IMF/World Bank 2007: ADB must resist complacency
The Asian Development Bank held its 40th annual general meeting in May soon after a report cautioned that it must change radically or risk irrelevance as poverty in Asia is set to shrink over the next 15 years. Despite this warning however, it seems to be business as usual at the bank, writes Jonathan Rogers.
Calls for change at the Asian Development Bank are nothing new. They have been repeated by external critics of the bank and senior ADB members frequently over the past decade. But a report released in April by an independent panel of experts tasked with advising the bank’s president Haruhiko Kuroda suggested that the institution needs to change or risk withering away.
The Eminent Persons Group (EPG) report made the point in no uncertain terms: change now or risk becoming irrelevant. The group, which was chaired by Supachai Panitchpakdi, secretary general of the UN conference on trade and development, and included other big hitters such as former US Treasury secretary Larry Summers and ex-chairman of Sony Nobuyuki Idei came up with a contentious projection, but one which if true has unavoidable implications for the ADB.
Their report concluded: “by 2020 Asia will be transformed into a region that has largely conquered extreme poverty, with 90% of the continent’s people living in middle-income countries, and with a regional economy comprising 45% of global GDP and 35% of world trade".
Economic development of such a radical magnitude of course implies essentially that the bank’s mission of reducing poverty becomes redundant. The EPG report summed up the prescription that derives from this dynamic: the Asian Development Bank needs to “move beyond the traditional model emphasising transfers of external aid resources".
The EPG talked of a “New ADB” which “must be more focused, and driven by three strategic directions: from fighting extensive poverty to supporting higher and more exclusive growth; from economic growth to environmentally sustainable growth; and from a primarily national focus to a regional and ultimately global focus".
So the traditional model of development banking in which external official capital is transferred to needy countries will become anachronistic in Asia and must be replaced with a “more balanced blend of knowledge and financial assistance” to be achieved through boosting the ADB’s capacities as a financial intermediary, linking borrowers and lenders and encouraging the private sector to collaborate with regional governments in crucial infrastructure projects.
Indeed infrastructure will remain the ADB’s most significant activity, acknowledged Kuroda in an interview with IFR Asia in May during which he alluded to the immense challenge presented by the sector as the region faces the need for up to US$4.7trn of infrastructure funding over the next five years if the present heady rate of regional economic growth is to be sustained.
Kuroda endorsed the EPG’s analysis. “The report has a very clear message and made a very bold, thought-provoking series of recommendations,” he said. “I accept the basic analysis of the direction ADB should go in by 2020 and I’m very comfortable with the basic structure of the report.”
Crucial to the transformation of the bank into the “New ADB” as the EPG saw it is a change in perception: “What is called for is a fundamental change in how the institution is seen by its clients in both the public and private sectors: from being an imposer of an agenda specified by parties outside the region to a regional collaborator and partner. It is critical that ADB generate and reinforce the feeling among Asians that ADB is their own institution and that its primary goal is to respond to their needs as seen from their perspective,” the report says.
“We are really in a new era in Asia where the traditional model of what a development bank like ADB does in terms of transfer of capital is really greatly diminished,” Summers told IFR Asia. “Of course there are those parts of Asia where its traditional mission is going to be relevant, but it really needs to renew itself in quite a fundamental way around knowledge, around integration, around public goods, and around sustainability if it’s going to be important in the second quarter of the 21st century.”
Still, some four months after the ADB’s annual meeting in Kyoto it seems that it remains business as usual, with the bank essentially measuring its success by the amount of money it lends and as a result coming under renewed criticism from civil society groups that it is watering down its lending criteria in order to sustain a level of transactions in the face of mounting competition from the private sector.
ADB’s infrastructure projects have frequently raised the hackles of the NGOs that closely monitor its activities on behalf of civil society. In September last year the NGO forum on the ADB produced a publication entitled “Snapshots of ADB Disasters” which it submitted to the bank’s safeguard review panel to show in the words of the forum “decision-makers, stakeholders and civil society advocates some of the ground-related social and environmental negative impacts of the bank’s interventions".
The publication backs the forum’s complaints that the bank has been responsible for inflicting irreversible environmental damage and negatively impacting communities displaced by, or living near to, its projects which invariably have the potential to carry substantial human and environmental costs.
The Bank Information Centre, a Washington-based NGO, is another staunch ADB critic. It cites two projects that it claims are the clearest examples of the bank’s apparent indifference to applying its social and environment protection policies and by default contributing to the poverty of project-affected persons: the Highway One Project (HW1) in Cambodia (which was approved in 1998 and completed in 2004) and the Samut Prakarn Wastewater Management Project (SPWMP) in Thailand (which was approved in 1995 and abandoned in 2001).
“The HW1 project aimed to accelerate the mobilisation of goods, services, and people in the Mekong region by rehabilitating a 105.5km section of Highway One. Yet, ADB’s approval of the Cambodian government’s sub-standard resettlement plan did not comply with the bank’s Involuntary Resettlement Policy,” said Mishka Zaman, manager of BIC’s Asian programme.
“And its failure to fully inform and closely consult the community about their resettlement and compensation options resulted in about 7,000 Cambodians becoming economically worse off. Many affected families lost their land and livelihood structures, faced intimidation by authorities, complained of unfair or no compensation to damaged properties and indebtedness associated with delayed compensation and community disintegration.”
SPWMP, meanwhile, polluted seawater and devastated fishing communities, prompting a public outcry and prompting the ADB to mount an independent inquiry.
But ADB’s critics claim it cannot produce statistics to show how its projects have contributed to poverty reduction on the ground, and to what extent its projects have directly contributed to environmental degradation.
Indeed it seems the gap between ADB’s stated policies and its practice remains large and plenty of its critics suggest that a continued focus on large scale infrastructure projects might not be key to reducing the poverty still prevalent in the region.
As part of the ADB’s review of its long term strategy it held regional consultations in early September in Washington DC, and New Delhi where its delegates met with South Asian government officials, the private sector and civil society organisations in three separate consultations over two days.
During the meetings civil society groups questioned ADB’s reliance on poverty statistics and the soundness of using aggregate numbers for South Asia and East Asia, which are highly diverse regions.
The director-general of the ADB’s policy and strategy department addressed criticism of the bank’s failure to measure its impact on regional poverty by publishing statistics by stating: “The impact of operations on poverty reduction is quite difficult to measure,” explaining that previous attempts to include poverty reduction targets in loans had produced numerous problems and delays.
But NGOs fear that the bank’s pending revision of its social and environment policies through the Safeguard Policy Update and the adoption of a “country” system approach to project approval implementation (rather than the imposition of the ADB’s internal safeguard policies) will mean a greater risk of environmental degradation and social displacement as the region’s massive infrastructure gap is filled.
These fears were endorsed in the minds of the NGO members when in July four members of a five member team from within the ADB working on revising the bank’s safeguard policies resigned from the team in protest over management's efforts to dilute the policies. They continue to be employed by the ADB, however.
“Although the ADB has repeatedly, publicly assured that there will be no dilution of the existing policies, the new policy seems to break all promises,” wrote the BIC in its September newsletter.
According to the BIC newsletter the four staff who resigned from the review team felt that the revised draft policy was not of "sufficient quality for disclosure to the public,” and that it threatened the bank’s reputation and revealed a “lack of due process and transparency.”