Is the Asian Development Bank really still relevant? What role can it play in the future development of Asia?
In many ways the Asian Development Bank (ADB) is even more relevant today given that the ADB is an international development finance institution whose mission statement is to help its developing member countries reduce poverty and improve the quality of life of their people.
While Asia’s gross domestic product growth is two and three times that of other regions and the overall wealth of the region is growing fast, millions in Asia are not benefiting from this growth. This is one of the most important challenges facing governments and the wider public sector across the region.
Tragically, a large proportion of Asia still lives in poverty too and a major challenge will be in ensuring a wider distribution of wealth and greater social inclusion and it is heartening that this is a key priority for many Asian governments and the ADB.
How is the ADB addressing this problem?
Under Strategy 2020, a long-term strategic framework adopted in 2008, the ADB is following three complementary strategic agendas: inclusive growth, environmentally sustainable growth and regional integration. In pursuing this vision, the ADB’s primary instruments include loans, grants, advice and technical assistance, all combined with a deep understanding of the needs of the region.
Although most lending is in the public sector — and to governments — the ADB also provides direct assistance to private enterprises of developing countries through equity investments, guarantees and loans. In addition, its triple-A credit rating helps mobilise funds for development. Many of these investments create jobs and support the development of a country’s infrastructure, promoting growth and job creation. ADB approvals, including co-financing, totalled more than $17 billion in 2010.
Indeed, the place where I suppose the ADB has been most visible in recent years seems to be in infrastructure investing...
Of course, because infrastructure investment is needed across the region. Supporting and advising governments in this area, along with the associated capital-raising requirements, is a priority — a stronger and more robust regional infrastructure is crucial to support Asia’s growth and the ADB is playing a key role in this area.
Developing Asia must also promote public-private partnerships to meet infrastructure needs and to ensure that development is both inclusive and environmentally sustainable. The ADB is playing an essential and critical role here as well.
Clearly, one of the reasons you are at the ADB is because you hope to work more with it; how does Citi work with the ADB to meet some of its goals?
Citi has a long history of partnering with Asia Pacific’s most progressive public sector entities and in 2009 the ADB and Citi signed a risk-sharing pact that is aiming to provide more than $1.5 billion through to 2013 to support trade in developing Asia.
Under the risk participation agreement, which is part of the ADB’s recently expanded trade finance facilitation programme, the ADB and Citi share the risk on trade finance advanced to exporters and importers in frontier markets in Asia.
We have also been a bookrunner on several ADB bond issues in the past decade, helping raise close to $4 billion for the ADB from the international and local bond markets.
In addition, we provide a variety of local and cross-border banking services for the ADB throughout the region and globally.
I suppose another reason you are at the event is because all of the region’s finance ministers and treasurers will be in Hanoi, what will you be telling them about the outlook for international sovereign bond issuance?
Markets are certainly receptive and, as we have seen already in 2011, there is continued global investor interest to buy into the Asia story. Issues for the Republic of the Philippines, in both dollars and pesos, [Citi was a joint bookrunner on both] were multiple times oversubscribed earlier this year.
There is also increased interest in longer-dated issuance and you have seen a pick-up in 30-year issuance in Asia. With a relatively flat yield curve and tight credit spreads, many Asian sovereigns can lock in attractive longer-dated funding if they have a requirement to issue internationally.
But one of the main developments since the Asian financial crisis has been the growth of local bond markets in Asia. Many governments across the region have proactively created liquid benchmark government yield curves, which have been useful pricing references for the development of Asian local credit markets. The Asian Development Bank has played an active role in this development too via its issuance in several local currencies in Asia to help develop markets further.
What are Citi’s priorities in the emerging markets in Asia in terms of the public sector?
The emerging markets are core to Citi and underpinned the return to sustained profitability in 2010 and into 2011. We were in these markets long before it was fashionable to be in them and our history in countries such as China and India stretches back to 1902.
In many ways, though, Asia in general can no longer be classified as an emerging market — it has already “emerged” in the past decade or so. Asia has an important role to play and the world will benefit from its continuing growth and integration into the global system, both in terms of manufacturing and trade, as well as capital flows. With Asian GDP at $10 trillion to $15 trillion and rivalling that of the US and Europe, Asia is a very credible third global hub.
On the public sector side, the team in the region works with governments across a wide variety of areas in Asia Pacific, including helping governments raise capital via local and international markets, providing advisory services on asset sales and helping governments improve their financial infrastructure, such as collecting taxes and paying government employees. In addition, we provide a range of services and advice to sovereign wealth funds. Our priority is to ensure we are in the middle of these discussions and to provide a global perspective on best practices.
The ADB meeting presents an opportunity for banks such as Citi to sit down with many of the decision makers in the region and discuss a range of these ideas. It still is one of the most productive meetings of the year, so I would say the relevance of this annual meeting to our public sector group is as strong as ever.