By Hemantha Withanage
The Asian Development Bank had its beginnings when it held its inaugural Annual Meeting in November 1966 in
From its founding up to 31 December 2005, the ADB has approved US$84.6 billion of Ordinary Capital Resources (OCR) loans. In 2005 alone, it approved loans from OCR totaling US$4.4 billion (US$4.0 billion in 2004), which included US$536 million (US$293 million in 2004) for private sector borrowers. On the other hand, outstanding loans from the Asian Development Fund (ADF), which is the largest Special Fund, amounted to US$20.2 billion as of 31 December 2005. Resources for ADF loans consist mainly of contributions mobilized under the periodic replenishments from donor members. As of 31 December 2005, ADF aggregate resources committed to loans amounting to US$27.6 billion. In 2006, the ADB further released US$7.97 billion in loans; US$654.8 million in credit enhancements; US$260.5 million in equity investments; US$538.4 million in grant-financed projects; US$241.6 million in technical assistance operations; and US$3.81 billion in multitranche financing facilities (MFF). Interestingly, ADB net income increased from US$389.6 million in 2004 to US$415.6 million in 2005.
Sustainable economic growth was the most prevalent theme and was associated with 57 projects. But of the 67 projects and programs approved in 2006, finance received the largest share of lending (24 percent) among the sectors. The 2006 annual fund release is a significant increase compared to its figures in 2004 and 2005.
However, the cost of the four-year old Iraq War is expected to reach US$456 billion on September 2007.[1] According to the Congressional Budget Office of the
According to former ADB President Tadao Chino, “
According to the Asian Development Bank Annual Report 2005, “In recent decades, strong economic growth has raised per capita incomes across the region. Life expectancy has increased; literacy rates have improved; and greater opportunities have been created for tens of millions of people. In developing
The recent Millennium Development Goals: Progress in
The figures may be changing but
Balancing ‘Development’ and ‘Banking’
The recent ADB Water Review Panel Report highlights the imbalance between the ‘D’ and ‘B’ of ADB. This means that the ADB primarily operates as a banking institution and only secondly as a development institution. The ADB’s main business is to “sell” loans, premised on its working principle that poor countries need to borrow more money in order to develop.
In the early days, all its projects followed the development mandate. It was true to its goal which according to the Charter is to “foster economic growth and cooperation in the region of the Asia and Far East… and to contribute to the acceleration of the process of economic development of the developing member countries in the region…”[4] However, in response to the critics in the 80s -- and perhaps in response as well to the Earth Summit process and to the Brundtland Commission Report, a 50:50 project mix of traditional growth projects and projects incorporating social and environmental concerns was brought in during the early 90s. Coincidentally, it also produced environmental and other safeguard policies since 1995.
Since 1998, the ADB justified all its projects under the pro-poor approach. However, ADB projects still involved environmental and social destruction. Further, it was criticized for pushing the privatization of public utilities and resources and for its principles of “full cost recovery” and of private sector as the “engine of growth,” among others. Also, ADB’s accountability and transparency were questioned. The ADB was accused of inability to control corruption in the region and of supporting undemocratic regimes. The effectiveness of ADB lending on development has been questioned.
Development vs. social and environmental impacts
In recent years, the movement for accountability of International Financial Institutions (IFI) has won some of its greatest victories in the realm of ensuring that development projects do not damage the environment. Despite a wide range of catastrophes that include the continuing funding of disastrous large-scale water infrastructures, the IFIs have taken some steps to alleviate the most grievous and immediate environmental problems associated with their policy and programme lending. However, basic questions about the medium- to long-term effects of project and policy lending remain largely unanswered and often unasked.
The ADB was undoubtedly a driver of the so-called “Green Revolution.” It supported a total of 29 large dams in at least 12 countries in the
According to ADB’s Statement of Operations in 2006, 57 loans and 25 grants have been categorized under the theme “sustainable economic growth.” On the other hand, 17 loans and two grants go under “environmental sustainability.” It therefore begs the question: can there be sustainable economic growth without environmental sustainability?
Since the beginning, the ADB was criticized for assisting destructive infrastructure projects such as highways and dams, forests plantations, oil palm cultivations, coal power, etc. Its involvement in problematic projects began as early as 1969.
For instance,
In terms of Involuntary Resettlement, the Bank’s projects have led the people to forced evacuation. According to Grainne Ryder (2000), “ADB loaned about US$150 million for lignite mine expansion, transmission lines, and the first generating units at this lignite-fired power station in the 1970s to
The Bangkok-based environmental group, Towards Ecological Recovery and Regional Alliances (TERRA), has described Mae Moh as "one of the most serious public health disasters in
In a similar project in the
The ADB loaned US$60 million to the state utility, Electricité du Laos, for its 60 percent stake in the Theun Hinboun Power Company which owns and operates a 210-MW dam for exporting electricity to Thailand. Completed in 1998, the US$260 million dam destroyed riverine fisheries in two rivers upon which dozens of rural communities – or about 6,000 people – depended for their livelihoods. The ADB approved the dam contracts which have restricted the power company's obligation to pay for compensation and for environmental mitigation. Grainne Ryder (2000) wrote, “As for the ADB's responsibility, as project engineer Mike Bristol explained recently in Hanoi, the ADB is not a social and environmental agency,” and as such it has "little influence over project outcomes."
The total number of affected people in the Jamuna Bridge Project in
Based on the Operations Evaluation Department (OED) of the ADB, the Industrial Tree Plantation Project in
However, in January 2006, only a month after releasing the OED assessment of the previous project, the ADB approved a new Forest
Since 1994, the ADB has displaced more than 1.77 million people, according to the new OED (2006) report. It further stated that “projects approved in the last five years were expected to affect between 100,000 and 150,000 people every year.”[10] The study also reported that the actual figure is 65 percent, much higher than was estimated in the Report and Recommendation to the President (RRP). For instance, the Highway Expansion Project in
There are many other recent examples of the disastrous socio-economic and environmental effects by ADB-funded projects such as the Chasma Right Bank Irrigation Project in
According to Stephanie Fried, Shannon Lawrence and Regina Gregory,[11]
As of December 2002, the ADB has provided 112 loans to
These projects are considered as failures because in its 2000 assessment of multilateral development finance, the bi-partisan U.S. Congressional International Financial Institution Advisory Commission (the Meltzer Commission) found project sustainability -- whether or not a project provides lasting, long-term economic and social benefits -- to be the key indicator for judging the performance of multilateral development banks such as the ADB. The Meltzer Commission considered the lack of project sustainability to be synonymous with project failure[13].
The report states, “if we utilize the standard of project sustainability as an indicator of project success, the shocking conclusion of this report -- based on data presented in the ADB’s own audit documents -- is that over 70 percent of ADB projects in these countries are unlikely to provide long-term social and economic benefits.”
Stolen power
Since its inception, the ADB’s decision-making power was monopolized by the
While
Policy rhetoric and practice
Over the decades, the ADB has adopted a number of policies. Since 1994, the ADB has adopted over 38 policies and strategies to manage its projects and ensure accountability, information disclosure, safeguards, good governance etc. Currently, the ADB Public Communication Policy, along with the Accountability Mechanism, is the best among the similar policies of the Multilateral Development Banks. This could have been brought about by the lobby of the civil society organizations’ engagement since 1989 under the umbrella of the NGO Working Group on ADB which evolved to the current NGO Forum on ADB.
On paper, the ADB Safeguard Policies are one of the best among the IFIs. But it was criticized for the non-implementation of these. The recent Compliance Review Panel (CRP) Report on the Southern Transport Development Project states that “the Panel recommendation: Management should review selected road projects as to how changes of scope may make the application of environment and resettlement policies more difficult.” The report further states that, “The Panel wishes to make clear that its intent in this recommendation was that ADB should assess the potential for weakening of application of safeguard policies when minor or major changes are made. It seems clear, in the case of STDP that the environmental safeguards were weakened with the changes of trace and stakeholders at each project stage until the Final Trace.”
The ADB is now going through a review of its safeguards policies. Perhaps this is an attempt to weaken its safeguards as other IFIs have done in the recent past. One reason is that the ADB is facing a business crisis due to the competing financing institutions such as export credit agencies which provide easy money in shorter cycles. The ADB is facing this threat from its middle-income countries,
According to the ADB, its new broad strategic themes -- pro-poor, sustainable economic growth; inclusive social development; and good governance – make for effective policies and institutions. The ADB likewise seeks to promote environmental sustainability and gender development through the projects in which it is involved. It is focused on encouraging private sector development and regional economic and financial cooperation as well.
The increasing number of new projects, on top of the old projects, needs increased capacity of the ADB to monitor them. However, the ADB has no such capacity. Therefore it cannot increase the business while maintaining the social and environmental safeguards at the same level. Consolidated policy reviews could then potentially weaken the safeguard policies to make it easy for project handling.
A Regional Technical Assistance (RETA) on Strengthening Country Safeguard Systems has been initiated by the ADB’s Regional and Sustainable Development Department (RSDD) to define its corporate approach on Country Safeguard Systems in selected developing member countries (DMCs). These assessments will identify commonalities and gaps that will require capacity-building, policy adaptation, and procedural clarity and definition.
Strengthening the Country Safeguard Systems could prove to be a strategic undertaking to bring country safeguard systems to international standards and ensure the enforcement in all projects at the country level, whether or not they are funded by the ADB. Such process however will require a strong buy-in at the country level and adequate time for such process to take place.
It has been pointed out that the RSDD’s Update on the Safeguard Policies is done because of the pressure to streamline the current Safeguard Policies to become a single policy that would sustain, if not increase, the attractiveness of ADB portfolio. This is in line with ADB’s attempt to bring back the level of lending that has steadily decreased in the past years. If not done carefully, the streamlining of the safeguard policies will likely result to a watering down of the essence of safeguarding. The Update could easily be seen as a manifestation of the intention to implement a country system that may likely allow flexibility in the standards of the safeguard policies.
However, countries such as
Non-implementation of the safeguard policies is one of the major problems at the end of the fourth decade of the ADB. According to the OED, the lack of capacity, lack of trained staff, cumbersome planning process, and lack of harmonisation at the country level especially with regard to the co-financed project, are some main reasons for the non-implementation.
In most cases, the ADB accused national project-executing agencies for non-implementation. Sri Lankan Highway Project is one good example. It was found that more than 70 percent of the project went beyond the scope during the implementation. In addition, out of the 17 recommendations of the Compliance Review Panel in July 2005, only 3 were adopted by June 2006.
Asian Development Bank to an Asian Cooperative Bank
The ADB, to become an “Asian Cooperative Bank” needs more than just balancing “Development” and “Banking.” Addressing issues like corruption; accountability; good governance; pro-poor development; conditionalities that bind sovereign government; sustainable lifestyles; and social and environmental rights of the people, is a development people like to see within the ADB. Increasing the lending, while maintaining effective development, is the challenge for the Asian Development Bank.
The ongoing Safeguards review will show the future direction of the ADB whether it will take either the traditional development or the sustainable development path. Learning on-the-ground experience from ADB’s past is the best mechanism. However, if the ADB submits to the pressure coming from middle-income countries, it will go on the other direction.
It also seems to be an impossible task to influence the ADB to enforce its Safeguard Policies given the tremendous pressure brought by the presence of export credit agencies as alternative sources of development funding. Ultimately, the Bank is threatened of losing its relevance in the region.
Mere rhetoric
The ADB has vowed to continue to play a major role in the fight against poverty in
Former ADB President Chino claimed that, “ADB believes the most powerful weapons in the fight against poverty are pro-poor, sustainable economic growth, social development, and good governance.” However, the ADB should re-examine its three pillars whether these have been weakened due to malpractices, corruption, and too much focus on corporate profits if it does not want to see a poverty–free region by 2020 as mere rhetoric.
[1] Turning Data into Action, http://costofwar.com/numbers.html (February 2007)
[2] Estimated Costs of an Iraq War, http://usgovinfo.about.com/library/weekly/aairaqwarcost.htm (retrieved March 2007)
[3] Asian Development Bank, Annual Report (2000)
[4] Dick Wilson, The Bank for Half the World, published by The Asian Development Bank (1987)
[5] NGO Forum on ADB, The ADB and Dams (November 2005)
[6] Dick Wilson, A Bank for Half the World- The story of the Asian Development Bank 1966-1986, published by The Asian Development Bank (1986)
[7] Grainne Ryder, Why consumers and citizens should pull the plug on ADB( A critique of the ADB’s role in the electricity sector), published by Probe International Canada, (April 2000)
[8] The Asian Development Bank, Handbook on Resettlement (1998)
[9] Chris Lang and Bruce Shoemaker, Creating Poverty in
[10] ADB Operation Evaluation Department, Special Evaluation Study (2006)
[11] Stephanie G. Fried, Ph.D., Shannon Lawrence, and Regina Gregory, The Asian Development Bank: In its own words (An Analysis of Project Audit Reports for
[12] Ibid
[13] Ibid
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