Industry: ADB holds strong ground as key funder for Asian countries as AIIB emerges

The Asian Development Bank (ADB) overhauled a four-decade-old development fund to boost its annual lending and grant approvals by 50% to as much as $20 billion to hold its ground as a resource for regional economies amidst China’s Asian Infrastructure Investment Bank’s (AIIB) rising prominence. 

The disclosure was made by ADB at its annual meeting in Baku, Azerbaijan that started in May 2. The move is also meant to set aside money to support public-private partnership (PPP) projects and work with the AIIB “for Asia.”

In a statement, Singapore-based economist Wai Ho Leong said: “Now that the China-led AIIB is becoming a reality, the Japan-led ADB wants to ensure that it will still remain a key funder for infrastructure programs in less developed Asia.”

“Given the development needs across Asia, there is sufficient room for both players,” he added. 

Dominated by Japan and the United States, the ADB has been beneficial to Asian nations for almost five decades now. The relationship is set to chance as the rise of the AIIB--the first major multilateral development bank in a generation--provides an avenue for China to strengthen its presence in the world’s fastest-growing region.

According to ADB President Takehiko Nakao, Chinese authorities say that the AIIB will not compete against but complement the ADB.

“It’s good for Asian region to have more resources,” he said.

He reiterated the ADB’s readiness to work with the ADB, including co-financing. 

In a move described as “groundbreaking,” the lender said it will combine the lending operations of the bank’s Asian Development Fund with its ordinary capital resources (OCR) balance sheet, with the merger taking effect in 2017. The fund was established in 1973 to provide concessional loans and grants to poorer countries, while OCR loans are provided to middle-income countries at market-based rates.

The initiative is expected to increase ADB assistance to poor countries by as much as 70%, and together with co-financing, enable the bank’s annual assistance to reach as high as $40 billion in the coming years from $23 billion in 2014.

The lender said it will create a $150-million fund by the end of this year to help member countries conduct feasibility studies for PPP projects.

“The recent announcement by ADB over the weekend and the formation of AIIB suggest we are on the cusp of a sweet spot where infrastructure financing and political will for new infrastructure collide,” said Singapore-based analyst Weiwen Ng. 

At an ADB panel discussion in Baku, Japan’s Finance Minister Taro Aso said Japan will promote quality infrastructure investment in Asia, and that his country will contribute human resources, knowledge and funds to the ADB.

Japan holds the biggest power in the ADB, at 12.84% of the total, followed by the United States with 12.75%.

The AIIB has won backing from US allies from Australia to the United Kingdom, confounding efforts by the administration of President Barack Obama to campaign against the institution. 

In a statement, Indonesia’s Finance Minister Bambang Brodjonegoro said: “We need both AIIB and ADB because the infrastructure financing need is very bid it cannot be fulfilled by only one institution.”

He said the collaboration between ADB and AIIB is critical not only for his country but for the rest of the developing countries in Asia.