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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

MONEY IS NO OBJECT

In reviewing mega-projects, make sure essential ones go ahead


BANGKOK TRAFFIC IS INFAMOUS. The jams people get stuck in for hours every day are estimated to swallow 1.7% of GDP in lost productivity and wasted fuel. So why is the government planning to cancel the Bangkok Elevated Road and Train System (BERTS), a $3.2-billion project by Hong Kong's Hopewell Holdings to help alleviate the capital's gridlock? Well, the word is that baht devaluation and Bangkok's property meltdown have all but made nonsense of BERTS's cost and revenue projections.

Perhaps another reason is that all over Southeast Asia, governments are having second thoughts about "mega-projects," which help swell the imports and trade deficits that have bedeviled the region's currencies. Malaysia, too, has announced delays in at least two projects, the building of a new capital in Putrajaya, south of Kuala Lumpur, and the gigantic Bakun dam in Sarawak state on Borneo island. And Indonesia and Malaysia have shelved plans for a $2-billion, 95-km link across the Strait of Malacca.

While supporting moves to trim unnecessary spending, the World Bank has cautioned against scrapping projects crucial to long-term development and prosperity. Asia's breakneck boom has created bottlenecks in its roads, bridges, container ports, air terminals, electrical grids and telephone networks. Plainly, if the region is to return to long-term growth, it has to upgrade its infrastructure. According to the World Bank, Asia needs to spend a total of $2 trillion over the next 10 years, in order to sustain growth, enhance living standards and play its proper role in the world economy.

But where will all that money come from? Thanks to devaluation, construction costs are surging, governments are even more cash-strapped and, as interest rates rise to prop up currencies, the cost of borrowing has leapt. More than ever, Asian countries must tap private investment, local and foreign, to build facilities indispensable for growth. Now funding 10% of public works, corporate investment needs to expand to 30% in the next five years. "Just because the cost of capital is going up, it doesn't mean Asia does not need more ports, bridges and power plants," says Karl-Hermann Baumann, chief financial officer of Germany's Siemens.

At the recent World Bank-IMF conferences in Hong Kong, however, experts agreed that money was not the main problem in Asian infrastructure. As Baumann puts it, "there is no lack of capital, only a lack of bankable projects." And what often deters institutions from lending or investing in infrastructure is not high cost or low revenue, but restrictions, red tape, corruption and other modes of state meddling. They raise the specter that a project will lose money even if its feasibility study has all the right numbers. And cronyism drives away the great majority of investors who lack high-level connections.

Thankfully, there are signs that greater transparency and better financial management are on the way. Indonesia has won praise for telephone deregulation, and the Philippines for power sector liberalization. Rethinking high-profile, low-priority public works will further boost investor confidence in the essential undertakings that do go ahead. "Projects are too often built for prestige, rather than people," says Brian Roussel, head of corporate affairs for Britain's Hyder group. If the Asian miracle is to continue, giving people better lives and economic opportunity has to come first.


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