Moscow, Baku, Manila: The Japan-led Asian Development Bank unleashed measures that could help it hold its ground as a resource for regional economies, even as China’s Asian Infrastructure Investment Bank gains prominence.
The ADB overhauled a four-decade-old development fund to boost its annual lending and grant approvals by 50 per cent, to as much as $20 billion (Dh73.5 billion), the bank said at its annual meeting in Baku, Azerbaijan that started May 2. It will also set aside money to support public-private partnership projects and work with the AIIB “for Asia,” the ADB said.
“Now that the China-led AIIB is becoming a reality, the Japan-led ADB wants to ensure that it will still remain a key funder for infrastructure programmes in less developed Asia,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. “Given the development needs across Asia, there is sufficient room for both players.”
For almost 50 years, Asian nations from India to Vietnam and Indonesia have benefited from funding from the ADB, which is dominated by Japan and the US. That relationship is set to change as the rise of the AIIB, the first major multilateral development bank in a generation, provides an avenue for China to strengthen its presence in the world’s fastest-growing region.
“Chinese authorities say AIIB will not compete but complement ADB,” ADB President Takehiko Nakao said after meeting for an hour with Jin Liqun, interim head of the AIIB, in Baku on May 1. “It’s good for Asian region to have more resources.”
Nakao reiterated ADB’s readiness to work with AIIB, including co-financing, as 80 per cent of ADB projects are about infrastructure, he told reporters.
On its side, the ADB is boosting its own firepower.
In a move it described as “groundbreaking,” the lender said it will combine the lending operations of the bank’s Asian Development Fund with its ordinary capital resources balance sheet, with the merger taking effect in 2017. The fund was established in 1973 to provide concessional loans and grants to poorer countries, while OCR loans are provided to middle-income countries at market-based rates.
The initiative will increase ADB assistance to poor countries by as much as 70 per cent, and together with cofinancing, enable the bank’s annual assistance to reach as high as $40 billion in the coming years from $23 billion in 2014, it said.
Separately, the lender said it will create a $150 million fund by the end of this year to help member countries conduct feasibility studies for public-private partnership projects. It also signed a public-private partnership co-advisory agreement with eight commercial banks including HSBC Holdings Plc and Bank of Tokyo-Mitsubishi UFJ, seeking to accelerate the flow of private funds into “critical” infrastructure projects.
Developing Asia needs to spend $8 trillion between 2010 and 2020 on national infrastructure, the ADB estimates.
“The recent announcement by ADB over the weekend and the formation of AIIB suggest we are on the cusp of a sweet spot where infrastructure financing and political will for new infrastructure collide,” said Weiwen Ng, a Singapore-based analyst at Australia & New Zealand Banking Group Ltd.
Meanwhile, Japan’s Finance Minister Taro Aso said at an ADB panel discussion in Baku that Japan will promote quality infrastructure investment in Asia, saying his country will contribute human resources, knowledge and funds to the ADB.
Japan holds the biggest voting power in the ADB, at 12.84 per cent of the total, followed by the US with 12.75 per cent.
The AIIB has won backing from US allies from Australia to the UK, confounding efforts by the administration of President Barack Obama to campaign against the institution.
“We need both AIIB and ADB because the infrastructure financing need is very big, it cannot be fulfilled by only one institution,” Indonesia’s Finance Minister Bambang Brodjonegoro said in an interview on Sunday in Baku. “We need strong collaboration between ADB and AIIB; it is critical not only for Indonesia but for most of the developing countries in Asia.”