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Fast Funding
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Singularly effective, swift and muscular, the now well quoted description by Jan Egeland of the United Nations of the overall humanitarian response to the Indian Ocean tsunami, aptly describes the Asian Development Bank (ADB)’s own prompt efforts to coordinate funding for quick disaster relief.
In just 6 weeks after the 26 December disaster, ADB created the Asian Tsunami Fund (ATF), a multidonor vehicle for financing immediate reconstruction efforts. With speed, flexibility, and conformity to complex legal requirements—and with substantial initial financing of $600 million from ADB’s own capital—the ATF now provides a pool of funds to deliver emergency grant financing for effective reconstruction.
Priority will be given to activities that address immediate requirements and the fund will not attempt long-term economic rehabilitation.
There was an outside imperative to provide this with speed and flexibility without complexity. Using innovative legal design that has not compromised principles, this was achieved by collapsing the usual time-consuming loan preparation and seeking a minimalist structure. Negotiations that would normally have taken months were done in just weeks. That puts ADB ahead of other multilateral agencies in making reconstruction funds available.
And the ATF is distinguished by several features, most significantly, perhaps, by its provision of grant funding—not loans— to the five countries worst hit by the tsunami—India, Indonesia, Maldives, Sri Lanka, and Thailand.
It is also a multidonor fund—it will accept donations from other development agencies, from governments, and from private companies and foundations. In addition, it allows the combining of other ADB resources and forms of bilateral or multilateral assistance, such as other dedicated funds, to provide favorable financing terms to the countries hit by the tsunami.
ATF’s structure allows it to act like a channel for funds from potential donors, taking them in from aid agencies, governments, and private organizations, pooling them, and then distributing them through equally various mechanisms using nongovernment organizations, governmentsponsored funds, and projects to get the work done.
Of particular concern to the designers was to make sure the ATF could head off the ample opportunity for corruption that often surrounds disaster relief. In what could be described as a ‘boats-for-votes’ phenomenon, disaster relief funds can often be peddled for political influence.
In the areas affected by the Indian Ocean tsunami, towns have been wiped out, fishing fleets destroyed, and records have disappeared. There is a danger that politicians could attempt to steer funds to political ends, such as by creating multiple or fictitious identities and using them to siphon off assistance.
The ATF designers knew it had to be flexible and quick, but they also knew that potential donors would be scared off without adequate safeguards. The solution lay in shifting the usual order of loan negotiation, leaving the complex and time-consuming risk analysis to the latter stages. Normally, initial loan documents would be presented alongside a thorough discussion of governance and anticorruption risks, and their solutions.
In the paper “Governance and Anti- Corruption Approach in ADB Tsunami Assistance Projects,” ADB sets out the risks and issues that must be addressed in tsunami assistance projects. It balances the need for quick processing and for ensuring the integrity of the assistance.
Under the headings of transparency, participation, accountability and predictability, it groups the required anticorruption and government strategies that must be taken for each project.
Under transparency, for example, project design must build in funding for random and special audits to ensure the funds have been used properly. And to ensure the public is informed, web sites should be created by either ADB or the recipient government: for example a procurement web site would be created to track procurement contract awards and to list bidders and other important details.
Under participation, the paper stresses the importance of including civil society, such as nongovernment organizations, in the projects to ensure they are relevant and effective. Accountability mechanisms, meanwhile, must be put in place to quickly deal with any misuse of funds, by private or public officials.
The designers wanted to ensure the Asian Tsunami Fund could head off the ample opportunity for corruption that often surrounds disaster relief
Everything about the ATF is designed to expedite assistance. For example, it requires that the legal documents associated with fund requests be prepared within 18 months.
The ATF mobilizes additional funding from the many donors that have already expressed a desire to assist, including countries, foundations, individuals, and others. It will be available to central and local governments, financial intermediaries to small and medium enterprises, and others in each of the tsunamiaffected countries that request ADB assistance.
Available sectors would include public services such as water supply and sanitation, electricity, and communications; infrastructure such as roads, railways, and ports; health and education services; agriculture and fisheries; housing; restoration of livelihoods; and containment of environmental damage.
Under the ATF, ADB has announced it is committing grants totaling about $300 million to Indonesia to finance a multisector project called the Earthquake and Tsunami Emergency Support Project to facilitate reconstruction and rehabilitation in Aceh, North Sumatra. Beginning in April, it will seek to repair or replace essential infrastructure and services and quickly restore income and livelihoods.
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