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.