ADB President Nakao on the road ahead as the bank marks 50 years

Takehiko Nakao, the president of the Asian Development Bank, recently oversaw a significant milestone in the bank’s history — the merging of two key accounts — and while he’s focused on moving the bank forward, he said he’s also a student of the past.

As the bank marks its 50th anniversary, and its annual meeting kicks off Thursday, Nakao has been reflecting on how things have changed at the bank and in the region. To mark that milestone, he has been closely involved in the production of a new book that examines the ADB’s history in great detail. 

When looking back, it is important to note that when the bank was founded in December 1966, poverty in Asia was worse than in sub-Saharan Africa — but the past 50 years have seen rapid development.  

“More prudent macroeconomic policies,” investments in infrastructure and a more market-oriented approach resulted in significant growth, Nakao told Devex in a recent interview. Yet despite that growth, he added, there is still inequality, with 330 million people living in poverty, and a long way to go on gender equality in the region.

Changes over time

The ADB has seen the region weather several crises and has worked alongside countries — from China to India — as they have made a variety of reforms.

“Each time, we in a sense invented new ideas of supporting countries based on good policies but to make a quick reaction we produced new ideas of doing things,” Nakao told Devex.

It is difficult to identify a single moment or element that characterizes how the bank has evolved, Nakao said. But over time the bank has provided more support for agriculture and more productive infrastructure, such as roads and railways and power. The bank also started investing more in education and health, integrated gender into its policies and improved accountability mechanisms.

The bank’s history also has important lessons for the future. In the past the bank made mistakes with its safeguard policies, and should have been more careful about resettlement and other issues resulting from projects it funded. The bank does now have better practices in place, he said.

“So it is very difficult to tell one single element but over time we have evolved. And also another point is what we call [on] accountability mechanisms: How we can [measure] environmental and social impacts of the projects, safeguard policies. So we have established these policies, and we have also over time strengthened the policies to ensure our safeguard policies are secure,” he said.

Nakao’s defining moment?

Perhaps the moment of Nakao’s tenure, though he’s just begun a second term as president, that will feature prominently in the next ADB history book will be his idea to merge the ADB’s two main lending instruments — the Asian Development Fund and the Ordinary Capital Resources.

The merger took effect on January 1, after the bank reached an all-time high of $17.5 billion in sovereign and non-sovereign project approvals in 2016. By 2020, the ADB is planning on increasing loan and grant approvals to more than $20 billion.

To Nakao, merging the accounts was a fairly straightforward proposition — here the ADB had a large amount of funding: About 30 billion in equity that had no leverage. In a time when donors seem unlikely to increase lending, and borrowing needs are large, finding a way to make the bank’s funds go further made sense to him.

He gave the example of Vietnam, which the bank could have offered loans, but with a solid borrowing record — the country has never defaulted — the bank could instead issue a bond and raise the funds in capital markets.

“I thought as far as the ADF equity is used for original purpose of donors contributions, which is to support poor countries, poor people, we can merge it because these are two windows under one institution: ADB,” he said. “And we can do it without the charter treaties changes, we can do it with the support of donors and shareholders of ADB.”

The merger was initially met with some skepticism, in part because of concerns that more money would be funneled to middle income countries, instead of being set aside for poor countries.

“By using leverage we can support countries with the concessional loans more, because we use more leverage and we can increase our grants because we gain more income because of larger operations,” he said. Donors benefit as well, because they could contribute a smaller amount to replenishment funds every four years.

Ultimately, the ADB is a bank and if there is no serious credit risk the bank should use its balance sheet better and leverage its funds, Nakao said.

What’s next

When it comes to looking forward, Nakao said he is focused on how to support the COP21 climate commitments, and the ADB is doubling its climate finance for adaptation and mitigation and how to measure progress. Infrastructure is another key focus for the bank, and Nakao is personally interested in how to use more advanced technologies and provide knowledge and skills alongside funding, particularly for middle income countries.

Nakao said he believes the bank should induce new technologies, including cleaner and more sustainable technology, through its procurement policies.

Nakao is working to strengthen the ADB’s health sector team — health, gender, urbanization and the Sustainable Development Goals are all key priorities.

“I don’t know whether Asian countries can all be like Singapore. It’s very difficult to tell but I want to continue to adjust to the reality of Asia and I hope that there remain new challenges for ADB so that we can continue to make our contributions,” he said.

The bank should also work to speed up its process — one of the biggest criticisms of the bank is how slowly it makes decisions in an effort to ensure its safeguard policies and a fair procurement system.

“It’s important but at the same time if we post too many procedures taking so much time it is as if we are protecting ourselves to avoid any mistake but we should care about the speed of doing things,” Nakao said. “So we are now looking at how we can do things more efficiently. Deregulations of unneeded procedures.”

ADB will also likely do more co-financing, particularly on infrastructure projects. The bank has been working with the Asian Infrastructure Investment Bank to co-finance projects. Nakao has had about nine meetings with Jin Liqun, the president of the AIIB, to discuss safeguard policies, improve human resources and how the two institutions can work together.  The ADB has also signed an memorandum of understanding with the New Development Bank.

“We can cooperate. We can work together in a very positive way. There is a lot of needs [like] infrastructure, why do we need to be confrontational?” Nakao said.

Devex is on the ground at the ADB 50th Annual Meeting. Stay tuned to Devex for coverage.