The Asian Development Bank responded to the financial crisis with all guns blazing. In just over a year after the crisis began, the bank won a tripling of its capital base and has since doubled its lending.
The banks ordinary, non-concessional, lending jumped to $11 billion in 2009, an increase of 31% over 2008 and a near doubling of the roughly $6 billion annually that the bank was lending up to 2007.
Including concessional loans, total ADB lending in 2009 hit a high of $13.2 billion. Without the capital increase it would have been limited to one-third of this. By lobbying hard for a major capital increase for the ADB, its president Haruhiko Kuroda opened the door for multilateral development banks in general to be given large capital increases in the wake of the crisis.
It is a massive challenge to gear up from being a $55 billion bank to becoming a $165 billion bank, says executive director Phil Bowen. With the capital increase, the ADB was able to respond very effectively to the systemic financial crisis.
Much of the ADBs additional lending since the crisis has gone into quick-disbursing credits for budgetary support, something that has given the ADB the appearance of a mini-IMF in the eyes of some as the bank moved quickly to help countries overcome the impact of the financial crisis. Indeed, one of the successes of the bank has been the way in which it has managed to become a short-term crisis lender while continuing in its more traditional role as a long-term project financier.
Other innovative forms of lending also helped prevent trade from seizing up in Asia in the wake of the global recession. Some $750 million was supplied last year through the banks enhanced trade financing facility, a revolving credit that kept trade moving in the critical post Lehman-shock months.
We are seeing in Asia a significant recovery, well ahead of the rest of the globe, says one executive director. I would not put it all down to ADB financing, but it played a part. ADB money was used to good effect to bolster economies, particularly those that could not access the financing markets and others that would have had to pay extremely high rates of interest.
SCORE CARD TRANSPARENCY
The surge in lending in the wake of the financial crisis has coincided with what is generally agreed to be a quantum improvement in the ADBs accountability to its shareholders and other stakeholders, following the introduction of what the banks managing director Rajat Nag describes as a unique score card system of self-evaluation by the bank.
The Managing for Development Results Framework consolidates in one annual report the Development Effectiveness Review an assessment of the ADBs performance based on agreed yardsticks, so that it can be monitored easily by the banks 12-member executive board.
The system was introduced in 2008 but this year, for the first time, presentation of the score card has been advanced from the end of the year to the time of the annual meeting in May. This way ADB governors can also monitor the banks performance more easily a major advanced in transparency, says one executive director.
In past years, some executive directors of the ADB have been highly critical of the Bank over its management of issues ranging from project assessment and performance to budgeting, human resources policies and alleged failure to nurture private sector interests in emerging markets. The ADB has also been criticised by these resident country representatives over lack of transparency.
Criticisms have reflected differences between the Banks traditional Japanese (meaning autocratic and rather opaque) management style and the demands on the part of Western directors for greater openness and accountability. Criticisms have become more muted now with the advent of a reporting system which one ED says forces the ADB to become more accountable.
The report to be presented to governors this year will show measurable progress in addressing many concerns of member countries, although it will acknowledge residual concern over the ADBs relative lack of support for private sector issues such as co-financing, compared to other regional development banks. It will say too that the ADB is falling short in education projects.
There is no other international financial institution that has managed to develop a performance measurement-reporting mechanism of this nature, says the director. The ADB quite rightly has received quite a lot of credit for this from other multilateral development banks and from bilateral partners.
The ADB is the only one among the five multilateral development banks to have this kind of results framework, according to Kuroda. Many reports are made but not in a comprehensive way, Kuroda tells Emerging Markets in an interview. Ours is just one report, a living document, showing the results of all operations. This is a new and innovative approach to explain to our stakeholders, including shareholders, how our operations are changing and progressing.
Eduard Westreicher, executive director for a group of European member countries of the ADB, says: It is a very laudable effort; the decision to open the doors and to be ready to face critical questions is quite a step.
The ADBs readiness to face critical questions under the results framework is applauded by those who have found it difficult in the past to measure the extent to which the ADB is achieving results, in areas such as poverty alleviation or private-sector development, rather than making rhetorical commitments to such goals.
In addition to achieving increased transparency in what some non-regional representatives have traditionally seen as a Japanese-style, top-down and autocratic institution, the ADB is also working on further streamlining its business processes.
A number of initiatives have been taken to cut back on the processes involved in preparing loan proposals for the board, says one ADB executive director. We will start to see the benefit of that shortly. The expectation is that these initiatives could cut loan processing times by about half.
All multilateral banks suffer from this problem of taking too long to process loans. They will never do it as quickly as commercial banks because there are so many safeguards and accountability mechanisms we have to go through. Nevertheless there are still ways in which we can reduce loan processing times.
A constant criticism of the ADB by non-regional directors and governors and from the US especially has been that the bank does not pay sufficient attention to development of the private sector in the countries where it is active. They say it is too engaged with the public sector to ensure a good sectoral balance in the economy.
This seems set to change in the future: Under our strategy 2020, private-sector development and private-sector operations will comprise about 50% of the ADBs operations, says one director. This is not private-sector lending but private-sector development.
This means there has got to be a lot of gearing up not only in private-sector operations but also in areas such as risk management, because when you take on more private-sector work, you are not getting a sovereign guarantee and hence your risk goes up. So you have to have better risk management and people to do that work.
A significant number of the 500 or so new staff that the ADB is planning to add to its establishment of around 2,500 under the medium-term 2020 strategy will be risk-management specialists and other private-sector experts. Nearly 70% of these new staff will be placed in resident missions rather than in the banks Manila headquarters.
The ADB has been the subject of past criticism over human resource management, in terms of the openness of recruitment and its skills mix. Such criticism has abated, however. The bank has taken these criticisms seriously and has put a lot of time and effort into addressing them, says one executive director.
Indeed, Kuroda is now widely seen as having demonstrated considerable administrative acumen during his five-and-a-half years as president. As a result, he is tipped as a possible candidate for the position of IMF managing director, should Europe relinquish its traditional hold on the job.