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Infrastructure for a Seamless Asia Tokyo: Asian Development Bank Institute, 2009 for a SEAMLESSINFRASTRUCTURE ASIA A Joint Study of the Asian Development Bank and the Asian Development Bank Institute i eco ec S © 2009 Asian Development Bank and Asian Development Bank Institute ISBN: 978-4-89974-028-5 Infrastructure for a Seamless Asia Tokyo: Asian Development Bank Institute, 2009. 1. Regional infrastructure 2. Regional cooperation 3. Economic development 4. Asia I. Asian Development Bank and Asian Development Bank Institute. The views expressed in this book are those of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADB and ADBI do not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Use of the term “country” does not imply any judgment by the authors, ADB, or ADBI as to the legal or other status of any territorial entity. The symbol “$” represents the United States dollar unless otherwise indicated. ADB and ADBI encourage printing and copying information exclusively for personal and noncommercial use with proper acknowledgement of ADB and ADBI. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB and ADBI. Asian Development Bank 6 ADB Avenue Mandaluyong, 1550 Metro Manila Philippines Tel: +632 632 4444 [email protected] www.adb.org Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008 Japan Tel: +813 3593 5500 [email protected] www.adbi.org ii Foreword sia is huge and has vast natural and human resources. It is the largest region in the world in population and size, being home to more than half of the world’s people, and occupying more than a quarter of the world’s land area. Over the last decade, Asian economies have grown Arapidly and have become increasingly connected, to each other and to the rest of the world, through greater integration. The competitiveness of Asia’s trade—and of its increasingly sophisticated production networks in particular—depends on efficient, fast, reliable, and seamless infrastructure connections. Vast parts of Asia—inland and remote areas, landlocked countries, and distant islands—are isolated economically as well as geographically; so much of the region’s huge potential remains untapped. While some of the existing infrastructure in the region is world class, most of it is below average. Rapid economic growth in recent years has put enormous pressure on Asia’s infrastructure, particularly in transport and energy, but also in communications. Unless it can be significantly improved, infrastructure will continue to be a bottleneck to growth, a threat to competitiveness, and an obstacle to poverty reduction. Better connectivity with inland areas, for instance, would boost trade and economic growth in coastal areas, as well as inland ones. These issues present an opportunity for the region to take collective action to further enhance regional cooperation, particularly in environmentally sustainable and greener infrastructure development. The challenge is to build better and seamless connections across Asia and thus to the rest of the world. In view of the region’s diversity, wherein countries differ in size, income levels, population, natural resources, and access to both regional and global markets, connectivity is being enhanced through several subregional infrastructure programs begun in the last few iii decades. Now is the time to move even further toward a vision of a seamless Asia by building pan-Asian connectivity. The current global financial and economic crisis may have major repercussions on Asian economies. Following the 1997–1998 Asian crisis, countries with significant investment in infrastructure recovered faster than others. If the current crisis is prolonged, demand from advanced economies for Asian exports will decelerate in a marked fashion, thus slowing down Asia’s production. To mitigate the medium- term consequences of the ongoing crisis, Asia will need to put greater emphasis on increasing regional demand. This will have strong implications for regional infrastructure, which will need to be geared more toward supporting Asian production networks and regional supply chains for intraregional trade to meet the rising regional demand. Amid weak global demand, Asian economies need to rely more on regional demand to sustain growth. Several Asian countries have been making efforts to stimulate domestic demand, and to alleviate the further impact of the spiraling crisis, by setting aside resources for infrastructure investment under their stimulus packages. At this stage, enhanced regional cooperation has the potential to be an important platform that could complement these country-level efforts. By working together, countries in Asia can unlock their vast economic potential; achieve sustained, rapid, and inclusive growth; and reduce poverty. The need for regional collective action in developing Asia-wide physical connectivity is becoming increasingly important, particularly in this time of global financial and economic crisis. This study looks at regional infrastructure in Asia up to 2020 by presenting the major issues and challenges in developing regional infrastructure through the fostering of regional cooperation. It evaluates the existing infrastructure programs, policies, and institutions, and makes recommendations on how to develop and increase their effectiveness. It looks at broad, pan-Asian initiatives, as well as sector- specific subregional efforts, particularly in transport and energy. It discusses both hard infrastructure (i.e., the long-term physical structures, equipment, and facilities [including maintenance], and the economic services they provide) and soft infrastructure (i.e., the policy, iv regulatory, and institutional frameworks that support the development and operation of physical infrastructure). Quite obviously, the book will serve as a definitive knowledge product for researchers, policymakers, business leaders, and other stakeholders in the region and beyond. This study, led by the Asian Development Bank Institute (ADBI), is a joint flagship project conducted by the Asian Development Bank (ADB) and ADBI. Many individuals contributed to the study. I greatly appreciate the efforts of the excellent team of authors, advisers, reviewers, editors, and researchers, from both outside and within ADB and ADBI. ADBI Dean Masahiro Kawai and ADB Managing Director General Rajat M. Nag provided overall guidance. The task manager, Biswa Nath Bhattacharyay, Special Advisor to the Dean, ADBI, coordinated, managed, and finalized the study. Connecting the diversity of Asia through seamless infrastructure will help in sustaining an integrated, poverty-free, prosperous, and peaceful Asia. This will require exemplary and visionary leadership as well as firm and unflinching commitment, which I am confident Asia is eminently capable of providing. Haruhiko Kuroda President Asian Development Bank v Acknowledgements he study benefited from 26 background papers prepared and reviewed by distinguished scholars. Five workshops were held in Bangkok, Beijing, New Delhi, and Tokyo in 2008 to exchange views on background papers and draft chapters of the book. This ADB and ADBI joint study Twas led by ADBI and conducted in collaboration with ADB under the overall guidance of Masahiro Kawai (Dean, ADBI) and Rajat M. Nag (Managing Director General, ADB). Biswa Nath Bhattacharyay (Special Advisor to the Dean, ADBI) served as the task manager and coordinated, managed, and finalized the study. In addition, he played a leading and pivotal role in preparing the final book, as well as drafting Chapter 1 (Infrastructure Needs and Regional Cooperation), Chapter 4 (Developing Effective Policies and Institutions), and Chapter 6 (Toward a Seamless Asia). Chapter 2 (Supporting Regional Trade and Investment) was drafted by ADB’s Douglas Brooks, and Chapter 3 (Harnessing the Benefits of Regional Infrastructure) by ADBI’s Susan Stone. Vito Tanzi drafted an earlier version of Chapter 4, and Centennial Group’s Harinder Kohli drafted Chapter 5 (Financing Regional Infrastructure). Philippe Legrain drafted the executive summary and served as the economics editor. Many individuals from ADBI’s and ADB’s management and staff contributed to the book. The study was conducted under the guidance of a steering committee chaired by Messrs. Kawai and Nag and comprising Philip Erquiaga, Klaus Gerhaeusser, Jeremy H. Hovland, Jong-Wha Lee, Juan Miranda, Sultan Rahman, Kazu Sakai, Kunio Senga, Arjun Thapan, and Xianbin Yao. A working group—comprising Ashok Bhargava, Ronnie Butiong, A. Barend Frielink, Robert Guild, David Kruger, Jayant Menon, Kala Mulqueeny, Soo Nam Oh, Graham Settle, Ajay Sagar, Diwesh Sharan, Anil Terway, and Jo Yamagata— reviewed background papers and draft chapters, and provided detailed vi comments. Mario Lamberte and Rita Nangia also provided useful comments on the book. An external advisory board reviewed draft chapters and provided very useful comments. The board consisted of the following members: Isher Judge Ahluwalia (Indian Council for Research on International Economic Relations), Mahani Zainal Abidin (Institute of Strategic and International Studies Malaysia), Masahisa Fujita (Research Institute of Economy Trade and Industry, Japan), Mark Johnson (Asia-Pacific Economic Cooperation Business Advisory
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