ADB's struggle with success

The Asian Development Bank was founded four decades ago to help lift Asia out of poverty. At the time, per capita GDP in the region was less than $170; the 31 founding countries sought to create an institution that would help them gain access to scarce capital and speed their development.

Today, average income is six times that level, the region is an engine of the global economy, and the ADB's roster has more than doubled to include 67 countries. Asia's changing profile obliges the ADB to change as well. But as it adapts to new economic realities, it is vital that the institution not lose sight of its core mission -- reducing the number of Asians who continue to live in poverty. The bank must balance the needs of its poorest constituents with those of its more affluent members.

Asia is best characterised by its diversity. It has some of the richest and most dynamic economies in the world -- Japan is one of the world's most affluent nations, while South Korea and the other "tigers" and "dragons" of East and Southeast Asia are setting the pace for economic growth -- and simultaneously is home to some 1.9 billion people living on $2 a day. It produces some of the most advanced technologies in the world, while including some nations whose agricultural sectors have not changed for centuries. Its countries include some of the largest in the world -- India and China -- and some of the smallest (Singapore). While the ADB was formed to help its members acquire capital for development, today the region holds an estimated $3.1 trillion in currency reserves and even provides financing in some developed nations.

That diversity creates entirely new challenges for the bank, as the problems of middle-income countries are very different from those of poor and undeveloped nations. Moreover, the ADB estimates that extreme poverty -- people living on less than $1 a day -- in the region will be eradicated in 15 years. Thus, the bank spent its 40th annual meeting, held earlier this month in Kyoto, debating the appropriate mission and policy mix for the institution.

A panel of experts has devised a plan for a "new ADB" that will shift its focus from poverty reduction to environmentally sustainable growth, regional integration, and technology and knowledge management. In addition, the panel recommended paying more attention to infrastructure development as well as financial sector improvement to better use those growing currency reserves.

While some ABD members and supporters applaud the attempt to adapt to the evolution under way in the region, others are concerned that shifting priorities will unduly harm the millions of Asians who continue to live in dire poverty. With countries like East Timor, Laos, Cambodia and Afghanistan still grappling with the very issues that inspired the creation of the ADB, the prospect of a shift in strategy risks their continuing marginalisation.

ADB officials insist that will not happen. President Haruhiko Kuroda told members that the proposal "does not mean the bank can dilute its devotion to poverty reduction." Key shareholders, such as Japan and the United States, agree. Even reformers acknowledge that widening inequality within the region is dangerous.

As Mr Kuroda pointed out, large income disparities within the region "threaten social cohesion and puts at risk the process of growth itself." While political integration has been slow, the economies of the region are deeply intertwined and one of the most important lessons of the last decade is that problems in one state can quickly spill over into others -- and not only neighbours. All countries ignore the poor and the disadvantaged at their peril.

Of course, reform is not an either-or proposition. Infrastructure development is needed in all Asian countries, even economic powerhouses like Japan and South Korea. By one estimate, Asia needs more than $3 trillion in infrastructure spending over the next decade. Given growing trade and production networks within the region, the regional gain from national investments is hard to miss. Investments in education will always pay off, as will more attention to health care and clean governance. Similarly, emphasis on sustainable development will benefit all ADB member countries; breakneck growth only postpones the day of environmental reckoning and is sure to incur greater costs over time.

Japan has agreed to set up two funds at the ADB to help fight global warming and to facilitate investment in the region. Tokyo will provide $100 million to the bank and two billion yen in loans over the next five years to jumpstart these efforts. The money is useful, but more important is a strategy that ensures that it is put to good use.

The Japan Times
May 22

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