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Twenty First Annual Meeting of the Asian Development Bank



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NO. 37

NO EMBARGO

STATEMENT BY THE HON. PETER MORRIS, MR, MINISTER ASSISTING

THE TREASURER, TO THE TWENTY FIRST ANNUAL MEETING OF THE

ASIAN DEVELOPMENT BANK, MANILA, 28-30 APRIL 1988

The Minister for Transport and Communications Support and Minister Assisting the Treasurer, Peter Morris, representing the Treasurer, attended the Twenty-First Annual Meeting of

the Asian Development Bank in Manila on 28-29 April, 1988.

Mr Morris delivered to the Meeting a statement on behalf of the Treasurer, who is the Australian Governor of the Bank. The text follows:

It is a pleasure to be present in Manila at this Twenty-First Annual Meeting of the Bank.

The Twentieth Annual Meeting of the Bank in Osaka was an occasion for celebration of the Bank's achievements but also for reflection upon its future. The Australian Governor was among those at that Meeting who called for a comprehensive

external review of the Bank. I am thus especially pleased at the Board of Directors' decision to establish the External Panel which held its first meeting here in Manila in

January. Australia places great importance on the Panel's work which we hope will make an important contribution to ensuring the continued effectiveness of the Bank's operations. It is important that the Panel be given

sufficient support in the form of consultants and staff time to prepare its work. We stand ready to support additional funding should that be required by the Panel to complete its work successfully.

Over the years the strength of the Asian Development Bank has been derived from the cooperative development of policies by Executive Directors representing both borrowers and donors. The report of the Panel should reflect the interests of governments both within and outside the region whose

continued support for the Bank will be an essential ingredient of its future effectiveness. Australia regarded the first meeting between the Panel and Executive Directors as an important input into the Panel's deliberations. We

look forward to further opportunities for governments to communicate their views to the Panel as its report evolves.

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Although the Bank's work must continue during the next · 12 months while the Panel's report is awaited, I think it # appropriate that Board consideration of important policy issues including, for example, the nature of the Bank's OCR lending program into the 1990s and the next General Capital Increase, be left in abeyance until after the Twenty-second

Annual Meeting when Governors will have been able to address the Panel's findings. Thus, Board consideration of the nature of the Bank's OCR lending program into the 1990s and the next General Capital Increase should wait until next year.

One important item on the Panel's agenda is the question of how far the Bank should go in non-project lending. It is the view of Australia that the ADB should remain primarily a project financing institution as laid down in its Charter. We believe that the IMP and the World Bank should continue to

take the lead role in macroeconomic policy lending, and the Bank, to the extent that it does engage in non-project lending, should concentrate on sectoral approaches. In view of the importance of this matter, Australia would have preferred the recent review of program lending policy to have awaited the Panel's report and the results of the World Bank

study on adjustment lending. Australia was unable to support the raising of ceilings for program lending and, along with others, was unable to support the first program loan proposed under the new policy. That loan included $75 million of ADP resources. I hope that in future the program lending policy

can be applied to the Bank's operations in such a way as to achieve a greater consensus in the Board.

The Panel will be examining the Bank's role in lending to the private sector, which is a vital force in promoting growth in the region. The Bank does of course recognise that its developing member countries have mixed economies and that the

needs of all sectors have to be addressed. In pursuing a catalytic role with commercial financiers, the Bank will need to have regard for its preferred creditor status and its excellent credit rating.

Project quality remains an important concern for Australia. We have appreciated Management's endeavours to improve project quality and we look forward to further progress. We consider that the Board of Directors has an important role in maintaining the quality of the Bank's projects. We were thus

pleased that Management was able in 1987 to resolve the problem of 'bunching1, thus permitting proper Board consideration of project proposals.

The Bank's post-evaluation experience has shown that one of the most important determinants of a project's success or failure is the appropriateness of the policy framework in which it is set. It is important for the Bank to promote

policies in its borrowing countries conducive to economic efficiency and the viability of ADB projects, and to lend only when such policies are in place. Policy dialogue should

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not be seen as an imposition on a borrowing country's sovereignty, but rather as a means of ensuring that the Bank's projects are effective and, therefore, of real benefit to the borrower. In this the Bank must work more closely with the IMf and the World Bank. -

It is often said that it is difficult to conduct policy dialogue effectively in the context of project lending. That need not be true if the Bank's projects in individual countries are concentrated in a number of well-defined

sectors within the framework of a cohesive long-term country strategy. Lending within the framework of a country strategy assists the Bank to gain the credibility and knowledge necessary to conduct effective policy dialogue.

Australia welcomed President Fujioka's commitment at the time of the ADF U replenishment negotiations to produce country strategies for the Bank's major borrowers. However, much remains to be done. Preparation of country strategies has been slow. The strategies so far produced tend to leave

scope for the Bank to do almost anything in any sector. I believe that a more concerted effort needs to be made to prepare meaningful strategies. The Board of Directors should be involved in this effort with the aim of achieving a

consensus on the Bank's activity in its major borrowing countries.

I was pleased that over the past year there has been some increase in the rate of the Bank's disbursements, in good part due to measures taken by Management to improve project implementation. There remains, however, scope for further improvement. The Bank's post-evaluation experience has . demonstrated the importance of project design and preparation in project success and in maintaining planned levels of disbursements. It is our view that the Bank needs to devote greater time to project design and preparation than it does at present, and supervise projects more closely ensuring adherence to agreed loan covenants.

At the Twentieth Annual Meeting in Osaka, the Australian Governor said that, in view of budgetary constraints, our Government was reviewing Australia's participation in multilateral aid agencies. That review has now been

completed and I am pleased to say that Australia has decided to maintain its contribution to ADF U at $A410 million.

One of the reasons the ADB enjoys strong support in Australia is because it is a development bank and its Charter commits it to the efficient allocation of resources through the

financing of viable development projects. ■ When it does undertake rehabilitation operations, the Bank should concentrate on long-term solutions based on careful appraisal.

The impact on the environment in borrowing countries of the activities of multilateral banks such as the ADB has come

under increasing scrutiny. An Australian Senate Committee is examining these issues. We support the steps the Bank is taking to ensure that projects which it finances are environmentally sound. We regard the work of the Environment Unit in the Bank as particularly significant.

It will also be important for the Bank to include covenants in its loan agreements for projects which entail major environmental risk. Experience has shown that the Bank will also need to monitor compliance with such covenants over the life of the project and not just for a few years after

project completion, especially in countries where the infrastrueture for environmental protection is weak. The Bank may need to extend technical assistance in this field.

Australia regards the Bank's technical assistance activity as being of great value, contributing as it does to the quality of projects and to institution building and policy development. Australia is pleased with the establishment of the Japan Special Fund which will double the technical assistance resources available to the Bank over the next few years. We also welcome the scholarship programme funded by

the Japanese government.

Australia attributes special importance to the Bank's role in the economic development of its South Pacific developing member countries (SPDMCs) whose particular circumstances require a special and sensitive approach by the Bank to its

operations. The Bank has to accept the need to bear the relatively high administrative cost associated with small projects on scattered islands. The establishment of the Bank's South Pacific Regional Office (SPRO) has contributed to a more effective Bank presence in SPDMCs, but scope remains to enhance its role and resources and improve its

performance. We look to the Bank and the SPRO, in consultation with relevant governments, to play its part in facilitating aid coordination in the South Pacific.

Australia welcomed the Bank's first loan to the People's Republic of China approved by the Board in October last year. We agreed that the Bank should lend to India and China so long as the needs of the Bank's traditional borrowers were met and taking into account the overall level of resources available to the Bank. The question of whether the Bank

should devote an increasing proportion of its OCR loans to China and India is one which the Panel will need to address. Effective policy dialogue will need to accompany this lending just as it does for traditional borrowers. The Bank must

also keep in mind the need to avoid an adverse reaction by international capital markets to a lending portfolio that is too concentrated.

If the Bank is to respond to the needs of its borrowing countries in the 1990s it will need to adapt its organisational structure and staffing. In our view a

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V modification of the staff skills mix will be necessary as the Bank grapples more and more with policy problems confronting its borrowing countries. I note that a Management Task Force has been working on the question of Bank staff requirements - and composition. In my view this will be an important issue

for the Panel to consider. It would also be useful to involve the Board in the work of the Task Force at an early stage.

Good staff are the mainstay of any effective organisation, the Bank included. To gain good staff the Bank needs to recruit widely among member countries on the basis of merit.

Last year, the Australian Governor was pleased to note that the Bank had introduced a grievance procedure to protect the legitimate interests of staff. There are, however, some aspects relating to that procedure, which we are pursuing with Bank Management.

Let me say again that Australia remains a strong supporter of the ADB. The Bank is at present passing through a period of transition. We look to the report of the Panel to help point it down the right road for the 1990s. Australia wishes to see the Bank remain a truly multilateral institution representing a partnership of interest within and outside the region. As a regional country, Australia attaches fundamental importance to the economic development of the region, but at the same time appreciates the need to maintain a global perspective. It will be important to maintain the partnership between regional and non-regional member ■

countries, including that between Japan and the United - States, which has contributed so much to growth in the -Bank1s borrowing countries. That partnership has served the region well.

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RELEASED IN CANBERRA 3 MAY 1988