Over the weekend the ASEAN finance ministers formally established the ASEAN infrastructure fund (AIF). It eventually will have total funding of US$ 13 billion, with the initial funding of almost US$ 500 million coming from the following sources: Malaysia US$ 150 million, Asian Development Bank (ADB) US$ 150 million, Indonesia US$ 120 million, Singapore US$ 15 million and the Philippines US$ 15 million. Thailand will contribute after going through domestic law approval procedures.
ASEAN members have committed to lend $4 billion through the AIF until 2020, while the ADB will finance roughly $9 billion. The stated aim is to fund six infrastructure projects each year, to be selected based on their economic and financial rates of return and potential impact on poverty reduction. The AIF will also issue bonds which can be purchased by ASEAN central banks.
The AIF will help channel and support infrastructure projects in ASEAN, which the AEC needs. Yet development in ASEAN physical infrastructure was not accompanied by development in ASEAN’s institutional infrastructure in this case.
First and most obvious, if ASEAN members can come up with more than US$ 300 million for the AIF, with billions more to come, why can’t they come up with additional funding for the ASEAN Secretariat? Even a small portion of this amount would greatly expand the capabilities of the ASEAN Secretariat to monitor and implement the AEC.
Second, the AIF was incorporated as a limited liability company in Malaysia rather than as a new regional institution. Although establishment of an ASEAN-level entity would have been preferable, it was more expedient to incorporate the entity in an ASEAN member rather than undergo the lengthy process of ratifying an ASEAN-level agreement among all of the members. Furthermore, the choice of Malaysia is also judicious, as project financing is usually done under English law and with arbitration clauses, both of which Malaysia has abundant experience with, as a common law country. Finally, by incorporating in an ASEAN member state, the AIF will qualify for the protections of the ASEAN Comprehensive Investment Agreement.
Finally, the ADB will administer the AIF, rather than the ASEAN Secretariat or a new ASEAN-level body. Again, although it may have been preferable for institution-building to have an ASEAN institution administer the AIF, the ADB has decades of experience in administering infrastructure projects. It was simply more expedient to have the ADB administer the AIF.
The creation of the AIF once again demonstrates ASEAN’s resourcefulness in dealing with legal and institutional vacuums. Motivated by expediency, ASEAN used Malaysia to provide the law and the ADB to provide the institution. To do otherwise would have risked great delays which the AEC cannot afford.
Nevertheless, I hope that ASEAN leaders also invest in the “soft” institutional infrastructure of the AEC, not just the “hard” physical infrastructure. This will require changing the funding amounts and formula for the ASEAN Secretariat as well as developing regional institutions that can handle the regional needs of ASEAN.