The Asian Development Bank

by Nihal Kappagoda

An extremely diverse region, Asia-Pacific is characterized by its dynamism which has spread from Japan to the newly industrializing economies, then to the Association of the South East Asian Nations, and to the coastal region of China. This rapid development has caused substantial changes in the economic structures of East Asia. In addition, the former centrally planned economies in the region are attempting a transition to market economies. The unique characteristics of the region make the mission of the Asian Development Bank delicate as well as important.

In 1991, Nihal Kappagoda set out to answer some basic questions about the AsDB: Has it been an effective agent of development? Has it made a contribution distinct from that of the larger, better known, World Bank?

Growth And Governance

When the Asian Development Bank (AsDB) was launched in 1966, it took a different path from the African and Inter-American Banks and accepted nonregionals as members. It was launched with 12 nonregional and 19 regional members (including Australia, New Zealand, and Japan, obviously not in the ranks of developing member countries). By 1994 it had grown to 55 members, 39 of which were regionals. Its concessional arm, the Asian Development Fund (ADF) was created in 1974 from earlier units. Japan and the United States have subscribed the most capital and have voting shares of 13 percent each. There have been staffing and policy tensions between these two members; the Bank's president has always been Japanese. The regional members hold almost two-thirds of the voting shares.

The Bank's authorized capital has recently increased to US$48 billion, of which 5 percent is paid in. Its loan commitments accelerated sharply in the later 1980s, from a cumulative total of $10 billion in 1982 to $20 billion in 1987, and then to $42.4 billion (of which nearly one-third was from the ADF) at the end of 1992. Cofinancing with other donors had raised an extra $13.9 billion. The six largest borrowers from the ordinary capital resources (OCR) and the Fund in 1970-92 accounted for 74.5 percent of the total, as follows:

Indonesia	21.5%	India	10.1%
Pakistan	16.6%	Bangladesh	9.2%
Philippines	11.2%	Thailand	5.9%

During the 1980s, borrowings from South Asia began to surpass those by developing member countries (DMCs) in Southeast Asia, while South Asia has throughout exceeded 80 percent of borrowings from the Fund alone. There has been concern in the 1990s about the excessive volume of lending, both because of exposure to defaulting and because the quality of projects was declining. Kappagoda notes that the Bank has improved its planning processes and set strategic objectives that give more consideration to gender issues, poverty reduction, and the protection of the environment. It has also made loan-loss provisions.

Problems And Challenges

The Bank's membership is extremely diverse, ranging from huge populations (China, India, Indonesia) to the Pacific island micro-states. Kappagoda suggests the Bank should recognize four distinct economic groups among the DMCs (at present it works with three categories for ADF eligibility, lumping big and small together). He also suggests the newly industrialized economies (NIEs) should cofinance Bank projects, provide technical aid, and invest in the less- developed or low-income DMCs (South Asia, Indochina). Bank assistance in Southeast Asian countries should be focused on the bottlenecks in social and physical infrastructure, and on improving what he carefully calls "the policy environment." The small islands he treats separately as having "no demonstrable long-term viability," and suggests a role for the Bank in coordinating donor aid and providing technical assistance.

Rapid expansion of operations has broadly neglected social dimensions, although he notes recent action. The Bank should, he adds, give direct support to private sector projects and programs in Indochina, the Pacific, South Asia, and China where domestic support is weak. He also hopes the Bank will evolve as "an intellectual centre for new development thinking in the region."

Three Country Studies

Studies were commissioned on the Bank's programs in Indonesia, Pakistan, and Sri Lanka. The program in Indonesia sharply increased in the early 1990s and has focused on construction of ports and roads, and on urban development. Projects supported in Pakistan targeted export growth and increasing the private sector: commitments for agricultural and energy projects amounted to 63 percent of funds?higher than the Bank's average for these favourite sectors. In Sri Lanka, the focus has been on power projects and support of local development finance institutions. The Sri Lankan projects evaluated show a lower success rate than in the other two countries.

About The Book And Author

Published in 1995, this study is part of a larger project on the multilateral banks, launched by the North- South Institute in 1991 and supported by the Canadian International Development Agency, the Ford Foundation, the Swedish Ministry for Foreign Affairs, the Norwegian Ministry for Foreign Affairs, the Netherlands Ministry for Development Cooperation, the Inter-American Development Bank, the Caribbean Development Bank, the African Development Bank, and the Asian Development Bank. The results are presented in four volumes, one on each of the regional development banks, plus a synthesis volume, Titans or Behemoths?, by Roy Culpeper, published in 1997.

Nihal Kappagoda has had links with the Asian Development Bank since its outset, first as a Sri Lankan government negotiator, later as a Bank staff member, and then as an economic consultant. He has also held senior positions in the Commonwealth Secretariat and the International Development Research Centre.

Available at a cost of $25 from: Renouf Publishing Co.