President Tadao Chino's Press Conference

Shanghai, 12 May 2002

President Chino:

Good afternoon, ladies and gentlemen.

Thank you very much for coming to this press conference. I trust you all have copies of my Closing Remarks.

I am delighted to report to you that our Annual Meeting has been a great success. Among others, Governors endorsed the implementation of ADB's Poverty Reduction Strategy, the reorganization of the bank and our enhanced country focus, as well as our continuing efforts to promote regional cooperation.

Governors also commented on the major issues confronting the region. These include the need for Asian economies to continue with structural reforms, capacity building, and improving governance if they are to attain sustainable growth; the necessity of strengthening regional financial cooperation; and the huge challenge of environmental degradation. The important role of the private sector in development was also underscored.

Many Governors cited the Millennium Development Goals and stressed the need for partnerships in order to attain them. For our part, ADB is committed to strengthening its relationship with all its development partners. We know that only a broad coalition of bilateral and multilateral institutions, members of the financial community, civil society, NGOs - and media as well - can enable us to realize ADB's vision of an Asia and Pacific region free of poverty.

I should like to express my appreciation to the Government of the People's Republic of China, and to the City of Shanghai, for their excellent arrangements for this Annual Meeting. I extend my sincere thanks to the organizers who have looked after us so well.

Our next Annual Meeting will be in Istanbul, Turkey. I hope to see many of you there. I now invite your questions.

Emerging Markets:

The US Governor, Mr. Kenneth Dam, suggested yesterday that the ADB and other multilateral development banks should substitute grants for loans in certain cases to certain countries. I'd like to know how much support this has from other major shareholders of this bank and if the ADB were to provide grants, would it do so from a separate window, a new grant window? Secondly, how much support have you sensed at this meeting for a general capital increase for this bank, and when might that possibly come into effect?

President Chino:

On the first question on grants versus loans, this issue is now being reviewed in the context of IDA XIII negotiations. We are following this very carefully and we are also in close consultation with the World Bank. Our staff are looking at this issue from a strategic perspective in the context of our Asian Development Fund. Therefore, it is premature to comment on this matter. We are planning a midterm review of ADF VIII at which time many issues will be discussed, sometime next year.

As to the second question on a general capital increase, permit me to quote from my closing remarks: "Two thirds of the world poor live in this region and the fight against global poverty must be therefore won in the Asian region. As the regional development institution, ADB has a special responsibility. It must use its expertise, knowledge, and resources to help developing member countries in their efforts to reduce poverty and fulfill the Millennium Development Goals. I am grateful to Governors for their strong endorsement of ADB's overarching objective and our strategies to achieve it. In this connection, some Governors urged ADB to expedite the ongoing review of its future resource requirements that was also authorized by Governors in Chiang Mai." This is what I reported to the Governors at the close of the meeting. Let me explain a little more: in May 2000, the ADB's Board of Governors gave a mandate to ADB to study its resource requirements. The study is underway now. The study has three distinct but interrelated aspects. The first aspect is it should facilitate a broad shareholder consensus on a shared vision, and define the role for ADB over the long term. This is the first phase of our study. The second stage is the operational priorities and plans over the medium term should be reviewed and endorsed. The third stage is that the financial framework should be established to determine ADB's resource requirements. The first two aspects of this mandated study were done in 2001. Work on the financial framework - the third stage - is ongoing.

Business World:

What I'd like to ask you about has to do with the preferential treatment requested by member countries for lower interest rates. Has ADB considered lowering interest rates, and, if so, to what level would this be? Also, how will ADB deal, or what changes will it consider, with regard to stricter conditions?

President Chino:

Thank you very much. Let me first explain very briefly about the two windows of our lending operations. The first window is ordinary operations. We use resources procured in the capital markets. Our second window is special operations, consisting of special resources contributed by donors. The biggest fund under this criteria is the ADF, the Asian Development Fund. ADF terms can be as long as 32 years, which includes 8 years of grace period. During the grace period you don't have to repay the principal and the interest rate is 1 percent annually. After the grace period, it is 1.5 percent. This is therefore a very concessional fund. I suppose, however, that your question does not concern ADF concessional loans rather, some special lower interest rate utilizing Ordinary Capital Resources.

When we discussed our Poverty Reduction Strategy paper in 1999, some countries, particularly China and India, were eligible for ADF, but had no access to ADF. In order to undertake poverty reduction interventions, some members of the ADB Board proposed that more concessional, special terms should be considered for these countries which had no access to ADF. We have since held formal discussions with our Board of Directors, but we have not come to a conclusion yet. Countries with limited access to ADF have to borrow from OCR. These countries wishing to have low interest rates for poverty reduction interventions are therefore using our ordinary capital resources. It has been very difficult to come to a conclusion. This matter is still ongoing, and will be further pursued. I should like to add that, as I mentioned in my speech, LBL products which ADB introduced in July 2001 offer borrowers flexibility in the choice of currencies and interest rates, and given the current market environment, LBL lending rates are substantially lower than the traditional pool-based loan products. ADB will continue to strive to offer the best loan products.

Your second question covered conditionality. When ADB was created in 1966, our bank was more or less a project financier. As you can see from our logo, which was created in 1966, we traditionally emphasized the importance of agriculture, industry and supporting infrastructure. But, as you know, Asian economies have been changing. They have become more sophisticated and have new, changing needs. We have to address these changing needs, and our development agenda has broadened considerably, in recent years particularly. Today, we are no longer simply a project financier; we are a broad-based development institution. As you know, poverty reduction is now the overarching goal of ADB, and poverty is multi-dimensional. In order to enhance our effectivity in this area, we pay increased attention to such areas as good governance, social and environmental impacts, and so on. This adds to the complexities of formulating and implementing projects. Our lending is becoming increasingly complex, but we have to face this fact in order to effectively address the real needs of the people and address poverty reduction.

Business World:

You're not inclined to consider any changes?

President Chino:

To some extent such complexity is unavoidable, and inevitable. But, of course, we should, and we will, try our best to make the work of the recipient countries as easy as possible.

Asahi Shimbun:

In your Closing Remarks, you commented on ADB's Inspection Function, and said there should be reform. I would like to ask you first how to change the inspection system, and how to attain quick procedure of inspection process? Second, are you willing to accept the idea of introduction of an ombudsman system? Third, what is your lesson from the Samut Prakarn Wastewater project?

President Chino:

ADB's inspection policy was approved almost unanimously by the Board of Directors in 1995. Last year, we experienced for the first time actual implementation of an inspection case. Over almost one full year, this has been a very painful process for all concerned, for all the people related to this process. I myself was deeply involved. Lots of my energy and time was spent on this single issue. I know many of our staff used much of their energy on this, working very, very hard, so there was not much energy left for the processing of new loans. Some of them became ill because of so much hard work. This was indeed a very painful experience for everybody. The inspection policy should be reviewed. A fundamental, complete review is necessary. Very soon, after this Annual Meeting, I will go back to Manila and start a very extensive consultation process. We will consult not only government officials in donor countries as well as developing countries, but we will also ask the views of civil society, NGOs, and all stakeholders. In addition to that, we have to learn from the various experiences of other institutions, such as the World Bank, IFC, InterAmerican Development Bank, etc. Many institutions have similar systems, but each one is slightly different. We have to go through this process very extensively and intensively, and try to come to conclusions, and to bring results to the Board of Directors for discussion, maybe sometime towards the end of this year.

The Ombudsman system may be one of the good ideas which could be studied among other possible options.

Taiwan Commercial Times:

Taipei,China¹ is trying to have the opportunity to hold the Annual Meeting of ADB. Is that possible? What is the main consideration to give members an equal opportunity to host the activities of ADB?

President Chino:

The venue of ADB's Annual Meeting is decided through the established procedures. First, there is the formal invitation of a member country government. This will then be discussed by the Board of Directors, and finally by the Board of Governors. Such an issue is decided by the whole membership of the bank. We have to go through that process. It all depends on the views of all our member countries.

Shanghai Oriental TV:

A lot of construction projects in Shanghai are financed from ADB. Are you satisfied with those projects?

President Chino:

Shanghai is a place where ADB has worked hard on several projects together with the City of Shanghai and people of Shanghai. We have good memories of working together in Shanghai. Let me give you some examples. The Yangpu and Nanpu bridges were financed by ADB, and we are very happy that these bridges contributed greatly to local development, particularly in the Pudong area. When the Nanpu bridge was constructed, Pudong did not have any tall buildings. It was all quite different from today. Another example is our environmental project - cleaning up Suzhou creek. This was also very successful. Project implementation in this country is truly excellent; all in all, China's performance in project completion and use of ADB funds has been very efficient and effective. Usually work is done on, or before, the scheduled time. I am very satisfied with the implementation of ADB projects in Shanghai.

CCTV:

As is known to all, ADB has been working with China for 15 years. ADB has been giving a lot of economic support to China. We would like to know what China has provided to ADB.

President Chino:

More than 15 years of cooperation between China and ADB has been very productive. We have provided $11.3 billion of loans to this country, as well as about $200 million in grants for 378 technical assistance projects. These have been used very effectively and have contributed to the social and economic development of China. We are very proud of this. At the same time, China has done a very good job, demonstrating very effective and efficient use of our funds. China is excellent in its portfolio performance and project implementation. This experience provides very good information which can be used by other developing members of ADB. China's joint work with ADB is very useful experience for other developing Asian countries. There is mutual benefit in this.

South China Morning Post:

In your closing remarks, you referred to the leading role of the bank in the reconstruction of Afghanistan. Could you tell us in your words what that role will be? But has the meeting in any way changed your concept of that role? Are there any new ideas that come out of this meeting?

President Chino:

As you know, the international community had a very successful ministerial-level meeting in Tokyo in January on Afghanistan's reconstruction. On that occasion, the basic document upon which all participant countries considered their assistance was the so-called Preliminary Needs Assessment of Afghanistan's reconstruction. This document was produced by ADB, UNDP, and the World Bank. These three institutions worked together and provided a very good basis for the January meeting. Moreover, in November last year we had the first important international convention in Islamabad, Pakistan. That meeting was a very important brainstorming meeting for government officials, the private sector, NGOs, and others, all of whom are development partners concerned about Afghanistan. At that meeting, ADB was the vice-chair. It was also decided that ADB would also be vice-chair of the Implementation Group. At the Tokyo meeting in January, the international community pledged $4.5 billion, but the problem remained how to utilize this most effectively. Thus, the Implementation Group has a very important responsibility. We are also working together with UNDP and the World Bank on the Comprehensive Needs Assessment for the reconstruction of Afghanistan. This will enable each donor country to base their judgment on how to utilize their resources for the reconstruction of Afghanistan. These are the roles which we are expected to play. Let me also mention what ADB itself is doing in Afghanistan. In April, I visited Afghanistan and talked with Chairman Karzai and ministers. We discussed how ADB can most effectively give assistance to Afghanistan. At the Tokyo meeting, we pledged $500 million in concessional loans and grants for the coming two and a half years. For 2002, we are going to lend $200 million to Afghanistan. First, we will send experts in order to train ministry officials in facilitating the flow of ADB's assistance fund to Afghanistan. They will show them how money is received, how it is recorded, how it is properly channeled, and how it is monitored. Secondly, we will consider about $15 million for capacity building of government officials. After that we are considering pilot projects - in grant form - for highways, roads, agriculture, irrigation, schools, health, etc. Thereafter, we are going to consider more substantial loans for reconstruction and rehabilitation projects.

CCTV:

Poverty eradication requires the overall development of the region. In this regard, Japan plays a very important role. With the gradual economic slowdown in Japan, Japan has been depreciating the Japanese yen successively to help itself. As a result, many of the currencies in the region have also followed suit in the depreciation. Do you think that this action by Japan is irresponsible? Also, the Chinese renminbi has not depreciated; on the contrary, it has also appreciated. What's your comment on this?

President Chino:

The yen's current exchange rate is about 127 yen per dollar. This is not too much of a depreciation. Prior to Plaza Accord of 1985, the yen-dollar rate was 240 yen per dollar. It has been fluctuating. In my view, the current rate of around 130 yen per dollar is a reflection of the actual fundamentals of the Japanese economy. This level is not a matter of concern. Actually over the last month, it went down to 137 or so and now it is coming back again, resuming strength to 127 or so. This level, which is reflecting Japan's economic fundamentals, will not cause any harm to other Asian economies. China is still increasing its foreign reserves, and its international balance is healthy and strong. Why? Because China's productivity has been improving, and, has been strengthening international competitiveness. Congratulations!

Bloomberg:

Yesterday, US Assistant Treasury Kenneth Dam mentioned that ADB has some exposure to FITIC bonds which have defaulted since. What is ADB's investment in these bonds? What steps have been taken to recover?

President Chino:

I will ask my staff to answer this question after the meeting.²

Chinese Industrial and Commercial Daily:

I want to have your assessment and views on recent economic developments in China. In what areas do you see need for further improvement?

President Chino:

China's macroeconomic performance has been excellent. Last year, in spite of the global economic slowdown, and the events of 11 September, China grew at 7.3 percent. This year, we are expecting this growth will continue at about 7 percent. In 2003, performance is expected to be even better.

As for problems and prospects after accession to WTO, there will be opportunities as well as challenges for China. In the short term, some sectors will be affected because of lack of international competitiveness. Areas which are less competitive will suffer in the short or medium term. But in the long term, I think accession to WTO will stimulate and strengthen the Chinese economy. The industrial structure will be reformed. There will also be reforms in the financial and corporate sectors. There will be strengthening of competitiveness in such fields as automobiles, finance, insurance, agriculture, and some of the industrial sectors. If the structural reform efforts will continue, we can be quite optimistic about future prospects.

Thank you.