MANILA – This week Japanese Finance Minister Jun Azumi and a large Japanese delegation will join some 4,000 participants gathering in Manila for the 45th annual meeting of the Board of Governors of the Asian Development Bank. By tradition led by a Japanese — typically a former Ministry of Finance official — the ADB remains a major financier of infrastructure projects and poverty reduction programs in the region.
The stated focus of this year’s meeting will be on “inclusive growth,” including how to help ensure the region’s future economic development better reaches all people in Asia — still home to the vast majority of the world’s poor.
Following Japanese Prime Minister Yoshihiko Noda’s recent announcement that Japan would take steps to forgive about ¥300 billion in debt and resume yen loans to Burma (aka Myanmar), ADB officials may well continue their own push to find a way to resume loans of their own — no doubt also to the benefit of Japan’s and other nations’ businesses eager to help rebuild Burma’s deteriorating infrastructure.
One thing we are unlikely to hear from the gathering in Manila, though, is the simple truth that additional loans and grants from the ADB will not be the key drivers to sustained economic growth in Burma, China or elsewhere in the region. Indeed, for some countries — China included — the time for borrowing from the World Bank and the ADB should rapidly come to a close, freeing up the limited resources of these institutions for other developing nations better in need of financing and support.
Indeed, tell the average citizen in Japan that development banks financed in part through their tax dollars continue to help China build its own roads, railways and power plants, and you are likely to be met by a mix of shock and bewilderment. This is perhaps all the more true given Japan’s significant influence at the ADB as well as an earlier decision in Japan to phase out official development assistance to China.
The numbers are indeed striking. The International Monetary Fund projects China’s economy, having surpassed Japan’s as the second largest in the world, will reach some $7 trillion in 2012. China also will lead the region this year with projected annual GDP growth of 8.5 percent according to the ADB’s own Asian Development Outlook 2012.
Yet, China continues to benefit from ADB-financing of both public sector and private sector projects — money that could well be allocated to other of the region’s developing and emerging economies.
As of 2011, China had received nearly $26 billion in loans and assistance from the ADB since joining the institution in 1986, making it ADB’s second largest borrower and its largest client for private sector financing. In 2011, ADB approved over a billion dollars in assistance to China, including some $1.3 billion in sovereign-guaranteed loans, nearly $100 million in private sector loans and equity investments, and about $20 million in technical assistance. For an economy measured in trillions of dollars, an incremental $1.4 billion a year may seem relatively small. But for the poorest and least developed nations in the region that money could well be put to greater use.
Ask Chinese — and Japanese — Ministry of Finance officials, as well as ADB management, why China continues to borrow from the ADB and the answer is likely to stress the value of the accompanying “knowledge” and technical assistance. If this is indeed the case, there is no reason why ADB cannot unbundle such assistance and provide it to China and others on a fee-for-services basis.
Clearly, poverty persists in China. Some 13 percent of the nation’s 1.3 billion people live under $1.25 a day according to 2008 data. That’s more people than in all but a handful of nations in the region. China’s struggles with growing environmental challenges and labor issues also continue as the nation’s growth moderates. All this though should not detract from a critical point: With resources of its own, it is time for China to graduate from World Bank and ADB assistance, as part of that nation’s transformation into an important and responsible stakeholder in the region.
To China’s great credit, its economic growth has allowed it to lead the world in the raw numbers and speed in which millions of its citizens have emerged from poverty. Now, for China and many other Asian nations, the challenge remains not one of money but of waging a focused battle against a rising tide of bureaucracy, regulation, interventionism and corruption — a lowercased “bric” if you will.
Amidst all the talk in Manila at the ADB annual meeting of the relative growth of Southeast Asian nations and other emerging economies — growth that should be welcomed by Japan and others — there will no doubt be understandable pride in the international financial institution’s having approved some $14 billion in financing operations last year for developing Asia — much of it for core infrastructure projects and programs. The figure jumps to some $24 billion if the figure includes money from partners.
Under ADB President Haruhiko Kuroda, a former Ministry of Finance (MOF) vice minister, the ADB has had many successes. The financial institution tripled its capital base from $55 billion to $165 billion, provided crucial support to nations such as Afghanistan, and made important efforts in pushing for regional cooperation. Under shareholder pressure, the ADB also began to make initial changes in long outdated human resources practices, even as Japan’s lock on the institution’s presidency and on key staff positions, including the director general of budget, personnel and management systems — which typically goes to an MOF appointee — continue.
Sometimes though, the debate needs to be more than about the money, particularly when it comes to big borrowers such as China. Policymakers from MOF as well as representatives from other key ADB shareholders should focus first on helping to put an end to growing constraints on business innovation and on stopping capital misallocations driven by bureaucracy, regulation, interventionism and corruption. These are the true constraints to more sustainable long-term growth.
With the IMF, now led by its first female president (former French Finance Minister Christine Lagarde), working to address Europe’s sovereign debt crisis, and Korean-American physician Jim Yong Kim scheduled to take over as World Bank president this July, it is certainly a time of change, albeit evolutionary not revolutionary, and challenge at the world’s international financial institutions.
Just over four weeks ago, Chinese President Hu Jintao joined the leaders of Brazil, Russia, India and South Africa — the so-called BRICS — in Delhi for the fourth annual summit of these large emerging economies. Together, they called for work toward a new development bank, one that would be funded and managed by the BRICS and other developing countries.
Such an initiative says much about how Asia has changed since the ADB’s founding, when capital shortages and a lack of foreign investment characterized the region.
Today, South Korea and other nations no longer access ADB and World Bank loans as their economies have grown and private sector sources of capital and investment emerged. It is time for China, encouraged by a changing ADB, to do the same.
Curtis S. Chin served as the U.S. ambassador to ADB under Presidents George W. Bush and Barack Obama (2007-2010). He is now a senior fellow and executive-in-residence with the Asian Institute of Technology, and a managing director with River Peak Group.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.