The ADB's conditions
The ADB's conditions
Loan conditions have always been one of the main bones of
contention at the annual meetings of the Manila-based Asian
Development Bank (ADB). The latest annual meeting which ended
yesterday was preoccupied with the current crisis over the
dramatic lack of funds, but also saw acrimony over what borrowing
countries consider unreasonable conditions attached to ADB's
loans.
The problem is not interest rates, nor the terms attached to
the credits. The ADB's lending rates are always below market
rates even though its rates are based on its own cost of
borrowing. In fact, its soft-loan arm, the Asian Development
Fund, specifically targets the poorest borrowers and charges no
interest at all, only a token administration fee.
What borrowers are complaining about is that the loans are
made conditional on reform measures. These measures are often
said by borrowers to aggravate, rather than alleviate, their
economic difficulties.
However, ADB's donor members argue that the reforms or policy
measures required of borrowers are precisely what distinguishes
multilateral banks like the ADB different from commercial banks.
They contend that if borrowers wanted only money, they could
always just go to the international money markets.
It is of course true that multilateral development banks like
the ADB and the World Bank perform their development mission
largely through policy talks with borrowers. The Indonesian
government, as one of the largest borrowers from both banks, has
a lot of experience of intensive, vigorous policy debates with
the executives of the banks during credit negotiations. The
annual meeting of the Consultative Group on Indonesia (CGI) in
Paris, for instance, is essentially a round of policy talks
between Indonesia and its creditors.
Borrowers and the ADB obviously have different priorities and
thus see things differently. For example, ADB executives
prescribe policy recommendations related to loan projects
according to strictly economic criteria. But a sovereign borrower
will tend to see things in terms of politics as well, taking into
account its capacity to absorb the recommended reforms without
strong public opposition.
The problem, though, is that political and economic
constraints differ from one country to another, while the ADB
serves many sovereign borrowers and tends to impose uniform
policy conditions on borrowers, without taking into account the
social and economic complexities of specific countries.
The ADB and its borrowers should therefore work harder to see
each other's point of view.
On the one hand, borrowers must appreciate the blunt truth
that projects may fail if the domestic economic environment is
not right for it. Sound economic policies are essential for the
success of both individual projects and development strategies in
general.
On the other hand, the ADB should also be more sensitive to
conditions -- and political realities -- in borrower countries.
That requires the ADB to sharpen up its country strategy analysis
because comprehensive country strategies are vital to ensure
maximum development impact for its loans.
In policy talks the ADB should try to recognize the differing
objectives of sovereign borrowers and avoid taking up dogmatic
positions. It should also avoid creating the impression among
sovereign borrowers that "the ADB knows best".