MDBs need to be bigger and better, but donor money is constrained: ADB's Um

Woochong Um in a virtual interview said that they need to double, triple and quadruple what they can do and bring in private capital

The Asian Development Bank (ADB) recently brought its capital management reforms that would unlock $100 billion in new funding capacity. ADB’s Managing Director General, Woochong Um, in a virtual interview with Ruchika Chitravanshi, said they need to double, triple and quadruple to bring in private capital. On increasing lending to India, Um said the money they can put through any country depends on the policy dialogue and their absorptive capacity. Edited excerpts:

Can you tell us about the reforms you have undertaken and what is on the anvil for ADB?

In determining how much we can lend, we have to make sure that we can cover any kind of losses. We are looking at a prudential level of capitalisation. We were able to put some mechanism where we can recover in case of default and then also some buffer so that if there's a special need for additional financing, we can come up with more resources. That gives us an opportunity to see how far we are from turning our billions into trillions of dollars. We need to double, triple and quadruple what we can do in terms of the footprint that we can create. It means we need to bring in more private capital. 

What kind of private capital are you hoping to mobilise?

There are a lot of private sector investors looking for a good development project opportunity. The private sector could come in by investing into a project that ADB is involved in, by way of providing loan or debt or they can also come in as an equity investor. 

What can be done to protect private capital from risk as suggested by the G20 expert group?

The private sector wants to do the right thing, but they also don't want to lose money. The host country should have a regulatory framework, which reduces the risk of private capital. We provide policy based loans to help governments implement some of the capacity building and some of the development of the necessary regulations as well as promulgation of those. That's upstream. Many say they don’t have enough bankable projects to put their money in. We support developing countries to do more project development work, so that there's more projects that can be investment ready. We have specific guarantee tools to help guarantee some of the private capital and we could be guaranteeing from commercial risks or we can also provide guarantee in political risk. ADB’s involvement in whatever form gives the private sector a bit more comfort, because we come in with a gold standard.

Finance Minister Nirmala Sitharaman asked ADB to support India with a more concessional climate for finance. What kind of funding can we see coming India’s way?

We try to support the countries to be ready to receive some of the grant financing and concessional financing from various entities. How much money we can put through any one country depends on the policy dialogue that we will have with the government in the coming months and years. We do need to think about the absorptive capacity and then also need to make sure there's an equal distribution of resources across all of our member countries. India is a big country, but the absorptive capacity is not an issue. We have to see how much we can do to make sure that there are enough bankable projects out there. 

The World Bank is considering adopting “a new vision that is worthy of its stakeholders’ shared aspirations.” Is ADB thinking of doing anything similar?

We always have a vision. In addition to mobilising more resources, we also went through a major restructuring of ADB and to make ourselves much more efficient and deploy the necessary expertise across all of our countries without increasing our cost. We are trying to put the best of the best within ADB in every country. 

Larry Summers, co-convenor of the G20 expert group recently said that MDBs need to become qualitatively better and quantitatively bigger?

I agree with Larry Summers. MDBs have a unique role to play the bridge between the public and private. We need to be bigger and better. But as I mentioned, the donor money is constrained. We've already optimised our capital, optimised our balance sheet to squeeze out more money. We have to be much more efficient in delivering our services to countries.
 

Are countries willing to increase their contribution?

We are always asking them. Right now, we are not asking for more and more money into our regular capital resource, but for this concessional window called the Asia Development Fund – ADF -- which is targeting poor and vulnerable countries. We are having the next replenishment discussion meeting in New Delhi in about six weeks. Hopefully by the next annual meeting in Tbilisi, Georgia, these countries will provide additional concessional money.

What are some of the challenges you want to be prepared for?

We just went through Covid-19, which we didn't plan for. We don't know when the next pandemic will come. We have to always be ready to step-up and support. We have to be prepared for natural disasters and have some contingency financing ready for certain countries that have particularly regular occurrences of natural hazards. 

ADB has sort of set the ball rolling on these reforms. What are your expectations from the next set of recommendations by the G20 expert group?

ADB is ahead of the reforms before we are told to reform. We've restructured ourselves. The process takes about two and a half years. We started doing it before the G20 started talking about it. We went through the capital adequacy framework review, which resulted in $100 billion. We launched the innovative finance for climate change for the Asia Pacific region. We are hoping to receive about $3 billion of guarantee, which will unlock another $15 billion for the next five years. We are doing more than what they're asked to do.