The ADB has failed to provide leadership in infrastructure financing, and the option of setting up a new bank for the purpose should be looked at, senior UN official Kim Hak-Su said in Kyoto yesterday.
But ADB president Haruhiko Kuroda said that founding a new institution “does not make sense”.
Hak-Su, executive secretary of the UN Economic and Social Commission for Asia and the Pacific (UNESCAP), told Emerging Markets in an interview that the ADB had not considered all the necessary infrastructure investment options.
“The ADB needs to be more open minded”, Hak-Su said. “One big option is a new bank, maybe based on the European Investment Bank, solely interested in infrastructure.”
A UNESCAP meeting in March backed a proposal to consider the creation of an infrastructure investment bank or finance corporation for Asia, Hak-Su said.
He argued that such a body would necessarily compete with the ADB, but could fill a gap. “We need to have competition amongst multilaterals, the IFC/WB/ADB are only providing $7 billion; poor, developing countries clearly deserve more.”
ADB president Kuroda dismissed that approach. “The difficulty is how to transform the infrastructure needs into bankable projects,” he said. “This needs regulatory frameworks, rule of law and good governance. It does not make sense to establish another bank without these issues being addressed”.
Jong-Wha Lee, head of ADB’s Office of Economic Regional Integration conceded that the initiative is now being widely debated, but may be wrong headed. “There has been discussion in Asean+3 countries, UNESCAP as well as in many member states ... but ultimately we need to catalyze private sector financing”.
The Eminent Persons Group report on the ADB argues that the bank itself should focus on infrastructure to maintain its relevance. Both Kuroda and Lee argue that improving the investment climate with the ADB as a facilitator is the most effective strategy.
But Hak-Su, who is UN under-secretary general and the highest ranking UN official in Asia, disagrees: “There are areas which private sector can’t get involved. My contention is that bankable projects can be created, not in a static way, but in an dynamic way through such a bank”.
Bill Streeter, head of international public finance (Japan and Asia Pacific) at Fitch Ratings said that a new institution, as well as pooling project credit risks effectively, “could use the region’s reserves as a way to help investors hedge their foreign currency risk by parking dollars”.
According to the ADB, East Asia requires $200 billion a year in infrastructure finance, and over the next decade the region as a whole requires $3 trillion. The shortfall is creating a political impetus to offload savings as many countries in Asia are failing to achieve their growth targets.