Why the Asian Development Bank wrote a prescription for an overhaul

The Asian Development Bank is launching a massive restructuring to shake off the image of a stuffy financial institution disconnected from the countries it serves — a move that Managing Director General Woochong Um tells Devex he hopes will make the anti-poverty lender more akin to a “family doctor.” The idea of a huge multinational lender with more than $130 billion in outstanding loans to clients positioning itself as the financial equivalent of your trusted local physician will probably raise some eyebrows. But in an interview, Um says it’s an apt analogy. “What we mean by a family doctor is a doctor who really understands the patient,” says Um, one of the bank’s most senior leaders. “Most countries have grown and matured. … It's not enough for us to go and build roads.” --— Woochong Um, managing director general, Asian Development Bank Over the years, he concedes, the bank has slipped in fulfilling that role. Bureaucratic structures created silos that eroded communications between the bank and its client countries — and the people in them. “We created five little banks and we divided our technical expertise into five slices,” Um says. That’s now coming to an end. ADB’s ambitious restructuring plans will knock down several internal walls starting next year, as Devex was the first to report Sunday. The bank’s five regional departments will start acting as a single financing facility, and there will no longer be a divide between the public and private sector lending windows. The bank was created more than five decades ago as a collaboration between Japan and the United States to bolster development in the region. The two countries remain the bank’s largest shareholders — together, they have more than 30% ownership stake. Tokyo traditionally appoints the president, though the institution is based in the Philippines. The bank now has 68 members, including almost all countries across Asia, the Pacific and Western Europe, along with Australia. Another big shift as part of the reshuffle is empowering local offices and getting officials out into the field so that they can be more in touch with the people whose lives are affected by big decisions and share their knowledge across all Asian nations. ADB sees itself as a top-level consultant with expertise in development and economics, not just a lender. “Through the decentralization of our operations, we really get to understand what's actually happening on the ground. What are the needs? What kind of financing is needed?” Um says. It’s all part of what he describes as “more holistic support to developing countries.” ‘Hedging its bets’ Chris Humphrey, an economist at the Overseas Development Institute think-tank, welcomed the reforms but pointed out that truly devolving authority to country offices may prove a challenge. The bank “seems to be hedging its bets” by moving more people to the field, but still keeping key final decisions within its Manila headquarters. It’s a tension that the bank will have to work out, Humphrey says. More broadly, though, Humphrey says the reforms reflect the vastly improved economic landscape across most of Asia. “The needs are more complex, the kinds of projects countries need are more complex. The need to interface public money with private investment requires different skill sets and [a] different organizational setup for the ADB to do that effectively,” he tells Devex. When the bank was founded in 1966, the region was much poorer. There was no South Korean tech powerhouse, no Singapore as a diversified economic hub, India was a highly centralized and smaller economy, and China was decades away from its current role as a global economic behemoth. The operating environment for ADB is now more sophisticated and in many ways more challenging. “Most countries have grown and matured,” Um says. “It's not enough for us to go and build roads.” Of course, the member country that has grown the most in absolute terms is China. Even so, it remains the bank’s biggest borrower as it straddles the line between advanced economy and developing nation. Beijing lends huge amounts to low-income governments taking out loans from development banks. Um says he does not expect this to change, at least not quickly. He also argues that by engaging with China as a borrower, ADB can hit targets on global concerns such as climate change and biodiversity, especially as it seeks more regional projects that tie together different countries. Notably, this drive to get more involved in regional projects and even those with global goals fall in line with some of the calls for reform coming from key shareholders, most prominently U.S. Treasury Secretary Janet Yellen, who is demanding that anti-poverty lenders start to think bigger and move beyond country-specific projects. Outshining the competition But is ADB feeling the heat from China’s lending operations, particularly the Asian Infrastructure Investment Bank? Beijing created the lender in the last decade to finance projects across the region, in part to bolster its Belt and Road Initiative, which underpins China’s diplomatic architecture. Humphrey notes that countries in Asia have felt AIIB is more aligned with their needs, particularly on just getting things done. “The AIIB is just much faster and much easier to work with compared to the Asian Development Bank,” Humphrey said, referring to issues such as project approval and launches. While the policy document outlining ADB’s reforms concedes the need for more efficiency, Um rejects the idea that ADB is just reacting to regional competition. “I think our real competition is not AIIB or other banks — it’s time. We don't want to run out of time in terms of addressing climate issues,” he says. He says he is open to more collaboration with the World Bank and AIIB because, at the end of the day, countries’ financial needs are greater than the public money available. This all fits into a strategy that at its core admits that lending alone cannot fix the problems countries are facing. “We should focus more on leveraging, to bring in others,” he says, meaning that the bank’s role should be less of a direct lender for specific projects and more focused on mobilizing private capital. “Private sector money is floating everywhere. There's a lot of money out there. And we need to try to capture some of that and channel that to our developing countries,” he says. Without artificial region divides and siloing off the public and private lending, he says, the bank hopes it will be more agile and focused on being catalytic in an increasingly challenging environment.