Opinion: Multilateral development banks need reforming. Here's how.

Takehiko Nakao, president of the Asian Development Bank. Photo by: Takehiko Nakao / CC BY-NC-ND

There has been much discussion recently about the value of multilateralism. I am a strong believer that the multilateral system, which includes multilateral development banks, plays many important roles to support the global community. The multilateral system does not conflict with the national agenda. At its root, it relies on the coordination and support of national governments and their taxpayers.

The Asian Development Bank’s long-term corporate strategy — Strategy 2030, published last year — set priorities to support our member countries and their people in line with major international commitments such as the Sustainable Development Goals and the Paris Agreement on climate change.

These priorities include (i) addressing remaining poverty, including through better health, education, and social protection, (ii) accelerating gender equality, (iii) tackling climate change, building disaster resilience, and enhancing environmental sustainability, (iv) making cities more livable, and (v) promoting rural development and food security.

UN Green Climate Fund sees nearly $840M worth of IDB projects lapse

Two of the Inter-American Development Bank’s seven planned projects have lapsed, and GCF will no longer support the projects in their current form. How did a major multilateral development bank wind up with its projects terminated?

We support these priorities by strengthening governance and institutional capacity in our member countries and fostering regional cooperation and integration. ADB seeks to be a knowledge center and aims to incorporate digital technologies, artificial intelligence, satellite systems, and other advanced technologies in its projects, programs, and technical assistance.

For MDBs to effectively pursue their missions, they must continue to reinvent and reform themselves. Since the “Making the Global Financial System Work for All” report by the G20 Eminent Persons Group on Global Financial Governance was published last October, there has been renewed interest in how to reform MDBs. I would like to share my thoughts on three important areas mentioned in the EPG report.

First is collaboration among MDBs. Contrary to the perception that MDBs are not working in a coordinated way, MDBs have been strengthening their partnerships. MDB leaders meet at least three times a year to discuss global issues and enhance their coordination. MDB departments spanning regional operations and sectors, private sector operations, strategy, legal issues, treasury, independent evaluation, human resources, and so forth have regular meetings. Moreover, MDBs have close donor coordination in member countries among offices there together with relevant government agencies.

MDBs also work closely with the International Monetary Fund, especially when considering budget support for our member countries. When ADB considers policy-based lending, I always ask whether IMF is supporting it. And ADB waits until an IMF program is agreed with the government before proceeding with policy-based lending if it involves the balance of payment issues.

Strong collaboration is key to achieving greater development impact. MDBs must continue to collaborate, including with EPG’s proposed launch of a country platform, to promote economic stability and sustainable growth in our member countries.

Second is a stronger focus on mobilizing private sector resources. MDB lending and equity investment to private sector companies generally have an outsized impact on mobilizing private resources as well as expertise. This is the reason ADB is increasing its private sector operations, especially in frontier economies, startups, and social sector projects such as in vocational education and health care, in addition to projects in renewable energy, urban transport, water, and sewerage.

We must be mindful, however, that our private sector operations do not distort the market by crowding out private money or giving an unfair advantage to specific companies.

ADB also promotes public-private partnerships by providing transaction advisory services, even without using its financial resources. We established a PPP office within ADB to support the governments’ capacity building and to help design and structure PPP transactions. We must expand the use of credit enhancement instruments including guarantees.

At the same time, it should be remembered that regardless of sovereign or nonsovereign lending, MDBs are vehicles for mobilizing private resources by issuing bonds in capital markets, thereby leveraging our shareholders’ contributions to our equity. We should be proud that since their establishment, MDBs have achieved a lot in the development of poor countries by de-risking development financing through their high credit ratings — AAA in the case of ADB — and by recycling financial resources.

The third element of MDB reform is that, as the EPG report proposes, MDB governance itself needs to be brought up to date, reflecting the complexity of MDB strategic challenges and the needed shift in business models.

As part of ADB’s governance reform, we are reviewing the functional relationship between our board and management. We aim to enhance our effectiveness by reorienting the board’s focus to strategic priorities and adopting a practical, risk-based approach that delegates greater responsibility to ADB management for project and program approvals.

As the scale and complexity of ADB’s operations increase, we need a new model to achieve the dual targets of securing the role of the board on the direction of ADB on the one hand, and enhancing efficiencies and speed in decision-making on the other.

Perspectives provided by the board collectively and by their constituencies individually are essential inputs to the good work of ADB. They represent various development priorities including quick and tailored responses to the needs of developing countries, the efficient use of taxpayer money of shareholding and donor countries, promotion of gender equality, and environmental and social considerations.

I have a strong view that at ADB, the resident board in Manila, the Philippines, contributes to close and collegial discussions between board and management, even when there are differences in view between them and among board members. We all share ADB’s mission of a prosperous, inclusive, resilient, and sustainable Asia-Pacific region.

In addition to these three broad areas of reform, ADB has been implementing various reform measures.

These include (i) optimizing the use of our balance sheet by combining ordinary capital resources and Asian Development Fund lending operations so that we can expand our operations without seeking a capital increase, (ii) establishing 15 sector and thematic groups supported by independent secretariats located in the Sustainable Development and Climate Change Department to enhance the creation and sharing of knowledge across departments, (iii) introducing guidance and procedures to ensure collaboration of sovereign and nonsovereign operations as “One ADB,” (iv) increasing the role of ADB offices on the ground in member countries, (v) modernizing business processes and IT systems, (vi) strengthening our human resources management by increasing mobility, improving talent management and career development, and promoting diversity including improving women’s representation in senior roles, (vii) better engagement with civil society organizations, and (viii) continued efforts to keep ADB efficient through the prudent management of our administrative budget.

National interests and multilateralism go hand in hand because, in the longer run, we need international cooperation and collective actions for the interests of people in all nation states. By reforming MDBs, we will continue to contribute to the improvement of people’s lives in the global community.

About the author

  • Nakao adb

    Takehiko Nakao

    Takehiko Nakao is the president of the Asian Development Bank and the chairperson of ADB's board of directors. He was elected president by ADB's board of governors and assumed office in April 2013. Before joining ADB, Mr. Nakao was the vice minister of finance for international affairs at the Ministry of Finance of Japan.