Q: Mr. Sheng, with your academic hat, what do you think of the suggestion
that Indonesia needs an Indonesian development bank? Is that the kind of
financial development that we need for financing development?
I think it’s a great idea. We’ve now seen the revival of development banks worldwide.
The reason is that the world needs funding for infrastructure. Let me say that I
thought that Indonesia’s Finance Minister, Bapak Bambang Brodjonegoro has given
the clearest, the most realist and pragmatic evaluation of Public-Private Partnerships
(PPP) for infrastructure. The issue is not about money. As he said, the issue is about
land acquisition and the legal aspects, but actually it (the governance issue) is at the
heart of finance, (not the actual funding).
What (then) is the future of Asia’s finance? Asia’s future is bright, but it cannot be
debt driven. It has to be about equity and equity is about long-term, risk-sharing and
ownership. Similarly, PPP is about investment in the future.
What is the present financial model all about? Debt, more debt and printing of money.
(This model) is unsustainable and too short-term, so we need to go back (and
redefine) inclusion (and how we look at inclusive growth). Inclusion is about
ownership. The poor, the different genders, everybody of diversity must have a share
in the future prosperity.
When we have that equity, (that inclusion), it is about capital. Capital is about faith.
(IMF Managing Director Christine Lagarde talks about Four “I”s: Innovation,
Integration, Infrastructure & Inclusiveness and) to add an extra “I” to this brilliant
encapsulation of all this, the last “I” is incentives. If we believe in the future, and we
Asians believe in our future, the future is in our own hands. The IMF can help, the
rest of the world can help, but ultimately we have to decide what shape our future will
be. That means we must have faith and equity is about faith.
When I put my own money in a project, I have to have the faith that I have a stake in
it. That stake is not about (just benefitting) the private sector, in terms of the company
that implements the project. Bapak Bambang said very clearly, what about the
squatters, the people who used to own the land? They must have a stake in its future
also. How do we build this?
The old model is saying, “I lend you money, and if you cannot pay, this is a Greek
problem that you must pay.” However, it is not my fault that I got into trouble, not
completely. If you take away my land for developing this project, of course I benefit
(somewhat) from it, but for centuries my family has lived in this land, so there must be
some stake in this future
In my view, the model for Asia is to develop new institutional structures, where the
development of infrastructures enables not just the government, but also the people
and the project implementers to have a stake in its success. There must be equity,
because when you borrow too much, the project is fragile. What is the biggest
innovation in Asian project finance? It is the sukuk bond. The sukuk is an Islamic
finance bond. The sukuk is not about debt, it is about equity, risk-sharing and if you
actually finance this long-term with people understanding that they have a stake in
the future, everybody wins from this.
Q: How do we make sure that we have the right kind of investors, the right
kind of equity? For long time foreign investors have been thought of as very
important to Asia’s development, bringing in FDI. Is that still one of our
growth models, one of the formulas that we have?
I’m glad that you raised this point about financial deepening. Let’s think about it
logically. If you drill deeper and deeper into the Earth, do you solve the world’s
problems? This is (just about) not deepening, it is (also) widening. Finance needs not
only depth, but breadth – namely, widening inclusion.
What we have done in finance – we are talking about financial deepening – is to drill
many holes into the Earth until (these holes make the) whole system is fragile. What
is inclusion? Inclusion is about widening. It means that it is not I that prospers alone,
but you prosper also. My prosperity is tied up with your prosperity. Inclusion and
integration is about sharing.
If we have confidence in Asia’s future, what does that mean? All the numbers show
that Asia is a surplus saver. The so-called financial deepening was: I take Asia’s
savings, put it in Wall Street and it comes back as foreign direct investment (FDI).
Why should that be the case? Why can’t we have confidence in our own future? Our
savings should go into our next generation, our young, natural resources, new
industries and infrastructure. Hence financial deepening is not the old model of just
drilling deeper and deeper into debt. It is about equity-based, sharing and inclusion.
It is about (putting money into soft) infrastructure, not just the hard infrastructure.
What Asia has is plenty of hard infrastructure and maybe not enough soft
infrastructure such as the legal basis, project management knowledge etc. All these
are what we now recognize as a systemic whole. We cannot think in compartments,
we should not think in partial silos. That is the old theory. What we now realize is that
we all live in a system that is very fragile, that we all in live in glass houses and
throwing stones at each other will break this. It is now time to understand that we all
have a stake in our future and therefore we must work together to get to a brighter
Future of Asian Finance.
This interview was conducted by Channel NewsAsia’s Lin Xueliang and edited by
AGI for web publication.
This interview first appeared in AGI, the University of Hong Kong, 18 September 2015
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