Even the largest and most successful, like China and India, have tens of millions of poor people within their borders.

Four months into his job at the helm of the Asian Development Bank (ADB), Haruhiko Kuroda is determined to put the bank’s resources to the service of ensuring more equally distributed wealth and investment across the region.

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Dollar a day

A special adviser to Japan’s prime minister Junichiro Koizumi before his election as president of the ADB, the Oxford-educated, fast-moving Mr Kuroda says that fighting poverty is shaping up to be one of his biggest challenges. “Our region remains desperately poor. Almost 700 million people in Asia and the Pacific continue to survive on less than one dollar a day,” he says. “We must strengthen the effectiveness of development aid, and create new, sustainable economic opportunities for the people of this region. This is a responsibility I take very seriously, and one to which I will dedicate all my energy in the years ahead.”

Mr Kuroda is in a hurry to make his mark. The Manila-based ADB, created in 1966, is in for a shake-up. It is to become a ‘result-oriented’ institution, he says. More innovative lending instruments are already being created. What will, above all, characterise his tenure will be great emphasis on the role of domestic and foreign private investment on infrastructure. Lending in that area, particularly for urban projects, will be stepped up considerably. “The Asia and Pacific region is changing rapidly. We need to respond to these needs in a timely and flexible manner,” Mr Kuroda adds.

The new president of the ADB knows that he needs economic growth to achieve his objectives. The figures look positive. ADB’s economists believe that developing Asia and the Pacific will grow by 6.5%-6.9% in 2005-2007. This upbeat outlook draws on the strong growth momentum gained through the spectacular performance in 2004, when the region registered GDP growth of 7.3%, with China at 9%.

Economic growth is also creating a large middle class, which means new markets for foreign investors. The United Nations Conference on Trade and Development reported that last year FDI flows to the Asia-Pacific region were up 55%, to $166bn. China – which accounted for $62bn – Hong Kong, and Singapore took the lion’s share. Investment patterns are changing. “Until a few years ago, European and American companies were interested in productive investment, establishing factories to export back to Europe, the US and Japan,” Mr Kuroda comments. “Now, foreign corporations increasingly see that Asia-Pacific countries are also a market, with growing local demand for manufactured goods.”

Active role

However, for Asia’s growth to withstand global shocks (oil price increases, a slowdown in Western economies), intraregional trade – which already accounts for nearly half of all trade in Asia – needs to be enhanced. Mr Kuroda, a former professor of economics at Hitotsubashi University of Tokyo, who also represented Japan at a number of international monetary conferences, is a great believer in regional integration. He promises that “the ADB will assume a more active role as a catalyst and a co-ordinator for regional co-operation and integration.”

A great admirer of the EU, the ADB president points out that integration in Asia is largely market-driven, while Europe has achieved it through determined government efforts to build a customs union, then a single market and now a single currency.

In Asia, free trade agreements are proliferating. But Asia’s integration could also do with some institutional help. An ADB Regional Economic Integration Office, reporting directly to the president, was created April 1. It will co-ordinate previously fragmented ADB efforts in that area. The office will promote trade and investment and grant extensive support to the creation of Asian bond markets. First and foremost, it will seek to create closer links among countries through roads and telecommunications networks.

Mr Kuroda considers infrastructure development as a major priority. The ADB will take a larger role in closing Asia’s massive infrastructure financing gap, estimated at more than $250bn a year. The ADB’s infrastructure investment already represents about 60% of the bank’s overall lending portfolio, averaging about $3.2bn a year over the last three years. “Given the tremendous needs of the region, we expect to significantly increase our investments in infrastructure in the next five years,” Mr Kuroda says.

Take your partner...

The bank needs partners. The ADB will “pursue innovative ways to catalyse higher levels of private sector investment”. Mr Kuroda notes that “lending to the private sector, particularly for partnerships with public sector agencies, will remain an important objective of ADB operations. We anticipate a substantial increase in operations in this area,” Mr Kuroda emphasises. For the proposed telephone system in Afghanistan, for example, the ADB will be lending to the project sponsors, which include Alcatel of France, MCT Corporation of the US and Monaco Telecom.

The ADB’s support for private sector infrastructure investment “will be mainly in transport, energy, water supply and sanitation”, Mr Kuroda says. “With the rapid urbanisation that is taking place, we expect to see a stronger focus on urban development.”

The ADB’s Sustainable Development Department estimates that $40bn a year in urban infrastructure investments are needed to meet the demands of the explosive urbanisation of Asia during the past four decades. While in the mid-1960s only one person in five lived in towns and cities in Asia, today it is one in three, and by 2020 it will be one in two. Cities’ growth has been largely unplanned and uncontrolled, bringing with it a host of problems, ranging from inadequate water supply to mushrooming slums. Yet cities are the engines of national economic growth. Bangkok, for instance, generates about one-third of Thailand’s GDP.

Foreign companies are also encouraged to participate in rebuilding after the tsunami disaster. “As long as foreign companies are qualified, there is no reason why they cannot be considered in the reconstruction efforts,” Mr Kuroda says. Just six weeks after the December 26, 2004 disaster, the ADB created the Asian Tsunami Fund (ATF), endowed with financing of $600m from the ADB’s capital. The ATF provides grants to the five countries worst hit: India, Indonesia, the Maldives, Sri Lanka and Thailand. Already, $300m in grants have been committed to Indonesia, to facilitate rehabilitation in Aceh, North Sumatra.

Foreign investment

 

Developing Asia needs foreign investment, but the ADB alone cannot create the conditions that make it possible. “Competition for FDI focuses on the establishment of an enabling, business-friendly commercial environment,” says Mr Kuroda. While some countries are succeeding in attracting FDI, some are still seeking their first contract.

“Countries’ FDI challenges are different,” Mr Kuroda points out. “In resource-rich countries, taxation, environmental regulations and depletion are the main concerns for foreign investors.” Low-wage, densely populated economies need to attract export-oriented, labour-intensive FDI. In all cases, attracting FDI requires stable sustainable growth, the rule of law, and an impartial legal system in which contracts can be enforced. The ADB will deploy all its human and capital resources to help this come about.