The US might torpedo plans to increase the ADB’s capital base, and force it to cut its non-concessional lending by up to half, officials warned in Madrid yesterday. Washington is unlikely to support an urgently needed capital increase for the bank, a source involved in ADB financial negotiations told Emerging Markets.
The US was the only country to vote against adoption of the ADB’s new long-term strategic framework, Strategy 2020, last month, while the UK and Switzerland abstained. And many of the 67 member countries who voted in favour did so on the understanding that they were not committing themselves in advance to additional financial support.
The source close to the talks said that ADB president Haruhiko Kuroda are pressing for a major capital increase – but that some non-Asian shareholders are wary about directing more lending through the ADB rather than the World Bank.
A European executive director (ED) of the bank told Emerging Markets that unless the ADB “doubles” its current capital of $56 billion within the next two years, it may have to slash its non-concessional lending from the $8.2 billion achieved last year to nearer $4 billion annually.
At a time when Asian’s development needs have never been greater, the ADB’s lending “headroom” could soon decline “dramatically”, the ED added. The call for new funds to enable the ADB to implement the long-term strategy was supported by China’s vice finance minister Li Yong, Indian finance secretary D. Subba Rao, and others, at a governors’ seminar yesterday. “We fully support [bank’s] the agenda but it will need to be accompanied by new resources,” said Spain’s finance minister, Pedro Solbes, chairman of this year’s annual meeting.
The 37% jump in ADB’s total loan commitments, last year was accounted for mainly by increased lending for infrastructure, which boosts economic growth and helps to reduce poverty, ADB managing director Rajat Nag told Emerging Markets yesterday. Demand may be even greater this year, said Nag. “We have impending resource constraints.”
It has taken between two and 15 years to negotiate capital increases in the past, one European ED said. This means the ADB could face a crunch in its lending ability within one or two years, and a dramatic “scaling down” of lending.
• Separately yesterday, ASEAN+3 finance ministers agreed to “multilateralize” $80 billion of funds from the network of bilateral currency swaps known as the Chiang Mai Initiative, in order to deal with possible financial crises in Asia. They agreed to accelerate the process of building a “credible” system of economic monitoring in the region. Japanese finance minister Fukushiro Nukaga told a briefing he hoped that necessary systems would be in place to allow activation of the new facility, if needed, by the time of the ministers’ meeting in Bali next year.