Asia is the world’s fastest-growing region and doesn’t much need development advice any more.
Don’t take our word for it; even the (Asian Development Bank, or ADB) says as much. Last month, the bank noted Asia boasts 27% of the world’s exports, up from 16% two decades ago, not to mention “the largest reserves and the highest savings rate in the world.”
That makes the bank’s charter look out of date, at best. Founded in 1966, ADB, like its bigger cousin, the World Bank, was meant to build bridges and roads and provide cheap financing to countries that couldn’t access capital. At that time, the Vietnam War was just getting going and Communism was a serious threat to the region. Development banks were seen as a way to speed economic growth and endear countries to capitalism — and the West.
Today...Communism has been defeated, even, arguably, in China. Countries from Mongolia to Indonesia can now raise capital on international markets and many, such as India and Vietnam, are flooded with capital inflows.
None of this evokes much serious soul-searching at ADB. Instead, the Manila-based bank has, like any good bureaucracy, jumped on the gravy train. Last year, the bank shelled out $10.1 billion in loans, a 37% increase on the prior year.
All this is the opposite of what ought to happen in a development bank, where the goal should be to wean countries off the dole. ADB says its loans are proof that countries share its development goals. But Asian policymakers aren’t dumb: Who would turn down cheap, subsidized AAA-rated financing backed by the US and Japan?
Now, the bank wants to dive in where the real bucks are: the private sector. Strategy 2020, the ADB’s strategic plan passed by its board in March, envisions the bank “scaling up” lending to the private sector to reach “50% of annual operations by 2020.” ADB says it doesn’t want to crowd out private lending — it only wants to be a “catalyst for investments that the private sector might not otherwise make.”
That might be a good mission for ADB, if that’s how it actually operated. Last year, the bank’s Top 3 loan recipients were Vietnam ($1.5 billion), India ($1.4 billion) and China ($1.3 billion). These countries also happen to be the biggest recipients of foreign direct investment in the Asia-Pacific region. Meanwhile, East Timor and Afghanistan received $21 million and $193.3 million, respectively.
Don’t worry, says ADB, we can help everyone. The bank will help reduce “income equality” everywhere. Strategy 2020 says middle-income countries represent a “strategic opportunity” for the bank. When countries reduce poverty by themselves, the bank will step in to remove the “remaining constraints”—an open door to do, well, just about anything. The bank, which apparently has forgotten it’s a financial institution, provides no estimates of how much this might cost, or how it might achieve its goals.
The best way to increase prosperity — across all income groups — is to adopt and defend the rule of law and protect monetary stability and property rights. That’s how Asian nations have prospered in recent years. ADB may have a role to play in helping countries that are truly poor and unable to access international capital.
The Wall Street Journal
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