When president Haruhiko Kuroda took over the helm of the ADB at the beginning of 2005, he was not happy with the course already charted for the Bank under its long-term strategy drawn up five years earlier and running up to 2015. This committed the ADB to poverty alleviation as its “over-arching objective” – hardly an adequate agenda for an institution serving the world’s most diverse, populous and fastest growing region, one which faces multiple development challenges.
These included catering to the differing needs of 43 developing member countries, from emerging economic giants like China and India to tiny Pacific Island nations; closing huge and growing income gaps within and between countries; building an infrastructure base capable of supporting dynamic growth, promoting regional economic cooperation and integration, helping build modern financial systems across Asia – and myriad others.
Kuroda decided to appoint an independent Eminent Persons Group (EPG) to take a long, hard look at where the 40-year-old institution that he heads should be going in the longer term. The six-member group, headed by Unctad secretary-general and former Thai deputy prime minister Supachai Panitchpakdi, delivered its report at the beginning of April, and its proposals for a new ADB will be a big talking point at this year’s annual meeting.
These foresee an expanded, restaffed and more sophisticated bank, serving countries that are also headed “upmarket” in their development. To meet the needs of a region that by 2020 will account for no less than 45% of global GDP and 35% of world trade, the new ADB must abandon its narrow focus on fighting poverty, and support faster and more inclusive growth, raise productivity, foster technological development and knowledge management, the EPG said.
Heavyweights including former US treasury secretary and past president of Harvard University Lawrence Summers and Deutsche Bank vice-chairman and one-time German vice finance minister Caio Koch-Weser were among the luminaries chosen for the panel. So were director of Beijing University’s China Centre for Economic Research Justin Yifu Lin; chair of India’s Council for Research on International Economic Relations Isher Judge Ahluwahlia; and Sony Corp advisory board chair Nobuyuki Idei.
Free ranging
“I asked them to freely discuss issues and provide us with their views on the future role of the ADB,” Kuroda told Emerging Markets during an interview at ADB headquarters in Manila. The EPG did not directly address the delicate issue of whether the ADB should remain headquartered there. But it urged the bank to create “clusters of technical staff” in locations outside the Philippines, and “make full use of new IT technology to overcome the drawback of its location in Manila”.
The report “will provide a basis for review of our long-term strategic framework”, says Kuroda, who describes its findings as “thoughtful and thought-provoking”. Some recommendations may require governors’ or Board approval, and some can be decided by management, he says. “After listening to our governors in Kyoto, we will start a review of the long-term strategic framework. The one we have now was made several years ago, and even in the last 10 years the Asian economy has changed greatly, so it is time to review it.”
The timing of the EPG report coincides with what anyway was scheduled to be a review by ADB governors meeting in Kyoto over the Bank’s achievement over the past 40 years, and an assessment of where the institution should be headed in the future. There is nothing binding in the findings of the EPG, some sources noted, and other such documents, such as the Meltzer Report on the World Bank and IMF in 2000, have had little noticeable impact on the role or structure of the institutions they examined.
But unlike the Meltzer Report, which was commissioned by the US Congress and envisaged the World Bank winding down many of its functions and hiving them off to regional development banks, the EPG is an “inside initiative” and is very positive in its evaluation of the ADB’s future role, sources noted. The Bank is seen by the EPG as “belonging” to the region and is “trusted” by its member countries. “The ADB is the institution of choice to continue delivering development assistance to Asia.”
New Paradigm
But in order to do that the ADB “must change radically and adopt a new paradigm for development banking”, the EPG said. The New ADB must be much more focused, driven by three complementary strategic directions – moving from fighting extensive poverty to supporting faster and more inclusive growth; from promoting growth to environmentally sustainable growth; and from a primarily national focus to a regional and ultimately global focus.
In future, the ADB needs to focus on six core activities, the EPG suggested. These are: infrastructure development (emphasizing public-private partnerships); financial development (supporting regional financial markets and intermediating through its own financial operations); energy and environment activities (to combat climate change); regional integration (which must be “central to the ADB’s operational activities”), and technological and knowledge management (to pool regional know-how and promote knowledge sharing). All this means that the ADB must “phase out” some existing activities, said the EPG.
It did not specify which, but ADB sources suggested to EM that those such as promoting health might be devolved to other more specialized bodies in future. “Far-reaching institutional changes” will be required at the ADB. The Bank will need to strengthen the skills and size of its professional staff, reduce transaction costs associated with its assistance, become less “bureaucratic” in its procedures, and “eliminate rigidities in human and budgetary resources management”. And there must be “more equitable burden sharing” within the ADB to reflect more fully its Asian heritage, the group suggested.
For a detailed look at the regional division of power see The balance of power in Asia