Business | Opinion
Asian Development Bank losing its charm
What is a development bank focused on ending poverty to do when its borrowers are no longer poor?
- Financial Times
- Published: 00:00 April 14, 2007
What is a development bank focused on ending poverty to do when its borrowers are no longer poor?
This is the happy challenge faced by the Asian Development Bank, which will run short of customers as one country after another reaches middle-income status.
There are two possible answers: the ADB must either find a useful new role or accept that it has achieved its mission and disband. A report for the ADB by an "eminent persons group" has concluded that Asian economies are so successful and so rich in surplus capital that the bank must change radically by 2020 or risk becoming irrelevant to its main customers. The traditional development bank model - to transfer capital from developed countries to poor ones - will become redundant in Asia, it says.
No one pretends that poverty - still widespread and severe in south Asia - is about to be abolished, and the report recommends a transition period during which the ADB can transform itself. But at current economic growth rates fewer than 25 million out of east Asia's two billion inhabitants will be living below the poverty line 15 years from now.
The report suggests a "new ADB", which would have to wean itself off lending aimed at poverty alleviation, adopt a role as a financial intermediary within the region and promote public-private partnerships.
Above all, it should become more of a "knowledge bank", for example by advising borrowers on how to pursue environmentally sustainable growth rather than growth for its own sake. This advice is sensible and is in some parts already being pursued by the ADB under Haruhiko Kuroda, the bank's Japanese president, who has actively campaigned for greater financial integration within Asia. It is also relevant to other international financial institutions, including the World Bank and the European Bank for Reconstruction and Development, some of whose central European charges have been successfully absorbed into the European Union.
But if the ADB follows this path it must make a genuine transformation: a new role should replace some of its previous activities, not just supplement them.
The ADB must also make the case for its reinvention. It has no divine right to exist, and must demonstrate why Asia needs a new supranational financial intermediary.
This, though, is an argument that it can win. More difficult is another problem for the ADB - and other multilateral lenders - that is not addressed in the report. Bilateral lenders with plenty of surplus capital, especially China, are undercutting their international rivals by offering low-interest loans unfettered by strict social or environmental conditions.
Persuading China to play a constructive part in reform of the ADB, and to offer support for high quality multilateral lending, will be one of the big challenges in adapting to the new realities of a prosperous Asia.
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