The Role of the Institutional Investors in Financing Development in Asia and the Pacific

Hans Genberg

Working Papers from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: The developing world needs the equivalent of USD 1 to 1.5 trillion per year in finance for infrastructure development expenditures to reach the millennium development goals by 2030. Given this challenge, what is the role of institutional investors in financing development in emerging and developing markets in Asia and the Pacific? The short answer is “currently small, but potentially significant”. This paper identifies a number of impediments to the growth of institutional investments in development project as well as corresponding solutions. Impediments include the limited size of capital markets in many developing and emerging economies; the complexity of infrastructure projects; and political risks associated with financing projects where government policies and regulations are particularly important determinants of the return on the investments. Solutions to these impediments require sustained efforts in a number of areas: securing a stable macroeconomic environment; maintaining a strong legal framework supportive of the enforcement of financial contracts; streamlining infrastructure project management making the process more transparent and hence less cumbersome for potential investors; encouraging public private partnerships; and insuring regulatory consistency and transparency as well as the rule of law in dealing with potential disputes related to infrastructure investments. These solutions require sustained and consistent efforts over several years. Jurisdictions that are able to make progress in implementing the needed reforms will reap the benefits of a larger share of institutional investment funds being allocated to their development and infrastructure needs.

Keywords: Institutional Investors; Development Finance; Public Private Partnerships (search for similar items in EconPapers)
JEL-codes: F21 F34 G23 G28 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-04
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