U.S. govt pushes ADB lending program

U.S. govt pushes ADB lending program

HONG KONG (Dow Jones): During the Asian financial crisis, multilateral institutions offered bail-out money with conditions to ensure economic reforms were being adopted by some countries.

Now, the U.S. wants to see results before the lending is made, and it sees an opportunity to do so with Asia's poorest countries.

The policy push comes ahead of a next week's formal request by the Asian Development Bank for US$6.3 billion in new financial pledges from the Japan, the U.S. and the bank's other rich donor nations.

The Manila-based bank says the money is needed before the end of next year to ensure it can continue to provide long-term, low- interest loans through its Asian Development Fund.

"The timing is particularly important now because it deals with the consequences of the Asian financial crisis. The consequences are that poverty has increased in Asia," John Lintjer, ADB vice president in charge of finance and administration, told Dow Jones Newswires.

Japan, the ADB's leading shareholder, is "supporting rigorously the replenishment exercise," said ADB director Naoyuki Shinohara.

The ADB's soft loans historically make up a quarter to a third of the bank's total annual lending and provide much-needed support to its poorest member countries. But as two of the biggest past recipients - Pakistan and Indonesia - have shown in recent years, rampant corruption often stands alongside poverty.

In that regard, Linda Tsao Yang, the U.S. ambassador to the ADB, has withheld her support for the ADB's fund-raising initiative because she said the U.S. government wants more assurance that lending will actually be effective, rather than squandered.

She said she wants the bank to come up with basic guidelines to ensure its loans provide maximum impact.

The plan she described is similar to the International Monetary Fund's new Contingent Credit Lines, where countries with a recognized track record of good performance would be deemed eligible for crisis-relief from the Washington-based organization before the outbreak of a problem.

But Yang's plan relates specifically to countries with weak economies and high poverty, which she suggested may be getting money too easily from the ADB.

"It does not do the borrowing country any good to merely pour in the money because it has to be repaid 20-30 years down the road," she said. "Just being poor does not mean you are entitled to concessionary funds. It's performance, performance, performance."

A fellow ADB director suggested Yang is being too idealistic.

"Some degree of flexibility is important. We can't just disregard countries when they have governance problems," he said.

Yang acknowledged the poorest countries should almost always be provided with a basic, need-based amount of soft loans.

But, she added, any additional funding should be taken into account how well a borrowing nation has applied the funds it has already received. The government should be rewarded for meeting benchmark criteria, such as how much poverty has been reduced or whether the environment was improved. "We want to think positively, not in a punitive way," she said.

Lintjer of the ADB said the bank's lending decisions have traditionally been "rather qualitative in nature, not quantitative."

And while he said the bank may introduce more "performance- based" lending criteria, even putting together mathematical formulas for benchmarks would require judgment calls.

"Formulation of performance-based lending might be very useful to our work, as an instrument," but not likely as a full substitute for decision-making capability of its professionals, he said.

Meanwhile, the ADB director who asked not to be named said the U.S. is "very eager to talk about policy issues, but it's quite natural that they are cautious" about pledging new money since Washington is already behind on payments made under past pledges to the ADB.

Yang has often said the U.S. failure's to pay its dues has reduced her ability to push an agenda. She retires next month after six years as the U.S. director of the ADB and will be succeeded by her deputy, Cinnamon Dornsife.

The ADB's request for replenishment of the development fund pool will be formally made Oct. 13-14 in Brisbane, Australia, at a meeting led by ADB President Tadao Chino.

Since becoming ADB president early this year, Chino has sought to refocus the bank on poverty alleviation programs.