ADB: A wake-up call at 50

When the concept of a regional bank to finance development in Asia was first proposed in the early 1960s, the US was against it. Why do we need regional development institutions when we already have the World Bank? ran the argument.

Financing development projects was the World Bank's job since its creation in 1944, and the US made sure its influence was huge. The World Bank is based in Washington D.C., and traditionally headed by an American citizen.

With the escalation of the Vietnam War, then US President Lyndon B. Johnson finally gave in, and the Asian Development Bank (ADB) was established on December 16, 1966, with headquarters in Manila, Philippines.

Who has the power?

Back then, many Asian countries were among the world's poorest, and the ADB's early focus was on food production and rural development.

The bank is closely modelled on the World Bank, and similarly dominated by one country. Since 1966, each ADB president has been Japanese. The country also holds the largest proportion of shares in the ADB's capital. That gives Japan the strongest voting power, with 12.8 percent of the total, closely followed by the US with 12.7 percent.

Of the ADB's 67 member countries, 48 are from Asia or the Pacific. The 19 countries from outside the region include the US, Canada, Germany and other European nations.

Like other regional banks, the ADB provides loans for development projects, mostly carried out by the public sector. In 2015, these loans totalled $16.3 billion, with an additional $10.7 coming from co-financing partners. The combined total is "the highest in ADB's history," the bank boasted in its annual report.

Projects and criticism

"Our record performance in 2015 reflects a growing demand from the Asia and Pacific region for ADB's development assistance," ADB president Takehiko Nakao (pictured above) said.

Projects range from dams in Vietnam's Mekong delta and a coal-fired power station in Thailand to road building in India. Some of the larger projects have drawn criticism from environmental and human rights groups for being unsustainable, destroying forests, or involving forced resettlement.

Recently, the ADB has shifted its focus. It now aims to provide financing for the United Nations' Sustainable Development Goals (SDG) and support the global agreement against climate change (COP21). A cleaner, greener development is the new goal.

Renewable energy, transport and urban development are now high on the bank's list of priorities, plus education and health. This reflects the growing problems with environmental pollution, overcrowded megacities and destitute villages in many parts of Asia.

The dominance of the ADB's two major donors, Japan and the US, has been a contentious issue since the bank's founding. China, now by far Asia's most important economy, has only 5.5 percent of the voting rights, just slightly more than Germany's 3.8 percent. Frustrated in its efforts to push for a change in shareholder structure, China has started to set up a rival to ADB, the Asian Infrastructure and Investment Bank (AIIB).

China's rival bank

The US and Japan, fearing a loss of influence, have so far refused to join the Chinese-led bank. But 37 Asian and 20 non-Asian countries have already signed up as "Prospective Founding Members," including Germany and many European countries.

Officially, both the World Bank and the ADB have welcomed the new development bank. "ADB has already started identifying potential co-financing projects with AIIB in such areas as transport, renewable energy, urban infrastructure, and water supply," the ADB states in its annual report for 2015.

Asia has annual infrastructure needs of $750 billion, the ADB estimates. There is plenty of room, the argument goes, for yet another regional development organisation.

But there is a counter argument that points to Asia's strong economic performance. Emerging and developing countries in Asia will grow by 6.6 percent this year, according to the International Monetary Funds' latest outlook.

Only bad ideas?

"Any worthwhile infrastructure project will have commercial banks from around the world falling over each other to take part. There is no shortage of money. There is only ever a shortage of good ideas for the use of it," writes Jake Van Der Kamp, investment analyst and financial columnist for the Hong Kong based South China Morning Post, an English-language paper recently acquired by the Chinese online retailer Alibaba.

"This in turn means that the bad ideas in infrastructure will go [to] the AIIB and the ADB, which do not really care as they are driven by political jealousies rather than any real consideration for what is and what is not worthwhile in infrastructure," Van Der Kamp continues.

In an effort to step up its power, ADB has announced an accounting change which would enable it to boost its lending by 40 percent. The plan was accepted by the board of governors last year and will come into effect in 2017.

The bank's decision to hold its annual meeting in Germany for the first time might also be seen as a move to get more German companies interested in ADB-financed projects. Since Germany joined the ADB as a founding member, 1,972 contracts have been awarded to German companies, with a total volume of $2.25 billion, the bank states on its website.