by Piyaporn Hawiset
16 May 2000
The Asian Development Bank opened its Year 2000 annual meeting in Chiang Mai, Thailand on May 5 amid growing controversy over its attempts to meddle with the internal socio-economic affairs of countries supported by its programs and the programs of the World Bank and the International Monetary Fund. There is growing opposition among the Thai people, especially, to the ADB's loan program in Thailand and elsewhere in the region because it is perceived to further impoverish the poor who make up the majority of the region's population while at the same time benefiting the economic and political elite as well as western multinational corporations. Despite the claims made by the ADB, it would appear that the actual end result of the ADB's policies do rather little towards implementing poverty reduction, a bottom-up approach to the development process, and increased dialogue with grass-roots groups and non-government organizations.
Economists favour a freer IMF
Policymakers and economists at the Asian Development Bank’s annual meeting have called for the International Monetary Fund to be immune to political intervention by major shareholder countries. International financial institutions such as the IMF should act independently, without political intervention, said Thailand's Prime Minister’s Office minister Abhisit Vejjajiva during a debate on The International Financial Architecture for the New Millennium.
“The institutions should be truly independent, and decisions must be based on good technical analysis in order to create accountability of the organisation,” Abhisit said. “It is odd that the international financial institutions go around telling countries that their central banks must be independent, and so on and so forth and yet they continue to meddle with the internal affairs of the countries. It seems like a contradiction bordering on hypocrisy.”
Abhisit’s statement refered mainly to the current state of the IMF, which was prone to intervention from major shareholders, particularly the United States. Many feel the US of uses the IMF as a foreign policy instrument in its drive to economically neo-colonise Southeast Asia through its multinational corporations. The IMF has tied bailout loans to countries hit by financial crisis to the political situations there suspended loans to Indonesia and Russia amid the political turmoil in recent years. Abhisit suggested reducing the influence of major shareholders such as the United States.
Barry Eichengreen, professor of economics at the University of California at Berkeley, called for several reforms, including changes to the IMF’s voting mechanism.
“[The proposed reform] requires that quotas and voting shares be changed to reflect changes in balance of international economic power. Among other things, this will give Asian countries a louder voice,” Eichengreen said. The rule that requires an 85 percent “supermajority” for important changes in IMF policy should be changed as well, he said. Eichengreen also called for reform of the procedure for appointing a managing director. The process has to be more open, and candidates should be judged on their merits, he said.
“The process through which the new managing director was appointed has clearly damaged the institution’s credibility,” he said.
Eichengreen also wanted to make the executive board more independent, saying it was for essentially the same reasons that it would be desirable to make the board of a national central bank independent of the government. European and Asian governments complain that the fund too often allows itself to be used as an instrument of US foreign policy and its obvious economic colonization of economically weaker countries. Giving the US effective veto power undermines the legitimacy of the institution worldwide, he said, and allows the United States to effectively do the same that British, French and other European powers did in the 18th and 19th century using troops to occupy most of what are now developing nations.
Abhisit said he wanted creditors to take responsibility for loans made to businesses that were not viable, in order to prevent panic and address financial crises more effectively. There should be an agreement in advance that creditors will shoulder part of the bad loans, and the agreement should be supervised by international financial institutions, Abhisit said. By and large, creditors who scramble to remove funding from a country where a crisis is imminent cause panic and worsen the situation, he said. This is what happened during the beginning of the 1997 Asian economic crisis. Abhisit said he viewed the capital controls in Malaysia and in Chile as temporary measures that allowed the countries to address their fundamental problems.
A sound macroeconomic policy in the national government is one of the most important things that can prevent a financial crisis, Abbhisit said. An “early-warning” system and the coordination of macroeconomic policies at the regional level are more urgent than creating an Asian counterpart to the IMF, he said. Abhisit later told reporters on the sidelines of the meeting that the prospects for setting up an Asian monetary fund were not yet clear. Responding to the proposal, made by Dr Eisuke Sakakibara, Japan’s former vice minister of finance for international affairs, Abhisit said he did not think the proposal to make the fund a last resort lender was feasible. It could have a negative effect on investment in the region if Western investors did not support the establishment of the fund and interpreted the action as Asia trying to avoid economic reform which typically means economic colonisation, Abhisit said.
Neither a last resort lender nor a world central bank would be sufficient to prevent a crisis, he said, because they would not have the resources, authority and independence to carry out the mission.
Abhisit said he did not think any single institution could prevent the next financial crisis which was seen happening sooner than later, adding that cooperation among various institutions – the IMF, the World Bank, the Asian Development Bank – and the private sector was the best way to prevent a crisis or soften the blow if one occurs. Abhisit supported the new international finance architecture, saying the current architecture shifts the burden from banks and private firms to those who do not create the crisis – citizens who shoulder the public debt. Another Asian financial crisis would occur, he predicted, probably quite soon as the basic causes of the last one were never eradicated because no one seemed to have learned the lessons, but the impact could be mitigated by cooperation between all sectors and institutions.
ADB targets Asian fund
The Asian Development Bank would like to administer the Asian Monetary Fund if it is created, but officials said there are fears and suspicions among some regional members over the predominance of Japan, which bankrolls the development agency.
“In ADB they see a big white flag with a red dot in the middle,” said an official. “Regional members are afraid that Japan would become too powerful. And the Japanese know it. Already, Japan has a big say in the region by providing more than US$80 billion in aid during the Asia crisis.”
On May 6, finance ministers of the 10-member Association of Southeast Asian Nations and China, Korea and Japan will be meeting for the first time to discuss the possibility of creating a regional currency swap arrangement, part of the broader Asian Monetary Fund, to forestall the next financial crisis which was expected soon by many in the region. Thailand's Finance Minister Tarrin Nimmanahaeminda played host to this important event which lay the foundations for the establishment of the Asian Monetary Fund.
Dr Pisit Leeahtam, deputy finance minister: “Thailand is in full support of the Asian Monetary Fund because it is a regional arrangement that should help us cope with the next financial crisis.”
Under the Asian Monetary Fund, there would be regional cooperation in research, training, financing agreement and surveillance. The regional swap arrangement would be part of the four pillars of the Asian Monetary Fund, which would likely to function similar to that of International Monetary Fund. Officials said the ADB was keen to assume the responsibility of administering the Asian Monetary Fund if the fund were finally instigated. By doing so, it would increase another function on top of its present mandate to provide technical and financing support to supposedly eliminate poverty in Asia. They added that ASEAN members would like to have the Asian Monetary Fund managed under an independent framework to balance the power of the large economies in the region.
The regional currency swap arrangement would be an enlargement of the existing ASEAN currency swap agreements, which were created in 1977 and came with a size of US$200 million. The arrangement represents a pool of liquidity with ASEAN members being able to draw on the foreignexchange reserves of each other in defence of their currencies in time of crisis.
Yet the scale of the arrangement became too small, thus the number of players would have to be expanded to include the three key regional players – Japan, China and South Korea. The countries in Asia are keen to create a regional financial framework to protect themselves from the next crisis. The Asian Monetary Fund would become a regional lender of last resort in the absence of such a source in the global financial architecture.
Il Sakong, chairman and chief executive of the Institute for Global Economics, said he would like to see more efforts aimed at closer regional cooperation to help reduce the potential systemic risks from financial crises.
“In addition to regional macroeconomic policy coordination and collaborative monitoring volatile financial flows, regional monetary facilities supplementing the role of the IMF could be well utilised,” he said. “In this regard, the recently started ASEANplusthree financial cooperation is an encouraging initiative for this region.”
Martin Wolf, the associate editor and chief economic commentator of the Financial Times, also said the regional financial cooperation would be desirable but he expressed his doubts that it would be created soon giving the complexity of the issue and a need for political decisions at the top.
ADB and NGOs should work together: bank chief
Multilateral aid agencies like the Asian Development Bank and nongovernmental organisations (NGOs) should intensify efforts to find common ground on which to build a relationship to fight poverty more effectively, development workers said on May 5. Despite current diverging opinions about development issues, both sides could influence one another in shaping strategies that worked best for the poor and disadvantaged, said Government Savings Bank chief Paiboon Wattanasiritham, a former NGO worker.
“Essentially both sides share the same goal, working to improve the lives of the poor,” Paiboon said. “Difference in opinions should not prevent NGOs and multilateral aid agencies from seeking better understanding and engaging in constructive discussion.” Paiboon, who was attending the ADB’s annual meeting in Chiang Mai, was commenting on the confrontational stance of some NGOs and large segments of Thailand's population protesting the bank’s US$600 million Agriculture Sector Program Loan (APSL) which includes a controversial technical assistance for restructuring the management of Thailand's water resources.
There would be some NGOs, particularly those strongly opposed to globalisation, who would never be persuaded to have anything to do with multilateral agencies, he said. Some were simply fundamentally opposed to promoting a capitalistic approach to development in the battle against poverty, he said.
Large segments of Thailand population know the ASPL, which is cofinanced by Japan’s Overseas Economic Cooperation Fund, threaten the survival of poor and smallscale farmers. The controversy centres on conditions imposed by the ADB for the use of the huge loan sought by the Agriculture Ministry to revive the country’s flagging agricultural sector. As part of the conditions, the government must recover costs for irrigation service construction and on farm development work and restructure the management of Thailand's water resources.
The bank also called for a reduction of government intervention in price controls and other subsidies. The ASPL is supporting the government’s efforts to restructure the agricultural sector through a wide range of reforms – from land and water resources management changes, to promoting poor farmers’ access to credit and improving agricultural research. However, Thailand's people, particularly farmers and rural people, who form the majority of Thailand's population and who essentially are still poverty-stricken, have observed the program includes conditions that would push farmers to depend on multinational corporations that monopolise the agricultural chemical and produce industries.
ADB resident advisor Craig Steffensen said the ADB would continue attempting to get NGOs, farmers, academics and local communities involved in implementing a five-year agriculture sector program that was launched in 1999. They also hoped for involvement in future development projects aimed at reducing poverty in Thailand.
“NGOs and multilateral agencies like the ADB, which share the same goal of reducing poverty, are supposed to be natural allies,” he said. But Steffensen rejected charges made by NGOs that cost recovery for irrigation would mean collecting water fees from poor farmers.
“Poor, small farmers struggling to survive are exempt from water charges,” he said. “People should not be spreading misinformation about it [the water pricing policy].” Only large users of water from the irrigation system, such as golf courses, housing estates, industrial plants and large commercial farms that make huge profits, would be targeted, he said. Such organisations did not want to begin paying for their water, he said.
“What they are doing is making it difficult for the Irrigation Department to come up with revenue necessary to expand their system and provide water to other farmers,” he said. But obviously Steffensen does not quite understand the culture of Thailand's government officials and the politicians for whom they work and that their venal nature means that once the fees are in place farmers would nevertheless be extorted. After all, this sort of activity is well-entrenched in all walks of life in Thailand and is the reason why most of Thailand's population has seen little real benefit from decades of so-called development.
ADB Ends Annual Meeting, with Pledge to Poverty-Free Region
The ADB) concluded its 33rd Annual Meeting of the Board of Governors on May 8, with a pledge to make the Asia-Pacific a region free of poverty. During the three-day meeting, governors form the bank's 58 members considered developments in the Asia and Pacific Region and the performance of the bank in 1999, with poverty reduction as a dominant topic.
"The overarching goal for Asia and the Pacific and for ADB should be to reduce poverty," said Tadao Chino, president of the bank, at the opening ceremony. According to the Asian Development Outlook 2000, Asia's poor account for two-thirds of the total in the developing world, with about 900 million people living on a mere dollar-a-day income. Since the financial crisis hit East and Southeast Asia in 1997, poverty in the region jumped by at least 10 million people.
At the meeting, the governors strongly endorsed the ADB's poverty reduction strategy that the bank adopted in November 1999. The strategy stipulates the need for pro-poor, sustainable economic growth which is essential to poverty reduction and social development including basic education and primary health care and improved governance in the public and private sectors. To generate growth and fight poverty, the governors also noted a need for taking advantage of globalization and information technology while minimizing associated risks, improving productivity in the rural sector, undertaking sound environmental management and addressing the increasing threat of communicable diseases such as HIV/AIDS. At the meeting, the governors also discussed how to sustain the economic recovery. The Asian recovery has turned out to be more robust than expected. The five most crisis-affected countries staged a remarkable turnaround by growing at an average of 6.4 percent in 1999 following a decline of 7.7 percent in 1998.
With an overall growth of above 6 percent in 1999, Asia's developing economies have once again become major contributors to global growth. However, the governors noted that while the region showed strong signs of recovery, there are still many challenges ahead. They agreed that it is essential that this economic recovery be sustained. They encouraged countries in the region to continue their reform efforts and establish an enabling environment for private sector development.
They also observed that the strong rebound in economic performance is the outcome of the concerted efforts of governments and people in the region to undertake reforms and the timely assistance provided by the international community including the ADB. The governors noted that the ADB has played an important role in assisting the developing member countries (DMCs) emerge from the crisis. They urged the ADB to continue promoting inclusive economic development, supporting good governance and achieving social progress in the DMCs.
The ADB also pledged to improve its corporate governance, saying it will strive to be "a premier development institution and an example of international best practice for the region."
"We are trying to be more helpful to the Asian poor countries," Chino said at the final news conference.
Though facing opposition from the United States and some European members, the bank won broad support from the governors to initiate a study of its resource requirements, which, it said, will provide useful information for considering its long-term fund needs. The United States opposes the bank's idea of increasing its fund base while Japan stands for it.
"In order to fight poverty across developing Asia and to achieve progress toward the international development goals, ADB needs adequate resources," Chino said.
Japanese Finance Minister Kiichi Miyazawa announced at the meeting that his government would contribute 10 billion yen (92.5 million U.S. dollars) to set up a fund within the ADB for poverty reduction.
On the sidelines of the meeting, finance ministers of the Association of Southeast Asian Nations (ASEAN), China, Japan and South Korea agreed on a bilateral currency swap to strengthen regional capacity to counter future financial crises. The agreement, dubbed as the Chiang Mai Initiative, involves an expanded ASEAN Swap Arrangement that would include the ASEAN and a network of bilateral swap and repurchase agreement facilities among ASEAN countries, China, Japan and South Korea. Analysts view the initiative as a symbol of a new stage of the regional economic and financial cooperation.
However, the meeting, like the World Trade Organization meeting in Seattle, the United States, and the U.N. Conference on Trade and Development in Bangkok, was also marred by protests. More than 3,000 protesters gathered outside the meeting venue for three consecutive days, demanding that the bank withdraw some projects and loans that would hinder rather than improve the quality of life in Thailand. The Thai government deployed about 2,000 riot police to block the protesters from the meeting venue. However, the protestors managed to get through the police lines and ask the ADB to meet a number of demands. Chino arrogantly refused to meet with the protestors, saying his schedule "was too hectic".
About 3,000 representatives from most of the bank's 58 members, including finance ministers, central bank governors and officials from banks and international financial institutions, attended the meeting. The Board of Governors, the ADB's highest policy-making body, comprises one representative from each member and meets annually. The board elects the Board of Directors every two years. During the meeting, the bank also holds seminars on issues ranging from poverty reduction and the international financial architecture to the global networked economy.
Established in 1966, the ADB is a multinational finance institution. With 42 of its members from the Asian and Pacific region, the bank engages in a wide range of social and economic development activities aimed at improving the welfare of the people in the region.