Nakao's push for partnerships and collaboration — even with AIIB

When Asian Development Bank President Takehiko Nakao announced his intention to merge the bank’s two main financial instruments — the Asian Development Fund and the Ordinary Capital Resources — last year in Astana, Kazakhstan, he only had one goal in mind: to do more for Asia-Pacific. “[The ADF-OCR merger] is a very important issue,” Nakao shared with Devex in an exclusive interview at the bank’s Manila headquarters, ahead of this this weekend’s annual meeting in Baku, Azerbaijan. The combined resources, the bank president said, can increase ADB’s concessional lending and grants by up to 50 percent, from “$13 billion a year for approval to $20 billion, if there’s a need.” Asia and the Pacific is home to more than 60 percent of the world’s population, including two-thirds of the people living on less than $1.25 a day, according to U.N. data. The region also has a massive infrastructure investment gap: ADB estimates Asia-Pacific needs $800 billion a year in infrastructure spending over the next decade. The merger — largely considered as the biggest undertaking thus far of Nakao’s roughly two-year tenure at the helm of the Manila-based financial institution — holds promise for mobilizing greater resources to address Asia-Pacific’s needs. But while he considers the merger “innovative,” Nakao is aware it is not the silver bullet for ADB — or indeed for the region. That’s why he is also relentlessly pushing for partnerships with the private sector and co-financing with other development stakeholders to shore up expertise and resources for development programs. Post-merger considerations By combining the merged funds with co-financing from its development partners, ADB could potentially raise its annual financing by 45 percent, from $22 billion in 2014 to about $40 billion. But the whole scheme is not without its challenges. While the merger means more resources dedicated to the region’s development, it does not address the concerns surrounding the need for development programs to be more effective, efficient and impactful. “How to use [the additional money] is our challenge. Our constraint is on how to use the limit of our lending capacity … how to use it better,” Nakao shared, adding that the challenge will remain for the next couple of years. “We are merging these two windows … to strengthen our support to people and countries.” Some of the poorer countries that ADB will increase loans to include Cambodia, Afghanistan and a number of Pacific island countries. This, he said, “can increase our concessional lending … and also we can increase our brand operations.” How the projected rise in resources would improve the effectiveness and efficiency of ADB assistance depends on the situation on the ground as well. Nakao stressed that the different contexts in different countries will and should be considered moving forward. Some countries like India, for example, “just need more money, and if they have finance, they can grow more” because they have the institutional capacity and infrastructure to make the resources work. But “in other countries, the constraint is the debt sustainability because of the already accumulated debt, they cannot borrow too much,” alluding to widespread criticism that development loans only put borrowers into a vicious cycle of debt. And then there are also those countries that don’t have the “absorptive capacity” to use these resources better. ADB’s chief executive has some ideas on how to address these challenges. For one, he intends to help countries with poor tax administration and collection systems to strengthen their tax structure to help mobilize domestic resources. This will be supported with capacity building efforts to ensure government agencies and institutions will be able to effectively handle and manage additional resources — domestic or otherwise. Finally, he intends to help forge partnerships that don’t “cause debt burden to countries.” Working with AIIB Nakao is one of the many development movers and shakers who have acknowledged the growing importance of the China-led Asian Infrastructure Investment Bank. Once AIIB launches at the end of the year, ADB will lose its position as the only multilateral development institution in the region. Even so, Nakao said ADB will remain a major partner in Asia-Pacific’s development. AIIB’s rise has been met with a lot of controversy. To its credit, the Beijing-led institution has tried to address concerns surrounding its governance structure, shareholdings and social and environmental safeguards. While it has been able to assuage the concerns of some traditional economic powers, such as the United Kingdom and Australia, questions linger. Will ADB be willing to work with AIIB? Yes, Nakao said, provided it meets certain standards. “I've been always saying that if AIIB is founded and established formally … adhering to the international best practices of safeguard policies, environmental protection and social [considerations] and procurement systems also, we’d be happy to cooperate,” the ADB chief explained. He even suggested that one of the best ways to cooperate with AIIB is through co-financing, as their combined pool of resources and expertise could be a boon for the region, whose massive infrastructure needs pushed many countries within and outside of Asia and the Pacific to support AIIB. Indeed, Nakao met with Jin Liqun, secretary-general of AIIB’s Multilateral Interim Secretariat, a day before the start of ADB’s annual meeting to confirm the Manila-based institution’s commitment to work with the China-led bank, particularly in terms of co-financing. “Now that AIIB is closer to the foundation, we are very keen to work with them,” Nakao told Devex. Check out more insights and analysis for global development leaders like you, and sign up as an Executive Member to receive the information you need for your organization to thrive.