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Asian Development Bank pledges to increase lending, cooperate with China-led bank

Kyodo

The Asian Development Bank pledged to expand its resources for financing infrastructure building in the region as its annual gathering ended Tuesday in the Azerbaijan capital of Baku, boosting its lending capacity and introducing new steps to attract private investment.

The measures to scale up and reform its operations came as China has been increasing its influence around Asia and is set to establish a new multilateral lending body with over 50 founding members to finance development projects in the region.

To promote sustainable growth and reduce poverty in the Asia-Pacific region, “ADB will continue to be an important financier of infrastructure,” the bank’s president, Takehiko Nakao, said in his closing statement.

He said the Japan-led bank is considering seeking additional contributions from its members as a way of boosting its lending.

“We may have to ask you for your support for a capital increase, general or special, in the future,” he said.

Nakao later told reporters the bank may allow changes in its members’ shareholdings if capital is increased, suggesting that members such as China and India would be able to secure greater voting power.

Sources close to talks within the ADB say the bank’s measures to strengthen operations are not directly motivated by the China-led Asia Infrastructure Investment Bank (AIIB). But its action to remain relevant to the region comes as some developed countries view the AIIB as an attempt to create a parallel economic order in the region.

The ADB’s members have approved a proposal to merge by 2017 its Asian Development Fund, which provides concessional loans and grants to developing countries, and Ordinary Capital Resources, a market-based rate loan program focused on middle-income countries, as a way of leveraging available resources and boosting its annual lending and grant approvals by as much as 50 percent.

The ADB, which approved $22.93 billion in lending including co-financing in 2014, estimates the region’s infrastructure financing needs at over $8 trillion between 2010 and 2020, well beyond the capacity of existing lenders.

It also announced collaboration with governments and private banks to promote public-private partnership investments.

Japan, Canada and Australia will provide a total $64 million for a new facility to finance project preparation work such as due diligence covering technical and regulatory issues.

The ADB signed a public-private partnership (PPP) advisory agreement with eight commercial banks under which they will give advice on how best to structure PPP projects to governments in developing Asia.

On Sunday, Finance Minister Taro Aso separately announced a new initiative to promote investment aimed at creating “quality infrastructure” in Asia “in close collaboration with Japan’s public and private sectors.”

Aso told a seminar held on the sidelines of the Baku gathering that such quality infrastructure, despite its higher construction costs, would contribute to the region’s sustainable growth while reducing the fiscal burden of maintaining it in the long run.

Among reform measures at the ADB, Nakao said the bank’s internal processing time has recently been halved for procurement contracts. The move comes as the AIIB is expected to be more faster-moving than existing multilateral lenders amid criticism from emerging economies about the domination of the U.S.-led global financial architecture.

Nakao and Liqun Jin, secretary-general of the AIIB’s interim secretariat, met in Baku on Friday and discussed collaboration between the two lenders including co-financing, and agreed to “further discuss concrete options,” according to the ADB.

The annual meeting in 2016 will be held in Frankfurt.

  • Liars N. Fools

    This is potentially a mutually constructive relationship. The AIIB will supply new capital and high attention while ADB brings a degree of specialized expertise and a record of relatively high governance standards.