Editorial: Capitalizing ADB

The Jakarta Post   |  Tue, 05/05/2009 12:21 PM  |  Opinion

The Asian Development Bank was recently found guilty by a people’s tribunal organized by NGOs, in a verdict one official described as a “very predictable outcome and a typical NGO perspective”.

The people’s tribunal was held as a result of several non-government organizations that were disgruntled at their exclusion from the Asian Development Bank’s 42nd annual shareholders’ meeting in Bali. Here, however, we do not comment on why these NGOs were excluded from the meeting, but on the substance of the “verdict”.

We disagree with the content of this verdict, but take note of its warnings – that ADB loans have caused forced displacement and environmental degradation in recipient countries. In fact, similar statements were also made by experts at seminars organized by ADB and the Indonesian government on the sidelines of the annual meeting.

It should serve as a good reminder for all ADB shareholders, the finance ministers of countries in the Asia Pacific region who are currently meeting in Bali, that other voices need to be heard.

This is especially important given that these shareholders have just agreed to triple the bank’s capital from US$55 billion to US$165 billion, the first capital injection into the bank since 1994 and the biggest ever since its inception in 1966.

We are of the opinion that this injection is a good move, given the current global economic downturn, but accountability in its disbursement and in the selection of projects it will fund must be enhanced, to prevent more of what our friends outside the system have warned us about.

With this capital injection, ADB now has more at its disposal to help member countries in the Asia Pacific region cope with the current crisis, and to maintain the region’s status as the most dynamic region in the world.

The funds will enable the bank to disburse $10 billion in additional funding for this and next year. The bank has planned to use $3 billion of the additional funding for fiscal stimulus, $1 billion for trade financing and $6 billion for programs and infrastructure.

However, $10 billion is not big, considering the needs of its 67 member countries and the evaporation of liquidity in the market. With liquidity drying up in the market, ADB’s loans looks more attractive now. What’s more, the interest charged by ADB is still below international market levels.

Therefore, ADB should find a mechanism to help countries in need to tap liquidity from the market at attractive rates.

This support mechanism would give ADB more room to play. It could prioritize the channeling of its additional funding to those who really need it, i.e. the poorest countries in the Asia Pacific.

Meanwhile, for middle-income countries, ADB could provide some guarantee for these countries to raise money from the market.

In this way, ADB would not disappoint either poor or middle-income countries that are also competing for financing, and thus ADB’s financing would not exacerbate inequality.

Combining better selection, implementation and monitoring of projects, ADB could also reduce the potential of its loans to harm the peoples and environments of recipient countries, as pointed out by our NGO friends.

We believe ADB and its shareholders are all aware of all these issues. The most important thing now is to translate this awareness and understanding into definition and implementation. Only then, will the latest capital injection into ADB be meaningful for its stakeholders.

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