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International relations

Thailand plans regional infrastructure fund to reduce China dependence

The venture with Vietnam, Cambodia, Myanmar and Laos will start operation in 2019

BANGKOK -- Thailand is taking the lead in creating a regional fund with its neighbors, Cambodia, Laos, Myanmar and Vietnam, to back infrastructure and other development projects and to lessen reliance on Chinese investment.

Prime Minister Prayuth Chan-ocha is expected to propose the idea to the leaders of the five countries in Thailand on June 16 at the 8th summit of the Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy, or ACMECS. This regional organization was initiated by Thailand in 2003.

The fund will be operational by 2019, Arthayudh Srisamoot, deputy permanent secretary of Thailand's ministry of foreign affairs, told the Nikkei Asian Review. To get the scheme up and running "as soon as possible," Thailand is set to contribute an initial "substantive figure," likely millions of dollars, he said.

Contributions from financial institutions and countries outside the ACMECS framework are also welcome. The fund will also raise money through the stock and bond markets by issuing debt for projects such as in power generation, as initiated by ACMECS.

Although details are yet to be discussed, member countries will take control of the fund by setting up a joint treasury or establishing a management committee among themselves.

The idea of a regional fund has been floated by several multinational groups within Southeast Asia, including the 10-member Association of Southeast Asian Nations, but not much progress has been made due to different interests and the varying development stages that member states are at.

Currently, countries receive external funding mainly through bilateral agreements with parties outside the region or from international financial institutions such as the Asian Development Bank.

While Japan and Western countries have historically been major investors, China is rapidly stepping up its presence especially in infrastructure investment in line with its Belt and Road Initiative. Through a multinational framework between China and the five Mekong countries, Beijing has promised more than 10 billion yuan ($1.5 billion) in concessional loans.

But such dependence comes at heavy costs. In Laos, for example, huge projects such as dams, expressways and railroads are being constructed by Chinese investment in exchange for land concession and development rights.

"Many of the countries in the region, while they welcome investment from certain countries, they want to keep a balance ... not [to rely] on only one country," Arthayudh said.

A regional fund could also help improve coordination among the regional countries. China is funding dam development along the Mekong River in Laos and Cambodia but these projects are threatening the agricultural ecosystem in downstream Vietnam.

"It is better to have some kind of understanding or common strategy within the ACMECS countries before we go out to other countries like China [for assistance]," Arthayudh said.

The proposed fund will be utilized for projects pursued under ACMECS' 2019-2023 master plan that will be adopted during the June 16 summit. The plan primarily focuses on enhancing connectivity among the five countries by upgrading the East-West and North-South economic corridors. Trade and logistics rules will be harmonized and infrastructure improved. The five nations will also work together to develop information technology platforms which could also be financed by the fund.

Professor Prapat Thepchatree at Thammasat University's faculty of political science said that a regional fund is a good way to reduce the rising influence of China in ASEAN.

"The increasing dependence on China is a big issue in ASEAN," he said. "Myanmar, Laos and Cambodia have been relying heavily on investment and trade but that comes with a trade-off of their economic freedom."

But he pointed out that establishing funding sources will be a main issue. "Only a few ASEAN countries are wealthy enough to contribute a sizeable amount such as Singapore," he said. "Even Thailand and Malaysia are not quite there."

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