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The bumpy road to a new Asian
lending bank
By Marwaan
Macan-Markar
BANGKOK - A regional UN
agency is up against two formidable adversaries -
the United States and Japan - as it tries to drum
up support among Asian and Pacific governments to
create a new financial institution, the Asian
Investment Bank (AIB).
The call for this
alternative funding body to the Manila-based Asian
Development Bank (ADB), which enjoys a monopoly on
development funding in the region, was unveiled by
the Economic and Social Commission for Asia and
the Pacific (ESCAP) during the UN agency's annual
meeting, which ended Wednesday.
As the
Bangkok-based ESCAP sees it, the ADB's annual
lending rate for development projects in the
region falls far short of what Asian countries
need to develop their infrastructure in order to
advance on the road to progress. In a document
circulated during the week-long meeting, attended
by ministers and government officials from 48
countries, ESCAP noted that the region needs over
US$200 billion annually for infrastructure
investment.
The ADB lends only $6 billion
every year, an ESCAP official said. A further $44
billion are available from "official and private
sources" for all areas of development. The ADB is
unable to meet the new financial challenges of the
region, which is growing very fast but has an
infrastructure that is "lagging behind", ESCAP
head Kim Hak-Su told reporters Wednesday. He
argued likewise on Tuesday morning during a
session that focused on the search for new avenues
to finance development in Asia.
"The Asian
Development Bank was established in 1966, but the
Asian economy has grown so fast [since then]. It
is time to look for other ways [of funding
development]," said Kim. "I believe the
competition will be good. [The proposed AIB] would
stimulate the [ADB] to strengthen its work." An
AIB would help boost the region's financial
sector, Kim added, since it "could work with the
private sector by co-financing and guaranteeing
private investment financing".
ESCAP's
initiative is not out of character for a regional
UN agency that has a mandate to generate new
economic and social blueprints to bolster
development in Asia and the Pacific.The ADB, in
fact, grew out of such a climate at ESCAP.
However, the call to create the AIB was
dismissed by officials from Washington and Tokyo
as premature. "We do not see the need for a new
[financial] institution," Richard Behrend, head of
the US delegation for ESCAP's annual meeting, told
delegates on Tuesday. For Itsunori Onodera, head
of Japan's delegation, more answers are needed to
understand the prevailing funding gap for
development before the region plunges toward
another financial entity. "It will be difficult
for Japan to support the AIB from the viewpoint of
efficiency," he said.
Both objections came
from countries that have a huge stake in the
Manila-based bank since they are the ADB's major
financiers. Yet the idea floated by ESCAP was
backed by a wide range of countries, including
Kazakhstan. "The idea for the AIB is very
interesting. I don't agree with those who say that
it will duplicate the work of the ADB,"
Kassymzhomart Tokaev, Kazakhstan's foreign
minister who was also chairman of ESCAP's annual
meeting, told the media.
ESCAP's case for
a new financial institution in Asia on the lines
of the European Investment Bank is built on
factors other than the "large financing gap" for
development, the agency's researchers point out.
Among them are the ADB being only permitted to
lend to governments, and its inability to
completely fund large-scale trans-boundary
projects, such as major highway and railway
networks cutting across the continent.
Among such projects is the planned Asian
Highway, a 140,000-kilometer network of roadways
that will link 32 Asian countries, from Japan on
the eastern fringe to Georgia on the western end.
The ADB has agreed to fund the roadway linking
Vietnam to Burma, Thailand and southern China.
The push for new financial resources has
been shaped by a noticeable drop in private
investment to fund infrastructure programs since
the Asian financial crisis, says Raj Kumar, head
of ESCAP's poverty and development division. "It
has slipped from $40 billion in 1997 to $11.5
billion in 2003.'' That slide was one factor that
prompted ESCAP to review the prevailing
funding-for-development pattern, he said in an
interview. "While other aspects of the affected
economies like growth has revived, infrastructure
financing has not."
According to Yung Chul
Park, director of the Center of International
Commerce and Finance at South Korea's Seoul
National University, the new institution will
complement the work of the ADB "since it will be
geared toward private lending for private firms
involved in development infrastructure...The ADB
has no experience in private lending, so one might
as well create a new institution with a new
mandate. This will be more efficient than asking
the ADB to combine its lending work to governments
with private lending."
ESCAP has already
set its sights on the agency's annual meeting in
Indonesia next year to galvanize more support for
the AIB initiative since the theme for that
gathering will be financing infrastructure
development in the region. "The issue of
infrastructure in Asia is important and deserves
study, but we just think that it is not possible
on the basis of two numbers that were presented in
the documentation - $200 billion needed and $50
billion in available funds - to conclude that a
new institution is necessary," said US official
Behrend.
(Inter Press
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