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November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

NOVEMBER 19, 1999 VOL. 25 NO. 46

Inside Asia's New Bank for the Poor
Why the Asian Development Bank is reinventing itself as a poverty fighter
By ALEJANDRO REYES Manila


Education programs, livelihood projects, micro-lending -- the ADB refocuses to help post-Crisis Asia's poor
Ian Gill - ADB

About the first thing Chino Tadao announced soon after he took over the presidency of the Asian Development Bank in January this year was that he wanted to focus the ADB's mission on a single goal: to reduce poverty. Since then, not a speech has been delivered in which the former Japanese Finance Ministry official hasn't mentioned the new strategy. On Nov. 9, the 57-member bank's board of directors put their seal of approval on the plan, officially adopting the goal of lifting people out of poverty as the ADB's sole aim. With 70% of the world's poor in the Asia-Pacific, Chino told Asiaweek, "the region should be the main stage for concerted global efforts to reduce poverty."

With the shift in thinking - the bank had previously listed poverty reduction as just one of five goals - the ADB is formally acknowledging a trend in the works for several years. Like the World Bank, the 33-year-old Manila-based institution started out very much as an infrastructure development bank that focused on agriculture, roads, railways, ports and power plants. "In the last five or six years, we began doing a lot more in the soft sectors [such as education, health, population, gender issues, finance and governance] than we had traditionally done," says vice-president Peter Sullivan, an American lawyer and 25-year ADB veteran. "These are not projects where an engineer comes in and lays out the specifications, but conceptual ideas which are harder to implement. The new strategy takes that shift further."

Why? Says an International Monetary Fund official: "The ADB is in something of a mid-life crisis." That is far too harsh a term. But the bank has come under attack from influential donor-members the U.S., Canada, Australia and Europe. With the trend toward private-sector participation and financing of hard infrastructure projects, they argue, the bank could do more by paying greater attention to social-development initiatives, including issues such as governance and corruption. This mirrors a similar shift at the World Bank, whose president James Wolfensohn has been instrumental in pushing the Washington-based agency to re-examine its mandate and refocus its own efforts.

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The question is whether an old institution like the ADB can reinvent itself to play this new role. Almost everyone agrees on the need for the bank to tackle one of Asia's oldest scourges, especially now that poverty levels have come back up because of the Asian Crisis. But many wonder whether the ADB has the commitment, expertise and heart to really make a difference. The task is monumental: more than 900 million Asians are poor, defined as those earning less than $1 a day. "This is a complete and fundamental shift in operations," Chino concedes. "Therefore, we have to learn from our early implementation." Adds Sullivan: "Twenty, ten or even five years ago, people on the staff wouldn't have bought into this program. Now, I can't say 100% agree, but the vast majority clearly support it. This is the cultural change within the institution."

Money is another problem. The ADB's participation in International Monetary Fund-led bailouts of Crisis-hit countries South Korea, Thailand and Indonesia has raised concerns about the state of its coffers. At the end of last year, the bank's loan-reserve ratio dropped to 27.73% from 33.62% in 1997. (Fears about the effect on the ADB's triple-A credit rating proved groundless; its rock-solid grading was recently reconfirmed.) At its annual meeting in Manila in May, U.S. Assistant Treasury Secretary Edwin Truman urged the bank to come to an agreement with other lending institutions, mainly the IMF and the World Bank, on their respective roles. He said the ADB should also require borrowers to demonstrate "good governance, transparency, participation and accountability," particularly when drawing on concessional financing known as the Asian Development Fund. The bank is negotiating with donor countries on replenishing the nearly exhausted ADF. "If we didn't adopt the [anti-poverty] strategy, we would have more difficulty raising funds for the ADF," says Sullivan, who argues that the ADB's loan requirements are as stringent as the World Bank's.

What will the new thrust mean in practice? More work, for one. The old infrastructure projects were "fairly easy to put together and even to carry out," Sullivan says. Now greater care will be taken to shape programs and focus them. "Every project we do will have some link to poverty. All projects will be measured by what they do to alleviate poverty. So even if we do a road, we will look at it from the point of view of how it will alleviate poverty. For example, does it go through poverty-stricken counties? If it's a power project, will it help rural areas?" It may be that a traditional infrastructure loan might allow a borrowing government to free funds for another initiative that would more directly help the poor. That could be a factor to support the loan. According to Sullivan, the bank aims to have at least 40% of its loans go to straight "poverty interventions."

Karti Sandilya headed the team that drafted the document on the new strategy. "The era of easy gains where economic development would lift people out of poverty and reduce population growth is over," says the Indian. "We now need to do much more. Economic growth is still important and will remain a focus of the Bank. But it will be growth that is pro-poor." The job is far more difficult than people realize, says Shireen Lateef, a Fijian who has been with the ADB for seven years. "It is not a mere case of income transfer. If donors want us to deliver more in this area, they have to accept that this is going to be more resource-intensive. It will take more staff time. And staff time is money. Field time is money. Certain countries require us to do all these things, but when it comes to increased staff resources, they go 'Well . . .' This is nonsense."

For the ADF, Chino hopes donors will pledge at least as much as was raised in the last fund-raising exercise - $6.3 billion. In a few years, the bank will also need to go back to its shareholders to boost its ordinary capital resources, from which regular loans are drawn. This year, the ADB is expected to lend slightly more than last year's $6 billion. It disbursed a record $9.6 billion in 1997 because of the extraordinary Crisis-related loans. China and Indonesia are the two biggest borrowers. (At the May meeting, China expressed concern about the new thrust's heavier funding requirements and the de-emphasis on aid to speed up economic growth.) ADF money is used exclusively by the poorest member-countries, including Bangladesh, Kyrgyzstan, Laos, Nepal, Pakistan, Sri Lanka and Vietnam. The bank is working to convince some of East Asia's wealthier countries like Singapore to become donors for the first time.

Crisis-related projects in Thailand and Indonesia are examples of the kind of work the ADB will be doing. Two programs there provided scholarships to needy children. The funds were in the form of bursaries or grants according to means. Both projects have worked reasonably well, but the Indonesian scheme is regarded as a far greater success, mainly because about 30% of the funds involved in the Thai program were found to have been misdirected or at least not given to the neediest kids. The key difference: the Thai scheme was administered by the government, which has acknowledged problems with the selection process and the speed of implementation.

The landmark Indonesian program was different. It was started after its Thai counterpart was launched, enabling project directors to learn from the other scheme. With the government's approval, the ADB administered the scholarships directly, working with community groups and schools and bypassing the central bureaucracy. The money was dispersed to recipients directly via the post office. Because selection was done at the local level by panels made up of parents, teachers and other members of each community, including non-government organizations, misallocation has been minimal. The scheme was interesting too because it was run together with the World Bank.

Chino says the ADB is up to the challenges, though he worries that his staff is overworked. For some time, the bank has had a hiring freeze, but the president is now seeking board approval for 30 additional positions. More "software" experts, including sociologists and anthropologists, are being recruited to join the ADB's 2,000-strong staff, which includes about 650 executives. "Fighting poverty is not a discipline," says Lateef, an anthropologist and expert on gender issues. "You can't go get somebody from a university who has done a Ph.D. in poverty reduction. The bank will need more people like me."

The new bank president is also determined to raise the ADB's profile, which has traditionally reflected its Japanese leadership's desire for anonymity and discretion. "We're doing a very good job, but we're very modest," says Chino. "This is an Asian virtue - a very good virtue. But it is very important also to have the support of shareholders and other stakeholders in our effort to reduce poverty." He recently agreed to a live TV interview, a rare concession. After last month's coup in Pakistan, the ADB issued a statement expressing concern, a no-no in the past. The bank is also striving to become more transparent. Details on proposed projects are put up on the Internet and the bank actively seeks inputs from outsiders.

No one expects the transition to be easy. "The culture of the bank is difficult to change," says Chino. A walk down the corridor of the ADB's state-of-the-art headquarters in Manila tells you that. While there is an admirable camaraderie among its multinational staff, there is also a disappointing insularity. The hope is that the new focus will re-energize the bureaucracy. "Any institution that seeks to make Asia less poor is something Asians should support," says Sandilya. "This institution represents a partnership between developed and developing countries for the benefit of Asia." Everyone should stand up and be counted.

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