T

he meeting here of the China-backed US$100-billion Asian Infrastructure Investment Bank (AIIB) was an important opportunity for both the multilateral bank itself and Indonesia as its eighth-largest shareholder to cement mutual understanding about each other’s decision- and policy-making processes and mechanisms.

 Since the primary objective of the AIIB is to invest in infrastructure-specific projects and programs to sustain development with social importance and promote stable economic growth among Asian countries, it fits well with Indonesia’s top priority programs in infrastructure development.

But we should be aware that even though the AIIB aims to get rid of financing bottlenecks that are faced by many Asian countries, most studies have shown that the biggest problem facing infrastructure financing in Asia, especially in Indonesia, is not a shortage of funds. It is rather a shortage of viable and bankable projects.

Insofar as Indonesia is concerned, relatively few proposed infrastructure projects have been put through the painstaking process of detailed design, feasibility study and environmental- and social-impact assessments. And of those that have, fewer still can demonstrate a reliable source of revenue out of which loans could be repaid, such as power-purchase agreements for a power station or toll scheme for a highway project.

The AIIB bureaucratic machinery is not expected to be as rigid as those of the World Bank or Asian Development Bank, but the AIIB should still make the proper assessment of all loan proposals in the light of prudent risk management space.The multilateral development bank should also look at the economic viability and the readiness of each project. The speed of its loan approval thus depends on the quality of the project preparations and study.

Hence, the meeting here of AIIB decisionmakers was a good opportunity for them to get firsthand information on the broad perspective of Indonesian macroeconomic issues and infrastructure bottlenecks.

It is good to know that the AIIB has also been cooperating with both the World Bank and ADB, which have built up decades of working experience in Asia and Indonesia, as demonstrated by their cofinancing of Indonesia’s $1.74 billion slum-improvement project to develop urban infrastructure and services in slums in 154 cities in the central and eastern regions of the country.

The AIIB’s approval of $216.6 million loan cofinancing for the slum improvement project as its first infrastructure project in Indonesia also shows the year-old multilateral bank’s understanding of the right kind of infrastructure projects that has the most massive multiplier impacts.

We believe good governance should always be on top of the AIIB agenda, although not at the expense of expedient loan approval for badly needed infrastructure projects, because credibility and reputation will be its most important assets in wooing the participation of private investors or lenders in its project financing.

 We look forward to seeing the AIIB’s role as a catalyst for project financing whereby an infrastructure project that gets its loan approval is seen as a reliable stamp for a bankable and investable project. Only project structures with appropriate risk sharing between public and private stakeholders will attract private investors or lenders.