Asian Development Bank

Asian Development Bank

ADB logo
Motto	Fighting poverty in Asia and the Pacific
Formation	24 November 1966
Type	Multilateral Development Bank
Legal status	Treaty
Purpose	Social and economic development
Headquarters	Mandaluyong, Metro Manila, Philippines
Region served	Asia-Pacific
Membership	67 countries
President	Takehiko Nakao
Main organ	Board of Governors[1]
Staff	2997 employees[2]
Website	www.adb.org

The Asian Development Bank (ADB) is a regional development bank established on 19 December 1966,^[3] which is headquartered in the Ortigas Center located in Mandaluyong, Metro Manila, Philippines. The company also maintains 31 field offices around the world^[4] to promote social and economic development in Asia. The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE) and non-regional developed countries.^[5] From 31 members at its establishment, ADB now has 67 members, of which 48 are from within Asia and the Pacific and 19 outside. The ADB was modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members' capital subscriptions. ADB releases an annual report that summarizes its operations, budget and other materials for review by the public.^[6] The ADB-Japan Scholarship Program (ADB-JSP) enrolls about 300 students annually in academic institutions located in 10 countries within the Region. Upon completion of their study programs, scholars are expected to contribute to the economic and social development of their home countries. ^[7] ADB is an official United Nations Observer.^[8]

As of 31 December 2016, Japan and United States hold the largest proportion of shares at 15.607%. China holds 6.444%, India holds 6.331%, and Australia holds 5.786%.^[9]

Organization

The highest policy-making body of the bank is the Board of Governors, composed of one representative from each member state. The Board of Governors, in turn, elect among themselves the twelve members of the Board of Directors and their deputies. Eight of the twelve members come from regional (Asia-Pacific) members while the others come from non-regional members.^[10]

The Board of Governors also elect the bank's president, who is the chairperson of the Board of Directors and manages ADB. The president has a term of office lasting five years, and may be reelected. Traditionally, and because Japan is one of the largest shareholders of the bank, the president has always been Japanese.

The current president is Takehiko Nakao, who succeeded Haruhiko Kuroda in 2013.^[11]

The headquarters of the bank is at 6 ADB Avenue, Mandaluyong, Metro Manila, Philippines,^[12][13] and it has 25 field offices in Asia and the Pacific and representative offices in Washington, Frankfurt, Tokyo and Sydney. The bank employs about 3,000 people, representing 60 of its 67 members.^[14]

List of presidents

Name	Dates	Nationality
Takeshi Watanabe	1966–1972	Japanese
Shiro Inoue	1972–1976	Japanese
Taroichi Yoshida	1976–1981	Japanese
Masao Fujioka	1981–1989	Japanese
Kimimasa Tarumizu	1989–1993	Japanese
Mitsuo Sato	1993–1999	Japanese
Tadao Chino	1999–2005	Japanese
Haruhiko Kuroda	2005–2013	Japanese
Takehiko Nakao	2013–	Japanese

History

1960s

The concept of a regional bank was formally proposed as an institution for developing intra-regional trade, at a trade conference organized by the Economic Commission for Asia and the Far East (ECAFE) in 1963 by a young Thai banker, Paul Sithi-Amnuai. (ESCAP, United Nations Publication March 2007, "The first parliament of Asia" pp. 65). The United States was initially opposed to the creation of another regional development bank following the establishment of the Inter-American Development Bank in 1959. However, with the escalation of the Vietnam War, U.S. President Lyndon B. Johnson was persuaded to support the establishment of the ADB in 1964 in an effort the mollify Senator J. William Fulbright (Chairman of the Senate Foreign Relations Committee) who argued that the Vietnam War would not only bleed American blood and treasure, but would also be very bad for America's image in Asia. President Johnson pressed retired World Bank President Eugene R. Black, Sr. into organizing and establishing the new institution.^[15]

In the process, U.S. Secretary of State Dean Rusk urged that Japan play an important role in the ADB. He argued that the biggest danger to American foreign policy in Asia was Japan's inability to integrate into the Asian society of nations following the animosities of World War II. Indeed, there was sharp Asian opposition to Japan's participation in the institution. After considerable diplomatic effort, Japan was eventually accepted into the organization by the majority of the participating nations, and Tokyo was selected as the site of the bank's headquarters. The Presidency was to rotate between the various countries of Asia. However, at the eleventh hour in a meeting of the delegates in Manila, Philippine President Ferdinand Marcos delivered a stinging tirade against the establishment of the ADB with Japanese participation. He threatened to personally travel to every Asian capital and scuttle the project. Eugene Black, with the assistance of President Johnson, was finally able to mollify President Marcos with the promise to locate the ADB in Manila. (In fact, Marcos eagerly volunteered to house the ADB in the newly constructed building on prestigious Roxas Boulevard, which had been designated for the Foreign Ministry.) As a concession to the Japanese, they were given the inaugural Presidency of the institution – a position they have tenaciously held onto ever since.^[15]

Once the ADB was founded in 1966, Japan took up the Presidency and some other crucial "reserve positions" such as the directorship of the all-powerful administration department known as BPMSD (Budget, Personnel, and Management Systems Department) through which they manage the institution. By the end of 1972, Japan had contributed $173.7 million (22.6% of the total) to the ordinary capital resources and $122.6 million (59.6% of the total) to the special funds. In contrast, the United States contributed only $1.25 million to the special fund.^[5]

After its creation in the 1960s, ADB focused much of its assistance on food production and rural development. At the time, Asia was one of the poorest regions in the world.^[16]

Early loans went largely to Indonesia, Thailand, Malaysia, Republic of Korea and the Philippines, the countries with which Japan had crucial trading ties; these nations accounted for 78.48% of the total ADB loans between 1967 and 1972. Moreover, Japan received tangible benefits, 41.67% of the total procurements between 1967 and 1976. Japan tied its special funds contributions to its preferred sectors and regions and procurements of its goods and services, as reflected in its $100 million donation for the Agricultural Special Fund in April 1968.^[5]

Takeshi Watanabe served as the first ADB president from 1966 to 1972.^[17][18]

1970s–1980s

In the 1970s, ADB's assistance to developing countries in Asia expanded into education and health, and then to infrastructure and industry. The gradual emergence of Asian economies in the latter part of the decade spurred demand for better infrastructure to support economic growth. ADB focused on improving roads and providing electricity. When the world suffered its first oil price shock, ADB shifted more of its assistance to support energy projects, especially those promoting the development of domestic energy sources in member countries.^[16]

Following considerable pressure from the Reagan Administration in the 1980s, ADB reluctantly began working with the private sector in an attempt to increase the impact of its development assistance to poor countries in Asia and the Pacific. In the wake of the second oil crisis, ADB expanded its assistance to energy projects. In 1982, ADB opened its first field office, in Bangladesh, and later in the decade it expanded its work with non-government organizations (NGOs).^[16]

Japanese presidents Inoue Shiro (1972–76) and Yoshida Taroichi (1976–81) took the spotlight in the 1970s. Fujioka Masao, the fourth president (1981–90), adopted an assertive leadership style, launching an ambitious plan to expand the ADB into a high-impact development agency.

1990s

In the 1990s, ADB began promoting regional cooperation by helping the countries on the Mekong River to trade and work together. The decade also saw an expansion of ADB's membership with the addition of several Central Asian countries following the end of the Cold War.^[16]

In mid-1997, ADB responded to the financial crisis that hit the region with projects designed to strengthen financial sectors and create social safety nets for the poor. During the crisis, ADB approved its largest single loan – a $4 billion emergency loan to the Republic of Korea. In 1999, ADB adopted poverty reduction as its overarching goal.^[16]

2000s

The early years of 2000s saw a dramatic expansion of private sector finance. While the institution had such operations since the 1980s (under pressure from the Reagan Administration) the early attempts were highly unsuccessful with low lending volumes, considerable losses and financial scandals associated with an entity named AFIC. However, beginning in 2002, the ADB undertook a dramatic expansion of private sector lending under a new team. Over the course of the next six years, the Private Sector Operations Department (PSOD) grew by a factor of 41 times the 2001 levels of new financings and earnings for the ADB. This culminated with the Board's formal recognition if these achievements in March 2008, when the Board of Directors formally adopted the Long Term Strategic Framework (LTSF). That document formally stated that assistance to private sector development was the lead priority of the ADB and that it should constitute 50% of the bank's lending by 2020.

In 2003, the severe acute respiratory syndrome (SARS) epidemic hit the region and ADB responded with programs to help the countries in the region work together to address infectious diseases, including avian influenza and HIV/AIDS. ADB also responded to a multitude of natural disasters in the region, committing more than $850 million for recovery in areas of India, Indonesia, Maldives, and Sri Lanka which were impacted by the December 2004 Asian tsunami. In addition, $1 billion in loans and grants was provided to the victims of the October 2005 earthquake in Pakistan.^[16]

In 2009, ADB's Board of Governors agreed to triple ADB's capital base from $55 billion to $165 billion, giving it much-needed resources to respond to the global economic crisis. The 200% increase is the largest in ADB's history, and was the first since 1994.^[16]

2010s

Asia moved beyond the economic crisis and by 2010 had emerged as a new engine of global economic growth though it remained home to two-thirds of the world’s poor. In addition, the increasing prosperity of many people in the region created a widening income gap that left many people behind. ADB responded to this with loans and grants that encouraged economic growth.^[16]

In early 2012, the ADB began to re-engage with Myanmar in response to reforms initiated by the government. In April 2014, ADB opened an office in Myanmar and resumed making loans and grants to the country.^[16]

In 2017, ADB combined the lending operations of its Asian Development Fund (ADF) with its ordinary capital resources (OCR). The result was to expand the OCR balance sheet to permit increasing annual lending and grants to $20 billion — 50% more than the previous level.^[16]

Objectives and activities

Aim

The ADB defines itself as a social development organization that is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. This is carried out through investments – in the form of loans, grants and information sharing – in infrastructure, health care services, financial and public administration systems, helping nations prepare for the impact of climate change or better manage their natural resources, as well as other areas.

Focus areas

Eighty percent of ADB’s lending is concentrated public sector lending in five operational areas.^[19]

• Education – Most developing countries in Asia and the Pacific have earned high marks for a dramatic rise in primary education enrollment rates in the last three decades, but daunting challenges remain, threatening economic and social growth.^[20]
• Environment, Climate Change, and Disaster Risk Management – Environmental sustainability is a prerequisite for economic growth and poverty reduction in Asia and the Pacific.^[21]
• Finance Sector Development – The financial system is the lifeline of a country’s economy. It creates prosperity that can be shared throughout society and benefit the poorest and most vulnerable people. Financial sector and capital market development, including microfinance, small and medium-sized enterprises, and regulatory reforms, is vital to decreasing poverty in Asia and the Pacific.^[22]
• Infrastructure, including transport^[23] and communications,^[24] energy,^[25] water supply and sanitation,^[26] and urban development.^[27]
• Regional Cooperation and Integration – Regional cooperation and integration (RCI) was introduced by President Kuroda when he joined the ADB in 2004. It was seen as a long-standing priority of the Japanese government as a process by which national economies become more regionally connected. It plays a critical role in accelerating economic growth, reducing poverty and economic disparity, raising productivity and employment, and strengthening institutions.^[28]
• Private Sector Lending – This priority was introduced into the ADB's activities at the insistence of the Reagan Administration. However, that effort was never a true priority until the administration of President Tadeo Chino who in turn brought in a seasoned American banker – Robert Bestani. From then on, the Private Sector Operations Department (PSOD) grew at a very rapid pace, growing from the smallest financing unit of the ADB to the largest in terms of financing volume. As noted earlier, this culminated in the Long Term Strategic Framework (LTSF) which was adopted by the Board in March 2008.

Financings

Five largest borrowing countries^[29]

Country	2016		2015
	$ million	%	$ million	%
China	15,615	24.8	14,646	25.2
India	13,331	21.2	12,916	22.2
Indonesia	8,700	13.8	8,214	14.1
Philippines	5,935	9.4	5,525	9.5
Pakistan	4,570	7.3	4,319	7.4
Others	14,831	23.5	12,486	21.6
Total	62,983	100.0	58,106	100.0

The ADB offers "hard" loans on commercial terms primarily to middle income countries in Asia and "soft" loans with lower interest rates to poorer countries in the region. Based on a new policy, both types of loans will be sourced starting January 2017 from the bank’s ordinary capital resources (OCR), which functions as its general operational fund.^[30]

The ADB's Private Sector Department (PSOD) can and does offer a broader range of financings beyond commercial loans. They also have the capability to provide guarantees, equity and mezzanine finance (a combination of debt and equity).

In 2014, ADB lent $11.2 billion to its member governments – known as "sovereign" lending – and invested another $1.7 billion in private enterprises, as part of its "nonsovereign" operations. ADB’s operations in 2014, including grants and other assistance, totaled $22.93 billion.^[31]

ADB obtains its funding by issuing bonds on the world's capital markets. It also relies on the contributions of member countries, retained earnings from lending operations, and the repayment of loans.^[32]

Private sector investments

ADB provides direct financial assistance, in the form of debt, equity and mezzanine finance to private sector companies, for projects that have clear social benefits beyond the financial rate of return. ADB’s participation is usually limited but it leverages a large amount of funds from commercial sources to finance these projects by holding no more than 25% of any given transaction.^[33]

Cofinancing

ADB partners with other development organizations on some projects to increase the amount of funding available. In 2014, $9.2 billion—or nearly half—of ADB’s $22.9 billion in operations were financed by other organizations.^[34] According to Jason Rush, Principal Communication Specialist, the Bank communicates with many other multilateral organizations.

Funds and resources

More than 50 financing partnership facilities, trust funds, and other funds – totalling several billion each year – are administered by ADB and put toward projects that promote social and economic development in Asia and the Pacific.^[35] ADB has raised Rs 5 billion or around Rs 500 crores from its issuance of 5-year offshore Indian rupee (INR) linked bonds. Also, plans to raise around $20 billion from the capital markets in 2016.^[36]

Access to information

ADB has an information disclosure policy that presumes all information that is produced by the institution should be disclosed to the public unless there is a specific reason to keep it confidential. The police calls for accountability and transparency in operations and the timely response to requests for information and documents.^[37] ADB does not disclose information that jeopardizes personal privacy, safety and security, certain financial and commercial information, as well as other exceptions.^[38]

Notable projects and technical assistance

• Afghanistan: Hairatan to Mazar-e-Sharif Railway Project^[39]
• Armenia: Water Supply and Sanitation Sector Project^[40]
• Bhutan: Green Power Development Project^[41]
• India: Rural Roads Sector II Investment Program^[42]
• Indonesia: Vocational Education Strengthening Project^[43]
• Laos: Northern and Central Regions Water Supply and Sanitation Sector Project^[44]
• Mongolia: Food and Nutrition Social Welfare Program and Project^[45]
• Solomon Islands: Pacific Private Sector Development Initiative^[46]

Criticism

Since the ADB's early days, critics have charged that the two major donors, Japan and the United States, have had extensive influence over lending, policy and staffing decisions.^[47]

Oxfam Australia has criticized the Asian Development Bank for insensitivity to local communities. "Operating at a global and international level, these banks can undermine people's human rights through projects that have detrimental outcomes for poor and marginalized communities."^[48] The bank also received criticism from the United Nations Environmental Program, stating in a report that "much of the growth has bypassed more than 70 percent of its rural population, many of whom are directly dependent on natural resources for livelihoods and incomes."^[49]

There had been criticism that ADB's large scale projects cause social and environmental damage due to lack of oversight. One of the most controversial ADB-related projects is Thailand's Mae Moh coal-fired power station. Environmental and human rights activists say ADB's environmental safeguards policy as well as policies for indigenous peoples and involuntary resettlement, while usually up to international standards on paper, are often ignored in practice, are too vague or weak to be effective, or are simply not enforced by bank officials.^[50][51]

The bank has been criticized over its role and relevance in the food crisis. The ADB has been accused by civil society of ignoring warnings leading up the crisis and also contributing to it by pushing loan conditions that many say unfairly pressure governments to deregulate and privatize agriculture, leading to problems such as the rice supply shortage in Southeast Asia.^[52]

The bank has also been criticized by Vietnam War veterans for funding projects in Laos, because of the United States' 15% stake in the bank, underwritten by taxes.^[53] Laos became a communist country after the U.S. withdrew from Vietnam, and the Laotian Civil War was won by the Pathet Lao, which is widely understood to have been supported by the North Vietnamese Army.

In 2009, the bank endorsed a $2.9 billion funding strategy for proposed projects in India. The projects in this strategy were only indicative and still needed to be further approved by the bank's board of directors; however, PRC Foreign Ministry spokesman Qin Gang claimed, "The Asian Development Bank, regardless of the major concerns of China, approved the India Country Partnership strategy which involves the territorial dispute between China and India. China expresses its strong dissatisfaction over this.... The bank's move not only seriously tarnishes its own name, but also undermines the interests of its members."^[54]

There has been considerable criticism of management for its reluctance to implement the Long Term Strategic Framework (LTSF) which (as noted above) was formally adopted in March 2008. Indeed, whereas the Private Sector Operations Department (PSOD) closed out that year with financings of $2.4 billion, the ADB has significantly dropped below that level in the years since and is clearly not on the path to achieving its stated goal of 50% of financings to the private sector by 2020. Critics also point out that the PSOD is the only Department that actually makes money for the ADB. Hence, with the vast majority of loans going to concessionary (sub-market) loans to the public sector, the ADB is facing considerable financial difficulty and continuous operating losses.

List of 20 largest countries and regions by subscribed capital and voting power

The following table are amounts for 20 largest countries by subscribed capital and voting power at the Asian Development Bank as of December 2014.^[55]

The 20 largest countries and regions by subscribed capital and voting power at the Asian Development Bank

Rank	Country	Subscribed capital (% of total)	Rank	Country	Voting power (% of total)
	World	100.000		World	100.000
1	Japan	15.677		European Union	15.724
2	United States	15.567	1	Japan	12.840
	European Union	14.429	2	United States	12.752
3	China	6.473	3	China	5.477
4	India	6.359	4	India	5.386
5	Australia	5.812	5	Australia	4.948
6	Canada	5.254	6	Canada	4.502
7	Indonesia	5.131	7	Indonesia	4.404
8	South Korea	5.060	8	South Korea	4.347
9	Germany	4.345	9	Germany	3.775
10	Malaysia	2.735	10	Malaysia	2.487
11	Philippines	2.393	11	Philippines	2.213
12	France	2.338	12	France	2.169
13	Pakistan	2.188	13	Pakistan	2.049
14	United Kingdom	2.051	14	United Kingdom	1.940
15	Italy	1.815	15	Italy	1.751
16	New Zealand	1.543	16	New Zealand	1.533
17	Thailand	1.368	17	Thailand	1.393
18	Taiwan	1.094	18	Taiwan	1.174
19	Netherlands	1.030	19	Netherlands	1.123
20	Bangladesh	1.026	20	Bangladesh	1.119

Members

ADB has 67 members (as of 2 February 2007): 48 members from the Asian and Pacific Region, 19 members from Other Regions.^[57] The non-member nations wholly or primarily in Asia are Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, North Korea, Oman, Qatar, Russia, Saudi Arabia, Syria, the United Arab Emirates, and Yemen. Names are as recognized by ADB.
The year after a member's name indicates the year of membership. At the time a country ceases to be a member, the Bank shall arrange for the repurchase of such country's shares by the Bank as a part of the settlement of accounts with such country in accordance with the provisions of paragraphs 3 and 4 of Article 43.^[58]

Country Date of accession  Afghanistan 1966  Australia 1966  Cambodia 1966  India 1966  Indonesia 1966  Japan 1966  Korea, Republic of 1966  Lao People's Democratic Republic[59] 1966  Malaysia 1966    Nepal 1966  New Zealand 1966  Pakistan 1966  Philippines 1966  Samoa 1966  Singapore 1966  Sri Lanka 1966  Taipei, China[60][61] 1966  Thailand 1966  Viet Nam, Socialist Republic of[62] 1966  Hong Kong[63] 1969  Fiji 1970  Papua New Guinea 1971  Tonga 1972  Bangladesh 1973  Burma 1973  Solomon Islands 1973  Kiribati 1974  Cook Islands 1976  Maldives 1978  Vanuatu 1981  Bhutan 1982  China, People's Republic of 1986  Marshall Islands 1990  Micronesia, Federated States of 1990  Mongolia 1991  Nauru 1991  Tuvalu 1993  Kazakhstan 1994  Kyrgyz Republic 1994  Uzbekistan 1995  Tajikistan 1998  Azerbaijan 1999  Turkmenistan 2000  Timor-Leste 2002  Palau 2003  Armenia 2005  Brunei Darussalam 2006  Georgia 2007

Country Date of accession  Austria 1966  Belgium 1966  Canada 1966  Denmark 1966  Finland 1966  Germany[64] 1966  Italy 1966  Netherlands 1966  Norway 1966  Sweden 1966  United Kingdom 1966  United States 1966   Switzerland 1967  France 1970  Spain 1986  Turkey 1991  Portugal 2002  Luxembourg 2003  Ireland 2006

See also

• African Development Bank
• Asian Clearing Union
• Asian Development Bank Institute (ADBI)
• Asian Infrastructure Investment Bank (AIIB)
• Asia Cooperation Dialogue
• Asia Council
• Caribbean Development Bank
• Eurasian Development Bank
• International Monetary Fund
• South Asia Subregional Economic Cooperation
• World Bank

References

Further reading

• Huang, P.W. 1975. The Asian Development Bank: Diplomacy and Development in Asia. New York, NY: Vantage Press.
• Krishnamurti, R. 1977. ADB: The Seeding Days. Manila: Asian Development Bank.
• McCawley, Peter. 2017. Banking on the Future of Asia and the Pacific: 50 Years of the Asian Development Bank. Manila: Asian Development Bank.
• Watanabe, Takeshi. 1977 (reprinted 2010). Towards a New Asia. Manila: Asian Development Bank.
• Wihtol, Robert. 1988. The Asian Development Bank and Rural Development: Policy and Practice. Hampshire, UK: Macmillan Press.
• Wilson, Dick. 1997. A Bank for Half the World: The Story of the Asian Development Bank, 1966-1986. Manila: Asian Development Bank.
• Yasutomo, D.T. 1983. Japan and the Asian Development Bank. New York, NY: Praeger.

External links

Wikimedia Commons has media related to Asian Development Bank.

• Official website
• Bank Information Center
• ADB Institute
• "Inequality Worsens across Asia", Dollars & Sense magazine, November/December 2007. Article discussing recent reports from the ADB.
• "The right business environment" Youth unemployment in Asia. An interview with Jesus Felipe, advisor in the Economics and Research Department of ADB.