Volume 22 Issue 5, May 2018
 
 

 

In the Asian Development Bank (ADB), the long-term framework “Strategy 2020” was formulated in 2008 and it focuses on the reduction of poverty and improvement in the quality of living conditions. Can you explain the role of the ADB?
The ADB is an international financial institution established in 1966 by Asian and Pacific countries, as well as countries from the Americas and Europe under the leadership of Japan and the US. Out of 67 member countries, 19, including the US, come from outside Asia.

Within Asia, we have both developing and advanced economy member countries with the latter including Japan, Australia, and New Zealand. Initially, the ADB focused mainly on loans for infrastructure to support development and growth in the region. From the 1990s, the more emphasis shifted to poverty alleviation.

Measures to reduce the number of people suffering from extreme poverty (living on an income of US$1.25 a day or less) is a key element of our mission and we have seen the number of people in this poverty bracket falling sharply over the decades. Now, about 700 million people out of 3.5 billion in Asia and the Pacific live on an income of US$1.25 or less a day. We also provide support in such areas as health, education, protection of the vulnerable and capacity building, as a part of our wider efforts aimed at poverty reduction.

At the same time, of course, assistance for infrastructure development including electricity, roads, railways, and ports, remains important. You may think infrastructure development is merely to support economic development rather than to reduce poverty. However, as we can see from the experiences of Japan and other developed countries in Asia and elsewhere, the rollout of power networks, quality roads and ports, etc., provides a foundation for growth that gradually brings affluence to citizens, and is effective for reducing poverty.

In addition, without quality roads and reliable electricity supplies, it is not easy to receive education and visit hospitals, or to seek new opportunities for better livelihood.

This is especially the case for women in remote communities who want to travel into towns to access social services and to seek income earning opportunities. Promoting women’s advancement is another important part of our mission.

In our region, many countries are transitioning from low income to middle-income status and they must address new challenges, including tackling aging populations, improving the quality of education and infrastructure, creating user-friendly and environmentally sustainable urban centres. Many of these countries can now tap their own funding for infrastructure development, but are in need of specialist knowledge and know-how.

Without technological know-how, they might be better off tapping US dollar financing and knowledge support for infrastructure development from the ADB rather than raising finance alone. The kind of services the ADB can provide to middle-income countries in the future is one of the main issues we face. After I was appointed President, we examined our development strategy for both existing issues and future challenges and the findings were summarized in our Strategy 2020 Midterm Review released in 2017.

What about technical assistance?
Technical assistance has been an important part of the ADB’s operations for low and middle-income countries since we began, and it covers many sectors and themes such as infrastructure project preparation, education, health, fiscal administration and environmental protection. Years ago when Japan was constructing expressways, the World Bank provided loans to Japan as well as valuable know-how regarding the design of expressway turns. In the same fashion, our technical assistance is also included in the implementation of projects.

How does the ADB finance its operations?
Our assistance comes from ordinary capital resources (OCR) and special funds. For OCR, finance is raised by issuing debt securities with the monies loaned at interest rates where the spread, which is a cost, is added. Currently, the approved annual limit for OCR lending is about US$10 billion. Our special or concessional lending rate funds provide finance at low interest rates and for the long term. The new approved total of these funds is about US$3 billion. They include contributions from Japan and elsewhere. While these might seem substantial amounts, estimates put the financing needs for infrastructure development, alone, in Asia at about US$800 billion a year.

To meet these huge requirements, government funds from each country, as well as domestic and foreign private funds should play a large role. In the case of the ADB, we are constantly seeking to mobilize co-financing support for our operations. At the same time, the financing role we play in supporting development in Asia will become relatively weaker over time if our resources remain the same as in the past. How we will boost our financing ability in the future is one of the issues we will need to address.

Given the need for more funds for infrastructure development, the People’s Republic of China (PRC) has established the Asia Infrastructure Investment Bank (AIIB). What are your thoughts on this?
There is a large demand for infrastructure in Asia and the ADB’s financing levels are not enough to meet these enormous needs.

The PRC has a large amount of foreign currency reserves and we believe they would like to play a greater role in this area. The PRC authorities have repeatedly stated that AIIB will not be a rival of the ADB but a bank that supplements our functions. This is understandable. At the same time, as a member of the ADB, I hope that the PRC will continue to support us. It has to be stated that in the areas of procurement, and environmental and social safeguards, the ADB sets high standards in its projects, and new banks also need to place importance on these matters. The Export-Import Bank of China and the China Development Bank already provide financing on a large scale to developing countries, and they have been asked internationally to set stricter environmental and social safeguard standards for their investment projects.

If these two international financial institutions eventually stand side by side, what advantages can the ADB emphasize?
First of all, the ADB has the ability to find good projects to fund given its long and fruitful relationship with the region, and close working relationships with member countries. In addition, the ADB has a triple-A rating from international credit rating organisations that allow us to acquire loan finance at relatively low interest rates. It means we can extend loans with reasonable interest rates even after adding a spread to cover our cost of funds. The ADB also has extensive know-how and experience which it can provide along with finance, to give extra value to our loans.

 
 

 
 
 
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