Less than 18 months after taking office, ADB president Haruhiko Kuroda has found himself at the centre of a gathering storm over the role that the Manila-based institution should play in helping foster regional economic cooperation and integration. Some have voiced alarm at what they see as Kuroda’s attempt to push a “Japanese bilateral agenda” via the ADB, which they claim could divert the focus away from the goal of poverty reduction.
In an interview with Emerging Markets, Kuroda strenuously denies such charges. Poverty reduction remains the “overarching goal” of the ADB, he insists, and the bank has no plans to become, in effect, a kind of WTO and IMF rolled into one, by assisting trade and monetary cooperation in Asia Pacific. It will concern itself only with the “development aspects”of these issues, he stresses.
Even so, Kuroda appears set to face challenges in Hyderabad to his plans to expand the ADB’s charter role of assisting economic cooperation in Asia to embrace more active support for regional integration. Most of these challenges are likely to come from outside the region – North America and Europe, in particular – while the majority of Asian regional members of the ADB seem content to go along with the new initiatives.
What is, in effect, a revolt by ADB executive directors from non-regional member countries has forced Kuroda and his top aides to resubmit a medium-term strategy plan to the executive board to take the bank in new directions. This means the plan will not be approved formally in time for the annual meeting. He has also withdrawn for further consideration a controversial plan to create a new Asian Currency Unit at the bank.
Disastrous pitch
Kuroda has been heavily criticized for his handling of the new medium-term strategy plan, known as MTS2 because it supersedes an earlier strategy plan, which expired last year. This was published in draft form, along with a draft paper on regional cooperation and integration a month or so ago. The way in which it was presented was a “disaster”, says Volker Ducklau, ADB executive director for Germany, the UK and other countries.
According to Ducklau, the new plan – which he termed a “Kuroda flagship” – won the support of many Asian executive directors of the bank (who are in a numerical majority) but was opposed by many from outside Asia. It was then assumed to have been approved, he says, even though there was little discussion of the more controversial aspects of the plan. Kuroda told Emerging Markets during the interview that the plan had received board “endorsement”.
The new medium-term strategy and the regional cooperation and integration paper (which has still to be brought before executive directors) envisage a “four pillar” structure of future operations for the ADB in the area of assisting regional cooperation. These are: cross-border infrastructure development; trade and investment cooperation; monetary and financial cooperation; and cooperation in regional public goods such as health and environment issues.
The second and third of these would take the Manila-based bank into new
territory and give it a role in helping
coordinate what Kuroda has called the
“noodle bowl” of bilateral, regional and sub-regional free trade agreements (FTAs) that are proliferating across Asia. The strategy would also see the ADB become a more active force in helping promote regional monetary cooperation, which Kuroda has said should logically end up in Asia, with a “common currency” to match growing trade and investment integration in the region.
wandering focus
“What we are suspicious about is whether all this does not deviate from the poverty focus of the ADB,” Ducklau tells Emerging Markets. Pasi Hellman, an alternate executive director at the bank who represents Canada and a group of Scandinavian countries, agrees. “What worries many European countries is not that the ADB is moving in a ‘new direction’ but that it could be moving away from poverty reduction,” he says.
There is also a “political agenda” involved, according to Ducklau. Asian countries are promoting many regional economic integration schemes, and Japan has come up with plans for a 16-nation alliance. “Would India and China like the ADB to develop a strong profile on these things when we know there is a bilateral Japanese initiative at the same time?” he asks. Some Asian countries “suspect the bank and the president of promoting Japan’s bilateral agenda”, he claims.
China’s executive director at the ADB, Xiaosong Zheng, and Indian executive director Ashok Saikia, both declined requests from Emerging Markets for comment on what Ducklau describes as these “very sensitive” issues. US executive director Paul Speltz and others also declined to comment. But finance ministers and other ADB governors from many of the regional and non-regional member countries are expected to make their views known in Hyderabad, ADB sources say.
The controversy appears to have taken Kuroda, former vice minister for international affairs at Japan’s finance ministry, rather by surprise. “I think basically regional as well as non-regional members support ADB’s efforts to strengthen and enhance regional cooperation and integration in Asia Pacific,” he says. But he constantly stresses that the bank is responding to countries’ requests for help in the process rather than seeking to drive it.
For example, he says, “We are not, of course, a trade institution, and we have no intention of being involved in trade negotiations, regionally or globally. But compared to the World Bank and other regional banks, we have been rather quiet on trade issues. Given that there are so many bilateral and regional FTAs now, we have to study and advise developing member countries on these.” But, he stresses, this idea is “still at the study stage”.
Likewise, “the ADB is a development bank and in no way can it initiate monetary cooperation,” Kuroda says. “It is up to the Asean+3 countries and others to engage in such exchange rate cooperation.” Financial cooperation is in any case only one of the four pillars of the ADB’s proposed role in regional cooperation, and the bank’s plan to create an Asian Currency Unit, or index, to track regional exchange rates is “only a possible component of this pillar”, he adds.
On the defensive
On the overall medium-term strategy issue also, Kuroda appears to have gone onto the defensive. “Regional cooperation and integration strategy will be discussed at the Board, sometime after the annual meeting,” he tells Emerging Markets. “The medium-term strategy was already discussed at the Board and was endorsed by the Board. However, there were various issues to be clarified and fleshed out, so we intend to finalize it after the annual meeting,” he adds.
The new MTS is designed to run for three years whereas its predecessor was a five-year plan. This is because there may be a need to realign the ADB existing 15-year strategy (which is supposed to run until 2015) within a couple of years from now, to take account of the fast-changing economic landscape in Asia, says Kuroda. “We may ask some outside experts to provide input and then start actual review of the long-term strategy framework sometime next year,” he adds.
The ADB president laughed off charges that his regional integration initiatives since coming to the bank at the start of 2005 are part of a Japanese bilateral agenda. “No, I don’t think so,” he says. “I have never emphasized the role of Japan. I always emphasize the role of countries in the region including Asean.” He also rejects the charges that the new integration strategy could divert the ADB’s efforts from poverty reduction. “I don’t think there is any such danger,” he says.
“Regional economic cooperation and integration tend to accelerate growth and at the same time reduce income disparities between countries and subregions. Those countries that lag behind tend to be those that are less well connected. By improving connectivity through infrastructure, finance, trade and even public goods provision, income disparity can be reduced. If you look at the European Union or Nafta [North American Free Trade Agreement] you can see how rapidly income disparities between countries and regions are narrowing,” Kuroda says.
ADB vice-president Jin Liqun is quick to defend Kuroda’s initiatives: “The president’s idea of pushing for regional economic cooperation and integration is the right one,” he tells Emerging Markets. “This is to respond to needs of the developing countries. I have always maintained that regional cooperation and integration serve as the platform for all these countries to work together to achieve better economic efficiency, thereby reducing poverty.”
But Jin acknowledges the need for the ADB to “strengthen our dialogue with non-regional members. They do not question the validity of regional economic cooperation and integration,” he says. But their “big concern” is “whether our work on this would dilute the overarching objective of poverty reduction. It is a matter of clarification and communication with the major shareholders. In my view [we] could do more in this regard.” Hellman also suggests that differences on the new ADB strategy are more over process than content. “I certainly do not think that agreement is impossible,” he adds.