by Chris Adams*
Images of Seattle and Washington must have weighed heavily on ADB officials as they prepared for the 33rd AGM in Chiang Mai. Multilateral institutions such as the WB, WTO and the IMF have attracted unprecedented criticism in the wake of the financial crises in East Asia and the failed reforms imposed by these US dominated institutions. This crystallised in popular protests at the WTO meeting in Seattle and the WB/IMF Spring meetings in Washington. The ADB, which shares many of the ideological biases, flawed policies and failed approaches of its sister institutions was no doubt on the defensive, particularly given its precarious financial position. At the same time, influential critics in the US were calling for a reduction in the scope and influence of the IMF and the WB and proposing instead an expanded role for the regional development banks. Could the ADB turn a crisis into an opportunity?
The ADB went on the offensive in Chiang Mai. It used the AGM to aggressively push for an expanded role and lending portfolio in the Asia Pacific. In particular, it asked for an increase in its subscribed capital, the replenishment of the Asian Development Fund (ADF), a doubling of its lending portfolio and a key role in the proposed regional currency swap arrangements.
The Bank’s sales pitch centred on its overarching objective of reducing poverty in the region and its recently released Poverty Reduction Strategy, which the Bank claims will eradicate poverty in the region by 2025.
Despite strong support from Japan (including a 10 billion yen sweetener for a new ADB poverty fund) as well as from some borrower countries, the ADB did not get its own way. For many donors, the focus on poverty was nothing more then old wine in a new bottle. The US and other European donors either opposed the proposals outright or tied their support to significant internal reform. The US in particular is wary of any initiative that could strengthen a Japanese dominated ADB at the expense of a US dominated WB and IMF. The US is also resisting attempts to establish a Japanese dominated East Asia trade, investment and currency bloc that could challenge US trade supremacy and corporate interests in the region.
Nor did the ADB escape criticism from within the region. Countries that are closely integrated with the US economy or that experienced Japanese colonialism or war-time occupation are wary of an expanded role for a Japanese dominated institution, particularly one with a reputation for promoting the interests of Japanese bankers and corporations ahead of the interests of developing countries. Seen in this light, the US and European donors act as a critical counterweight to Japan. This has put a brake on moves to restructure the ADB as an institution governed and funded solely from within the region.
Many countries are calling for a reduction in Japan’s influence in the Bank through a redistribution of voting rights (Japan and the US, as the two largest subscribers to the ADB’s capital base, have the most voting power on the ADB Board), an end to the Japanese monopoly on Presidential appointments, an increase in support from countries such as Taiwan, Singapore and South Korea and reductions in tied aid (Japan is the largest donor to the ADF and the Technical Assistance Special Fund as well as being the sole donor to the Japan Special Fund and the recently announced Poverty Fund).
On the streets, Thai protestors demanded that the ADB cease new lending and withdraw its support from several existing projects and sectoral reform programs in Thailand. President Chino’s refusal to meet with the protestors from Thai peoples’ movements and images of senior Bank staff “engaging” with civil society over the barricades outside the ADB convention centre whilst surrounded by 3,000 police and military personnel, many in full riot gear, do not inspire confidence in the Bank’s renewed commitment to participatory processes.
The Thai protestors, together with activist’s from other parts of the region and from donor countries, highlighted the Bank’s doctrinaire emphasis on deregulation, liberalisation and privatisation, the increasing conditionality attached to Bank loans and the Bank’s contribution to debt and the impact of debt servicing, particularly on social sector spending. They challenged the legitimacy of the Bank’s intervention in national macro-economic and social policy formulation and criticised its continued emphasis on large-scale resource exploitation and infrastructure development.
Japanese critics of the Bank were even more forthright. Kazuo Sumi, Professor of International Law at Niigata National University, called on the current President, Tadao Chino, to resign. According to Professor Sumi, Chino, a former Vice Minister in the Ministry of Finance and a former Chairman of Nomura Research Institute, a Japanese securities firm, represents Japanese financial interests and “was not a fit person to head a regional institution committed to reducing poverty”. He argued that Japan had fallen into line with the IMF and the WB and now supported the taxpayer-funded expansion of the ADB primarily to protect the interests of Japanese bankers and investors. He believes that the Japanese government will soon be called to account by Japanese taxpayers and that Japanese corporations will face increasing hostility in the region, potentially similar in scale to the anti-Japanese protests in Indonesia and Thailand in the mid 1970’s. Further, the impact of the crisis and the process of democratisation across Southeast Asia will result in increasing resistance from civil society to the ADB’s modus operandi and a resurgence in economic nationalism. He called on the Bank to undertake a promised “spring cleaning” of its loan portfolio and to remove corrupt Bank staff who were closely linked to Japanese consultancy and infrastructure firms.
In the face of such criticism, why is the Bank, with the support of Japan and larger borrowers such as China and India, so intent on pushing for an increase in its subscribed capital? The Bank’s controversial participation in emergency lending to crisis affected countries in 1997/98, particularly the bail-out of Korea, has significantly weakened the Bank’s financial position. A large capital increase would restore the Bank’s key financial indicators, including securing the Bank’s AAA rating in the international bond market. It would allow the Bank to maintain charges and interest rates at current levels and to double its non-concessionary lending. It would also bring the size of the Bank into line with its larger sister organisation, the Inter-American Development Bank.
Donor countries have taken a different tack however. They have successfully pushed the Bank to increase charges and interest rates on existing lending which shifts the burden of refinancing from donor to borrower countries. Donors are also pushing for an early repayment of existing emergency loans to crisis-affected countries as an alternative to an increase in the Bank’s capital resources, a move resisted by countries such as Korea. Edwin Truman, the US Assistant Treasury Secretary for International Affairs, said that the US saw no reason for a capital increase and opposed the proposed review of the Bank’s capital resources. Other donors are linking any capital increase to significant reforms including an end to the appointment of staff based on country quotas rather then competency, a stronger focus on policy and strategy by the Board, improved communication between the Board and the management of the Bank, further decentralisation of Bank operations and improved collaboration with other multilateral institutions, particularly through the ADB’s adoption of the World Bank’s Comprehensive Development Framework and participation in the WB/IMF PRSP process.
Negotiations for the seventh replenishment of the ADF to cover the period 2001 to 2004 have met a similar fate. The Bank has asked for $3.6 billion from donor countries. This has strong support from borrower countries that are concerned about the continuing decline in ODA as well as the ADB’s increasing emphasis on non- concessionary lending, commercial cofinancing and structural adjustment lending at the expense of concessionary lending to the region’s poorest countries. India and China, which have not been able to access ADF funds in the past despite the high level of absolute poverty in each country, have thrown their weight behind the replenishment, provided they get access to ADF VIII. However, many donors have been highly critical of the ADF operations and are linking the replenishment to critical reforms, particularly a stronger focus on poverty reduction, improved monitoring and evaluation, the introduction of performance based criteria for new lending and enhanced coordination with other donors.
Tensions between Japan and other countries in the region and with the US and Europe also surfaced during the negotiations for a regional currency swap arrangement. This arrangement was heavily promoted by Japan and championed by the former Vice Finance Minister of Japan, Eisuke Sakakibara, popularly known as “Mr. Yen” because of his influence on financial markets.
Once again, the ADB did not gets it own way. Although supported by the larger countries in the region, many are wary of an ADB dominated currency swap arrangement, preferring instead an independent management framework in which one of the country’s central banks takes responsibility for handling each swap arrangement. South Asian and Pacific countries are conspicuous in their absence and the smaller Southeast Asian nations such as Laos and Cambodia will require substantial technical and financial assistance if they are to benefit from such a scheme.
In summary, if the ADB is to take on an expanded role in the region then it will need to pay a hefty price. The rhetoric of poverty reduction and the call for Bank staff “to think poverty at all times” have failed to convince both donor countries and civil society actors alike. Whether the Bank will adopt the structural and procedural reforms demanded by donor countries or attempt the radical transformation in its ideology and approach demanded by civil society actors depends as much on regional and global geopolitics as it does on forces for change within member countries and in the Bank itself. One thing is clear however. If there is a need for a regional development bank – and the case has yet to be made convincingly – then it will have to be a very different animal from the ADB.
* Chris Adams is a volunteer researcher at Focus on the Global South. He has worked for several years with Community Aid Abroad, Australia, on development issues in Southeast and South Asia.