Commentary / Japan

ADB faces many challenges ahead as it marks 50th year

The ADB can't afford to be complacent given the important issues it must address

by Eiji Kobayashi

Special To The Japan Times

The Asian Development Bank held a commemorative annual meeting in Yokohama from May 4 to 7 celebrating its 50th year. Having served in the ADB in the early years after its founding in 1966, I am delighted to see the bank’s sound growth in helping to develop the Asia-Pacific region. Asia, once a poorer region, has become an important center of the world economy.

Looking back, the ABD was founded by the strenuous efforts of its first president, Takeshi Watanabe, and supported by contributions from Japan, which has been its major funding source together with the United States. The number of member countries has increased from the original 31 to the present 67. The bank’s total lending and grants reached $17.47 billion in 2016.

The ADB, however, should not be complacent, as there are a number of important issues to address.

China became a member of the ADB in 1986 after an issue over Taiwan was resolved, as Taiwan was always a member of the bank. How to deal with China as a new member vis-a-vis Taiwan was a difficult question to resolve.

China has since achieved remarkable economic growth and founded the Asian Infrastructure Investment Bank (AIIB) in 2015. Its membership has since increased to reach 70 countries, exceeding that of the ADB. Of major countries, only Japan and the United States have not joined the institution, because of uncertainty over its management and administration.

With this new development, what would be the ADB’s attitude toward the AIIB? As Takehiko Nakao, the ADB president, remarked, the ADB is ready to cooperate. Jin Liqun, the AIIB head, also said that his bank is not competing with the ADB. Instead, the two complement each other and enjoy “very good cooperation.” Jin earlier served as a vice president of the ADB for five years.

Reflecting this attitude, the two banks have together co-financed three projects, with the ADB providing its project appraisal techniques. According to the ADB’s estimate, infrastructure needs in Asia will exceed $26 trillion toward 2030, or $1.7 trillion per year. There seems to be enough room for both institutions to operate by cooperating with each other.

The attitude of the ADB toward the AIIB seems to be OK for the time being, but a bit of caution may be required as the latter is expected to play an important role in China’s plan to build a new Eurasian land bridge called “One Belt, One Road” (“Yi Dai Yi Lu”). This aims at serving a modern silk road leading to South Asia, Middle East and Europe. Its final objective seems to build a new and grandiose economic zone of China through the Eurasian continent. The plan also aims at controlling a sea lane, as China has been assisting the construction of ports in Pakistan, while India has expressed concerns that the ports may be used as permanent Chinese naval bases.

The ADB should, therefore, be alert to these new developments based on China’s determined intention toward Asia, Africa, Europe and beyond. Of course, the ADB has advantages based on the experience and techniques it has acquired over the past 50 years. But it should not rest on its achievements and should address several important areas and questions to serve the needs of the region better.

First, upgrading its project quality in cooperation with the private sector would be necessary for the benefit of the developing member countries. With the help of Japan’s recent contribution of $40 million, the ADB can upgrade its project quality based on new technologies and expertise. With more cautious project preparation utilizing its technical assistance, failure or low performance of completed projects should be avoided. Completed projects need to be maintained properly by local personnel to ensure the benefits keep paying off for a longer period of time.

Second, the ADB’s process for appraising and approving loans and subsequent implementation phases may have to be streamlined so that the benefits can accrue to the recipient countries quicker. In particular, the procurement process for goods and services under international competitive bidding may have to be accelerated. The ADB now takes into consideration the quality of goods and services together with prices in its process of evaluating international competitive bidding. This change would enhance the quality of completed projects.

Third, in addition to large infrastructure projects, it should be mandatory for the ADB to take up smaller but essential projects for poverty alleviation. There are still 450 million people in the region living in absolute poverty — subsisting on only $1.90 or less a day. The Asian economy overall keeps growing, but its benefits do not “trickle down” to the poorest people. It is of utmost importance for them to have access to clean water, health facilities and formal education. The ADB, based on its experience since the 1980s, is better equipped to address these crucial areas together with government agencies. This will match well with the objectives of the United Nations Sustainable Development Goals.

Fourth, it would be mandatory to recruit and train skilled manpower equipped with advanced technologies in local governments as well as at the ADB. In this connection, more women specialists should be mobilized to deal better with poverty alleviation and social needs. The ADB’s ratio of women specialists should be raised from the present 30 percent of the professional staff.

Last, there is worry about the U.S. attitude toward the ADB. Based on the new Trump administration’s policy of “America First,” funding for foreign aid has been cut and efforts to combat global warming will be gutted in order to protect domestic industries. The U.S. executive director at the ADB has not yet been appointed. I hope the U.S. will maintain its role as a strong supporter of the ADB.

The ADB should continue to remain strong in order to meet the future challenges of the region: fulfilling infrastructure needs, protecting the environment and serving the fast-approaching aging society, among other areas of concern.

Eiji Kobayashi is a former deputy director of the agriculture department in the Asian Development Bank.

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