Just two years ago Haruhiko Kuroda, president of the ADB, managed to organize a 200% increase in its general capital – a record then for any multilateral development bank. Now he is seeking a hefty increase in the bank’s Asian Development Fund (ADF).
It’s desperately needed because of the vast development challenges facing Asia and its Manila-based regional development bank.
Kuroda, who is coming to the end of his second term as head of the ADB – a position he first assumed in November 2004 after working as Japan’s vice finance minister for international affairs and as a special adviser to one of Japan’s former prime ministers – says he wants to stay on. The Japanese government has endorsed his nomination.
His term ends this November, which is when the negotiations for ADF replenishment will be getting underway in earnest, so strengthening the need to stay as head of the ADB at this critical time.
But ADB presidents in the past have left the post part-way through a five-year term, and Kuroda has been mentioned as a possible candidate for governor of the Bank of Japan or even managing director of the IMF.
BASIC NEEDS
What Kuroda calls the “nexus between climate change and water and food security issues” will loom larger in coming years, creating increased poverty and competition for food and water resources. “The task of dealing with these issues is huge – and more financial and human resources are needed to deal with it,” he says.
“The ADB has been investing heavily in green energy and in water resources, but much more must be done. We increased our green energy development investment target at the ADB to $1 billion annually, and now we’ve raised the target to $2 billion a year, although we have not reached that.
“Some countries like China, India and Indonesia are making efforts to deal with the impact of climate change,” he says.
“But in the case of countries like Indonesia, Vietnam, Thailand and Bangladesh, their efforts at adaptation must be doubled. In some ways this is a global issue, but it is also a critical regional issue. These are areas where efforts must be redoubled.”
Asia already needs to spend up to $8 trillion on basic infrastructure provision or replacement over the coming decade, according to a recent joint study by the ADB and the Tokyo-based ADB Institute. Dealing with the impact of climate change is certain to add to this already huge spending need – this is an area in which private-sector investment has to date been lagging.
The ADB is therefore going to have to step into the breach. This will necessitate a substantial boost to the financial resources of its low-cost loans arm, the ADF. Negotiations on the 11th replenishment of the ADF “will start some time this year”, says Kuroda. These kick off formally in September or October – but there may be informal soundings among donors at this year’s annual meeting in Hanoi – and should be concluded in 2012.
Kuroda is seeking a hefty increase in the ADF (last replenished with $11.3 billion in 2008) but would not say how much this will be.
It is not just the prospect of food and water shortages, as agricultural land and water resources are eroded by climate change and in the face of growing populations and demand for better nutrition, that worries the ADB’s president.
“Asia is prone to natural disasters,” he says. His remarks follow Japan’s earthquake and tsunami, which killed some 28,000 people, left tens of thousands homeless, triggered a near catastrophe at a nuclear power station and other damage that may cost around $300 billion to remedy.
“We have been trying to strengthen disaster preparedness and strengthen infrastructure by making electricity grids, roads and railways disaster resilient,” he says.
“But further efforts are needed, considering the major damage caused by this tsunami and earthquake. Japan is one of the most advanced countries in the world with regard to disaster prevention, and yet even Japan has suffered colossal damage and loss at the hands of nature.”
INFLATION
Kuroda sees inflation as one of the “biggest challenges facing emerging and developing economies in Asia and the Pacific.
“In many countries, inflation has reached double digits or close to that. I was in Vietnam recently, where last year the rate reached 12%. The government has already adopted six policy measures including fiscal and monetary tightening to reduce the rate of inflation to 7% by the end of this year. This target is ambitious but can be achieved,” he says.
“Likewise in India, Indonesia and so many other Asian countries, inflation has accelerated, and they have been tightening monetary policy and exiting from fiscal stimulus measures introduced after the Lehman shock, and so they are making their best efforts.”
The problem goes beyond finding a regional solution. “The difficulty is commodity price inflation – which is global. Oil prices are affected by the evolving situation in the Middle East, and food price inflation has been caused by many complicated factors, including crop failures in Russia, floods in Australia and others too,” he says.
“Fiscal and monetary tightening is necessary and appropriate to mitigate inflation rates, but global commodity price inflation is a matter of serious concern, especially the impact of food price inflation on the poor.”
Damping down inflation without damping down economic growth is going to be a challenge. “If a country can appreciate its currency that would help because that means that you can import foods and fuels at a reasonable price, and there may be some countries in east Asia, including China, that can do so,” says Kuroda.
“Many of them have fairly large current account surpluses, so currency appreciation will not undermine their competitiveness much. But others such as Pakistan or Bangladesh and those countries with a current account deficit may find it difficult to appreciate their currency.
“Some, like Vietnam, have seen their currency depreciate. For those countries, significant tightening of fiscal and monetary policy may bring a significant slowdown of economic growth.”