies in the APEC region, but also expanding export potential for the United States. In a sense, the main debatable issues are how much, how fast, and how both the countries and US exporters capitalize on the first point of how much. I think that the numbers keep kind of accelerating. I was at the Asian Development Bank annual meeting last year and when it started out, the estimate was $4 to $5 trillion in the ADB region. And by the end of the conference, when McKinsey issued its analysis, the number was at $7 to $8 trillion. And I understand now it's onward towards $10 trillion. So the point being this is a region of tremendous potential and tremendous mutual benefit. I'd like to concentrate making a few remarks and reinforcing some of the points made earlier on how we capitalize. And I will be addressing this perspective, this from the perspective of not only an XM board member, but also as a business woman who has spent most of her career in the private sector, particularly in Asia. To start a little bit about XM, as you know, XM is not a development bank. We are an agency to support US jobs. Very often, we do this by financing international buyers of US exports, whether they are sovereign or private sectors. And I am humbled that one of our largest customers, GE, is here today, also makes me a bit nervous. But as we look on capitalizing on APEC's infrastructure opportunities, let me put forth three strategic considerations. One, APEC countries are looking for new models, as you heard by the previous speakers, for project structuring. The build, operate and transfer models and US companies may need, in light of this, to reconsider their response to PPPs. Secondly, the pace of development in Asia is in some regards outstripping resource capital there, and this has implications on how USG and other exporters approach infrastructure projects. And third, the government, business and academia, can I believe, do more to communicate the economic value of made in the USA. First, as you heard from Ambassador Quisha, many ASEAN infrastructure project tenders require a PPP or BOT approach. Some say that number is as high as two thirds of all new infrastructure projects. While on the one hand, some BOT tenders have unrealistic objectives for risk and cost sharing. On the other hand, this is the model that the buyer is looking for. And most times, having been in sales, to make a sale, the buyer and seller expectations must match. So I would suggest that US exporters might reconsider selling only products and in return to the concept of project sales, our competitors sell a power plant or an airport where we sell the pieces or the products or the services relating to it. If there is a US, and I know that part of the issue is the operational risk, but perhaps that is an opportunity for us to joint venture even more with the national corporations. Because if there isn't a US company willing to take the operational risk, it may be time to consider joint ventures where the in-country partner has a better knowledge of the local market. But again, I think the key point of if we are going to undertake PPPs is that the US companies play a more active role in structuring the consortium at the outset. We have seen in final negotiations that very often the consortium lead will replace the US product provider with a lower cost product. And that's always a such a great disappointment to all of us. We also believe it doesn't give as much value to the purchaser, but that's my third point. This project approach also addresses the second point, demand for limited human capital. With all due respect, our competitors provide significantly more assistance in bundling of services in general. Unlike Japanese, Chinese, and Korean corporations as well as unlike Japanese, Chinese, and Korean corporations that work hand in glove with government, the US is frequently, the US government and corporations frequently do not work as closely together. I understand this is part and it's fully support that this is the free enterprise model, but we have an opportunity as some have mentioned earlier in a team USA approach of packaging technical feasibility, implementation, financing, and startup operations. We also have the opportunity to look how we work more closely with other organizations and partnering with them so that again, there isn't as much pressure on human resources and the bureaucrats who are laboring to try to package these very complex and difficult deals. For example, in order to move forward on a solar project in India, XM did parallel financing with the Asian Development Bank. That took the load off the individual underwriting officers on both sides of the transaction and also enabled us to break new ground with ADB in working together. We hope to be doing more similar parallel financing with the ADB in the future. Further, at the government level, we must act on some policy initiatives that will help keep exporters competitive. As I mentioned, we can make it easier for US exporters and foreign buyers to access export finance. And to do this, we would urge support of President Obama's initiative to consolidate XM, USTR, OPEC, USTDA, ITA, and SBA so that the access issue is easier not only for US exporters, but also for foreign buyers. Secondly, the 1978 OECD agreement among 34 advanced economies needs updating when two-thirds of export financing by members of OECD are outside their regulations and only one-third is the system no longer works. Further, China, India, and Brazil are not signatories as we know and OECD nations are vulnerable to less transparency in infrastructure negotiations. We also support the agreement between President Obama and China, China's now President Xi, agreed to develop a transparent rule-based network in the future. Finally, and because this is APEC, I think it's very important for us to keep in touch and to follow the opportunities that the Trans-Pacific Partnership offers, both to countries as well as to American exporters. It is a 21st century trade agreement. It will produce win-win benefits for its signatories and we hope there is consensus moving forward at APEC in Bali. As you know, one of the phases, it not only offers a free trade zone agreement, but it also will have, I understand, a component that will look at mutual economic development initiatives. Finally, and to my third point, I see an opportunity to help educate the APEC market that made in the USA today, not only represents excellent product quality, but also excellent economic value. ASEAN economies as well as many throughout the world now have had experience with the low-priced solution and no firsthand that there is a significant difference between the lowest up-front purchase price and the economic value over a product's life cycle. XM conducts this analysis in our underwriting, but I believe that we perhaps need to look to a well-known third-party brand, perhaps through a joint venture with government, academia, and the private sector to advocate for economic value over low-cost pricing. Finally, as long as 95% of the world's customers are outside the United States, American businesses and foreign buyers need to continue to export and to innovate. We have heard again and again that it will be primarily through trade to supplement government's initiatives that will help to sustain the rebalancing towards Asia. And let me close in saying that working on infrastructure projects is clearly win-win. The World Bank has estimated that for every 100 million invested in infrastructure projects, there is between a half point to a 1.0% increase in GDP. So as President Kennedy said, a rising tide lifts all boats. Thank you very much. Do we have time for— Oh, please. Did we have time for some questions? No, please. Thank you.