BANKING ON THE FUTURE OF ASIA AND THE PACIFIC Banking on the Future of Asia and the Pacifi c 50 Years of the Asian Development Bank This book is a history of the Asian Development Bank (ADB), a multilateral development bank established 50 years ago to serve Asia and the Pacifi c. Focusing on the region’s BANK DEVELOPMENT YEARS OF THE ASIAN economic development, the evolution of the international development agenda, and the story of ADB itself, Banking on the Future of Asia and the Pacifi c raises several key questions: What are the outstanding features of regional development to which ADB had to respond? How has the bank grown and evolved in changing circumstances? How did ADB’s successive leaders promote reforms while preserving continuity with the e orts of their predecessors? ADB has played an important role in the transformation of Asia and the Pacifi c over the past 50 years. As ADB continues to evolve and adapt to the region’s changing development landscape, the experiences highlighted in this book can provide valuable insight on how best to serve Asia and the Pacifi c in the future. Peter McCawley Peter “ADB is a child of genuine aspiration by people across BANKING ON the region and the establishment of ADB represents the spirit of regional cooperation.” THE FUTURE OF ASIA ADB President Takehiko Nakao AND THE PACIFIC YEARS OF THE ASIAN DEVELOPMENT BANK Peter McCawley ASIAN DEVELOPMENT BANK 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org ADB@50 History Book_COVER 6x9 - 2.6 cm spine.indd 1 6/15/2017 1:45:13 PM BANKING ON THE FUTURE OF ASIA AND THE PACIFIC 50 YEARS OF THE ASIAN DEVELOPMENT BANK Peter McCawley © 2017 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org All rights reserved. Second edition 2017. ISBN 978-92-9257-875-6 (Print), 978-92-9257-876-3 (e-ISBN) Publication Stock No. TCS178907 DOI: http://dx.doi.org/10.22617/TCS178907 The views expressed in this publication are those of the authors and do not necessarily refl ect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specifi c companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. ADB encourages printing or copying information exclusively for personal, educational, and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission. Notes: In this publication, “$” refers to US dollars. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda ADB recognizes its members by their offi cial designations as indicated in https://www.adb.org/about/ members. However, some variations to these designations may be found in this publication for reasons of historical accuracy. On the front cover: Early morning at the Central Thailand Solar Farm in Nakhon Pathom, Thailand; with 148,608 solar modules generating a total capacity of 28.5 megawatt-hours of electricity. Completed in December 2013, the project is consistent with ADB’s country partnership strategy for Thailand (2007–2011) with its three core strategic areas: infrastructure, environmental sustainability, and capital markets. Photo by Gerhard Joren Printed on recycled paper ABOUT THE AUTHOR Peter McCawley is an economist from the Arndt-Corden Department of Economics at the Australian National University (ANU) in Canberra, who has worked on development issues in Asia and the Pacifi c for many years. He has a PhD in economics (1972) from the ANU. He later taught at Gadjah Mada University in Yogyakarta in the early 1970s before becoming head, Indonesia Project, at the ANU. In 1986, he joined Australian Aid as a Deputy Director General. Much of his work in Asia has been with the Asian Development Bank (ADB). Between 1992 and 1996, he was a member of the ADB Board of Directors. Later, in 2003–2007, he became Dean of the ADB Institute in Tokyo. He was also Co-chair and Chair of Asian Development Fund negotiations between 1999 and 2008. He has numerous publications about development issues in Asia and the Pacifi c. CONTENTS About the Author iii Foreword xii Preface xvi Contributors xxi Abbreviations xxii ADB Regional and Nonregional Members xxiv ADB Time Line xxv Chapter 1—Introduction 1 A Multilateral Agency 2 A Development Organization 3 A Financing Institution 6 The Leadership Succession 11 The Challenge of Development 15 BEGINNINGS (UNTIL 1966) Chapter 2—Asia in the 1960s: Ferment and Transformation 17 Japan and the Flying Geese 18 The Four Tigers 18 Instability in Southeast Asia 21 Stagnation in South Asia 22 Isolation of the People’s Republic of China 23 Delayed Independence in the Pacifi c 24 Other Economic Challenges 24 Regional Cooperation 26 International Trends 28 Chapter 3—Establishing the Bank 31 Earlier Proposals 31 Takeshi Watanabe and the Tokyo Study Group 33 Help from the United Nations Economic Commission for Asia and the Far East 35 Two Streams Merge 39 The Scope of Membership 40 Japan and the United States 41 Serious Preparations 42 Drafting the Charter 44 Headquarters of the Bank 48 The First President 51 Contents v FIRST DECADE (1967–1976) Chapter 4—Asia: Building Momentum and Facing Shocks 53 Strengthening Agriculture 54 The Drive for Industrialization 56 Coping with Economic Shocks 60 Chapter 5—ADB: The Character of the Bank 69 A Vision for the Bank 70 A Careful Start 73 Research Activities 74 Other Main Studies 77 The First Technical Assistance and Loans 78 Early Priorities 79 Trends in Lending 81 Sources of Finance 83 Increases in Capital 84 ADB Bonds 85 Special Funds 87 Transition of the Leadership 89 Shiro Inoue 91 Crisis-Related Programs 93 Second General Capital Increase and Establishment of ADF 95 Borrowing in Capital Markets, Cofi nancing, and Recycling of Oil Money 99 Operational Summary 100 Ten Years Old 102 SECOND DECADE (1977–1986) Chapter 6—Asia: Transformation in the Region 107 Consequences of Stagfl ation 108 Basic Human Needs and Structural Adjustment 109 Geese Become Tigers 110 Southeast Asia: Swings of Fortune 112 South Asia 115 Pacifi c Island Countries 116 People’s Republic of China 116 Growth Continues 119 vi Contents Chapter 7—ADB: Toward a Broader Development Bank 121 Taroichi Yoshida 121 Widening Agenda for ADB 123 Creating New Loans 126 Surveys and Reviews 130 Pressures for Fundraising 131 Masao Fujioka 132 Priorities in the 1980s 134 Increasing Lending and First Private Sector Operations 136 Staff and First Resident Mission 139 Agreeing on Country Strategies and Flexible Lending Arrangements 140 Raising Funds in Hard Times 141 A Regional Development Institution 142 The People’s Republic of China Joins the Bank 144 India as a Borrower 145 Operational Summary 146 Into a Third Decade 149 THIRD DECADE (1987–1996) Chapter 8—Asia: Reemergence of the Region 157 Changes in Capital Flows 158 New Trade Arrangements 159 A Broadened International Development Agenda 160 States and Markets 162 The Infl uence of Globalization 163 The Newly Industrialized Economies 165 People’s Republic of China 166 Southeast Asia 167 South Asia 169 Central Asian Republics 170 Pacifi c Island Countries 171 Increasing Strength in Asia 171 Chapter 9—ADB: New Members and New Regions 173 Managing Member Priorities 174 Kimimasa Tarumizu 180 Contents vii New Resources 182 Strategic Planning 184 Reverberations from Europe 185 Transition Economies 185 Asia’s Giant Economies 187 Mitsuo Sato 189 Running Out of Headroom 190 Resource Mobilization 192 New Ways of Working 192 New Lending Instruments and Scholarships 196 New Offi ces Abroad and the ADB Institute 197 Operational Summary 199 Calm before the Storm 204 FOURTH DECADE (1997–2006) Chapter 10—The Asian Financial Crisis 207 Thailand: The Crisis Erupts 208 Republic of Korea: A Rapid Response 209 Indonesia: Political Upheaval 211 Other Asian Neighbors 212 The ADB Response 213 Programs in Thailand 215 Programs in the Republic of Korea 216 Programs in Indonesia 217 Impact on ADB 219 Graduation of Newly Industrialized Economies 222 Policy Reforms, Research, and Advocacy 223 Turmoil in Asia: What Went Wrong? 225 Weak Fundamentals or Investor Panic 227 Criticism of International Rescue Operations 228 Regional Initiatives 229 Asia and ADB after the Crisis 232 Chapter 11—Asia: A New Century Dawns 235 Recovery and Ascent in Asia 236 Growing Intraregional Trade and Capital Flows 238 Making Globalization Work 239 viii Contents Broader View of Development and Millennium Development Goals 242 Changing Finance Architecture 244 The Fourth ADB Decade 247 Chapter 12—ADB: The Widening Development Agenda 253 Tadao Chino 253 A Corporate Strategy 256 Organizational Changes 258 Assisting Fragile States 260 Concerns for Sustainable Development and Governance 262 More Accountable and Eff ective Assistance 264