Keeping Poverty Alive Beyond 2020

A Personal View Eminent Persons Group Report

Hemantha Withanage Executive Director, NGO Forum on ADB

The recent report of the Eminent Persons Group to the ADB President entitled, “Towards a New Asian Development Bank in a New Asia,” is worth reading if only for the rosy future it paints for the peoples of Asia and the Pacific come 2020. As the Bank enters its fifth decade of existence and amid increasingly cutthroat competition from other lending institutions that threatens its “preeminence as a regional bank,” the Report prescribes new directions and appPublish Postroaches for the ADB. These are promoting inclusive growth; facilitating environmentally sustainable growth; and promoting regional (and global) integration.

In so doing the Bank, whose development model has created both so-called millions of beneficiaries and countless unwitting human victims and incalculable environmental harm in a number of Asia-Pacific nations, would preserve its raison d’etre; thus avoid becoming an anachronism in our rapidly-evolving and developing region.

Over the years, the Bank has shrewdly kept up with the demands and challenges, at least at the level of visionary rhetoric, of its Developing Member Countries (DMCs) by adopting development paradigms to suit the times. Originally, the ADB was conceived with this over-arching goal: “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…” Then in the latter part of the last century, it astutely adopted a pro-poor image and has vowed to “fight against poverty, based on sustainable economic growth, social development, and good governance.”

If we look closely at the way the Bank has disbursed its lending money in the last four decades, we can see that its true priorities have betrayed the original and current over-arching goals. The types of large-scale infrastructure projects approved under the present pro-poor goal were similar to those projects decades ago (i.e., road corridors traversing environmentally-sensitive areas, large dam projects, coal-powered plants) that caused hardships to affected communities, vulnerable groups and Indigenous Peoples as well as damages to the environment and natural resources. Moreover, the ADB was and still is the major driving force of “open economy” in Asia and the Pacific. Its steady promotion of free trade and open economy that includes “full cost recovery” and “private sector participation” has further compounded the woes and miseries of affected people.

But what makes the Eminent Persons Report significant in the eyes of every civil society advocate with stakes in ADB’s operations in Asia-Pacific? Allow us to liberally quote from the Report. Foremost, the Eminent Persons make this startling pronouncement, which we regard with mixed interest and great caution:

“By 2020 we envision a dramatically transformed Asia. It will have conquered widespread absolute poverty in most countries, with more than 90 percent of its people living in “middle-income” countries. Tempering this overall positive picture is that some of the fastest growing countries will still have large numbers of poor people. Asia will continue to have many low-income or fragile economies with large development challenges. They will continue to require support from donors.” The aforementioned statements seem conflicting as they give us the impression that the Bank is not ready to let go of its “real banking” role, regardless of the projected success of its anti-poverty goal. While ADB stands to realize its vision of a near poverty-free Asia and the Pacific, it also anticipates some failings that would justify the need for “new investment opportunities.” Hence, it will be business as usual for the Bank.

The Report further states: “Asia appears poised to complete its transformation to the next stage of development. In this transformed Asia, the traditional model of development banking—transferring outside official capital—will become redundant.” The Report suggests that ADB radically change its present vision by taking a new development banking paradigm. This paradigm will “help tackle issues critical to further development of a newly “middle-income” Asia, by offering a more balanced blend of knowledge and financial assistance. To address the remaining pockets of poverty, its primary emphasis should be on supporting higher and more inclusive growth rather than transferring external aid resources. As a financial intermediary, it should connect together lenders and borrowers from within the region.”

“The New ADB must be much more focused, driven by three complementary strategic directions: moving from fighting extensive poverty to supporting faster and more inclusive growth, from economic growth to environmentally sustainable growth, and from a primarily national focus to a regional and ultimately global focus. Its work should cover six core activities: infrastructure, financial development, energy and environment, regional integration, technological development, and knowledge management.”

Curiously, the Eminent Persons Group seems to have overlooked the alarming findings contained in the Millennium Development Goals: Progress in Asia and the Pacific Report in 2006. According to the MDG Report, the region is making slower progress in terms of addressing grave problems related to basic health and sanitation, infant mortality, HIV incidence, and access to safe water. We would be more than glad to find out their response to these findings since the Report actually cites that “in many social indicators, including some of the MDGs, the Asia and Pacific region (mainly South Asia) lags behind its very impressive progress in meeting the income-poverty targets”. Unfortunately we were unable to find any reliable projections of the region’s likely performance, specifically of low-income countries, in meeting MDG targets by 2020.

We view with concern the poverty outlook and statistics that have been cited by the Eminent Persons Report. Fifteen countries out of 48 DMCs are found to be progressing towards middle income status. Alarmingly, however, the over-all Asian poverty situation is projected to decline by 2020 except in South Asia. The World Bank expects only 25 million people out of two billion East Asians to live below the poverty line. But in South Asia, the magnitude of poverty would remain high as between 200 and 400 million people will still be impoverished. India alone is predicted to have another 120 million people mired in abject poverty. In this regard, we believe that the projected number of poor individuals (or roughly 10 percent of the population) in middle-income countries is significant. We understand that it is primarily the duty of the national government to be directly on top of the poverty problem. But shouldn’t the ADB, whose development models contributed to the problem via poorly-conceived projects and poorly-implemented policies, develop genuinely pro-poor approaches to uplift the lives and livelihoods of these individuals?

In terms of the proposed focal points such as new infrastructure development, we believe that it is not a tool for poverty alleviation per se but a way to further advance the Bank’s agenda on ”public-private partnerships”. Being a development bank for the poor, ADB must re-think private sector involvement given that the latter’s profit-oriented mindset does not jibe with operational policies. It would also support more conducive policy framework and enabling environment for the private sector to take over public services and utilities. Financial development, meanwhile, means strengthening regional financial markets which are in consonance with President Kuroda’s dream and vision of “regional integration”. For example, while recommendations have been made as regards the ADB’s energy and environment approaches (i.e., focus on climate change) we find it difficult to correlate environmental issues with the promotion of public-private partnerships.

What is evident from our standpoint is that the Report is pushing for the Bank to shift its poverty reduction goal to a “Financial Intermediary” agenda. There is no question that a financial intermediary is a major requirement for “middle income countries”. And since ADB’s business is mostly dependent on these countries, it comes as no surprise for the Report to support the Bank’s bias for middle income countries. Meanwhile, it is quite telling that the Eminent Persons Group itself did not have representation from low-income countries; countries which have less access to development finance due to their low bargaining power or credit standing. This demonstrates the Bank’s low prioritization of countries that are in dire need of financial assistance.

We disagree with the kind of direction that the Report is espousing for the Bank in terms of global environmental issues. The Bank will leave the implementation of environmental and social safeguards under the responsibility and jurisdiction of its individual member countries. This “country systems” in essence would provide the prime justification and rationalization for the lowering of ADB’s social and environmental safeguards. We construe this as a knee-jerk reaction of the Bank to the constant pressures of shareholders who threaten to borrow from other banks with less stringent and cumbersome conditionalities (i.e. a classic case of “race to the bottom” when ADB is pitted against emerging donor-countries like China). Doesn’t this reflect the Bank’s attempt to wash its hands off the potential or anticipated negative environmental and socio-economic impacts of its funded projects and programs? And in response to its competitors, the Report somehow makes recommendations to the ADB on how to outperform the bilateral and private banks, which are major detriments to its very existence. Perhaps, the ADB is in a better position for brokering rather than development financing in our region.

On the other hand, we agree that the predicted rise in the numbers of middle-income countries would pose imminent danger such as increasing pollution, worsening climate change and further exploitation of natural resources. However, the Report does not provide clear suggestions on how to address such an unsustainable and dangerous scenario, which we refer to as “grow today protect tomorrow” phenomenon. It does not make clear references to the kind of “sustainable livelihood” that have been practiced by countless Asian and Pacific communities for centuries. The Report expects that most middle-income communities will uproot themselves and gather around urban centers, a move which has deleterious effects on the natural environment and even heritage. Growth would be rendered meaningless if it does not adhere to the sustainable livelihood practices of rural communities, which are essentially based on the sustainable use of natural resources and protection of their age-old culture.

We are greatly disappointed that the Report does not call for the liberation of Asia-Pacific member-nations from the control of non-regional members. Should it not be high time for regional members, who are more knowledgeable of their development needs and priorities but less empowered to do so, to take major control of the Bank that has been specifically created for them? We think the reason is purely for business.

The Report says that “the character of the institution and the roles of its members must evolve with changes in the economic environment. By 2020 the relative responsibilities and contributions of the regional members should reflect the new global economic realities. This would lead to more equitable burden sharing and underline more fully ADB’s Asian heritage. At the same time, ADB must retain the support of its non-regional members.” This only bolsters our position that the Bank continues to operate in our region primarily to serve the business interests of many non-regional members and private corporations. The belief that Asia and the Pacific should develop appears to be secondary to the Bank. Highly-developed countries use development aid as a tool for political leverage and economic control over the region. We fear that one of the immediate results of a “transformed ADB” would be the gradual phasing out of the Asian Development Fund (ADF) while the Bank would profit more as financial intermediary through the Ordinary Capital Resources (OCR).

Also calling our attention is the Report’s obvious push for the expansion of “globalisation” in Asia and the Pacific. It backs ADB’s practice of giving the private sector more control over public utilities in DMCs. A number of local communities and civil society stakeholders have, time and again, strongly protested and challenged moves of private entities to take over government’s role as public service provider. Relative to this is the rise of Indian and Chinese firms that are now challenging western multinationals. But these private firms also pose negative impacts to local communities and the environment.

The Report is rather optimistic about the development of major economies in the region. However, the “economic “boom” experienced by some Asian countries is not necessarily a result of the ADB’s successful implementation of its policies that govern its operations. We would give credit to the ADB if large-borrowing countries like the Philippines, Indonesia, Pakistan or Bangladesh (that have willingly accepted ADB’s policy changes) have become tiger economies and liberated their poor peoples. But that is not the case. The most aggressively-developing economies are India and China, which are not exemplars as far as adopting ADB’s operational policies.

Meanwhile, problems concerning human rights, democratic decision-making process and good governance stare most DMCs in the face. Rising cases of corruption and money laundering are also hurting most of these economies. Unfortunately, the Eminent Peoples Group has paid less attention to these pressing issues. The Report states that “Many borrower countries are already concerned that some of the operational policies and procedures of ADB are too intrusive, too slow and bureaucratic, and too onerous in the time and effort to meet them.” We believe that the ADB cannot just shirk its responsibility for ensuring that all its projects adhere to best international safeguards practices and with respect to human rights. After all, ADB should be accountable to the effects or consequences of the development aid it gives to its member countries. In the same vein, we urge the Bank to devote more resources to the implementation and monitoring of its safeguards operational policies. Otherwise, any move to reduce transaction cost at the expense of the safeguard policies would most likely result in highly problematic environmental and social cases for the ADB and the national governments concerned.

Lastly, the Eminent Persons Group foresees a “transformed ADB” that would serve “as a Pan-Asian institution, since its work would serve the needs of all Asian countries—borrowers and non-borrowers.” The ADB as a “Financial Intermediary” would reduce its role to mere brokering and guaranteeing finances coming from the other sources, which is a radical departure from its ideal role of providing low-interest development financing to the developing nations of Asia and the Pacific. Apart from being a “finance broker,” the Group predicts that the Bank will eventually become a “knowledge bank”. Whether the ADB has the capacity to be a knowledge bank is another question. Perhaps, ADB should change its name if it is no longer interested to espouse Asian development and poverty alleviation in our region.

A poverty-free Asia was the big dream of the ADB in the late 1990s. Environmentally sustainable growth was another buzzword that the Bank propagated during that era. Recommendations to adopt environmentally sustainable growth instead of merely achieving economic growth is nothing but a rehash of the Bank’s rhetorical vision in the ‘90s. We find moves to reinvent the Bank as “a knowledge bank/financial intermediary” as an indirect admission of ADB’s failure to genuinely bring about sustainable growth and seek solutions to the poverty problem in the Asia-Pacific region.

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[1] Towards a New Asian Development Bank in A New Asia; Report of the Eminent Persons Group to The President of the Asian Development Bank, March 2007