How American aid slowdown would change Asian Development Bank

Ask a dozen rice farmers if their lives were improved by Asian Development Bank projects, and you get a blank stare. The Asian Development Bank?

Sure, they know that their new roads get crops to market, electric wires brought lights and television, new dams keep rice under water during droughts, and their daughters now drive motorbikes.

But in Bali, for instance, peasants thank a Hindu diety for a new canal. In the Philippines, President Ferdinand Marcos gets credit for a road. And Thai farmers wonder which bureaucracy thought up a credit program.

Ah, pity the unthanked Asian Development Bank (ADB).

Not only does it encounter an almost faceless Asian role (it accounts for less than 3 percent of external capital for its developing member countries), but its future rides on getting recognition halfway around the planet in the halls of the United States Capitol.

Fifteen years after its founding as a regional multilateral bank serving most of Asia's poor nations, the ADB heads into the toughest negotiations ever among its 21 developed-nation donors at its April annual meeting in Hawaii. Like Oliver Twist, it is asking for more money to substantially boost lending through most of this decade.

But holding the budget keystone is the United States Congress, which last year sent a shiver down the ADB spine by delaying payments. This year will be the test for America's longer commitment to Asia's poor. Other nations will follow the US lead on how much to ante up for the ADB.

The budget-cutting and more nationalistic, conservative leaders in Britain as well as the US worry the ADB, which was launched in 1966-by President Lyndon Johnson as a "noble experiment" -- and as a positive counterweight to his Vietnam war. Canada and West Germany also are uncertain supporters, say bank leaders.

By the end of 1982 both of ADB's major capital funds will be exhausted. A replenishment is needed for the next five to six years. Bank staff propose real increases of 8 percent a year in contributions, or a total hike of 125 percent in inflated terms.

But an 8 percent hike would still be shy of an estimated 9 percent growth in the Asia's need for external capital. And average annual oil bills are expected to rise 10 percent.

Thus, the gap could likely widen between rich and poor nations, even with full American support.

In 1980 the ADB loaned $1.4 billion. This year the figure is $1.7 billion and the estimate for 1982 is $1.9 billion.

"We're entering an era of supply-side constraint for foreign aid," says S. Stanley Katz, ADB executive vice-president.

Ironically, to lure the US into going along with higher ADB dues, the bank could do with less of the donors' actual contributions. At present, the bank demands only 20 percent of a country's pledge. The other 80 percent remains with the donor. In theory that "callable" capital belongs to the ADB. Like collateral, it helps give the bank the ability to borrow in international markets. Only calling in 10 percent or so would mean higher interest rates for the bank -- and for Asia's developing nations. Also, the ADB could restrict its cheaper loans which now go to the poorer member nations, specifically Sri Lanka and Burma.

"We don't have much alternative," says Mr. Katz.

The American 16 percent voting power in ADB obviously shapes bank projects. During the Carter administration, for instance, the US would abstain from voting on loans to countries where US officials claimed human-rights violations. Also, the ADB avoided funding sugar and palm oil export development at the request of the US, which wanted to prevent new competition for American industry.

But the US role also influences which of its Asian friends get loans. Some 70 percent of ADB funding goes to Thailand, Philippines, Indonesia, South Korea, and Pakistan. Since 1971, when the US began courting China, no new loans have gone to Taiwan. Afghanistan since the Soviet invasion has had its projects stalled, partly due to the hazards. Loans to Vietnam, Cambodia, and Laos have been opposed successfully by the US.

If ADB funding comes down a peg, developing nations may have to come up with their own capital by being asked to finance 10 or 20 percent of projects. At the US request the bank also has ventured into equity financing. But it hesitates to invest any more than the $5 million already committed for fear of getting involved in management of companies.