Development banks play a significant role across the globe, regions, and countries. Among the most notable institutions of this nature is the Asian Development Bank (ADB), which was established in 1966. From the time of its inception, the bank has carried out many functions across the Asian region with the primary objective of improving life for member countries. In order to get a clear picture of the working of the ADB, the current paper traces its creation, assesses its decisions, challenges, success, and failures.
Kilby (2002) observed that the ADB came into existence to facilitate reconstruction efforts after the Second World War. The author indicates that the architects of the institution had a vision of developing an entity with an Asian characterization to enhance economic growth and improve cooperation within the Asian region. It is recalled that at that time the region was among the poorest areas of the globe.
In 1963, the United Nations Economic Commission for Asia and the Far East held a ministerial Conference on Asian Economic Cooperation that paved the way for the formation of the bank (Kilby, 2002). Manila, the capital city of the Philippines, was chosen as the institution’s headquarters. In 1966, when the bank opened its operations, thirty-one countries came together to cater for a largely agricultural area. Much of the bank’s focus was initially on food production as well as rural development.
By the 1970s, the ADB had extended into the health, education, and infrastructural sectors (Guerrero, 2003). With the expansion being witnessed within the Asian economies, the demand for supporting infrastructure grew. Thus, the ADB sensed the need to focus on the issue of improving roads and provision of electricity. After the oil price disaster, the ADB redirected more of its help to energy projects, focusing on those emphasizing the advancement of the energy sector (Serrat, 2007). The establishment of the Asian Development Bank Fund in 1974 was a major milestone that could facilitate the realization of the objective of providing concessional loans to its poor members.
Main Issues and Points Discussed in the Asian Development Bank
Promoting regional cooperation was among the outcomes fostered by the ADB. After the 1990s, the bank focused on promoting regional unity by encouraging closer ties among nearby countries and those within the Greater Mekong Sub-region (the Asian Development Bank, 2009). It is noted that regional unity is integral to the development process since it enhances the level at which members share with each other, leading to improvements in business.
Opening up the Asian economy is also an issue that the ADB considers. Due to increasing globalization, assuming a liberal approach would allow the region to gain from the resulting benefits. In this regard, the bank has contributed to the opening up of the Asian economies in many ways. For instance, as time passed, it became apparent that the private sector would be critical for driving economic performance. Thus, it did not come as a surprise when the bank invested direct equity and started using its record of accomplishment to source for resources to develop the private sector in 1980 (Serrat, 2007).
Despite the adverse effects of the oil crisis, the ADB continued supporting infrastructural development, specifically focusing on the energy sector. In addition, the bank delved into the social aspects of infrastructure by focusing on microfinance, gender, education, environment, health, and urban planning (Fujita, 2013). Given that development is a multidimensional activity, which deals with different aspects, the conduct of the bank is appropriate.
In 1982, the bank opened a field office in Bangladesh with the aim of bringing operations closer to the people benefiting from the funded projects (Guerrero, 2003). Later, the ADB adopted a policy to support cooperation with nongovernmental organizations with the intention of addressing the basic needs of the vulnerable groups within the Asian region. Responding to the issues affecting the vulnerable within the society is critical for enhancing sustainable development, given that each segment of the population is a part of the society.
When the new millennium started, the focus shifted to helping the Asian countries to attain the Millennium Development Goals and translating overall development to become more effective (Guerrero, 2003). However, in 2003, the Severe Acute Respiratory Syndrome (SARS) epidemic broke out within the region. Given the gravity of the impact of the disease, the ADB launched support activities both at the regional and national levels. The aim was to help the region to combat the problem effectively. Similarly, the bank addressed concerns stemming from the HIV/ AIDS and Avian Influenza threats.
Challenges And Difficulties
The ADB has had to respond to a number of issues, such as natural disasters. In particular, following the Asian tsunami that affected large parts of India, Maldives, Sri Lanka, and Indonesia in December 2004 (Fujita, 2013). Apart from allocating eight hundred and fifty million towards the recovery measures, one billion US dollars were also set aside to help the victims of the Pakistan earthquake in October 2005 (Fujita, 2013).
From the initial days following the creation of the ADB, it has been pointed out that the United States and Japan have wielded considerable influence because they are the leading donors (Serrat, 2007). Owing to their position of influence, the two countries exert influence on lending, staff decisions, and policy development. For an agency executing the mandate that the bank does, charting a neutral path is preferable. Hence, the undue influence is a challenge to the bank.
Despite claims about sensitive issues affecting people, Oxfam Australia observed that the bank was ineffective in this respect because it did not take into consideration the local communities. According to the Asian Development Bank (2009), it undermines human rights by launching projects whose outcomes are detrimental to the marginalized communities. Similarly, the United Nations Environmental Program indicated that more than seventy percent of the bank’s program did not pay attention to the needs of rural populations, who were directly affected.
The ADB has had to deal with many other challenges affecting its operations. For instance, in 2009, the credit crunch severely undermined the bank’s poverty reduction objectives (Fujita, 2013). Other critical challenges border on the following: inability to provide about sixty percent of the residents with safe water, low levels of sanitation, high infant mortality rates, high malnourishment levels, and rising inflation levels.
Over the course of its existence, the ADB has made a number of decisions, touching issues that affect residents of the Asian region. Decisions of the entity have also revolved around the rights of people affected by its policies. For instance, in 1995, the ADB approved a governance policy aimed at ensuring that the loans extended ended benefiting the poor (Fujita, 2013). Besides, other policies related to the function of inspection and involuntary resettlement of indigenous people.
The severe financial crisis of 1997 featured prominently in the deliberations of the bank (Fujita, 2013). The reason for concentrating on the issue was based on the danger the crisis posed to the region after previously attained immense gains. The bank took the decision to launch projects to improve the financial sector by encouraging the creation of safety nets to protect the vulnerable populations. The bank also took a decision to extend the largest emergency loan (4 billion US dollars) in its history to the Republic of Korea (Fujita, 2013). In addition, the bank decided to establish the Asian Currency Crisis Support Facility charged with the responsibility to help countries in need.
When the energy sector grew bigger, the bank released a second paper to guide the restructuring of the industry (Serrat, 2007). The policy paper was timely, given that energy problems were increasing. The primary aim was to address government control over power. Some of the functions of the bank are examined in order to gain additional insight into its decisions.
The core function of the Asian Development Bank is extending financial help to deserving projects within the Asian region. The bank offers assistance through loans and grants. Three main types of loans are provided. They include: programme loans, sector loans, and project loans (Asian Development Bank, 2009). Project loans cover specific projects, while sector-based loans are extended to finance related projects in a given sector. On the other hand, program loans cover policy areas. Thus, they extend beyond a specific sector as they are geared towards bringing change.
The loans are advanced out of the Special Funds Reserve and Ordinary Funds Reserve (Fujita, 2013). The ordinary reserve comprises the bank’s normal capital resources, which entail local currency or foreign exchange constituents of the funded project. The ADB also gives credit to member country development banks, which re-lend the funds to specific projects. All direct loans are repayable within a period of fifteen years, although a three-year grace period exists. Regarding sector lending, the ADB has established Special Funds, such as the Agriculture Special Fund, Multipurpose Special Fund, and the Asian Development Fund. These units extend loans to high-priority development areas that last longer, although they attract lower interest rates compared to ordinary loans. The ADB contributes ten percent to the funds, while the remainder is composed of member country donations.
The second major role is consulting countries about technical assistance on various issues of development. The Asian Development Bank (2006) indicated that governments, regional institutions, agencies, and private firms from the region are provided with assistance by the bank’s Technical Assistance Special Fund. Such help is either in the form of loans, grants, or both. The main aims of extending technical assistance is to prepare, fund, and launch specific regional and national development projects/plans and to assist existing institutions or create new ones in different areas, such as industry, agriculture, or public administration. The bank sends its own personnel or hires experts to re-organise institutions and prepare them for project/program implementation.
Thirdly, the bank carries surveys and researches with a view to formulating policies aimed at enhancing regional economic integration (Guerrero, 2003). The role is apparent as the bank releases annual reports that highlight achievements, failures, and prospects bordering on economic development of member countries. In addition, the report highlights some of the problems encountered by the bank and measures taken to solve them.
In carrying out development projects, the bank’s primary objective is to eradicate poverty by fostering sustainable economic growth within the Asia Pacific area. Evidence demonstrates that during the 1990s the bank focused heavily on reducing poverty, improving social infrastructure, and conserving the natural environment (Guerrero, 2003). In pursuit of economic growth, the bank zeros in on the significance of improving productivity. The bank encourages investments, efficiency in resource use, domestic resource mobilisation, private sector development as well as public sector reformation. Human resource development is also an area of interest of the bank.
Success and Failures
Launching development projects does not guarantee positive outcomes. In practice, some programs succeed while others fail. The case of the ADB is not any different since it has registered both positive and negative results. In the current section, the activities of the ADB are put into perspective to identify success or failure.
According to Guerrero (2003), the Asian Development Bank extended approximately ninety-nine billion dollars as loans to cater for projects in thirty-eight countries between 1966 and 2000. Some of the recipient countries were Pakistan, Sri Lanka, and Indonesia. Based on an assessment, grounded on the standard measure of sustainability (Guerrero, 2003), roughly 70% of the ADB projects in the three countries were unlikely to generate lasting socioeconomic benefits.
At this stage, Indonesia, the largest beneficiary of the ADB loans is interrogated. In the year 1999, the ADB offered Indonesia a loan to carry out the oil palm and irrigation projects (Guerrero, 2003). By 2002, the ADB extended two hundred and sixty-eight loans amounting to eighteen billion US dollars to Indonesia. Based on the assessment done by the ADB department, the Project Performance Audit Reports (PPARs), up to 70% of the projects in Indonesia were found to be unlikely to yield long-term social and/or economic benefits. In such a scenario, the ultimate mission of enhancing both social and economic development could not be achieved. Besides, the ADB Operations Evaluation Department established that fifty percent of the audited projects marked successful were questionable. In the Indonesian case, the projects rated as successful were not monitored continuously, hence the rating remained suspicious. Record keeping was also unusual. In the absence of accurate records, the deterioration of projects could not be tracked correctly.
The Nusa Tenggara Agricultural Development project, which was financed using 137 million US dollars, was rated as successful (Guerrero, 2003). The project facilitated the resettlement of five thousand people at the time when the Suharto dictatorship existed. Based on the report of auditors, the monitoring of the project was inadequate, so it could no illuminate the outcome of the project. Language and cultural issues were also cited as difficulties that obstructed proper monitoring. Moreover, the absence of adequate budgetary allocations to support operations on maintenance and other supportive services raises questions about the sustainability of the project.
In the case of the Food Crop Sector project, auditors indicated that no analyses on the implications of the project were done. The program lacked performance indicators, besides it failed to identify the target beneficiaries (Guerrero, 2003).
Reviewing more than a single case is necessary to avoid unjustifiable conclusions. Pakistan has also received a sizeable amount of money from the Asian Development Bank. OED reviews based on sustainability measures demonstrated that up to 70% of the funded projects could not attain sustainable development (Guerrero, 2003). The same problems that affected the projects funded by the bank in Indonesia are also seen in Pakistan. In particular, OED audit reports pointed out that the ADB had not conducted comprehensive analyses on socioeconomic conditions. Citing recent estimates, Guerrero (2003) indicated that approximately fifty thousand people were likely to be affected negatively following the implementation of the project. The program led to the destruction of the traditional irrigation systems in addition to failing to account needs, resources, farmers’ objectives, and cultural practices.
One of the successes that the ADB has attained is in the development of the power infrastructure across Asia. The role of the bank in the sector began in the 1980s. In 1981, the ADB released its initial Energy Policy paper to guide infrastructural projects, incentives extension, foreign investment, and socioeconomic effects of new power programs (Guerrero, 2003).
The Asian Development Bank has overseen the transformation and modernization of the Asian region greatly. By 2007, an evaluation of over one thousand one hundred projects indicated that up to sixty five percent of them were successful (Fujita, 2013). Other highlights of the bank’s successes include funding projects or partnering with institutions, such as the Utah State University, to enhance labor development in Thailand. Other projects include: the oil and gas project in the offshore of ROC Ping Hu, the two-million US dollars grant to Bangladesh to address climate change related problems, the feasibility assessment on the Trans-Afghanistan Gas Pipeline, loaning to Pakistan during the adverse economic crisis, and collaboration with the private sector in the Philippines to lead poverty reduction initiatives.
It emerges that the ADB rose after the end of the Second World War. Thus, reconstruction after the ravages of the war was a major contributing factor to the establishment of the bank. The dream is to develop an entity with an Asian characterization to foster economic growth and cooperation within the Asian region. Initially started by focusing on agriculture, by the 1970s, the bank was serving other areas such as the health, education, and infrastructural sectors. It is also noted that promoting regional cooperation was among the goals of the founders of the ADB.
When dealing with development issues, entities encounter a number of challenges. For instance, the bank largely relies on member countries for a substantial part of financing. Member countries contribute to the bank reserves. With members such as Japan, which is the biggest donor, issues of influence (due or undue) remain a concern. Similarly, economic hardships such as those associated with the financial crisis presented a notable challenge. Other challenges border on a considerably high number of natural disasters that afflict the Asian region. In particular, the Asian tsunami, which affected large parts of India, Maldives, Sri Lanka, and Indonesia in December 2004, and the Pakistan earthquake in October 2005 are examples of the natural challenges that the bank has to address continuously. Other challenges have bordered on the inability to provide the residents with safe water, high infant mortality rates, low levels of sanitation, high malnourishment levels, and rising inflation levels.
In initiating development projects, the bank has pursued the primary objective of poverty eradication by encouraging sustainable economic growth within the Asian region. Based on records, during the 1990s, the bank focused on reducing poverty, environmental conservation, and improving social infrastructure (Guerrero, 2003). Improving productivity is also a factor that has attracted the bank’s attention. This is apparent due to the encouragement of investments, domestic resource mobilisation, efficiency in resource use, private sector development, human resource development, and public sector reforms.
It is evident that the ADB has carried massive development projects within the Asian region. Nevertheless, it is noted that launching development projects does not necessarily yield positive results. It is observable that some programs succeed while others fail. As the paper establishes, the ADB has realized both positive and negative results.
Citing sustainability as an important measure of development, Guerrero (2003), indicated that ADB was unsuccessful because approximately 70% of the bank’s projects were not generating lasting socioeconomic benefits. Moreover, in Indonesia and Pakistan, some people were affected negatively following the implementation of the ADB projects. In addition, the projects contributed to the destruction of traditional irrigation systems, besides failing to account for needs, resources, farmers’ objectives, and cultural practices. Despite the abovementioned negative outcomes, it is doubtless that the bank has financed a number of projects within the Asian region. In addition, the bank has improved cooperation among member states, given that they contribute to the bank’s resources.