The Asian Development Bank (ADB) is holding its 42nd annual meeting of board of governors in Bali from Saturday to Tuesday as the US-led global financial crisis is taking its toll on Asia. The Jakarta Post's Aditya Suharmoko talked to ADB managing director general Rajat M. Nag on ADB's contribution and controversy. The following are excerpts of the interview.
Question: What is the urgency for ADB to have a general capital increase (GCI) by three times amid the global financial crisis?
Answer: The biggest challenge in the Asia-Pacific is to fight poverty. And even before the financial crisis, we have estimated that Asia needs about US$53 billion per year to achieve the Millennium Development Goals. Asia has grown very well in terms of economic growth over the last two decades. But it still has a huge number of people ... 900 million people living under $2.5 dollar per day, 600 million are without access to clean water, 1.9 billion without access to education ... Asia is a continent with two faces: One is very nice, a lot of modernization; the other one is not so shiny, with people in very poor condition. ...
One in every five Asians is living under $2.5 dollar per day. We will contribute to fight against poverty. Even with the increase in capital, we can do very little. Although there won't be a significant increase, we expect to increase our lending by $10 billion for two years. We want to be able to provide more resources, or fiscal stimulus. We've created recently trade financing of $1 billion.
So what we will do with the general capital increase? We'll increase our resources to our member countries, including Indonesia, to fight poverty. (And) because of the global financial crisis, economic growth in Asia will be 3 percent lower than last year. Last year, we grew by 6.3 percent. For 2009, we expect it to be 3.4 percent.
Because of the 3 percent decline, 60 million people more will remain poor, 10 million more will be undernourished ... In Asia, the financial crisis is more a social crisis.
Does it mean that by borrowing money from ADB, Indonesia is tied to terms and agreements that it should use the loans to eradicate poverty?
We have what we call a Country Partnership Strategy (CPS). We discuss with the government at the beginning of the year, a three-year cycle. What the country needs, what ADB can do and agree on CPS. The fundamental objective in every country is to fight poverty. So Indonesia borrows money from ADB to fight poverty. But how the government wants to use the money is up to the government to decide.
Obviously we talk to the government about infrastructure financing, trade financing. We're talking about support to small- and medium-sized enterprises and the education sector.
How do you see the protests held by several non-government organizations about the loans from ADB?
My only loyalty is to Indonesia. And yours too. The issue is not whether Indonesia should borrow from ADB. ADB is a partner. Indonesia has done very well in terms of economic growth, but Indonesia still has many challenges.
It still has to deal with poverty and education, build more roads and power lines. How can Indonesia do those? . If Indonesia needs more resources, . you can get it from international capital markets, but you'll get it at a much higher rate and shorter period.
That's where ADB comes in. We can provide loans to Indonesia at a much lower rate. The question is not whether Indonesia should borrow from ADB. But how Indonesia can finance its development. In 2003, the total government debt at percentage of the gross domestic products (GDP) was 56.3 percent. In 2008, that number had come down to 33.2 percent.
Foreign debt at percentage of GDP was 29 percent in 2003, but it was down to 17.3 percent in 2008. So it means Indonesia is doing very well in managing its debts.
So it would be better to go if I don't have any debt. But if I have to spend on my child's education, on my child's health, on some basic housing . , how will the government finance it? As long as it supports the government's development plan, we provide a lot of resources for the government. Our costs are much much less. .
It's all a question of opportunity cost. If I don't invest, that's also an opportunity cost. If I don't build the road, that means there will not be economic growth. If I don't build the school, children will not get education. ...
Approximately, over the last five years, 7 million students have benefited from ADB's support project in education. We have upgraded and constructed 15,000 schools and learning institutions. If you don't have them, it means you're compromising the next generations.
So look at the big picture, then decide what you do best. We have supported the upgrading of 4,600 kilometer of roads in Indonesia . that's the distance of Bali to Bangkok.
People can travel sooner, doctors can go to rural areas, people can take production from farms to other markets, students can go to school. These are all important development objectives. Not just in Indonesia, but everywhere. All over Asia I make the same point to NGOs. If you don't borrow money, I'm happy. You have now what we call graduated. But if you need the resources, where can you get the cheapest? That's ADB.
What do you think of Indonesia's economic growth this year?
Last year it was 6.1 percent. We estimate it will go to 3.6 percent in 2009. And inflation was in double-digits last year; this year we expect it goes to 6.3 percent. We expect a turn-around in 2010. And we estimate Indonesia will have a GDP growth of 5 percent.
So overall, 2009 is going to be worse than 2008, and turn around in 2010 somewhere in the second quarter for Indonesia and indeed in all of developing Asia.
Export demand is going to be a major driver ... We are making a very important recommendation that all of Asia, including Indonesia, should try to think to rebalancing its growth. So that while exports are important, countries should start to think to increase domestic demand, so that you're not as vulnerable to exports as now.
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