A Devel­op­ment Menu

Loans and grants is the ce­ment that ties the Asian Devel­op­ment Bank to South Asian coun­tries, such as Pak­istan. The Bank’s work­ing frame­work wel­comes in­ter­na­tional co­op­er­a­tion aimed at eco­nomic and fi­nan­cial progress.

Southasia - - CONTENTS - By Shahid Javed Burki

The Asian Devel­op­ment Bank con­tin­ues to meet the chal­lenges of growth with use­ful fund­ing.

Pak­istan is not only a found­ing mem­ber of the Asian Devel­op­ment Bank (ADB), but is one of the largest re­cip­i­ents of funds from the in­sti­tu­tion. As dis­cussed later, the in­sti­tu­tion's im­por­tance for Pak­istan is likely to in­crease sig­nif­i­cantly. The Bank was mod­eled af­ter the World Bank Group ( WBG) and was es­tab­lished on De­cem­ber 19, 1966. Head­quar­tered in Manila, the Philip­pines, such na­tions as Ja­pan and the United States are the in­sti­tu­tion's largest share­hold­ers, each with 15.61 per­cent share in the cap­i­tal. China holds 6.44 per­cent, In­dia 6.35 per­cent and Aus­tralia 5.79 per­cent.

The ADB has com­mit­ted $29.57 bil­lion to the coun­try for 734 op­er­a­tions. This works out at about $600 mil­lion a year. But the an­nual lend­ing pro­gramme is now much larger than the av­er­age as is the typ­i­cal size of the project. The av­er­age project size is $40 mil­lion but in re­cent years, the in­sti­tu­tion has fi­nanced much larger projects.

The sec­tor of en­ergy has been the largest re­cip­i­ent of ADB's sup­port, ac­count­ing for al­most 28 per­cent of the to­tal. Projects in this sec­tor com­prise over half of the in­sti­tu­tion's port­fo­lio for Pak­istan which in­cludes $900 mil­lion for the Jamshoro Power Gen­er­a­tion Project. The in­sti­tu­tion is also help­ing fi­nance hy­dropower plants, en­er­gy­ef­fi­ciency pro­grammes and in­no­va­tive clean en­ergy ini­tia­tives. In 2016, ADB pro­vided a loan of $325 mil­lion to en­hance Pak­istan's en­ergy se­cu­rity. Un­der this ini­tia­tive, the aim is to build 1,000 mi­cro-hy­dro plants and roof-top so­lar plants for schools and clin­ics so that the op­er­a­tions of these vi­tal in­sti­tu­tions are not in­ter­rupted be­cause of power out­ages. Some 4 mil­lion peo­ple will ben­e­fit from this pro­gramme, in­clud­ing 1.2 mil­lion girls at­tend­ing schools in Khy­ber Pakhtunkhwa and Pun­jab prov­inces.

To help the coun­try to deal ef­fi­ciently with its rapidly grow­ing en­ergy needs, it is pro­vid­ing as­sis­tance for en­ergy plan­ning, ca­pac­ity devel­op­ment and re­gional trad­ing ini­tia­tives for power and gas. It has teamed up with the United King­dom's Depart­ment for In­ter­na­tional Devel­op­ment (DFID) to help Pak­istan develop the in­sti­tu­tional ca­pac­ity to take full ad­van­tage of the multi-bil­lion dol­lar China-Pak­istan Eco­nomic Cor­ri­dor (CPEC).

Trans­port, with 16 per­cent of the share, is the sec­ond largest sec­tor for the ADB in Pak­istan fol­lowed by what the in­sti­tu­tion de­scribes as the "pub­lic sec­tor man­age­ment" clus­ter. In 2016, the in­sti­tu­tion's board ap­proved the to­tal lend­ing pack­age for the pe­riod 2017-19 cost­ing $5.96 bil­lion. In this pe­riod the in­sti­tu­tion is plac­ing em­pha­sis on in­ter-coun­try con­nec­tiv­ity via a north-south road net­work. This will pro­vide enor­mous ben­e­fits if Is­lam­abad and Beijing reach an un­der­stand­ing with Kabul to ex­tend the CPEC to Afghanistan. That way Pak­istan will get con­nected to the land-locked coun­tries of Cen­tral Asia and be­come a ma­jor hub for in­ter­na­tional com­merce.

A large ADB pro­gramme cou­pled with those be­ing fi­nanced by the World Bank Group and the Asian In­fra­struc­ture In­vest­ment Bank will help Pak­istan to over­come the prob­lem re­sult­ing from the threat­ened with­drawal of the United States sup­port from the coun­try. To see how Pak­istan could use the clus­ter of in­ter­na­tional in­sti­tu­tions to deal with the Amer­i­can threat, it would be use­ful to re­flect on the devel­op­ment of the multi-faceted in­ter­na­tional frame­work for co­op­er­a­tion among na­tions.

Af­ter de­feat­ing Ger­many and Italy in the Sec­ond World War, the vic­tors agreed that they should not re­peat the mis­takes they had made af­ter the First World War (1914-18). Then de­feat­ing Ger­many on the bat­tle­field was not con­sid­ered to be enough. It had to be pun­ished in other ways for the de­struc­tion it had wrought by pur­su­ing its im­pe­rial am­bi­tions. The vic­tors im­posed eco­nomic sanc­tions on Ger­many by way of heavy repa­ra­tions it was to make to the coun­tries it had in­vaded and de­stroyed. The im­posed fi­nan­cial bur­den was too heavy for the Ger­mans to bear. Re­sent­ment built up that led to the rise of ex­treme na­tion­al­ism. This was ex­ploited by the Nazis and their leader, Adolf Hitler. Ger­many's ag­gres­sive be­hav­iour plunged the world into an­other war that turned out to be far more de­struc­tive than the one in the early part of the cen­tury.

Af­ter the same set of vic­tors had de­feated the same set of en­e­mies on the bat­tle­field, it was agreed that the van­quished should be re­ab­sorbed into the world's po­lit­i­cal and eco­nomic sys­tem. This should not be done by mak­ing a one-time ef­fort. In­stead, an

in­sti­tu­tional struc­ture should be built to achieve at least four ob­jec­tives. There should be a mech­a­nism for coun­tries to re­solve their dif­fer­ences through ne­go­ti­a­tions rather than by wag­ing war. The bat­tle-filed should be the last op­tion ex­er­cised af­ter care­ful thought against the erring party. Sec­ond, the de­feated na­tion should be helped to re­build its econ­omy. Third, the coun­tries un­der fi­nan­cial stress should be helped col­lec­tively by other na­tions but on the con­di­tion that the af­fected coun­try would not re­peat the same poli­cies that cre­ated the prob­lem in the first place. The help to be pro­vided should be on non-oner­ous terms. Fourth, com­merce among na­tions should be con­ducted on the ba­sis of rules all coun­tries would fol­low with­out dis­crim­i­na­tion. These four ob­jec­tives would be the re­spon­si­bil­ity of spe­cially de­vised in­sti­tu­tions in which all na­tions would have the right to par­tic­i­pate.

To con­struct such a multi­na­tional sys­tem, the vic­tors met in a small re­sort in New Hamp­shire in the United States. The choice of an Amer­i­can site for de­lib­er­a­tions was a clear sig­nal that the United States had emerged as the most pow­er­ful na­tion on Earth. The Bret­ton Woods Con­fer­ence for­mally known as the United Na­tions Mon­e­tary and Fi­nan­cial Con­fer­ence brought 730 del­e­gates from 44 na­tions to­gether to dis­cuss the for­ma­tion of a new eco­nomic and fi­nan­cial or­der. The con­fer­ence was in ses­sion for three weeks from July 1 to 22, 1944 and re­sulted in the cre­ation of the In­ter­na­tional Bank for the Re­con­struc­tion and Devel­op­ment (IBRD) and the In­ter­na­tional Mon­e­tary Fund (IMF). These two in­sti­tu­tions were to sat­isfy the sec­ond and third ob­jec­tives men­tioned in the afore-stated. The first ob­jec­tive was met a year and a half later when on Oc­to­ber 24, 1945, 51 coun­tries signed the char­ter to es­tab­lish the United Na­tions sys­tem. It took fifty years for the fourth ob­jec­tive to be met. On Jan­uary 1, 1995 af­ter the con­clu­sion of the Uruguay Round of Trade Ne­go­ti­a­tions at Mar­rakesh, Morocco, 123 na­tions agreed to es­tab­lish the World Trade Or­ga­ni­za­tion ( WTO).

These four parts of the sys­tem evolved over time as the de­mands of the global econ­omy and pol­i­tics changed in sev­eral sig­nif­i­cant ways. The IBRD was ini­tially fo­cused on help­ing both the van­quished and vic­tor na­tions emerg­ing from the Sec­ond World War to re­cover from the con­flict's rav­ages. It used the cap­i­tal com­mit­ted by mem­ber na­tions to bor­row from the fi­nan­cial mar­kets. Only a small amount of the pledged cap­i­tal was ac­tu­ally pro­vided; the rest was "callable." It was to be used only if those who were the Bank's bor­row­ers did not ser­vice their loans. With this as­sur­ance, the in­sti­tu­tion was able to float its bonds at very favourable rates -- rates equal to those paid by the United States Trea­sury. But poor IBRD mem­bers could not af­ford to bor­row even on these terms. When the cap­i­tal needs of the newly in­de­pen­dent na­tions of South Asia in­creased, the rich mem­bers of the IBRD agreed to a mech­a­nism that could pro­vide credit to the poor na­tions on very con­ces­sional terms. The In­ter­na­tional Devel­op­ment As­so­ci­a­tion (IDA) was es­tab­lished in 1961 with fund­ing pro­vided as grants by the rich na­tions. Five years ear­lier the In­ter­na­tional Fi­nance Cor­po­ra­tion (IFC) was cre­ated as the pri­vate sec­tor arm of the IBRD. To­gether this clus­ter of in­sti­tu­tions came to be called the World Bank Group ( WBG).

The next ma­jor in­no­va­tion came in the 1960s with the cre­ation of a string of re­gional banks that could con­cen­trate on the devel­op­ment needs of dif­fer­ent parts of the globe. Re­gional banks were es­tab­lished to serve the needs of Asia, Latin Amer­ica, Africa, the Mus­lim world and the east­ern part of Europe. Much later the Chi­nese de­cided to add one more in­sti­tu­tion to this clus­ter, the Asian In­fra­struc­ture In­vest­ment Bank (AIIB).

The chal­lenge posed by Wash­ing­ton can be met by Is­lam­abad by de­vel­op­ing a well thought-out plan to ac­cess the funds it will re­quire to meet its devel­op­ment needs. In­sti­tu­tions such as the ADB and WBG should be ac­cessed as part of an ef­fort that ex­ploits their sep­a­rate ex­per­tise. In or­der to plan this ef­fort it might be use­ful to con­sult with Beijing and in­cor­po­rate the CPEC in the over­all pro­gramme. Shahid Javed Burki is a pro­fes­sional econ­o­mist who has served as a Vice Pres­i­dent of the World Bank and as care­taker Fi­nance Min­is­ter of Pak­istan.

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