The Asian Development Bank’s lending to Nepal is increasing, but its profile remains low. As its influence spreads, will the ADB become as overbearing as the World Bank?
Since bashing multilateral development banks (MDBs) emerged as port over the last ten years or so, the ire of Third World Governments and alternative-development activists has fallen mostly on the World Bank. This is natural, because World Bank and its sister institution the International Monetary Fund, together set the agenda for international development lending to the countries of the South. The other MDBs, because, they mostly follow the agenda set in Washington D.C, have by and large escaped scrutiny even though the impact of their lending might be similar to that of the World Bank´s. These other institutions are the Manila-based Asian Development Bank (ADB), the Inter-American Development Bank and the African Development Bank.
As the world becomes more uni polar and the grip of western powers and Japan over the international economy becomes tighter, the MDB swill doubtless emerge even stronger. With even the giant Indian economy bowing to the dictates of international financial institutions, it is clear that development in Third World countries like Nepal is going to be dictated more by the MDBs and less by United Nations grant-making agencies like the UNDP, FAO, UNIDO and UNICEF.
The ADB sun is on the rise all over developing Asia, and a look at development financing in Nepal shows that its long shadow is falling on the Himalayan slopes as well. In recent years, the ADB has been expanding its core staff in Kathmandu and entering fields, such as power generation, which had so far been the turf of others. Even though it continues to operate in a lower key than the World Bank, the ADB has already has built up a billion dollar-plus Nepal portfolio.
NEPAL AND ADB
Nepal became a member of the Bank in 1966 and Kathmandu’s first loan request was approved in 1969. By the end of 1991, the Bank was engaged in 72 loans and 62 projects. The cumulative lending of the bank had reached U$ 1,069.7 million, of which U$ 524.5 million (53 per cent) had already been disbursed. Of this, Nepal has paid back a total of U$ 70.2 million as principle plus interest (service charge). The net transfer of funds from the Bank to Nepal stood at U$ 454.29 million at 1991 year-end.
Of the loans,42 percent went to agriculture and agro-industry, 10 per cent to the energy sector, 10 per cent for transportation and communication, four per cent to industry and non-fuel materials, and two per cent for urban development, water supply and sanitation. The technical assistance provided by the Bank total led U$ 54 million for 138 projects. At 1991 year-end, 39 of the 72 loans had been “closed”, 33 were still active and four were awaiting disbursement.
Today, about 80 ADB “missions” from headquarters involving more than 200 experts and administrators visit Nepal annually. Says a Finance Ministry official, referring to the power of these missions, “Most of the time, they have their way. They are, after all, the bankers.”
The ADB-supported projects are a mixed bag. Some are successful and others are not. And what the Bank thinks is a good project need not necessarily the best for the country. Take the example of the new terminal building of the Kathmandu´s international airport. Any agency would love to fund such a high-visibility project, and ADB officials are pleased with the outcome — the terminal building even received an award from the Pacific Asia Travel Association (PATA) for its design.
The terminal might be pleasant to look at, but there were significant anomalies in the U$ 22 million contract awards. The design was completed in 1979, but it was not until 1986 that construction contracts were handed out, and by the time the terminal was inaugurated by King Birendra in February 1990 (after two “supplemental loans”), it was already too small to handle passenger-volume. There was no redesign done during the decade between planning and completion.
The Kankai irrigation project in Nepal´s eastern Tarai, financed by the Bank, does well enough by the river´s west bank. Unfortunately, the traditional irrigation systems on the east bank have dried up because of the diversion of water. Kankai was supposed to be a “multi-purpose project” (irrigation and hydropower), but this seems to have been forgotten.
The ADB nearly went ahead with its East Rapti irrigation scheme (ERIP) in central Nepal until it stirred an environmental hornet´s nest, particularly in relation to the Royal Chitwan National Park which lies downstream (Himal Nov/Dec 1990) on the Rapti. Even though no environmental assessment was carried out, the ADB´s l986 appraisal report stated that ERIP”is not expected to have negative environmental impact”. After controversy surfaced, and also because of a new environmental sensitivity that is becoming evident in the Bank´s work, a reappraisal of ERIP is taking place.
In 1976, the ADB approved of a U$ 39.5 million loan for the Hetauda Cement Factory, which has turned out to be a costly, mistake. In these and other projects, the Bank has not been free from the clutches of commission agents and middle men, but in this it might be said that the ADB is no better or worse than other big-time donor agencies.
ADB-financed projects which have received favourable reviews include its rural credit programme and the Small Farmers Development Project (SFDP), both run by the Agricultural Development Bank (“ADB/N”). Even though there have been questions raised about the replicability of Ihe successful SFDP and rural credit schemes, these programmes are praised for having tried to reach and involve the beneficiaries at the grassroots. The Hetauda-Narayanghat section of the East-West highway is another ADB project which has been a boon to the national economy.
In the power sector, which is Nepal´s most promising field for development, the ADB has. remained outside controversies mainly because it has concentrated on transmission lines rather than dam projects and their mega-contracts. Recently, the ADB has quietly challenged the World Bank´s self-proclaimed role as the “lead agency” for Nepal´s power sector. Even while the World Bank was busy pushing Nepal to buy thermal power stations until the big Arun III hydropower project came on line, the ADB, together with UNDP, agreed to support the detailed designing of the “Kali Gandaki-A”, which is to serve as an interim power project.
A WORLD BANK SHOW?
The ADB does most of its hard-core banking (about 60 per cent of its loans) using funds from its regular funds, known as the Ordinary Capital Resources (OCR). The Asian Development Fund (ADF) is the Bank´s soft-loan window through which capital is loaned to the poorer countries. The repayment period for loans under ADF is 40 years and is payable after a 10-year grace period from the time of approval. No interest is charged, but the bank deducts one per cent service charge on all disbursements. (To compare lending from the World Bank´s soft loan affiliate, the International Development Association (IDA) matures in 50 years and the grace period is 10 years. There is no interest, and the annual service charge is 0.75 per cent for what has been lent and 0.5 per cent on the undisbursed amount). Except for one loan (Raghupati Jute Mills, U$ 2 million, 1970), all ADB´s loans to Nepal have been from the ADF resources.
According to a Planning Commission official, .the ADB is better-liked by bureaucrats because it is “less demanding” and more “flexible” than the World Bank. “The World Bank kills with conditionalities,” he says. “The ADB, on the other hand, is more understanding and less aggressive.”
Unlike the World Bank, always with an American at the helm, and its soul-male the IMF, which always has an European chief, the ADB is regarded as the Japanese show. Since 1966, the Bank´s President has always been Japanese.
However, while the administration might be dominated by Japan, the macro-policy decisions are made in Washington D.C., at the World Bank. The ADB´s Kathmandu representative, Dalheue Coue concedes that while the Bank “might have a slightly different corporate philosophy and culture,” the basic policy principles are similar to that of other MDBs. A Nepali who had spent time at ADB in Manila preferred to be more graphic: “The ADB does like to cling “to the World Bank´s skirt.”
In Odious Debts, her just-published book on the World Bank (see Abstracts), economist Patricia Adams writes that the World Bank and the regional MDBs, including the ADB, “have virtually the same Articles of Agreement, structures, and lending patterns, leading to precisely the same dismal results.”
And so the question arises: how “Asian” is the ADB? If it is really no different than the World Bank, what is the rationale for two institutions with similar outlook and lending philosophies, considering the duplicated overheads.
The ADB is Asian to the extent that 52 countries from the Asia-Pacific region are its members. There are 15 non-regional member States, the real power centers. The only other Asian aspect might be the Asians who work there — some the best economists, engineers and MBAs of Asia—attracted by the Bank´s salaries and perks, and the First World lifestyles in Manila´s “villages” — rich enclaves such as Fordes Park and Das Marinas.
The ADB´s highest policy-making body is its Board of Governors, composed of finance ministers from member countries, which meet annually. The actual operations come under 12 directors (each with an alternate) elected every two years by the Board. Eight of the directors represent countries of the “Asia-Pacific region.
Except for countries like Japan, China, Australia and India, the rest of the regional members States have negligible control over the Bank. Voting power is based on the subscribed capital of the member countries. Thus, the most powerful members are Japan and the United States (each with 12.4 per cent of votes). China controls 6.1, India 6, Australia 5.5 and Indonesia 5.2 per cent each.
The non-regional members (industrialised Western countries) contribute some 36.4 per cent of the Bank´s capital and control, 35.3 per cent of votes. With Japan and Australia grouped with the rich nations, the rich nations control 57.8 per cent of capital and 53.2 of voting power.
Countries which are the poorest, and for whom the ADB´ s role is vital, have the least say in how the institution is run. Nepal controls 0.5 per cent of votes. Bhutan and Western Samoa 0.4 per cent each. The SAARC countries taken as one control about 11.9 per cent of the votes but they are grouped separately and do not vote together.
Because “poor” Nepal has always run on grants from donors and not on loans, so the belief goes, it does not have to bother about the dreaded Third World Debt. The debt burden is seen as the problem of mis-managed resource-rich economies of Latin America and Africa. But while it is true that Nepal has never been attractive for lending by the multinational banks, it is slowly but surely sinking into a debt trap (see page 10), whose door is held by the multilateral development banks.
Debt servicing as a proportion of Nepal´s budget is bound to increase in the days to come. The majority of the ADB´s loans, for example, will come up for repayment in the coming decade. While bilateral loans can be cancelled by magnanimous Governments, not so the loans of MDBs. The ADB bureaucrat is a banker first, and only then a “development worker”.
Some planners consider ADB´s loans to be that much harder to pay back because they go mostly to so-called soft sectors. How can the rural water supply or a loan for forestry planning, for example, pay back in a way that the Government can cough up the dollars?
And this brings us to the main criticism that can be made of the ADB and its sister agencies. While fully aware that Nepal´s Panchayat Government was mortgaging the future by taking too much loans, why were they so easy with their loans? Why did they keep corning back with more loan packages? And whose interest did they have in mind?
Says the Planning Commission official: “Whenever we ask questions, they say, ´But it was at there quest of your Government in many instances, the ADB has failed to shoulder responsibility that should have come with the type of money it has to play with.”
Indeed, the ADB and other MDBs have a major responsibility when they provide loans to unrepresentative regimes. For the very reason that the Government might not have the total interests of the public\in mind, the lending agencies must act with restraint. The changed political conditions in Nepal brings with it a need for a different style of functioning on the part of the donor agencies. With a powerful Parliament and parties in opposition, there will be more questions asked. Government will have to be more accountable. Disbursement will be harder.
Because the Government will, hopefully, know what it wants, the role of the ADB and its sister institutions will be to act in support rather than to lead.
Bhattarai reports for the Rising Nepal daily in Kathmandu.