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Foreign Policy

Keeping Relevant in A Changing Asia

May 21 , 2014

Like many international meetings and summits, the just concluded annual ASEAN summit of 10 Southeast Asian nations, held for the first time in Nay Pyi Taw, Myanmar, and the latest annual meeting of the Asian Development Bank, which took place early this month in Astana, Kazakhstan, made more news for what did not happen there than what did.

And in each case, China dominated the headlines, with a clear undercurrent to the news that China’s rise – and power politics – meant it was no longer business as usual.  The message: Asia’s institutions, whether ASEAN or the ADB, must do more to keep pace with a changing Asia if they are to maintain relevance.

In the case of the Association of Southeast Asian Nations, despite Vietnam Prime Minister Nguyen Tan Dung’s calls for a strong, unified statement, if not a call to action, in the face of escalating maritime tensions between his nation and China, the 10-nation group refrained from criticizing Beijing by name in a final summit communiqué. Instead, the Southeast Asian organization simply expressed “serious concern” over increasingly violent confrontations over disputed waters. That at least was an improvement over a past summit, when ASEAN leaders were unable for the first time ever to produce a communiqué, again due to sensitivities over the issue of the South China Sea and China’s possible reactions.

Just a few days earlier, at the annual ADB meeting, the president of this international development institution, Takehiko Nakao, was asked during the opening press conference about China’s proposed Asian Infrastructure Investment Bank. Nakao publicly “welcomed” the idea and said he would be happy to talk and partner with the proposed development bank once established. Behind the scenes though, there was grumbling and wariness that the AIIB would prove a potential rival and undermine and even threaten both Japan’s strong influence at the ADB as well as ADB’s overall relevance in the Asia-Pacific region.

China’s proposed huge new infrastructure investment fund as an alternative to more established international lenders underscores both that it is time for China to stop borrowing from the Asian Development Bank, as well as that critical reforms are long past due at the ADB. It should also serve as a wake-up call for the Asian Development Bank and at Japan’s finance ministry, which has traditionally played a key behind-the-scenes role in shaping the agenda at the ADB. China is making clear that it will not accept the status quo as it continues to assert itself economically in a region marked by exponential change in recent decades.

Indeed, if any economist had said on December 19, 1966, when the ADB was founded, that in just 45 years China would become the world’s second largest economy and India the third or fourth in terms of purchasing power parity, he – and no doubt it would have been a man – would have been scoffed at, dismissed or perhaps even considered a bit insane.

But time would have proven him right. Indeed, the growth of Asian economies has been astounding in the wake of World War II, the conflicts in Korea and Vietnam, and the end of colonial rule across the region. By some estimates, China will be the largest and India the third largest economy in the world by 2025, and the Asia-Pacific region will account for half of global GDP by 2050.

Should the ADB – the region’s leading international financial institution focused on development – take a self-congratulatory bow and leave the stage? The multilateral development bank was founded for the purpose of “fostering economic growth and co-operation in the region of Asia and the Far East.”

With strong U.S. and Japanese support amidst growing Cold War tensions, the ADB in the 1960s and 1970s helped deliver financial resources and international expertise to speed development in a region that had no post-WWII “Marshall Plan.”

Nearly five decades on, parts of Asia are awash in capital and foreign direct investment, and numerous showcase infrastructure projects in the region are the envy of the world.

Yet, despite impressive top line statistics, tremendous poverty persists. Asia’s journey toward more sustainable economic development, equal opportunity and the most efficient utilization of financial and human capital is far from over despite billions of dollars in development loans and official development assistance.

Just as ASEAN must revisit its ability to address Southeast Asia’s most pressing challenges by working together – we must hang together or we will hang separately, to paraphrase one famous quote – the region’s developing institutions, starting with the ADB, must also re-evaluate their strategies to address the reality beyond the glowing headlines of an Asia on the rise.

What role can the ADB play in this? How best to strengthen the ability of China and other developing nations in Asia to address such stark realities? A former colleague of mine, Meera Kumar – a public relations professional and a regular contributor to Gateway House, Indian Council on Global Relations – and I suggest some near-term next steps, where the ADB can lead the way, and perhaps set the pace for change at its sister organization, the World Bank, as well. This focus on change could also serve ASEAN well.

First, the ADB should address the outdated internal incentive and management systems that undermine development effectiveness.

More emphasis must be placed on the quality, not the quantity, of lending and of other assistance provided in the name of development. Too often the measure of success by management and staff remains Board approval and the size of a loan – the bigger and faster, the better – not the consequences and outcomes that follow.

A case in point is that of so-called multi-tranche development loans. These in theory, following initial Board approval, allow subsequent tranches of funds to be denied if original objectives are not met. Politics and management pressures can, however, contribute to a rubber stamp go-ahead of second and third tranches even when experience with the first tranche would suggest otherwise. This approach needs to be modified.

Second, the ADB must recommit to helping the smallest and least developed nations in Asia. The limited ability of small nations, whether Afghanistan or tiny Nauru, to make effective use of development assistance, be it grants or loans, works against them in a system where attention is unwaveringly focused on the biggest borrowers:  India, Indonesia and even China, which continues to borrow despite the size of its economy.

The ADB, in a break from its erstwhile pattern, should place immediate and forceful emphasis on skills training and education. The demographics of many parts of Asia are heavily tilted toward the young, who will increasingly fail to gain employment without the skills required in a knowledge economy.

Every day, new developments in technology displace workers. With such “progress,” manufacturing will no longer provide the large numbers of jobs sought after by one-time agricultural workers hoping to take advantage of Asia’s overall growth. It is imperative that the ADB re-evaluate static approaches based on old models of growth, and also its own abilities to deliver the best people, best experiences and best ideas to developing Asia.

Creating and sustaining a fertile ecosystem of prosperity will require more than spending money, no matter how efficiently and transparently such funds are used. Most employment is generated by small and medium enterprises and by creating an environment in which entrepreneurship can flourish. That, in turn, rests on an ecosystem where innovation flourishes. How can development banks help in this regard? This is a question all of the region’s development partners need to ask themselves, including China, Japan and the United States.

Over the past year, the ADB went through yet another internal exercise, seeking to reassess its long-term strategy and relevance. To its credit, the process underscored the need for change, particularly as the region the ADB seeks to serve has changed so rapidly.

As Asia’s economic growth continues to drive the global economy, it is time to bid farewell to systems that help ensure development money flows without regard to results, impact and outcome. Scoff, be dismissive or even call me a little insane, but there is room in development for strong, viable and relevant institutions that place precedence on loan quality over quantity, ensure access to quality education and skills, and prize innovation and entrepreneurship as a means to job creation. Embracing this change is something that the United States, Japan, China, Southeast Asia and others should agree upon. Doing so will mean stronger, more relevant institutions, whether ASEAN or the ADB.

Let us envision the Asia of tomorrow in order to best prepare for it today.

Curtis S. Chin, a former U.S. ambassador to the Asian Development Bank under Presidents Barack Obama and George W. Bush, is a managing director with advisory firm RiverPeak Group, LLC.  Curtis can be followed on Twitter at @CurtisSChin.

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