Multilateral institutions can play an important role in shaping fiscal policy and enhancing climate awareness. Doing so without tying up additional funds, however, is a bigger challenge.
Private agenda
Source: REUTERS/Reinhard Krause
Girls attend a mass at a Catholic church in a village at the outskirts of Taiyuan, Shanxi province.
Funding is not Asia’s biggest problem. With more countries attaining investment-grade ratings, international financing is available across most of the region at a relatively low cost, and even lower-rated issuers have been able to attract overseas funds.
Pakistan, rated Caa1, sold a US$2bn sovereign bond in early April to underline Asia’s ability to access the international capital markets. The issue came only months after Pakistan’s latest drawdown from the International Monetary Fund and amid persistent worries about the country’s political stability.
For a development institution, Asia’s continued economic progress presents some existential challenges – especially in countries that no longer need its assistance.
The Asian Development Bank has an important role to play in financing vital infrastructure and mobilising private-sector investments, but it is increasingly looking to promote its technical expertise and influence policy alongside its own capital resources.
“ADB remains engaged with all countries in the region, not only those that actively borrow,” said Bindhu Lohani, ADB vice president for knowledge management. “For example, Malaysia is an important partner and actively participates in regional initiatives, despite the fact that it is no longer a borrowing member.”
“Our clients are now increasingly demanding the highest-quality knowledge services; particularly on ‘best practices’ on how other countries have dealt with particular development issues or adjusted to changes in the broader regional and global economic environment.”
For higher middle-income countries, such as China, the ADB’s support has evolved from financing critical infrastructure to promoting the transfer of knowledge, particularly to help with new development challenges, such as climate change and inclusive growth, which focus on expanding economic opportunities throughout society.
“Our clients are now increasingly demanding the highest-quality knowledge services; particularly on ‘best practices’ on how other countries have dealt with particular development issues or adjusted to changes in the broader regional and global economic environment,” said Lohani.
“Asian solutions to Asian problems can benefit from a global knowledge base.”
The ADB is working on a long list of technical assistance programmes, designed to equip member countries with specific knowledge. While these can stand alone, the ADB’s new president is keen to keep assignments linked to future financings, ensuring the bank does not stray too far from its original mandate.
Insiders talk of welcome plans to reduce the amount of hours spent preparing hypothetical studies, which have little direct effect, and to focus instead on providing knowledge related to specific climate initiatives, new technologies or financing frameworks.
The ADB, for example, administers US$1.6bn of Asian allocation under the global Climate Investment Fund.
So far, it has approved 20 projects, totalling US$825m, including geothermal energy developments in Indonesia and wind and solar projects in China and Thailand. The remaining funds are expected to be committed before the end of next year.
The bank also works closely with UK-backed Climate Public-Private Partnership (CP3) Fund and is developing good relations with the Green Climate Fund, a longer-term global initiative, first floated in Copenhagen in 2009 and designed in Durban in 2011.
The GCF secretariat was launched last year in Songdo, Korea, and the ADB has played a liaison role between the fund and Asia Pacific stakeholders.
Capacity-building programmes, such as a framework for public-private partnerships, can help close the gap in expectations between the private and public sectors.
“ADB is supporting its borrowing member countries in Asia by helping them address the very real needs to develop policies, regulations, and legal frameworks for private-sector participation in infrastructure,” said Lohani.
Examples include assisting the Government of Mongolia to draw up a concession law for private-sector partners and financing a detailed feasibility study for a combined heat and power project.
The ADB partnered Singapore last year to fund a US$9m PPP initiative, intended to bring some of the city state’s successful experience with the format to other ASEAN member countries. The two are also partners in an infrastructure centre of excellence designed to facilitate projects in Indonesia, Malaysia, the Philippines and Thailand.
Strings attached
Other initiatives include a pilot Asia-Pacific Climate Technology Network and Finance Center, in partnership with the United Nations Environment Programme, where the ADB is leading efforts to mobilise financing and develop a marketplace for low-carbon technologies.
Crucially, the ADB is using its ability to finance key infrastructure projects as leverage to encourage countries to complete essential reforms.
“We may look at a water project, but say a water tariff needs to be in place before we can lend, or that certain policies are required,” said Lohani. “There is also a tremendous possibility to influence choices of technology. We can encourage countries to look beyond coal power, for instance, by saying we won’t finance the cheapest one.”
While the IMF has the firepower to tie lending to (sometimes unpopular) reforms, the ADB takes a far more co-operative approach to influencing policy.
Typically, the bank agrees to a five-year strategy for each member government in a country partnership, ensuring that each side’s interests are aligned. Countries are usually eager to learn, says Lohani, especially at the less-developed end of the spectrum.
“Some countries want the full ADB offering of finance plus leverage plus knowledge – finance plus plus,” said Lohani. “For others, it is plus plus, then finance: they want help shaping their technology strategy before tendering a project.”
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