U.S. Department of the Treasury

(Archived Content)

FROM THE OFFICE OF PUBLIC AFFAIRS

LS-610

Introduction

Mr. President, Governors, Ladies and Gentlemen, I am honored to represent the United States at the Asian Development Bank's Thirty-third Annual Meeting. Let me join in thanking our Thai hosts for their hospitality in this beautiful, ancient city of Chiang Mai. Our venue reminds us that the Thai civilization is long and proud, and should continue to prosper. In this connection, the Thai authorities are to be commended for their quick and decisive response to the recent crisis, a response that has produced significant results.

Let me also extend my welcome to Azerbaijan as the 58 ^th and newest member of the Asian Development Bank.

Last year, the emphasis in our deliberations was on the Asian financial crisis and lessons learned. In the intervening year, recovery has been better than expected and prospects for continued growth, on balance, are good. Many East Asian countries have made important progress. Nevertheless, as Prime Minister Chuan stressed in his address, there is no room for complacency. Reforms have lagged in important areas. Much still needs to be done in corporate and financial restructuring. Policies and reforms must be sustained and inclusive. The large NGO presence at this and other recent international meetings is also a reminder that we must do more to build bridges to civil society as we pursue the goals we all seek: poverty reduction and shared prosperity.

Growth and recovery in East Asia have also benefited from a favorable external environment with relatively low international interest rates, strong export markets, and large-scale official assistance, complemented in the region by accommodative fiscal, monetary, and exchange rate policies. The challenge now for policymakers is to put in place policies that will sustain non-inflationary growth and limit their economies' vulnerability at the inevitable time when the external environment is no longer so benign.

Recovery in East Asia is all the more remarkable because the Japanese economy continues to be a drag on both regional and global growth. Japan must aggressively use all available policy tools to provide an open and growing market for its neighbors.

While South Asia has maintained relatively high growth rates and was largely unaffected by the Asian financial crisis, its policymakers face the challenge of reducing large fiscal deficits that crowd out private investment, while promoting structural reforms to support private sector development. Structural reforms will be essential to achieving and sustaining the even higher growth rates that are necessary to address South Asia's poverty problems, including privatization, deregulation, agricultural reform and labor market flexibility.

A serious and growing problem confronting both East and South Asia is HIV-AIDs. Asia , the second most adversely affected region, is at a critical crossroads in this battle. HIV/AIDs arrived late in Asia, but has already killed more than one million people. The epidemic poses a threat not only to public health but to development. Decisive steps are needed to prevent a full-scale epidemic, such as that facing Africa today. If taken promptly, the costs will be enormously lower in the long run in human, social and economic terms. Governments need to allocate adequate funds for basic health care systems that have the capacity to tackle effectively AIDs and other serious health problems. Such investments will reap important economic as well as social dividends.

The Asian Development Bank has been an important partner in Asia's development and in helping the region emerge from financial crisis. Looking to the future, we must continue to reassess the Bank's role and improve its effectiveness. Secretary Summers has recently laid out a new framework for multilateral development policy that emphasizes renewed efforts to increase the effectiveness of development assistance: greater selectivity in the allocation of multilateral resources across countries and programs; increased investment in areas with high development returns, such as basic health and education and global public goods; and strategies more targeted toward rewarding performance.

Strong and effective regional development banks have a crucial role in this evolving framework. What does this mean for the Asian Development Bank?

First, the new development framework means promoting market-led growth and economic openness as the most potent weapons in the fight against poverty. This growth must be inclusive and based on policies to broaden the circle of economic opportunity to all citizens. We must find concrete ways to strengthen popular participation to make sure that populations are not left on the margins of economic life.

Second, it means the Bank's financing must be selective, linked to a country's demonstrated performance and its commitment to good governance, and effectively conditioned to make sure that it has the intended impact.

Third, it means increased investments in long-term environmental sustainability, core labor standards, and investments in people, particularly basic health and education. Basic health and education are critical aspects of the development framework. As part of his Millenium Initiative, President Clinton has asked that the MDBs increase their lending for basic health care by $400-900 million annually. The Asian Development Bank has a major role to play in any effort to help bring basic health care to the poor. With respect to education, at the recent global meeting in Dakar on Education for All, the United States strongly urged far greater priority to be attached to basic education, particularly for girls, and we look to the ADB for substantially increased support in this field as well.

Fourth, in line with reforms that we have supported in other official financial institutions, the new framework means intensified review of ADB pricing policies, building on the initial steps that have been taken to increase loan charges. The pricing policy must accurately reflect and encourage borrowers' access to other resources and maximize this Bank's effective contribution to needed development finance. A further review of the adequacy of loan charges on ordinary capital resources (OCR) is fully warranted in light of the Bank's failure to transfer OCR net income to the ADF during the ADF-7 period, despite the commitment under the ADF-7 agreement to do so. ADF-8 must correct this failure, which we believe can be done prudently, without jeopardizing the Bank's financial soundness.

Fifth, for emerging market economies, ADB assistance must be focused on promoting policies to increase access to private capital, and must be clearly additional as well as linked to the objective of graduation. Existing ADB financing must supplement, not supplant, domestic and foreign private resources. Development finance must not be pro-cyclical. However, institutions like this Bank must have the capacity - held in reserve - to respond quickly to crises when they occur.

Sixth, the Bank's comparative advantages must be exploited so as not to duplicate the work of other institutions. The Bank is part of an international system of multilateral institutions based on effective partnership and mutual respect. To this end, we continue to favor the Bank's establishment of a Memorandum of Understanding with the World Bank. The African Development Bank has one, and there is clear precedent for this approach by the ADB in the MOU that it has with the EBRD.

The Bank is presented with two important opportunities to realize the reforms I have described: the ADF-8 replenishment negotiations and the development of the next Long Term Strategic Plan. These opportunities must be used to shape the Bank for the 21 ^st century.

The Bank needs to adapt its operations so that its assistance is linked systematically and transparently to performance and based on measurable and monitorable targets and indicators.

Strengthened work on governance, broadly defined, is essential: participation and empowerment of civil society; decisive steps to address corruption and money laundering; and attention to issues of democracy, human rights, and core labor standards. Poor governance undermines poverty reduction efforts, and recent studies have shown that the Asia region lags all others in effective poverty reduction programs.

Governance is one of the three pillars of the Bank's poverty reduction strategy, but in practice the Bank still trails other institutions - notably the African Development Bank - in its approach to promoting good governance. This is particularly disappointing since, as President Chino reminded us yesterday, this Bank was the first to have a Board-approved policy on governance. Steps must be taken to return the ADB to its leadership role in this area.

We have welcomed the Bank's commitment to poverty reduction as its overarching mandate. But the Bank's operations are not there yet. Robust implementation of the new poverty reduction strategy is required. Also key is the assessment of governments' spending priorities through public expenditure reviews that examine fiscal choices, including military spending, as well as the transparency and accountability of the budget process. Meaningful input from civil society into these and other development choices must all be factored into lending decisions; effective participation is a continuous process, not a one-time event.

Last month, the Board approved the private sector development strategy after a long period of inaction and delays. We were frustrated by these delays because of the importance of long-term private capital to meeting developing countries' financing needs because of the lost opportunity for the Bank to be a catalyst in this area. With the private sector strategy now in place, we look forward to vigorous implementation. We see a competitive and efficient private sector as the prime engine of growth -- a main source of job creation and increased income opportunities and an essential component of effective poverty reduction.

As we promote good governance in member countries, we must also strengthen the Bank's internal processes. At last year's Annual Meeting, there was much support for a greater spirit of multilateralism. In response to shareholder concerns, President Chino has offered a number of proposals that, if adopted, will strengthen Board and management interaction as well as Board procedures and Board Committees. We very much welcome these proposals. We now look forward to concrete actions that deliver a more inclusive and transparent decision-making process within this Bank.

We also welcome the President's intention to review the Bank's organizational structure, which we expect to be done in close consultation with the Board. The Bank's current East-West organizational construct has its deficiencies. We support a structure that promotes a more cohesive implementation of policies, and we believe regions are not the most appropriate basic structure. There also appears to be an undue concentration of responsibilities in the Bank. Most noticeable are the many important functions that have been collapsed into the Strategy and Policy Department. Spreading these functions out would, in our view, provide much needed balance.

We recognize the steps taken to implement the Bank's anti-corruption policy and to improve its internal controls. These areas will continue to warrant close attention and improvement. The Bank must coordinate closely with other IFIs to ensure that it is using international best practice. A more effective, independent, and user friendly inspection function will increase the Bank's accountability and transparency, and a strengthened evaluation function reporting to the Board will heighten the Bank's effectiveness.

Let me turn to the issue of resources. We are not convinced by the case that we have heard for a study of the resource requirements of the Bank; moreover, it distracts us from other near-term priorities. Fundamentally, we do not foresee a need, or the prospect of broad support, for additional capital resources for this Bank. Instead, the Bank's focus must be on greater selectivity and a return to pre-crisis levels of lending to formerly crisis-affected countries. Assistance should be provided only when clearly justified by performance and where other resources are not supplanted. For emerging economies, assistance strategies must promote policies that serve to improve access to private markets.

In the area of concessional lending, the United States will be a reliable partner in a Fund replenishment negotiation that produces a commitment to an appropriate package of reforms. However, access to the ADF should not be viewed as an entitlement. Funds must be used to create incentives and reward performance, in order to achieve improved results. If performance is lacking, funding correspondingly should be low. We believe that consideration of differentiated terms, conditions, and pricing for the poorest countries should be explored.

The United States is committed to working with the Bank, under the able leadership of President Chino, and other shareholders to build an institution capable of meeting the needs and challenges of the Asian region. The Bank recently has taken a number of important actions with respect to its policy framework and its internal governance. These represent key first steps on which we hope to build. As we enter this new century, we envision a Bank that works with its shareholders and its development partners to lay the groundwork for sustained and broad-based prosperity in order to help realize the goal we all share of eradicating poverty.