Just hours after the Asian Development Bank (ADB) announced the resignation, effective March 18th, of its president, Haruhiko Kuroda, the e-mails and rumors were flying. And once again China — unwittingly or not — seemed to be playing the villain. This is not likely to change with the announcement on March 7th that Japan was putting forth another Ministry of Finance (MOF) bureaucrat as its nominee to take over running the ADB.
“I read somewhere … that China will be angling to put one of its own as head of the ADB,” one person declared. “This would be a disaster! They will be using the ADB as a bully pulpit besides [for] other nefarious mechanisms. Help fight it!”
Given ongoing tensions between the Philippines and an increasingly assertive China – not to mention between China and many other of its neighbors – one can understand the emotions and concerns. Ever since the ADB’s founding in 1966, with strong US support, Japan has retained a lock on the presidency of the multilateral development bank. The ADB is dedicated to supporting Asia’s poorest nations fight poverty through loans, grants and technical assistance, and remains one of the largest lenders to the Philippines.
The announcement of Kuroda’s departure, however, following his nomination by Japan Prime Minister Shinzo Abe to be the next governor of Japan’s central bank – he must still be confirmed by Japan’s Parliament – has raised again the question of who should lead the Manila-based multilateral financial institution.
For three and one-half years under Presidents Barack Obama and George W. Bush, I served as the U.S. Ambassador to the Asian Development Bank, and continued the bipartisan US push for a more efficient and effective ADB. And on more than one occasion, my Board of Directors counterpart from China’s Ministry of Finance asked me, “Do you think the ADB will ever have a Chinese president?”
China, after all, has lifted tens of millions out of poverty, and is now the second largest economy in the world, having taken that position from Japan in 2010.
Being a diplomat then, my reply was no doubt typically diplomatic. That decision really is up to the shareholders of the ADB to decide, I would reply. I might also have added though that I really don’t focus on such hypothetical questions, as the ADB president was not going anywhere anytime soon.
From the ranks
The ADB president traditionally has been chosen from the ranks of former high-ranking Japanese Ministry of Finance officials or others with close ties to the ministry. Kuroda, a respected economist, was only the most recent example.
First chosen as ADB president by the institution’s board of governors in 2004, Kuroda was reelected for a full five-year term beginning in November 2006. He was reelected for another five years in 2011, though some speculated even then that he might resign, clearing the way for another Japanese official to move into the post.
Officially, the institution’s next president will be chosen from nominees put forth by member governments. In reality, a former Japanese MOF official is decided upon in the back offices and hallways of Tokyo.
Continuing tradition, Kuroda announced his departure to the ADB Board of Directors at a “tea session” just a week back, and to form, the Japanese Finance Minister announced that Takehiko Nakao, Vice Minister of Finance for International Affairs, would be his nominee to take over the ADB presidency.
Critically, Japan also announced that it would ensure that the ADB also had the financial resources to continue its efforts. Indeed, supporters of more effective international financial institutions, as I am, can make the case for the top jobs continuing to be held by qualified candidates from these organizations’ major shareholders and largest financial contributors.
The United States is the major shareholder at the World Bank. Japan and the United States are the ADB’s co-equal largest shareholders, with Japan providing significant added financial support.
In contrast, while being the third largest shareholder in the ADB, China remains one of the institution’s largest borrowers. This despite continued calls by US and other policymakers for China to stop borrowing from the World Bank and ADB.
The Philippines also regularly supports borrowing by China from the ADB, perhaps worried that if they did otherwise, China would oppose borrowing by the Philippines. Yet, every dollar that goes to China is unavailable to the rest of the ADB’s borrowers.
In 2011, China was the second largest recipient by Board approval, behind India, of ADB financing. Excluding contributions from co-financing partners, this included approved loans of some US$1.4 billion and US$25 million in equity investments. An additional, $18 million was approved by the ADB for technical assistance to China. These amounts could surely be reimbursed by China, given its own internal resources and ability to access capital markets.
But now the question once posed to me by a Chinese official might not be so hypothetical. China may well decide this is the time to push its own nominee to head the ADB.
No longer a diplomat, but perhaps still diplomatic, I might join other in simply saying, “not so fast.”
China should focus first on phasing out its borrowings from the World Bank and the ADB and on significantly increasing its contributions to these organizations’ funds to help the world’s poorest nations. China could also further demonstrate its commitment to being a responsible stakeholder in a more prosperous and peaceful region. That is in China’s and the rest of the world’s interest.
This would include China’s joining efforts to strengthen accountability and transparency of ADB projects and programs, whether in China or elsewhere, through support for stronger public communications, inspection mechanisms and engagement with civil society.
China could also lead the way in cooperating with compliance review panels, and in implementing and strictly enforcing social and environmental “safeguards” on infrastructure projects, regardless of the funding source, and including on those supported by Chinese state-owned enterprises. China’s citizens and China’s own image will benefit from such efforts.
All this is not to say that change is not also needed at the ADB. Even if the institution’s president continues to call Japan home, he – or perhaps one day, she – could have come from a wider pool of qualified candidates than just from Japan’s bureaucracy.
And most importantly, all staff at the ADB should be recruited, chosen and promoted transparently and through a merit-based process. This could well provide more opportunities for qualified Filipinos.
Having nationality as a primary factor for hiring or promotion is constraining, and potentially damaging in the long run to employee retention and morale. As one example, cynics often point out that an exhaustive search for the “best qualified” candidate always seems to end up with some of the most important ADB functions – particularly budget, personnel and management systems – being run by a bureaucrat from Japan. Sadly, it also has put qualified non-MoF Japanese staff at the ADB in a bad light, with some questioning their qualifications and promotions.
This has both helped and hindered the ADB’s own development and focus on fighting poverty across the Asia and Pacific region, and also has contributed – perhaps unfairly – to some resentment toward Japanese leadership at the ADB.
When the ADB was founded more than 45 years ago, China and Japan were both vastly different places than they are today. The Philippines was also one of the richest nations in the region. Clearly, the rest of Asia and the Pacific, as well as the world’s major multilateral financial institutions, also have changed significantly since then.
During the last few years, the World Bank and IMF – both founded in 1944 to advance development and financial stability – have seen major challenges and changes. Former minister Christine Lagarde of France became the first woman to take the reins of the IMF. Korean-American physician Jim Yong Kim became the first from outside the worlds of politics and finance to lead the World Bank.
While Europe and the United States retained locks on the top positions, the selection processes and discussions were more open than ever. And so, too must Asia’s leading international organizations think differently about how the supposedly best qualified candidates are chosen to staff, manage and lead them.
My hope is that the “search” for the next ADB president – pre-ordained as its outcome might be – will lead to a successful candidate that will do more to hold the institution’s management accountable for shortcomings in not just development results but also such areas as staff retention and recruitment of qualified women.
Americans and Filipinos are an optimistic people, so we can continue to hope for the best. But the track record of MoF appointees to the ADB has not always inspired hope, particularly when it comes to best practices in governance, management or human resources.
Japan has done, and does, much for the ADB but the region has changed faster than the institution. An evolution in Japan’s approach to the ADB will be to the benefit of not just Filipinos who work at or aspire to work at the ADB. It will also be to the benefit of the people of the poorest and least developed nations that the ADB seeks to serve. Now, that’s something to fight for.
A dynamic, different kind of leader from Japan could also have been a boost to the ADB and to Japan’s hold on the institution’s presidency in the face of China’s continued rise. – Rappler.com
The author served as US Ambassador to the Asian Development Bank under Presidents George W. Bush and Barack Obama (2007-2010). He is a senior fellow and executive-in-residence at the Asian Institute of Technology, and a managing director with RiverPeak Group.