 So, in the interest of keeping time, I think we're going to start and hope that our coffee drinking friends will join us. My name is Murray Hebert from the Southeast Asia program here at CSIS. I'm delighted you're here to join us on the discussion of infrastructure connectivity, where Asia's big gaps. We have a great panel here. We're going to educate us on their views about the infrastructure gaps. Our first speaker is Toshiyuki Sakamoto, who is the Deputy Director General for Trade Policy at the Ministry of Economy, Industry and Trade in Japan. In this job, he's responsible for Japan's economic cooperation in the region. He's also the APEC senior official representing Japan, and he's also Japan's representative in dialogue with the ASEAN countries. He's been in MIDI for almost 30 years and had various responsibilities in energy and manufacturing. Next to him is Greg Stephenson, who is the representative of the Asia Development Bank ADB here in Washington. He's representative for North America. Prior to coming to Washington, Greg was in Bangkok, where he was the Thai resident head of the Thai office for ADB. He's also been in Afghanistan and in various other places in the region. Next to Greg is Vikram Nehru, who is senior associate in the Asia program and the Bakri Chair in Southeast Asia Studies at Carnegie Endowment for International Peace, before taking this job. Vikram, for 30 years, was served at the World Bank, had various positions, including the lead economist on Indonesia and China. And next to Vikram is Suzanne Kelly Lyle, who is independent policy advisor for ASEAN Affairs. She's had various roles advising public, private and civil society organizations on capacity building, stakeholder engagement, and governance issues. Her most recent posting was to serve as a governance director for the Mekong Partnership for the Environment. So with that, I'm going to turn to our first speaker, Mr. Toshiyuki Sakamoto. Please. Thank you, Mari. Thank you for inviting me to this event. Eight trillion U.S. dollars. This number is most frequently mentioned to show the big demand for infrastructure in Asia Pacific region up to 2020. This huge demand cannot be met by government budget of developing countries and ODA from the advanced countries alone. In fact, the percentage of infrastructure investment in government budget in ASEAN countries tend to decrease due to their policies aimed at fiscal deficit reductions. This is a case for ODA from advanced countries as well, due to the same reason. So mobilization of private sector's money and introduction of private sector's know-how is essential, PPP needs to be utilized. But compared with Latin America and South Asia, PPP development in East Asia is lagging behind. In 2013, the number of PPP projects in East Asia is just 85, 16 billion U.S. dollars. This is just a quarter or one-fifth of Latin America. And more than 70 percent of the projects are electricity. So the establishment of institutional mechanism for PPP and institutional capacity building, the capacity building of people working there is essential, is needed. And there are many cases where appropriate risk sharing and cost sharing between public and private sectors are not ensured. Against this backdrop, Japan put forward comprehensive support measures for PPP promotion by utilizing Japanese yen loan. This package was announced last year. The measures includes EBF, equity-backed finance, this is a yen loan for recipient government equity contribution in SPC of PPP project, VGF, viability gap fund, this is to ensure the profitability of SPC. That credit enhancement facility, sorry for this jargon, this is to address the risk of not non-compliance of sales contract of off-takers such as electricity and water SOEs. Japan is also carrying out a lot of capacity buildings, including the support for the development of comprehensive infrastructure development plan in Asian countries, support for the establishment of PPP institutional mechanism, as well as support for formation of even individual project. The gap exists in terms of the quantity of finance, but also gap also exists in the quality of infrastructures. There are many, many cases where although the initial cost of the project is cheap, the construction delayed or a designed performance was not realized, et cetera, et cetera. So Japan put forward in APEC the proposal on the quality of infrastructure, including life cycle cost, because the developing economies tend to focus on initial cost. Environmental performance and the safety, including resilience to natural disasters, APEC developed with Japanese initiative the guidebook on this element of quality of infrastructure. APEC last year also agreed upon the blueprint on physical connectivities, which includes the three cross sectoral issues, PPP, quality of infrastructure, and other principles like human-centered investment, including local people employment, environmental and social considerations, financial soundness, et cetera, et cetera. People now talking a lot about AIIB, but I believe that AIIB needs to discuss in such a wider context. My Prime Minister, Prime Minister Abed's commitment on quality of infrastructure is deep and firm. He discussed this with President Jokowi Indonesia when he visited Japan in the end of March. And Jokowi welcomed Prime Minister Abed's commitment on, quote, a quality infrastructure for quality growth, unquote, through human-centered investment. The details of this initiative has yet to be seen, but you will see that in due course this year in a lot of international fora, not only APEC, but also G20, Japan ASEAN, and Japan MECOM, et cetera. Last but not least, let me touch upon CADP, Comprehensive Asia Development Plan, which was developed by ARIA, E-R-I-A, Economic Research Institute for ASEAN and East Asia. I mention this because this is the example where Japan and the United States can collaborate in order to identify what kind of infrastructures are important in East Asia from demand side point of views. With the mandate from East Asia Summit, October 2009, ARIA developed CADP in collaboration with ADP and ASEAN Secretariat. Comprehensive Asia Development Plan, CADP, was endorsed by East Asia Summit in October 2010. They identified about 700 infrastructure projects and prioritized them. The amount of investment necessary is 400 billion US dollars. And they also found that about 20% of this project can be financed through PPP. They also carried out a regional economic impact analysis in case major economic corridors were established. This became the basis for ASEAN's M-PAC, Master Plan on ASEAN Connectivities. Now this plan is being revised with the instruction from, again, East Asia Summit. United States can join this discussion, can join this initiative because this will be discussed in EAS Economic Ministers' Meeting this summer. This is a unique East Asia-wide project that can't be implemented by APEC, covering China, India, Cambodia, Routh, Myanmar. We will, CADP2 will look into how the connectivity could be strengthened in order for ASEAN to further participate in global production network. Infrastructure quality as well as disciplines of donors will be also addressed. As was the case original CADP, ARIA will collaborate with international organization, most notably ADB. ARIA expects the input from US government as well as US business communities. And I hope that this will lead to meaningful infrastructure development of Asia. Thank you very much. Thank you, Toshiyuki-san. Craig Stephenson? Craig. Thank you, Murray. And good morning, everyone. Asia has become the world's growth engine, but the infrastructure deficit across the Asia-Pacific is substantial. In 2011, the Asian Development Bank estimated that by 2050 an additional 3 billion Asians could enjoy standards of living similar to those found in Europe and North America today, and the region could account for over half of global output. But this promising outcome could only be realized if Asia sustains its present growth momentum. In a 2009 report entitled Infrastructure for a Seamless Asia, we estimated that Asia will need $8 trillion in national infrastructure and $290 billion in regional infrastructure through 2020, or average infrastructure during this period of about $750 billion per year to sustain the region's current growth trajectory and establish the foundations for the next phase of growth. This report I just mentioned, Infrastructure for a Seamless Asia, is where this $8.3 trillion figure that gets mentioned so many times came from. And it's worth taking a look at. The numbers are broken down by subregion, by country, by sector, by subsector. There are lots of projects listed. I guess most of the money is sort of earmarked for mobile phones, ports, and sanitation. But the Asian highway, Asian railway, and Asian container port schemes also figure prominently into things. Asia's development dilemma is one of high levels of robust growth across the region, not yet translating into adequate and quality infrastructure. ASEAN countries, for example, and there are a lot of success stories in this grouping, but ASEAN countries need $1.1 trillion in infrastructure investments. This inability to undertake necessary infrastructure investment in line with the pace of their economic growth has exacted a heavy toll. All you have to do is look at traffic and traffic congestion, pollution, and it's not a stretch to say worsening distribution of income to see what I'm talking about. In each of the key sectors, roads, railways, phones, electricity, and clean water, the subregion has a long way to go before it catches up with OECD countries. We should be investing 5 to 9 percent of annual GDP on roads, railways, ports, urban development, power, telecom, irrigation, water supply, and sanitation, and the like. But with the possible exception of Vietnam, no ASEAN country has come close to what they need to spend. Indonesia's economy has done well the past few years, but it's only spending 2 to 3 percent of GDP on infrastructure, and we should probably be spending at least twice as much. The same applies for the Philippines, Thailand, and Malaysia. Existing international financial institutions like ADB and the World Bank won't come close to closing the financing gap, and the countries on their own through their government budgets aren't going to make much of a dent either. ADB's combined operations last year, including co-financing, totaled over $21 billion, or less than 2 percent of Asia's infrastructure needs for last year. ODA from all sources to the entire world, I mean from the entire world to the developing world last year, totaled about $130 billion, or 17 percent of Asia's needs. It follows that ADB welcomes the emergence of the Asian Infrastructure Investment Bank based on an understanding that it will adhere to international best practices on environmental and social safeguards, as well as fair and open procurement procedures, and we look forward to considering appropriate forms of cooperation once AIB is formally established. Given what I've just said, I'd like to posit that Asia's binding development constraint is not the lack of funds. It's really its inability to develop and channel existing pools of savings into bankable projects. Many Asian countries possess significant domestic savings. ASEAN alone has more than $700 billion that could finance infrastructure, and with yields on government bonds at record lows, international banks, pension funds, and private investors are scouring emerging and frontier markets, eager to fund long-term projects that offer a better rate of return. Unfortunately, memories of the 97 Asian financial crisis and more recently the world financial crisis remain fresh in the minds of policymakers and investors who are very wary of risk and don't want to be burned again. Investors in particular are unwilling to commit major resources for large projects over the long term without lots of guarantees, which governments have been reluctant to provide. To remedy this situation, ADB believes first governments need to step up the game, to fast-track infrastructure delivery, and clear bottlenecks to create a pipeline of transparent, well-structured projects that allow for private investors and market mechanisms. We've spent a lot of time in government offices in ADB the last few years to see what big projects are ready to go, requiring financing. There's not a whole lot there, if you know what I mean. They really need to do some homework and get these projects ready for consideration. Second, it's necessary to address a range of policy, institutional, and regulatory impediments to create a robust and predictable regulatory environment that assures investors that their schemes will not be canceled or stalled halfway through construction and will not be renegotiated when a new administration assumes office. Third, to attract debt capital, which is essential for large-scale infrastructure financing, projects must be structured more effectively. Public sector support is required to address the high degree of perceived risk on long-tenor infrastructure financing. Specifically, governments need to resolve governance problems and to establish transparent procurement procedures and to put in place clearly designed, viability-gap funding mechanisms to entice investors to step up their investments. The real issue when it comes to closing gaps to infrastructure connectivity is not how much money is there on the table. Rather, it's the need for countries to first improve their governance regimes. The rule of law, independent regulators and judiciaries, predictability, clean politics and political stability are all essential elements in the highly competitive race for private capital. I should add that the politicization of infrastructure priorities and frequent changes in public policy don't help things much. Singapore and Hong Kong are cases in point. Worthy elements that I just mentioned in place, funds might be expected to rush in of their own accord. Absent these elements, all the liquidity in the world is probably of little use. Multilateral institutions have an important role to play. ADB, the World Bank, the A-I-B and the New Development Bank don't have sufficient resources to fill their gaps, but we can leverage our creditworthiness to mobilize Asian capital for Asian growth. For example, issuance of local currency infrastructure bonds guaranteed by multilateral agencies for infrastructure projects. I could talk more about that, but I need to wrap up. In 2011, the ASEAN economies together with ADB established something called the ASEAN Infrastructure Fund. It has just under $500 million in equity capital. It was a first step to mobilize the region's resources for infrastructure development. More recently, we've established a dedicated office and recruited a really good team to promote public-private partnerships. Many more such steps are required if the region is to sustain its growth momentum. In the final analysis, Asia's infrastructure, or inadequate infrastructure, could hobble its attempts to achieve strong, sustainable growth in prosperity, but if they do things right and we have every reason to believe they can, the region's growth potential offers benefits, which far out the cost of managing these risk and challenges. Thank you. Great. Thanks, Craig. Vikram Nero. Thank you very much, Marie, and thank you, Ernie and Marie, for inviting me. It's an honor to be here with Sakamoto-san, Craig, and Suzanne on this panel. I just want to start with the title of this particular panel. It's Infrastructure Connectivity Where Are The Big Gaps, and it's a curious title, because when you look at the infrastructure needs of Asia, actually, it's not so much roads, ports, and airports that are in demand. There are huge demands for that kind of connectivity investments. It's actually energy which comprises the bulk of the needs in Asia. But even when you look at infrastructure connectivity in Asia, and you examine the needs, they're literally everywhere. You know, there are these large inter-country projects on the mainland of Southeast Asia, north-south, east-west corridors. There are the enormous demand for ports in the archipelagic countries of Indonesia and the Philippines. There are enormous needs for infrastructure in a rapidly urbanizing region, and you need good infrastructure for that to ensure that urban centers become drivers for growth. And you need large amounts of connective infrastructure in order to connect urban centers with rural areas to make sure that people can go to jobs, and jobs can go to people, and all of this is going to be part of issues, sort of future growth. But you add to that, in addition to the urbanization issue, you add to that the environmental issue, the fact that a lot of this infrastructure needs to have a very small carbon footprint. And that means not just that this infrastructure needs are enormous, but they need to have a low carbon footprint. And a lot of the infrastructure that's already in place actually needs to be replaced with more energy efficient and better infrastructure. So the infrastructure needs are enormous. So the challenge is not where are the big gaps. The gaps are there. The challenge is how do you fill them? And that's what I'd sort of like to speak to. Now, when you look at how do you fill them, what's very interesting is that people always juxtapose the needs for infrastructure with the financing requirements. And that's, you know, the eight trillion dollars which keeps popping up. But no matter what financing needs estimate to come up with, the reality is that the actual investment infrastructure that takes place in Asia, especially in non-China Asia, is very small in relation to the needs. So no matter what the question is, how do you up that share of infrastructure investment? In Indonesia, as Greg said, it's 3% of GDP. He suggests it could be twice as much. I think it should be four times as much. It is way below where it should be. Now, the question is this. Where you have in the world economy today, low interest rates, huge amounts of liquidity, 90 trillion dollars in asset management funds, looking for investments. And you have in Asia, infrastructure investments with rates of return of 4% to 8% in real terms on average, with actual rates of return probably in several projects, much higher than that. The question is, what's happening? Why isn't there this connection between the supply of funds, which are huge, and the demand for funds, which are huge? And I'm going to point to five very important market and policy failures, which get in the way, right? The first and most important market policy failure, as I think a lot of here, as both Sakamoto-san and Greg have hinted to, is the failure of public investment and planning in the bureaucracies of Asia. Now, the role of the public sector is critical. It's critical because about 50% to 80% of all infrastructure investment is undertaken by the public sector. It's by governments. It's government financing, government investment. So unless you have good projects, you have a problem of not being able to crowd in private investment. Unfortunately, there's a lack of capacity, there's corruption problems, there are land acquisition issues, and there's poor planning. And quite often, you find that in infrastructure investments in these countries, the costs are usually 50% or percent or more above the initial costs. So there's always a ramping up of costs, largely because of delays in implementation. So how do you get countries to become more efficient? How do you get bureaucracies to become more efficient in delivering infrastructure? The second challenge is policy uncertainty, again, something that Craig referred to. Infrastructure projects take three to seven years to build, and normally have lives of 10 to 30 years. So you need a stable and attractive rate of return that requires policy stability. But in many of these countries, you have regulatory problems, you have interference in pricing subsidy and tax regimes, and these all add to risks for private investors to participate. Then there's the exchange rate risk. In the previous panel, you heard Manu talk about the uncertainties with respect to exchange rate volatility in Asia in forthcoming years. In coming years, and that's an additional risk as far as foreign investors are concerned. The third is the lack of domestic sources of private finance. Without having adequate amounts of debt finance from domestic capital markets, you're unlikely to find foreign investors coming in to support this financing because you need a certain amount of domestic debt finance to be then counterbalanced with a certain amount of foreign currency denominated debt instruments. Now countries in Asia have tried very hard to develop domestic capital markets. But to be very honest with you, this has been a miserable failure in Asia. It is one element, so it's been a serious problem as to how you develop domestic capital markets. And the history of development banking has unfortunately also been replete with failure. So they haven't really been very good sources of debt finance. The fourth, and I think this is a very important point, the fourth failure has been the lack of international financial institutions ability to develop standardized infrastructure asset classes so that there's a well understood risk profile which can be analyzed and assessed by credit rating agencies so that investor agencies can actually buy these without being too concerned about the underlying risk recognizing that there is a certain risk profile that matches those financial instruments. So it's clear that from these four binding, these are four binding constraints on infrastructure investment, but I want to add one more, a fifth one. And that is that these issues are multiplied several fold when it comes to PPP projects. These are these public private arrangements which Sakamoto San mentioned because this is where the private sector actually enters as an equity partner not just as a debt financing source. And as soon as you throw in PPP into the mix, this requires far greater government capacity than what is required for normal government investment. The reality is that PPP projects need to continue liabilities for government. They have to be managed very carefully, but more important than that. There are these devilishly difficult agreements that have to be negotiated with the private sector partner because the long gestation period is so long and the uncertainties are so great. And it's not it's not an accident that one of the leaders in PPP projects, which is India, is now having serious problems because many of those agreements have been in a sense too tough on the private sector partners. And as a result, those projects have come to a stop. And in fact, there are rising non performing loans now in this in the banking system, which have financed many of these projects. And that's and that's and that's an issue. Now, let's queue in the Asian infrastructure investment bank. So here comes a new bank. The argument for the new bank is is going to provide a substantial amount of this large financing gap, but that's not the issue. Finance is not the issue. It's the implementation capacity. That's that's a challenge, right? And so the AIIB is going to have to figure out that it has to develop the capacity to provide technical assistance just as the World Bank and the ADB have had to struggle with this. And Sakamoto-san has mentioned the role of the Japanese as well, that it has to enter this whole messy process of developing capacity because that's where the binding constraint is. And there's nothing, frankly, that I've seen as far as the AIIB is concerned, that actually talks about this, you know, talk about the environmental and social safeguards, but they don't talk about the technical assistance capacity that they're going to have to develop. And that's going to take time. So in the beginning, I suspect the AIIB will have to piggyback on the World Bank and the ADB, which is fine. But in the end, it's going to have to parallel their efforts and augment their efforts actually going upstream and improving the capacity standards of these countries. So it'll be interesting to see whether they will be able to actually add value to what the ADB and the World Bank are already doing. So thank you very much. Great. Thanks, Vikram. Suzanne, Kelly, Leo, you're up. Thank you. Good morning. Thanks very much to CSIS, particularly to Murray and to Ernie for including me in today's important event and with my very distinguished colleagues. I'm so pleased that Vikram's already made the link between infrastructure and environment because I plan to focus more on that as well as this question of capacity of the AIIB. The pace at which industrial development, excuse me, we have a slide presentation as well, and I just need to make sure that it is up. I was told that it was. Maybe somebody, do you know the slides have come up? I'm going to begin and this slide should be up. The pace at which industrial development is occurring in Asia rivals a Western industrial revolution. The anticipated demographic shifts resulting from continued economic growth in Asia creates strong and urgent demand for energy, food and water. As we've heard today, plans for large-scale infrastructure projects in critical sectors from energy to transportation will provide the foundation for this historical transformation. However, as in all rapid transformative processes, competing interests pose a challenge to maintaining peace and stability. And in Southeast Asia uneven levels of economic development, education and effective governance frameworks add risk for investors as well as to the communities hoping to share in the promise of ASEAN's full economic integration. The so-called food, energy and water nexus animates discourse across sectors, engaging government, the private sector and increasingly civil society. In most countries in Southeast Asia, Lao being the possible exception, the press amplifies these concerns of all stakeholders. And here I just wanted to give you a quick snapshot. Which one is the, I'm sorry, I'm a Mac user. Thank you. This is a little bit difficult to read, but just a snapshot. This is one of, one page of four of local press from the region. This is all local language, publications, covering just infrastructure and environment-related issues. It's not like the old days, the press is on it. They are paying attention. Increasingly decision-making around large-scale development projects from Dauai and Myanmar to the lower Cesson 2 in Cambodia to the region's vast economic land concessions have come under scrutiny, often becoming contested spaces where stakeholders do find little accord. As we know, conflict translates into added cost, both in blood and in treasure. Ossion is changing at a pace that poses legitimate threats to human security, while clearly offering new opportunities for economic growth, some say unprecedented opportunities. These sometimes contradictory forces are manifest in large-scale projects such as hydrodams, land concessions, and new highway corridors. The scope and scale of challenges advancing the region's ambitious infrastructure plans far exceed the capacity of any one single stakeholder. No investor can solve all of those challenges. A cooperative approach that enjoins stakeholders will help ensure successful project implementation while mitigating risk. Multi-stakeholder cooperation should be the center piece of large-scale infrastructure projects in the region. Government, private sector, and civil society can find common ground in order to raise investor confidence and propose projects and decrease potential for conflict to create a more enabling environment. To achieve this objective, concrete steps need to be taken to harmonize key environmental safeguards in the region. For example, a regional environmental impact assessment standard will help level the investment field and increase investor accountability, contributing to improve development outcomes for large-scale infrastructure. Regionalizing social and environmental safeguards would mitigate risk to the environment and reduce potential misunderstandings with the communities in which projects are to be cited. This is really a key issue right now around almost all the large projects in the region. A harmonized approach either using a voluntary protocol or an ASEAN certification process would contribute to creating a normative standard to which each stakeholder group's respective interests are more likely to be represented. Now the ADB's new social and environmental safeguard policy is a good place to start and could provide a blueprint for a regional protocol. A lot of investment has gone into revising that set of policies. And recently leading investors such as the World Bank and ADB have placed greater emphasis on robust stakeholder consultation as part of effective project planning. Elevating those practices to the region's overarching architecture within ASEAN could drive positive change and build needed cooperation among government, civil society and investors. Regularizing and improving on current community engagement so that local voices reach regional platforms in my view offers the best opportunity for more equitable development outcomes. And importantly the mitigation of potential negative social and environmental impacts of infrastructure in particularly around the transboundary projects. Now since we're talking about gaps I'd like to also offer one way that we might fill a gap is to support a high level development investor partners consortium. They could act as a liaison between civil society networks in the region and key institutions such as the ADB, World Bank and China's new AIIB. It could also serve as a brain trust and be called upon to advise the region's evolving energy and infrastructure needs and encourage responsible investment practices for example through the adoption of the equator principles. The proposed sustainable ASEAN trust could also help improve coordination, reduce redundancy and current donor led efforts to address these challenges and advocate for greater regional harmonization at the level of national and regulatory frameworks. For smaller localized civil society organizations, regional and international protocols are often critical in leveraging external support. Here's a very quick snapshot that's impossible to read unless you have extremely good glasses but this is an organizational network analysis looking at all the civil society organizations in the lower Mekong region working on these issues. And as you can see, there are quite a few and the density of cluster which is actually indicated by a red star and I'm not sure if you can see those is the level of connectivity among organizations. So even tiny organizations at the community level are now reaching up international and regional networks. They have influence. They're gaining a voice. And when we take a slightly closer look, we can see that the issues and sectors that civil society organizations have identified as their top priority are very much related to infrastructure development. Hydro power, land rights, livelihoods are all among the top. It may surprise you to learn that among three or 400 CSOs queried as part of a regional assessment, policy barriers were identified as the greatest challenge to enhancing social and environmental safeguards. I argue that a window of opportunity exists for cooperation among stakeholders in the public, the private and CSOs in reforming uneven legal and regulatory frameworks. And I propose that finding common cause in frustration with cumbersome, often opaque regulatory frameworks provides an important window of opportunity for investors and CSOs to find common cause and begin to build trust. Since the launch of its Go Global Investment Overseas Policy in 2001, China's become, as we've heard today, ASEAN's largest trading partner and is a key regional investor, and particularly in terms of large scale infrastructure projects and most especially in the Mekong region. China is no longer just asserting its soft power alone, but increasingly focus on economic power. Capital intensive infrastructure projects need the $50 billion infusion that the launch of the AIIB promises. Now, leaving aside questions of the changing power dynamic in the region, I posit that the US should engage the AIIB but with conditions. And that is to build on the excellent work of the ADB and others on including robust social and environmental safeguards as part of their lending and investment practice. Now, I'm running out of time. What can investors do? What can all of you do right now? A couple of things. This is very hard to read. I apologize. Support for a regional environmental impact assessment standard, I believe, is critical and could really improve outcomes. Encourage the adoption of the equator principles in Asia. There's one Chinese bank in Asia, the China export bank that's adopted the equator principles, no others. But if the AIIB encourage this as part of its lending process, I think we would see a big change. Engage constructively with civil society as development partners and not adversaries. Again, partner with China but do so conditionally. And increase opportunities for robust public consultation. And what does that mean? It means that communities are not consulted after the EIA processes complete but at the beginning when their projects are going to be cited as part of planning. If we do all of this, I think we get a triple bottom line win. And that means that we account for the people, planet and profits to secure livelihoods and lands. And importantly to reduce risk and increase investor return on investment faster. Thank you. Great. Thanks, Suzanne. So we're going to now take questions from the floor. If you raise your hand, I will identify you. And then somebody with a microphone will come and please tell us your name and your affiliation and try to ask a question. I saw I end up there. Josh. Thank you. I'm Shereen Mohamedi with Moody's Investor Services. My question is for Vikram. I'd be interested in what you think the impact of a sustained low oil price environment would be for net commodity exporters in Asia, such as particularly Indonesia, and their efforts to finance infrastructure and growth. Well, as it happens, you know, there's already been some analysis of this with lower oil prices. Indonesia's revenues, government revenues from oil have declined. So even though it had a subsidy reduction domestically and it based its budget for this year on the subsidy reduction, it was in a sense caught by surprise by the sudden decline in oil prices and therefore had a big decline in oil revenues. And that's meant that in order to protect its infrastructure program, which still is pretty small by the amounts that they actually need, but in order to protect their infrastructure program, they're going to have to increase non-oil revenues in the budget, which are basically corporate revenues. And that's essentially what Bhaggita Viriavan was mentioning in his keynote address, that they have to expand the tax base. They have to go, as you said, not hunt in the zoo but hunt in the jungle, I think was a phrase he used. I thought that was very, very interesting. And the worry is that if they hunt in the zoo, especially foreign investors, are extremely worried that they will be called upon to make unacceptable sort of tax payments well beyond what their original sort of agreements were. So it is going to have an impact. I don't think they're necessarily going to make this big 30% increase in non-oil tax revenues. And that means that the infrastructure program is going to be heard. And that's an interesting outcome of lower prices for a country like Indonesia. Vasuki Shastri from Standard Chartered Bank. I just wanted to get the views of the panel on this inherent tension between policymakers in Asia always look upon China as saying the China model of infrastructure development is something they'd like to emulate, of getting things done fast, of really having the ability of finding the financing, finding the projects and getting it done in a defined time table. And the creation of the AIIB where everyone is now seeing this new entity should adhere to World Bank slash ADB type standards. Just wanted to get a sense from the panel, are there any best practices? Are there any projects that you are seeing in Asia outside of China and outside of Korea and Japan that one can actually build on? Are the airport building in India, is that a model in PPP that others could emulate? And how do you square this tension between China's ability of building super world-class infrastructure? But a lot of people criticizing the lack of, the perceived lack of standards. I can take a little bit of that and then let Vikram take over. I mean, I can't speak to engineering and technical expertise, but clearly the social and environmental safeguards and other standards have been set in place. And so it's really up to the AIIB partners to exert some pressure on the bank as part of their participation to insist that these standards be used. I mean, it's true. If you talk quietly with various ministries in Southeast Asia, people will say, well, given a choice, we'd like to go where there's less restrictive lending. And it's very attractive. But the long-term cost is enormous. And I think there's a moment of opportunity right now because Chinese SOEs have been badly burned in Southeast Asia for investing in projects that really went awry. They felt reputational burns both in the media, but also bottom line economic losses due to these things. Myanmar is quite notable in this regard, but also in Cambodia. So there is a moment, I think, where the AIIB will be more open to trying to upgrade some of those standards. So actually, there are two issues. The first is that I get a clear sense from talking to those who are leading the AIIB effort from the Chinese side that they believe that while they want to very much adhere to the standards of the ADB and the World Bank, they don't necessarily believe that the means by which these two institutions adopt those standards is efficient, that it takes much too long. It takes five years for an infrastructure project to be developed because there are all these safeguards or reports that have to be prepared. And they believe there is a quicker way to achieve the same standards. Now, I don't know whether that's going to be right or wrong, but that is their assessment. And it'll be interesting to see. And that's why I think the introduction of the AIIB is a good thing because it actually adds competition to processes. And if you believe competition is good in the private sector, well, why shouldn't it be good in the public sector, especially in the multi-development banking field? So I think it's a good thing. And let's see if they come up with new ideas. The second point is that I think the AIIB is on a different score, going to be in for a bit of a rude shock because Chinese investors in China are used to having extremely capable implementation agencies. But they're going to have to deal now with a much messier situation in Asia, especially in Southeast Asia, but also South Asia. And this is what is going to, I think, be the bigger challenge as far as the AIIB is concerned. And by the way, if you just if you take the airport case, the PPPs of Indian airports, there's a recent report by the Comptroller in order to general of India, which points out enormous problems actually in these airports because it's just the reality of PPP projects and infrastructure that they are complicated. You cannot take into account all the contingencies unless you have a very good mechanism to deal with disputes as they arise. If those disputes fester, the project becomes a failure. I'd just like to footnote what's already been said by referring to this. It's something that KPMG International did in 2009. It's a list of the 10 major impediments for private infrastructure. And I'll read off just a few of them. But again, politizization, I just cannot pronounce that word, of infrastructure project priorities, frequent changes in public policy, lack of appropriate public policy, lack of a sense of urgency, corruption, misuse of funds, and on and on. And what's striking about this list is that nowhere is finance mentioned. So there's AIB was no doubt a diplomatic coup, I guess. But I'm not sure really in the overall scheme of things, especially since ADB's capital base is larger and we're putting in about 2% of what's required, how much of a financial coup it's going to turn out to be, at least, in the short term. I guess what we expect is that AIB will co-finance with ADB and the World Bank in the first few years to get some things started and when they have their own capacity to design and process and implement these projects, they'll strike out on their own. Surely China has a lot more resources where this came from, but AIB has morphed, I think, the past few weeks into something very different than what was planned. First, it looked like it was going to be Asian countries, perhaps a few from the Middle East, lending to other Asian countries. And now that the Europeans, Scandinavians, Eastern Europeans, South Americans, who knows? Well, Australia and New Zealand, it's become something very different than what I think its founders thought it would become. And that's going to mean that they take on a different business model, I think, than what was planned and how this translates into projects, whether they look a lot like those that ADB and World Bank support or whether they look more like the Chinese way of doing things. Thanks to single-party state, I think they were able to get things through the system a little bit faster than some of these other countries where politicization is an issue. But yeah, that's my comment on things, thanks. Rather than directly answering to the question from the floor, I would like to echo what Dr. Nel said. The emergence of AIB created a competition among international banks in terms of process. The recently, ADB decided to combine two different, but two different funds in order to increase significantly their lending capacity, that Craig knows the details of this. And also I heard that the ADB decided to improve their procurement procedures. I think this is good things and I think this is a good side effect of AIB, thank you. Ernie? Ernie Bauer with CSIS. It strikes me that when you're talking about the gap here, that the United States looks, this is sort of a policy question, the United States looks sort of flat-footed and unable to respond to how dynamic the Asia that you're describing is. What recommendations would you have for US policymakers to sort of catch up with the dynamism that you're describing here? I mean, I think we're in a really awkward situation where the United States has said geopolitically, Asia's the most important part of the world. They have quote unquote pivoted to the region that I think Asia felt like that was a little military. Do you see a comprehensive economic policy that includes development and finance and trade anywhere in the different drawers in the US government? How would they pull this together and respond to what you've described? I mean, you've quantified and qualified the need. I'd like to hear the panel's take on that. Well, there's a very easy one for you. Who's gonna start? I like a challenge. I think the rebalance, I mean the point that you just made, the rebalance really has been understood in terms of military rebalance and there's been a real paucity of investment to stand behind that. So the US has, I think, still a very important and dynamic role to play in the region. One of the things we could do is to really look more at ASEAN from the policy perspective. ASEAN has a unique history. It is the key architecture in the region. I don't think the US has played the role it could. I think that if we were to put more resources behind ASEAN to help with some of this regulatory harmonization, in particular, again, to ride on the AAC and the TPP, this is a great moment. And I think under Malaysia's leadership, there may be greater openness to the US having a different relationship with ASEAN than in the past. So that would be my first suggestion. Anybody else? I thought your question was terrific, Ernie. And the reality is that the United States currently, in my view, is playing with a relatively weak deck, right? It's, apart from its fiscal situation and the fact that China has huge resources, growth of trade between Southeast Asia and China is growing at 20% a year and has been for the last 30 years. So increasingly, the countries of Southeast Asia are being drawn into the gravitational orbit of China. And that gives enormous impetus to expanding this trading arrangement into financial areas and we didn't talk about trade and services and so forth. So there's a progression that's taking place in Asia which is going to enter into financial flows, which is going to follow trade flows. And the United States doesn't have that advantage. So that's the first point. So how can the US deal with this deck of cards? Well, it must leverage itself and the way it should leverage itself, in my view, is first of all, be far more proactive as far as IMF governance is concerned. So there isn't this pressure that emerges in the creation of other institutions. But you may or may not know this. There was a global infrastructure financing facility that was created in the World Bank that was in fact torpedoed by the United States and other sort of advanced countries because it would have been largely financed by China and they didn't, they saw that as a backdoor entry of China getting greater say in the World Bank. That kind of unfortunate defensive thinking has led to the creation of the AIB and complicated matters a great deal. So I think a much more supportive participatory approach, it would have been great if they had agreed to join the AIB right from the get go and have much greater influence from the inside than be seen as a petulant observer from the outside. So I think that attitude I think has to change and there should be a willingness to engage a lot more. Just purely personal views. I just would like the US president come to Asia every year. There's a good opportunities for him or her to come to Asia. APEC summit and ASEAN summit in usually October. Any good policies, different policies can be developed only through the dialogue, the real dialogue. And the presence of president or leaders or the nations really, really encouraging for us officials to facilitate the consideration, the preparations, trying to come up with a real outcome through APEC and the dialogue with ASEAN. Thank you. Mike Massetic, PBS Online NewsHour. I know we're talking about Asia but isn't the real issue in terms of the United States that our whole attitude and financing of infrastructure at the moment is really lagging. How can the US be a pusher or an innovator on infrastructure development when the common wisdom is that the gateway to the third world is Kennedy Airport and compare our subway system with any subway system in a major Asian metropolis? We're just way behind on this thing and I don't know if any of you feel like giving advice to the United States but we seem to be having a problem in this area. Is anybody wanna engage? Yeah, don't take me seriously but it was suggested by someone the other day that the US should sign up for AIB to become a borrower to improve its infrastructure with Chinese assistance. No, but I think- That's a joke. But I think there is an important point that is being made here. The problem as I pointed out are that these five big binding constraints to the movement of private capital of which there's a huge amount moving for infrastructure development and that's a challenge not within the United States. That's a challenge because there are problems within the developing countries which need that infrastructure. So that's not a US problem, that's a developing country problem. The only way that capital then can actually move if it's not gonna be the private sector is the public sector and that's where the United States unfortunately has relatively weak instruments because its aid budget is limited. Congress has a clear sort of concern about the amount of actual aid that is going to be transferred or the amount of participation or increase in the capital of both the IMF and the World Bank as well as by the ADB. And so there is a limitation on the amount of fiscal resources that are being applied but that currently is the main channel through which advanced countries can support infrastructure development in developing countries and that's incidentally exactly what the AI be doing. These are fiscal instruments, these are not private sector financial instruments. On a slightly more upbeat note, actually USAID does offer high level technical assistance specifically geared toward infrastructure development in Southeast Asia. It's been working very closely with the government of law. It's trying to work with Myanmar. I think increasing those levels of funding would be a tremendous step in the right direction. It's also interestingly, probably one of the few areas in our own country that both parties could agree on. For sure private sector actors working in infrastructure development in the US would love the opportunity to engage more directly in Asia. So I'd love to see more funding go into USAID projects targeting that way and for the State Department to maybe take a greater role. Can't apologize for the infrastructure here. Having lived in Asia this past year, every time I came back to the US I thought it was a strange reversal of how things used to be. Sorry, the woman in the red blouse, please. Hi, my name is Anna Yucananov, I'm with Reuters. I was wondering, this isn't strictly the topic of the panel, but one thing I find interesting about the AIB is that it's also operating in the broader Asia, not just Asia Pacific but also Middle East and Central Asia. And I was wondering how that, you think that would shape what kind of projects it does and should it influence the other banks? For example, outside of just partnering with the World Bank and ADB, something that should partner with some of the Middle Eastern countries and their investments since they've already invested, you know, Kuwait or Saudi Arabia, thank you. Anybody have views? I worked on regional economic cooperation schemes for a number of years. I was based in Almaty and Bangkok and worked with a bunch of different countries on prioritizing investments and transport energy and what have you. And the Chinese were part of all of these schemes because they're a member in good standing with ADB and a lot of Asia shares a border with China. I wouldn't be surprised to see AIB providing support for infrastructure development with neighboring countries that needs to be done but because, you know, sometimes getting things done through a multilateral institution is easier than doing so bilaterally because things tend to get politicized when it's done bilaterally. I wouldn't be surprised to see AIB take on some projects that are good for everyone in the end but which China has been unable to do on its own. I'm referring to roads, to transmission lines, to pipelines, railways, roadways, ports, airports anything and everything that will improve its connectivity with countries that share its border. What's the end game in this? I'm not quite sure. We've all heard of the Eurasian super continent where you've got high speed railways from Shanghai to Edinburgh and pipelines that crisscross the region and so on. I guess all of this is possible now. You know, not just because of AIB but because Iran has signed up for AIB because Myanmar has opened up because finance isn't the problem really, it's just coming up with bankable projects and maybe this new instrument to get things done will allow us all to see some things happen that we've been unable to do on our own. Please. Arshad, I'm from Peabody Energy and I've worked in the same institution that Wickram has maybe for half the years but I have a very simple perspective now coming out and as you look at what is needed here and you look at the cost of capital in Asia, in many of these countries is much higher than what you would find here and as we know, firms go for a simple equation return versus risk and how do you bring down that risk? Wickram pointed to many of the factors that are political, social, you mentioned as well and the economic side, right? One of the ways you bring down the cost of capital is through creative means of financing this and the way you are able to do this is very important, particularly in project financing where you bring in debt, equity, instruments and other things and whereas the discussion is so far being on governments and what the failures have been to characterize Wickram's five points, more on the government and market failures, a less so in fact on the fact that the international institutions, particularly the World Bank, ADB, IFC, themselves have not actually addressed this, particularly the technical capacity side, not just on the government, which is also important but internally as well and the reason I say this because as you think of AIIB, I think the assumption is that the bank and the IFC have the knowledge, have the technical capability, have the ability and going by the past 30 years one would have the struggle to look at real successes in project financing that the bank, ADB, IFC have done and so why would you suddenly not believe that AIIB, you could teach something to AIIB besides the procurement standards and things like that? So it's a question I ask about internal capacity within the international institutions as you think about AIIB. Wickram? You know my response to that Arshad is that it's not for lack of trying but the World Bank and the ADB and others have found it so difficult to draw in private financing to infrastructure projects. It's just because the nature of the problem is so complex. Now for example, if you have, the big, the two big risks are political risk and policy risk, right? Those are the two big risks. If you have through, cover your political risk through MIGA, the Multi-Lateral Investment Guarantee Agency and you cover your policy risk through government guarantees, you can get over a significant amount of those hurdles. But then when you have government guarantees that introduces a continued liability, the continued liability then has to be factored into fiscal policy and many of these countries already have significant debt burdens so this is a constraint as far as public policy is concerned, it's only when you have enormous public fiscal space that you're able to take on such significant continued liabilities. So there is an engineering dimension, the financial engineering dimension that can be brought to bear on these but I don't think they necessarily get to the nub of the question which is eventually sort of the policy constraints that developing countries face. So question back there. Yes, hi, thanks. I'm David McCauley from WWF and previously colleague of Craig's at Asian Development Bank where I was climate director. So I'm pleased to see the sustainability issues coming out in this panel and Wickram kicked that off by noting the need for low carbon development as a part of this infrastructure investment. I would add to that also the need to cope with the anticipated impacts of climate change and the resiliency associated with the infrastructure. And it's not just limited to the Asian push, we've heard about the need for infrastructure around the world and of course G20 is pushing this within its discussions as well. So I would just put to the panel as a part of this call for technical assistance and a framing of the investment climate. No pun intended. How can we encourage policies and structures to this investment that are going to encourage attention to say renewable energy over fossil fuels or rail versus highways for intracity investment or smart electricity grids and electric vehicles versus those kinds of investments which are really necessary as we move forward in a carbon constrained world. Thanks. Could I just suggest cause we're about five minutes from finishing this panel there's another gentleman on the same table who's had his hand up. Maybe we take two questions and then we'll have our panel answer. Thank you. Thank you. I'm Paul Carrera from the University of Toronto and as with many other things there's very little light between me and Vikram who's a former colleague at the World Bank as well. I'm wondering whether a lot of this debate is premature in the sense that there are great many paradoxes and said well why did AIB get set up? What's wrong with the Asian Development Bank and the World Bank, et cetera? And if we step back a bit and thought about well what are all the paradoxes involved here? We might actually come at this with a somewhat less alarmist frame. The equator principles everybody says great idea the private sector will come in, they'll invest, there'll be standards. But remember the equator principles are principles. You know and you adopt the equator principles cause you don't want your annual meeting picketed. Yes there need to be the sort of rules that the World Bank and the Asian Development Bank have for procurement and safeguards. Yes and that's why the AIB got set up because the clients of the World Bank and the Asian Development Bank to a lesser extent don't like waiting five years for a complicated infrastructure project and dislike the contestability of the inspection panel and then being ripped pieces again as members of the banks that are then protested against. So it strikes me that we ought to in this debate be giving more thought to why is there discontent and is there a 21st century way of delivering this and not looking at China because there have been some spectacular engineering failures in China's infrastructure. That if we stood back for a moment and thought what is the problem we're trying to solve we might do a better job. And I'm suggesting I don't have the answer to that question but I'm suggesting we ought to stand back and rather than blaming the Obama administration or looking at China's need to keep its rapacious construction industry employed or saying there's a lack of capital and nowhere to put it somewhere. We ought to actually step back and say well what is it that these countries need and where are they likely to go and what can we do to make that simpler and faster. And I don't think we've come up with that answer yet even though there's been a great deal of time spent in this room and then think tanks all over the world looking at that. Just to sort of inviting maybe a member of the panel to respond to well what would a simpler answer look like. Thanks. So two questions on the table. Who wants to kick us off? I'd like to start with the second question. I think what you've said is critically important actually and I think the first answer to that is the broader engagement in the discourse. I mean it is not simply the purview of investors of the multilaterals in a closed door room to make decisions about large scale infrastructure that will affect the lives of millions and millions. So part of this really is engaging with other organizations in civil society. These stakeholder consultation processes are not just supposed to be a check the box. It's a very important way in which local people can have a voice in this. And I would say that also gets to the point of sustainability and what types of projects and will they be climate resilient for example. If you ask people in a local community whether they want smart infrastructure once they understand what that is is a microgrid useful for you. Most likely they say yes when they understand how it works versus sometimes a large scale hydrodam for example. So I don't think it's so complicated and insurmountable. I think the real challenge is again with these larger institutions trying to break down these processes that have evolved over time and go about this in a different way which is to bring in more local voices. Anybody else on? Great, Toshi-san, Yona. I would like to answer, respond to the first question about climate and energy matters. I think in order to facilitate low carbon, in order to facilitate the introduction of low carbon infrastructure in particular energy area, policy incentive is really essential. For example, Japan created new crediting mechanism for low carbon infrastructure in particular. Energy infrastructure, power generation facilities. As you may know, UN, United Nations introduced CDM, Clean Court Development Mechanism. It was too bureaucratic, too difficult to use. Therefore, we Japanese government decided to introduce bilateral crediting mechanism rather than multilateral under UN which is called JCM, Joint Crediting Mechanism. This creates incentive for developing countries to introduce low carbon infrastructure and it has been quite successful. Another example is public financial support for highly efficient coal-fired power plant. This is a contentious issue vis-a-vis US administration at this moment but in order to address climate change issues, we believe that it's essential to continue such financial support for highly efficient clean-core power plant. Thank you. The Krimmer. Yeah, let me try and answer the first question which I thought was a great question and I'm gonna give you unfortunately a very narrow economist's answer so I apologize in advance. How do you ensure that you get low carbon infrastructure with really three simple, well not three simple one, but three ways? The first is through regulation. The second way is through having some kind of a carbon price or the third is to apply the shadow price of carbon to projects. The three ways that you can do this, right? The United States has chosen a regulatory approach. Europe and China at least in a pilot project have tried to develop a price of carbon through a sort of carbon exchange mechanism so that's the second means by which you can try and establish a price of carbon and the third is by introducing a carbon tax. You can actually introduce carbon tax but that means that you're gonna have to figure out what the carbon tax is. There is no market mechanism by which you can arrive at a carbon price. So there are all these means that you can do so and lastly of course apply a shadow price for carbon but that's to my mind perhaps the least effective because it doesn't introduce incentives into the system to ensure low carbon footprint. All this is very easy to say from an economist point of view the challenge is always a political economy of these approaches and they've received absolutely no traction in not just in developing countries but also in advanced countries as you well know. I'm not quite sure how to say this except in the past 48 hours I've seen two articles. One referred to Chinese support. The implication was AIB but we'll see. Chinese support for a pipeline from Iran to Pakistan. It's been talked about for years. It's never gotten anywhere. Sanctions and everything else came into play. Meantime Pakistan has a huge energy deficit that it's dealing with and for all the problems in Pakistan today it's hard to imagine that people are gonna make much headway unless the energy situation there is addressed in a more well unless they have more juice and if Iran can provide it and the Chinese will build it how this sort of issue gets played off against the concerns that you're raising David will be a real interesting discussion and I would say that if AIB takes on this project this is a real test for them whether they do it right or wrong whether the US will join AIB someday or say we told you some and we're staying away. The other article and it had to have been wrong referred to a new railway that the Chinese will construct between Tibet and Nepal and I presume to the Gulf one day. Through Mount Everest. They're gonna put this giant tunnel through Mount Everest and I read that and thought no it can't be true and anyway on the one hand there are these good things that could come out of this new dynamic that is taking place and could really transform some of the problems that we've all been contending with for a long time move some things forward. On the other there's a lot of static out there too that's very confusing and sort of lens ammunition to the critics that maybe things aren't as good as they seem and all I can say is that we just have to wait and see. Meantime the argument is really whether you see a glass half full or half empty. Great, thank you. Before I ask you to join me in thanking the speaker I'm just gonna mention that we're going to have pause for lunch. There's gonna be food in the back. Please go and get your food and we'll resume here at 12.45 so half an hour. So please join me in thanking Toshisan, Craig, Vikram and Suzanne, thank you.