Spotlight: ADB revving up reform, commits to cooperation with AIIB

The Asian Development Bank (ADB) formally announced here Saturday that it will combine the lending operations of its Asian Development Fund (ADF) with its ordinary capital resources (OCR) balance sheet, in order to boost its lending capacity for Asia’s poor members.

The big reform initiative, which will take effect in January 2017, came as some new regional financial institutions are taking shape on the horizon, including the Asian Infrastructure Investment Bank (AIIB).

ADB President Takehiko Nakao said that the merger will boost the ADB’s total annual lending and grant approvals to as high as 20 billion U.S. dollars, or up by 50 percent from the current level.

In particular, the initiative will increase the ADB’s annual financing commitments to poor countries by up to 70 percent, from the current level of 6.5 billion dollars to somewhere between 7.5 billion and 11 billion dollars, said Nakao.

According to the ADB, the ADF, established in 1973, provides concession loans — longer loan maturities and lower interest rates — and grants to poorer countries. OCR loans are provided to middle-income countries at market-based rates.

Under the new initiative, OCR equity will almost triple to about 53 billion dollars as of January 2017 from the about 18 billion dollars now, said Nakao.

He added that poor countries currently eligible for ADF loans will continue to receive concession loans from expanded OCR on the same terms and conditions as current ADF loans, with the ADF to be retained as a grant-only donor fund to provide assistance to eligible countries.

“This initiative is a win-win-win situation because it increases financial support for poorer members, expands capacity for operations in middle-income countries and the private sector, and reduces the burden for ADF donors,” Nakao noted.

With the rise of the AIIB and other new regional financial institutions, the ADB has speeded up its paces on financial reforms so as to increase its lending capacity by more efficiently and effectively utilizing its existing resources.

The ADB reportedly started deliberations on the initiative in the summer of 2013. By the end of February 2015, all 34 of the ADF’s donors gave their formal and unanimous consent to the merger, and the ADB’s Board of Directors delivered its endorsement in the following month.

If approved by a simple majority of the voting power, the combination will become effective in January 2017, said Nakao.

Cooperation with AIIB

When asked about cooperation between the ADB and the AIIB during the press conference, Nakao reiterated that China’s proposal of establishing the AIIB is understandable.

“The ADB will cooperate and co-finance with the AIIB on infrastructure financing across Asia by using our long experience and expertise in the region,” said Nakao, noting that 80 percent of the ADB’s current operations are related to infrastructure construction under the more general term of poverty reduction.

Nakao said he met with Jin Liqun, secretary general of the Multilateral Interim Secretariat of the AIIB, on the sidelines of the ADB’s 48th Annual Meeting on Friday.

During the meeting, the two sides discussed for an hour on future collaboration, including co-financing, and confirmed their commitment to working together for Asia.

“We acknowledged the large infrastructure gap in the region, the critical role of infrastructure in supporting sustainable development and poverty reduction, and the importance of safeguard policies on environmental and social impacts of projects,” Said Nakao.

The two sides also agreed to continue sharing necessary information and further discuss concrete options for collaboration, said Nakao.

Under the theme of Fostering Partnership for Development, the 48th ADB Annual Meeting, which opens Saturday and will last till Tuesday, has attracted about 3,000 government officials, business leaders, academics and representatives from civil society and development organizations.

Established in 1966, the ADB now is owned by 67 members, with 48 from the region. It is the first time for the annual meeting to take place in the South Caucasus region.

In 2014, the ADB’s assistance totaled 22.9 billion dollars, including co-financing of 9.2 billion dollars.

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