MANILA -- Asian Development Bank President Takehiko Nakao sees three key ways in which the institution has paved the way for the region's economic emergence. He sat down with The Nikkei to talk about the lender's five-decade track record and what the future holds.
Q: How has the ADB contributed to Asia's economic development?
A: The bank has played three roles. First, it has provided financing and expertise for infrastructure development and other projects. Around the time when the ADB was set up, Asian countries suffered a shortage of financing. We have been channeling money -- not just contributions from the ADB shareholding countries but funds raised in the capital markets of developed countries by issuing bonds -- into Asia.
Secondly, the bank has prompted, through dialogue, Asian governments to implement appropriate policies. In keeping with the principle of free trade, not protectionism, we have pushed for necessary structural reforms and macroeconomic policies. Thirdly, we have been promoting regional collaboration. As Vietnam, Cambodia and Laos, among others, have developed further, the bank has helped improve the connectivity of roads and the like among them, and with other surrounding countries.
Q: The ADB estimates the region's future infrastructure needs at more than $1.7 trillion a year. How will the bank meet this huge demand?
A: Asia faces a wide range of problems, including deficiency in supplies of tap water and electricity, underdeveloped transportation networks, insufficient education, and climate change causing natural disasters. Asian governments will fulfill a large part of this demand. But there is the need for multilateral institutions like the ADB and the World Bank to play an even bigger role.
Asia, except for China, sees [an investment shortfall] equivalent to about 5% of gross domestic product. The public sector could make up for 2% by pressing ahead with fiscal reforms. For the remaining 3%, private sector funds need to be tapped. This makes it important to adopt public-private partnerships for construction of infrastructure, and political stability is essential to draw in private-sector funds.
Q: One year has passed since the China-led Asian Infrastructure Investment Bank was launched. How do you evaluate its strengths and weaknesses?
A: The ADB and the AIIB have already co-financed three projects, such as road construction in Pakistan. I have met with AIIB President Jin Liqun nine times in the past two years. We will continue to cooperate with each other.
The ADB has a diverse staff of more than 3,000, extending comprehensive support in areas not confined to infrastructure. Meanwhile, the AIIB is more focused on infrastructure support. It also has more member nations than the ADB -- a strength of the Beijing-based bank.
Q: How should companies approach infrastructure development in Asia?
A: Considering climate change is another important issue to address, we need advanced environmental technology. So the ADB is now adjusting its procurement standards. We pay more attention to quality in addition to prices.
Chinese and South Korean companies are improving their technological prowess. But companies in developed countries, too, will find big business opportunities if they become more cost competitive.
Takehiko Nakao graduated from the University of Tokyo's faculty of economics and joined Japan's Ministry of Finance in 1978. He was seconded to the International Monetary Fund in 1994. After serving as the chief of the ministry's International Bureau and the vice minister of finance for international affairs, Nakao succeeded Haruhiko Kuroda as ADB president when he cut his term short in April 2013. Nakao is now in his second presidential term, which began in November 2016.