24 July 2015 | Iloilo City—Today marks the second day of the APEC 2015 Workshop on Infrastructure Financing and Capital Market Development, where private and public sector participants will continue exploring financing and capital market development to drive infrastructure investments.
Finance Secretary Cesar V. Purisima said, “We have seen the rapid growth of the region’s capital markets over the past few years, as well as their promising potential to be a driver of infrastructure investments. Further developing capital markets to be a deep and reliable source of funding our connectivity and mobility needs is an exciting task for the region.
I thank both private and public sector participants for their valuable contributions to our work on the infrastructure development and financing pillar of the Cebu Action Plan as we forge a shared path towards our financial future.”
On the first day, the workshop identified concrete and practical initiatives to address hindrances to infrastructure development. While the ADB has estimated Asia’s infrastructure investment needs to be at $8 trillion over 10 years (roughly 4% of the region’s GDP for 10 years), the IMF said today that emerging Asia’s stock of infrastructure is still lower than that of other regions. The IMF reminded participants that higher public investment can boost growth in both advanced economies and emerging markets.
Participants discussed appropriate financial instruments and enabling policy frameworks for pension funds and insurance firms for the expansion of investments in emerging market infrastructure. Global trends in pooling institutional investor capital and public-private partnerships in equity funds were likewise discussed.
Discussions focused on expanding the pipeline of infrastructure projects under the Cebu Action Plan through collaboration between APEC FMP. Initiatives proposed in accelerating the development of the region’s pipeline of infrastructure projects include the PPP Knowledge Portal, the standardization of PPP terms and practices, the development of templates for PPP contracts, and the International Infrastructure Support System that will serve as a tool for the project preparation, collaboration and information sharing for APEC economies.
Mark Johnson, Chair of the Asia-Pacific Infrastructure Partnership, took special note and set the Philippines’ PPP center as a model for the region saying, “It has a track record of success, it is very ambitious. It is a work in progress, but it has a well designed structure. It has emerged as a model in exploring the regional benefits of PPP projects.”
Further, efforts to promote capital market development and integration through collaboration among agencies, international organizations, and the private sector were also emphasized in various sessions. Issues such as depth and liquidity, as well as expanding the role of long-term institutional investors and addressing obstacles to development of repo and derivatives markets were also addressed.
Standard Chartered reported that Asian bond issuances have grown at a CAGR of 14.7% from 2009 to 2014 and that Local Currency (LCY) share of issuances grew from 10% in 2009 to 22% in 2014. Meanwhile, the Credit Guarantee and Investment Facility noted that LCY corporate bond markets in ASEAN 6 grew by over 70% in last 5 years to reach $330 billion at end 2014. Total issuances have also increased, exceeding $110 billion per year.
Contractual saving (pension and life insurance) and asset management sector is likewise growing rapidly, accumulated assets of the sector in ASEAN 6 at $2.4 trillion. According to Standard Chartered, while these figures show significant growth, there remains significant upside potential when compared to the size of their GDPs.
Stephen Schuster of the ADB noted how a specials repo market is a key pre-requisite to increasing liquidity in government bond markets. A specials repo allows dealers to quote firm two-way prices on government bonds, increasing trading, liquidity, and the reliability of the government yield curve.
Today, participants will touch up on topics such as promoting investment through enhanced transparency in Asia-Pacific capital markets and the different issues in financial market infrastructure and cross-border practices to promote intra-regional portfolio investment.
In addition, sessions will address key pain points related to cross-border market practices and standards, harmonization of market practices, and cross-border connectivity among FMIs to promote expanding portfolio investment flows across the region.The Asia Region Funds Passport’s (ARFP) potential in financing of economic growth in the region will be highlighted today. The ARFP is expected to have a very significant impact on intra-regional capital flows, capital market liquidity and efficiency, investor choice and protection, diversification, return on investment, and financial sector development. Thus, ways to support its launch including wider participation of APEC jurisdictions and related issues to facilitate broad market participation will be discussed.
Previously on the first day, Quimei Yang of ICI Global called the ARFP an “exciting and timely initiative” for the region, encouraging competition, lowering costs, and fostering innovation for the benefit of investors to encourage cross-border fund distribution, for so long as they are transparent and well-regulated.This 2-day workshop builds on the existing body of work and firms up the 4th pillar of the Cebu Action Plan: infrastructure development and financing. The CAP, proposed by the Philippines, intends to boost financial integration, fiscal transparency and resiliency, as well as infrastructure development and financing among APEC member economies for more sustainable and inclusive growth trajectories across the region.