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Economy

The ADB faces up to new challenges

As the multilateral lender marks 50 years, its skills are more vital than ever

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Asian Development Bank headquarters in Manila: The lender forecasts Asia will need $1.7 trillion per year in infrastructure improvements from 2016 to 2030.   © Reuters

TOKYO -- Asia has seen remarkable growth in recent decades, but it still needs to improve power grids, roads, waterworks and other infrastructure, both to sustain that growth and as a result of it. Asian economies also need to attract private-sector capital to fund these improvements; states cannot pay for them on their own.

Demand for infrastructure improvements in Asia will reach $26 trillion from 2016 to 2030, or $1.7 trillion per year, according to an estimate published by the Asian Development Bank in February, roughly double its forecast just eight years earlier.

Pay now or pay later   

Some 400 million people in Asia are affected by electric power shortages, 300 million lack access to clean water, the ADB said. By sector, the region needs $982 billion for electricity, $557 billion for railways and other logistics and $152 billion for telecommunications.

Infrastructure shortfalls, if uncorrected, will hamper economic growth in Asia.

In Southeast Asia, electricity supplies are failing to keep up with demand as population rises. Blackouts total about five hours per year in Indonesia and two hours in Vietnam.

Motorization is causing serious congestion in urban areas. The Indonesian government estimates that traffic jams in Jakarta cost the economy 65 trillion rupiah ($4.87 billion) a year.

China accounts for 60% of the forecast demand for infrastructure upgrades in Asia through 2030, with India making up another 20%. In China, the need is especially acute in less developed inland areas.

India was the top destination for ADB loans in 2015, receiving 17% of the total, followed by China at 13%. The bank is expected to continue increasing its lending, particularly to meet funding requirements in these two countries.

In all, the region is spending around $881 billion annually on infrastructure, far less than it needs, the ADB said. Improvements in tax collection and spending cuts could help, the bank said, by freeing up public funds.

In 2015, the ADB signed public-private partnership co-advisory agreements with Japan's three megabanks, U.K. bank HSBC and BNP Paribas of France to support the flow of investment to Asia.

Pension funds, life insurance companies and other institutional investors are seeking places to put their money. If the private sector can come up with financial products that turn infrastructure projects into a steady source of income, more money should flow in. This, in turn, will make more capital available for the roads, bridges, ports and power plants needed to sustain growth. 

Grass-roots support   

The ADB was founded in 1966, with Takeshi Watanabe, a former Japanese vice finance minister for international affairs, serving as its first president. It started small, with 10 specialist staff members and 31 member states.

Unlike the World Bank, a U.S.-led institution originally designed to help countries get back on their feet after World War II, the ADB was meant to offer grass-roots support to developing countries in Asia.

In 1986, the ADB accepted China as a member, with that country having embraced reform and open-door policies. The same year, the bank also began extending loans to India. It helped lay the foundation for economic development in both countries, with China in particular now a driver of the world economy in its own right.

The ADB also began providing direct financing to private companies without government guarantees in 1986.

In the 1990s, the bank was preoccupied with regional financial difficulties. When Asia was hit by a financial crisis in 1997, the ADB helped developing countries in the region raise funds.

When a global crisis struck a decade later, the ADB tripled its capital to increase its lending. The bank was then headed by Haruhiko Kuroda, a former Japanese vice finance minister for international affairs and now governor of the Bank of Japan.

More recently the bank has struggled to work with China. Although the ADB eyed Asian Infrastructure Investment Bank warily at first, it has pledged to cooperate with the Chinese-led institution. But concern lingers at the bank's Manila headquarters that the new lender will be a competitor as much as a partner.

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