Asian Development Bank - hindering or helping?

As Treasurer Wayne Swan arrived home from the G20 Finance Ministers meeting in London, the Australian Government is preparing to follow through on a commitment it made at the last G20 meeting in April.

This will see it provide additional funding for international financial institutions such as the IMF and the Asian Development Bank (ADB). The question for Australia now is to ensure that this money serves its intended purpose.

On the face of it, the G20’s decision to channel more money through international institutions in a bid to avert the worst of the global financial crisis makes sense. International financial institutions have a global reach which allows countries in need of resources to access them. However, it can’t be assumed that resources channelled through international financial institutions are automatically well spent.

This week, a Bill will go to the House of Representatives which will enable the Australian Government to increase its capital contribution to the ADB by 200 per cent. This would result in additional payments of $240 million over the next ten years, plus a reserve of $ 6.8 billion which the Bank can call on if needed.

As the third largest donor member country and fifth largest shareholder, Australia has a long history of supporting the Asian Development Bank, which claims poverty reduction as its over-arching mandate. Unfortunately, the ADB is not always successful in implementing this mandate.

For years, Oxfam has supported communities that have suffered environmental, social or economic harm from poorly designed and implemented ADB projects. During the construction of a road in Cambodia, communities lost their houses, land or businesses. The ADB delayed full compensation to these families for several years, forcing them to borrow from black market lenders to finance the reconstruction of their homes, plunging them into debt and deeper poverty.

The Asian Development Bank continues to propose projects which raise alarm bells with communities. These include the West-Seti Hydropower Project in Nepal, a public-private sector project involving a subsidiary of the Snowy Mountains Engineering Corporation. The large reservoir dam will displace at least 9,096 people and cause social disruption among different ethnic minorities groups.

Another planned project raising concern is a coal-fired power plant in the Philippines. The Environmental Impact Assessment for the project lacks a health program that monitors coal-ash related diseases. Environmental organisations are concerned that the local communities are getting a bad bargain. The province where the project is located will earn $US1 for each ton of coal ash, which is inconsequential in dealing with the expected overall environmental degradation.

When providing extra resources to an institution with a questionable track record, the Australian Government must be able to ensure that the additional funding is used in a way that benefits communities.

Funding to international financial institutions is consistent with the Australian Government’s commitment to multilateralism. However, it can also be a tempting way for the government to disburse its aid commitment in a way that involves minimal work.

To ensure responsible aid financing, it is imperative that, along with the other G20 countries, Australia accompanies the extra funding to international financial institutions like the ADB to increased monitoring and oversight. Otherwise, there can be no guarantees that these huge amounts of money will have the intended results.

In the past, the Australian Government has not been able to readily provide information on the breakdown of its funding to international financial institutions. Apart from top-line figures it was hard to access any detailed information on how Australian funds were being used by international financial institutions, let alone the results of this funding.

This is changing. The Australian Government is increasing its monitoring of international financial institutions, and Oxfam welcomes this. But this monitoring must go beyond top-level assessments to include information that looks at development outcomes on the ground. Through AusAID, the Australian Government has in-country desks which can provide the channels to gather this type of information.

The Australian government should make this information publicly available and use it to advise International Financial Institutions to help them improve their operations.

Finally, the Australian Government should explicitly assess the effectiveness of international financial institutions’ initiatives to help developing countries fight the effects of the financial crisis. The current proposals for monitoring funding to International Financial Institutions are improved, but appear targeted towards monitoring of the overall effectiveness. Given the context of the G20 decision as a response to the global financial crisis, the government must track carefully whether the initiatives proposed by the international financial institutions to deal with the crisis are in effect serving to reduce its impacts on the poorest of the poor.

These actions will move us one step further to ensuring that aid money facilitated through the G20 is indeed well spent.