Connecting East Asia: A New Framework for Infrastructure

1. Connecting East Asia:A New Framework for Infrastructure Tokyo Launch March 16, 2005

2. What we’ll cover • The Infrastructure Challenge • With a focus on the funding story • The New Framework • Inclusive development • Coordination • Accountability and risk management • The Way Forward • 12 key policy messages

3. The Infrastructure ChallengeFive stories • Economic • Spatial and demographic • Environmental • Political • Funding • The focus of today’s presentation

4. East Asia to require more than US$200 billion per annum for infrastructure

5. Who pays for infrastructure?

6. Attitudes towards infrastructure investment levels The private sector bubble has burst… … but sentiment is positive Investment in Projects with Private Participation

7. Many governments face budget constraints, post-stabilization… The case of Indonesia: Total nominal infrastructure expenditure Central government development spending

8. Role of official financing varies by country

9. Coordination Inclusive Development Accountability and Risk Management Chapter 2: Inclusive Development

10. The impact of infrastructure on poverty Three dimensions of poverty • Income and equality dimension • Substantial decline in income poverty • Quality of life • Progress on MDGs • Capabilities and Participation

11. How does infrastructure promote inclusive development?

12. But the impacts of infrastructure vary… by kind of infrastructure depending on other policies depending on the nature of poverty … and balances must be struck between growth inducing and poverty reducing infrastructure between poor and non-poor

13. Inclusive development on the national scale Inclusive development on the regional scale • Infrastructure and regional integration • Regional coordination – the case of Laos • Infrastructure and logistics • The case of Vietnam • Large scale – Hanoi-Hai Phong corridor • Small scale

14. Coordination Inclusive Development Accountability and Risk Management Chapter 3: Coordination

15. Chapter 3: Coordination The “big picture”: The state’s ability to generate strategic vision and turn that vision into reality

16. The “flying geese” theory of infrastructure • The advanced economy model of coordination: • The “high-flying” geese – Japan, Hong Kong (China), Taiwan (China), Singapore, South Korea, Malaysia • Senior policy makers, politicians and strategic vision • Infrastructure driven by strong planning agencies • High growth helped maintain policy consensus • Investment anticipated demand; when following demand, responses were rapid and strategic • Much of the inner-workings hidden from public view • But under increasing stress from the 1980s

17. Coordination challenges for the “geese trying to catch up” • 1. Getting the infrastructure expenditure allocation right • Coordinating investment and financing functions • Coordinating fiscal space • 2. Coordination through decentralized agencies • Horizontal coordination: Managing spillovers, Excessive fragmentation, and “DestructiveCompetition” • Vertical coordination • Developing the missing middle • 3. The special challenge of urban management

18. State of play in four East Asian developing countries • The Philippines • Long term vision undermined in a fluid and fragmented political system • Indonesia • An incomplete progression from autocratic technocracy to greater participation and decentralization

19. State of play in four East Asian developing countries • China • Decentralization + centralized strategic planning and long term vision • Thailand • Shifts in relative power in the definition of strategic direction, but direction nonetheless

20. Coordination Inclusive Development Accountability and Risk Management Chapter 4: Accountability and Risk Management

21. Chapter 4: Accountability and Risk Management …and how they’re related Accountability • a set of institutional tools which reward organizations that consistently perform well for their stakeholders (and penalize those that perform badly) Risk Management • a set of institutional tools which endeavor to make risks and rewards commensurate with each other, in order to drive good performance

22. When accountability and risk management fail: • Poor performance • Financial crisis • Corruption

23. Mechanisms to strengthen accountability • Community participation • From project selection to ongoing operations • But likely to be limited to the last mile • Competition • Most effective way of bringing accountability • But East Asia not in the forefront, for a number of reasons • Regulation • The problem of holding regulators accountable • Independence is evolutionary

24. Managing fiscal support • Subsidies • Important for a number of reasons • But blur accountability and bring risk • Accountability is a challenge • Contingent liabilities • Who bears risk is not always easy to tell

25. Does ownership matter for accountability? • A poorly-regulated private monopoly performs as badly as a poorly-regulated public monopoly • But the private sector responds better than the public sector to good regulation or competition

26. The Way Forward • Study provides a way of thinking about infrastructure issues in different situations • Not a blueprint or toolkit • Policy messages reflect concerns raised during our consultations • To promote the role of infrastructure in underpinning growth and poverty reduction

27. Messages on Coordination • The center matters – infrastructure demands strong planning and coordination functions • Decentralization is important – but raises host of coordination challenges • Fiscal space for infrastructure is critical

28. Messages on Accountability and Risk Management • Subsidy is not a dirty word – subsidies can be important, but are always risky, and should be handled with care • Competition is hard to achieve in infrastructure – but it’s the best way to bring accountability • Regulatory independence matters more in the long run than the short run

29. Messages on Accountability and Risk Management (2) • Civil society has a key role to play in ensuring accountability in service provision • Infrastructure has to clean up its act – addressing corruption is a priority

30. Funding Messages • The private sector will come back – if the right policies are in place • Public sector reform matters – but be realistic

31. Funding Messages (2) 11. Local capital markets matter – but are not a panacea 12. Infrastructure needs reliable and responsive development partners