Finding Funds for Asia's Environmental Needs

OF the seven cities with the worst air pollution in the world, five - Beijing, Calcutta, Jakarta, Shenyang, and New Delhi - are in Asia. Levels of dissolved mercury in some Asian rivers greatly exceed recommended levels, while deforestation is wiping away nearly 2 million hectares a year.

With half the worldwide demand for new electrical generating capacity coming from Asia in the next 10 years, new environmental safeguards will be required to meet international standards for greenhouse-gas and acid-rain emissions. Not surprisingly, East Asia is expected to account for a greater increase in carbon dioxide and sulphur dioxide emissions in the 1990s than all other regions in the world combined.

There are hopeful signs, however, that ecological concerns are being accorded a higher policy priority. Both Taiwan and South Korea are pouring billions of dollars into pollution cleanup programs. Green expenditure in China's eighth five-year plan (1991-1995) has increased 50 percent over the previous five-year plan. The Association of Southeast Asian Nations has designated 1995 as the Year of the Environment and has initiated a regional environmental action plan. In a recent survey by the Far Eastern Economic Review, the leading business and news magazine in Asia, 70 percent of readers responded that a better environment would most improve their quality of life.

But despite increasing public concern and governmental attention, there is still a large gap between environmental problems and the financial resources of governments and international donors to resolve them. The World Bank estimates that Asia will need $38 billion a year by 2000, or 2 percent to 3 percent of the region's gross domestic product, to address environmental problems. Where is this money going to come from? Here are three suggestions.

Greater investment

First, improve the investment climate in the public infrastructure sectors, including power, transport, and sanitation. There is a mismatch between the largest markets for power plants and sulphur oxide control equipment and at the same time one of the worst overall climates for such investments. It will require billions of dollars for China to boost its electrical-power generation and purchase pollution-abatement technologies, but it isn't certain if or when the urgent need for green investments will translate into a viable market for environmental products and services.

With plentiful but dirty coal as the dominant energy source in the coming years, environmental problems will likely worsen before they improve. China spends about $3 billion annually on environmental projects, but this is only about half the minimum required to prevent further environmental degradation, according to China's National Environmental Protection Agency. China will receive the necessary level of green investments only if it makes such financial transfers an attractive option to foreign investors.

Financial and technical help

Second, extend loan guarantees and technical assistance for certain environmental investments. Various US government agencies, including the Departments of Commerce, Energy, and the US-Asia Environmental Partnership, should be encouraged to expand their roster of financial assistance programs.

One of the boldest and most innovative programs is the Overseas Private Investment Corporation's 1994 plan to provide $50 million in loan guarantees for the Global Environment Fund, a Washington-based environmental venture capital firm, to invest and expand the commercial opportunities in emerging market economies for US companies engaged in water treatment, air-pollution control, and waste management.

Third, start innovative ecological financial mechanisms such as debt-for-equity environmental agreements. One of the most successful examples of an environmental fund is Poland's Ecofund Foundation, which supports more than 50 projects, including reducing greenhouse-gas emissions, cleaning up the Baltic, and preserving biodiversity. When the Paris Club of Western creditor nations offered to waive half of Poland's debt in 1991 to help the country's economic recovery, Poland asked to insert an eco-clause allowing creditor nations to cancel another 10 percent of the debt owed if the money is used to clean up pollution.

If sustainable development is going to be more than empty rhetoric in Asia, governments and policymakers will have to do more than issue action plans and organize conferences. They will have to come up with the necessary financial and human resources to turn that rhetoric into reality.

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