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Asian Development Bank: twelfth annual meeting, Manila



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TREASURER

EMBARGO

IMMEDIATE

NO. 38

ASIAN DEVELOPMENT BANK: TWELFTH ANNUAL MEETING, MANILA

Following is the text of the speech made by the Minister for Immigration

and Ethnic Affairs and Minister Assisting the Treasurer, the

Hon M.J.R. MacKellar, MP, to the Twelfth Annual Meeting of the Board of

Governors of the Asian Development Bank on 3 May 1978.

It is indeed an honour for me to address this Twelfth Annual Meeting of

the Board of Governors of the Asian Development Bank, on behalf of the

Honourable John Howard, the Governor for Australia of the Bank.

Mr Howard has expressed to me his regret that, because of inescapable

commitments in Australia, he has not been able to attend this meeting.

. On behalf of my Delegation, I extend my thanks to the Government of the

Philippines for its warm hospitality and efficient arrangements for the

meeting. I am very pleased to see Mr Barry Holloway as Chairman, thus

marking a further step in the Bank's associations with its South Pacific

member countries. I am also pleased to see here representatives of

Nauru and the New Hebrides as observers.

2

The very significant increase in ADB operations over the last decade

illustrates the important contribution that the Bank has made to

economic development in the region, and indicates that the Bank has been

responsive to the diverse needs of its developing member countries.

The Bank is now in a strong position to continue this response as a

result of the coming into effect of the second replenishment of the

Asian Development Fund. The additional amount of $US2.15 billion to be

made available - which compares with US$809 million for the first

replenishment - plus the increase of some US$5 billion in the ordinary

capital stock approved in 1977, gives the ADB a most secure financial

position. It was with some pleasure that I noted the President's

reference to Australia as one of the first countries to lodge its

instrument of contribution for its share of US$110.5 million for the ADF

replenishment.

My Government very much welcomes the enhanced access to ADF loans which

has been accorded to Indonesia, the Philippines and Thailand.

The previously restricted eligibility of these countries reflected, in

our view, an undue emphasis on GNP per capita. This overlooks the

existence of substantial areas of poverty in all developing countries.

I hope that this fact will receive more consideration in the future.

For a variety of reasons it is important that a proper balance is

achieved in the Bank's lending operations amongst its borrowing member

countries.

3

There are a couple of aspects, which bear on the Bank's operations, on

which I would now like to comment briefly.

As a consequence of the increased tendency for exchange rates to

fluctuate, the risks to the borrower associated with Bank loans have

increased. While realistically it is not possible to remove all such

risks, it may be possible to mitigate them to some extent. One measure

that could assist in this direction would be to broaden the spread of

currencies used in disbursements of loans. Another aspect is lending

rates. Last February the Bank adopted a new lending rate of 7.4 per

cent for the current financial year, with a proviso that this be

reviewed in July. Whilst I appreciate there are a number of

considerations that have a bearing on any decision on this matter, it is

important that we do not forget that the basic determinant must be the

cost of borrowed funds. Failure to give full recognition to this would

obviously have serious effects on the financial soundness of the Bank,

with implications for its future operations. The present uncertain

international economic environment, when significant movements in

interest rates are taking place obviously compounds the difficulties of

setting the lending rate. The Australian Government believes,

therefore, that in the present climate the Bank should not commit itself

too far ahead and that the situation needs to be carefully monitored.

The rapid expansion in lending, to which I have referred, makes it even

more incumbent on the Bank to ensure that its activities have a maximum

impact. It is to be welcomed that the Bank proposes to devote greater

efforts in 1979 to speeding up loan implementation and disbursements

4

rather than to further increasing substantially the level of new loan

commitments. My Government believes that it is important to ensure that

loans are entered into, and properly disbursed, only for sound projects.

In this respect we have noted that a recent paper on "Agriculture and

Rural Development" proposes that lending for such purposes be increased

by 20 per cent per annum over the next several years. Australia

certainly recognises that improved growth in the agriculture sector,

including increased food production, is very necessary in itself, and

makes an important contribution to overall economic development of many

countries in the region. It is appropriate therefore that the Bank

should draw attention to the importance of this sector and to indicate

its preparedness to provide greater assistance for such purposes in

future. However, I think the Bank should be cautious about basing its

lending on specific self imposed monetary targets. The degree to which

the Bank can and should increase its assistance in this and other

sectors should depend on the availability of sound and viable projects,

as well as the relative priorities accorded to agriculture by the

borrowing countries themselves.

The annual report notes "such a high and growing level of foodgrain

production, despite adverse' weather in several developing member

countries (DMCs), indicates that development efforts which have been

made by many DMCs are bearing fruit, and the agricultural performance in

the region is becoming relatively less vulnerable to the vagaries of the • \

weather". While much remains to be done to ensure adequate food

supplies for the increasing population of the region, this development

°

• 5

is particularly heartening in view of some of the more pessimistic

assessments of food production prospects that have been made in recent

years.

There is also a need to achieve a balance between the Bank’s sectoral

activities so as to ensure maximum contribution by the Bank to the

ultimate objective - assisting the economic development of developing

member countries.

An important factor bearing on the ability of the Bank to undertake an

expansion of its operations is its organisational structure. Australia

welcomes the recent review of the structure which we expect will help

the Bank to meet the challenges it faces. We also recognise and accept

that, in any institution whose lending is growing, a point must be

reached when increased staffing becomes necessary.

The recently approved Administrative Budget for 1979 contained provision

for staff increases of the order of 25 per cent this year, compared with

a little more than 8 per cent in each of the previous two years. At the o' .

time we had serious reservations about the need for such "a significant

increase in staffing in one year. While we still feel some concern, we

welcome the recent decision by the President to defer the implementation

of a portion of the planned increases.

Many member governments, including that of Australia, are maintaining

very stringent control over public expenditure in an effort to contain

inflationary pressures. Because of the Bank's responsibilities to its

member governments, and through them to the general public, which in the

6

last resort finances its operations, it . is essential that its operations

be carried out with the minimum possible additions to staff and with a

generally tight control over administrative expenditures. In this

regard, it would be of assistance to member countries if the budgetary

procedures of the bank were revised to give the Board of Directors an

opportunity to assess expenditure proposals before they become firm. At

the same time, we recognize the need for the Bank to provide a career

structure which will continue to attract staff of high calibre. The

favourable reputation which the Bank currently enjoys owes much to the

competence and dedication of a staff whose composition reflects the

diversity of the Bank membership and the region it serves. It would be

short-sighted indeed if we allowed that great asset to be eroded. In

this respect I have noticed with great concern the relatively high and

indeed increasing rates of staff turnover. I assume that the management

is carefully assessing the implications of this situation for the Bank's

performance which is fundamental to the continued support of developed

member countries.

Mr Chairman, I would also like to take this opportunity to make some

comments on economic development generally.

The Bank's latest Annual Report indicates that the overall improvement

in the economic performance of most developing member countries during

the last few years has been sustained despite inflation, unstable

exchange rates, and slow growth in the world economy. In fact most

developing countries in the region achieved real growth rates in excess

of 5 per cent in 1978. This is very encouraging when you consider that

the average growth in rate the industrialised countries last year was

only between 3 to 4 per cent.

7

On a per capita basis, of course, the impact of the developmental gains

has been greatly reduced. I was most interested to hear President

Yoshida's reference to the need for more effective population programs

in future. The projections of future population increases in the Asian

and Pacific Region, if realised, would seriously undermine the effective

work being undertaken by such bodies as the Asian Development Bank. We

therefore support most strongly the President’s call for close

consideration of this problem by the Bank.

I think attention should also be drawn to the fact that the developing

countries in our region have achieved lower rates of inflation and that

this has been accompanied by generally faster economic growth. This is

substantiated by tables in the Annual Report .

My Government firmly believes that control of inflation is of vital

importance in establishing the economic conditions which make sustained

economic growth possible. ,

Mr Chairman, there is still a very significant task ahead of us in

speeding up progress and overcoming widespread poverty in our region.

How to speed up development is a matter of considerable concern. Indeed

it is one of the greatest challenges that we face. Both through the

Bank and bilaterally the developed member countries must respond to that

challenge by providing assistance in various forms.

8

We must ensure that both the amount and the form of assistance to these

countries are tailored to the individual needs of particular developing

countries. We must recognise that the developing countries themselves,

through the domestic economic policies they pursue and the economic '

environment they create, are the prime determinants of the pace and

direction of economic development.

This point is underlined by the fact that investment in developing

countries is primarily financed by the savings of those countries. We

endorse the remarks of President Marcos concerning the need for greater

efforts to be made to create and mobilize domestic resources for

development. Net capital flows into developing countries from other

countries, including ODA, have accounted for less than 20 per cent of

total financial resources available to developing countries in the 1960s

and 1970s. Aid is, of course, a supplement and not a substitute for

self-help, a point brought out in the opening address of President

Marcos yesterday.

Looking ahead, plans are now being made for an international development

strategy for the 1980s. Regional development organizations including

ESCAP are preparing their inputs into this strategy. My Government

believes that, considering its expertise, the Bank could play a useful

role in advising member governments and regional organizations in the

selection of policies that will ensure maximum growth on a sustained

basis for the Asian and Pacific region during the 1980s. I noted with

interest and approval what President Yoshida said on this general

subject yesterday.

9

In this context let me emphasise the importance which my Government

attaches to the role of private direct investment.

The Australian Government has initiated consideration on this matter in

the IMF/IBRD Development Committee and, as some of you may be aware, a

Task Force has been set up to examine ways in which the role of such

investment might be enhanced without detriment to the national interests

of developing countries.

Of course, ultimately the role to be played by private foreign capital

is a matter which developing countries must decide for themselves. As a

net capital Importer, Australia appreciates the sensitivities involved

in this field. However, on the basis of our experience, we believe that

a clear net benefit can be obtained from allowing private foreign

investors to participate in development. Such investment adds directly

to the productive base and is likely to do so in a way that ensures that

expansion of output is on a viable basis.

It is therefore to be welcomed that the Bank intends to encourage the

positive contribution that such investment can make by undertaking to

join with private capital in co-financing suitable projects.

CANBERRA, ACT

4 May, 1979.