Moderator: Ann Quon
Senior Director and Officer-In-Charge, ADB's Department of External Relations

Statement by Mr. Kuroda: Good morning, and thank you for joining us today. It is a pleasure to welcome you to ADB's 42nd Annual Meeting. First, let me say how delighted I am with our venue, the facilities and the arrangements put in place by the organizing committee. We are very grateful to the Government of Indonesia for hosting us this year, and to the Balinese people for their wonderful hospitality.

This is truly a historic moment for ADB. As you know, our Board of Governors has adopted the resolution for the fifth general capital increase of the Asian Development Bank - tripling our capital base from $55 billion to $165 billion. This substantial increase is a resounding vote of confidence from our shareholders for what we can achieve as a premier development partner in the Asia and Pacific region. I would like to express through you today our most sincere gratitude to our shareholders, and our firm commitment to maximize the benefits of this increase for the people we serve - that is, the region's poor.

Over the next few days, our discussions will focus largely on the global economic crisis, which has seriously affected developing countries across Asia and the Pacific. Today, we are releasing a report outlining ADB's response to the crisis. And I would like to draw your attention in particular to a new product designed specifically to serve as an effective countercyclical instrument to fight the adverse impacts of the crisis. I am very pleased to announce that, subject to our board's approval, we will establish a $3 billion Countercyclical Support Facility, or CSF, to help our developing member countries cope with the crisis in 2009-2010.

The CSF will provide emergency loans faster and cheaper than under ADB's existing special loan facilities. I believe this will be a very welcome initiative to assist faltering economies and, most importantly, protect the poor from the worst impacts of the crisis.

During this week's activities, we will also turn our attention to Asia's long-term development challenges, which were daunting before the crisis and are even more challenging now. For example, as we all know, the region suffers from an immense infrastructure deficit. This infrastructure gap is a huge constraint to investment and growth, and to the alleviation of poverty. On Monday, we will be unveiling a new book which examines regional trade and investment logistics, regional infrastructure networks, the policies and institutions needed to develop effective regional infrastructure projects, and how to finance such projects. It also provides a framework for pan-Asian infrastructure cooperation with innovative ideas - of setting up a pan-Asia Infrastructure Coordination Forum and an Asia Infrastructure Fund.

While the current economic crisis has hit the region's economies quite hard, it is important that investments in long term development goals continue. Perhaps I should say more important than ever, if the Asia and Pacific region is to attain its targets under the Millennium Development Goals. An area of particular concern is climate change. As you know, many countries in the region have come forward with sizable stimulus packages, including infrastructure spending, in response to the financial and economic crisis. It will be crucial to focus such spending in areas like clean energy to mitigate Asia's carbon footprint and ensure a healthy and prosperous world for future generations.

Once again, I thank you for your participation. And I look forward to hearing your questions and comments.

Media: You've just announced an additional $3 billion in loans over the next one or two years, for the assistance, the crisis response. So what is ADB's budget for 2009, for all soft loans and hard loans altogether?

Mr. Kuroda: We expect this year and probably also next year will be the most difficult years so we are focusing on 2009 and 2010. Now, in the last two years, 2007 and 2008, in total we provided something like $22 billion in financial assistance to developing countries in Asia and the Pacific. We intend to increase the total amount in [the next] two years to $32 billion. That means a $10 billion increase, as I mentioned in my initial remarks, in 2009 and 2010.

Now, among the $10 billion, $1 billion is already committed to facilitate trade finance with (inaudible) trade facilitation program to $1 billion, which would provide something like $15 billion in trade finance support in the next five years. Second is this $3 billion fast disbursing facility called the Countercyclical Support Facility which would provide a kind of emergency assistance to crisis-affected countries who wish to provide fiscal stimulus to their economy, provide targeted support for the poor and the vulnerable, but the current capital market conditions may prohibit them from doing so. In that sense, the $3 billion Countercyclical Support Facility would provide exactly the appropriate support to developing member countries. The remaining $6 billon would be provided for program loans and also infrastructure investment loans and some, of course, would be grant assistance, but as I said, we at ADB intend to intensify our support for the developing member countries this year and next year by slightly more than $10 billion

Media: On top of the current economic crisis we now talk about Swine Influenza. Can you give us your assessment, please? Are the countries here prepared for such a crisis and what could the impact mean for the economies here?

Mr. Kuroda: As you know, the WHO raised the alert level to Phase 5, so that means that this new influenza, Swine Flu, is going to become quite serious in the world, but there's great uncertainty. At this moment Asia is not directly threatened by this new influenza, but we must be prepared to do everything necessary to deal with this new influenza because this influenza could spread quite easily and readily to any corner of the world, including Asia.

Now, as you know we have had SARS, we have had Avian Flu a few years ago, and through these two experiences governments are well prepared for this kind of communicable disease and of course ADB would be prepared to provide any kind of financial or technical assistance to countries which might need support, help from ADB. As I said, in the case of SARS and Avian Flu, we provided a substantial amount of financial assistance, technical assistance, in cooperation with regional offices, the WHO regional office in Manila, and if needs arise we will do the same thing to deal with this problem.

Now, the impact: Because it's quite uncertain and because Asia is not so affected, it's difficult to assess. But again, from the experiences surrounding SARS and Avian Flu, you can imagine the severe impact on tourism, the aviation industry, and some other related industries. Of course, once SARS and Avian Flu problems faded away, the economies in the region recovered quite quickly. But again, at this moment, it's very uncertain what kind of impact would be felt in the region and what kind of assistance would be needed from ADB.

Media: At this summit, the ASEAN+3 finance ministers also will be announcing the official formation of the $120 billion swap exchange fund. Can you talk a little bit about this? This is going to be the actualization of the Chiang Mai Initiative which you helped launch over a decade ago. Might the ADB also play a role in managing this fund?

Mr. Kuroda: Thank you. I think this ASEAN+3 ministers' meeting will become a very important, almost historic, meeting in expanding and multilateralizing the Chiang Mai Initiative. As you said, they have already agreed in principle to expand the resources of the Chiang Mai Initiative from $80 billion to $120 billion, but the exact sharing of contributions is not yet decided, so the sharing of contributions must be decided.

Secondly, multilateralization is also already agreed up on but then you have to have exact rule of decision making, so that must also be agreed. Thirdly, they envisage to establish a kind of monitoring unit to make the Chiang Mai Initiative most effective. When and how this unit would be established in the region is the third issue to be decided by ASEAN+3 finance ministers. ADB has always been supportive of this initiative and provided technical assistance and recommendations and we would be rather happy to continue this support of Chiang Mai Initiative in particular and ASEAN+3 finance ministers in general.

Media: Mr. Kuroda, you've outlined the responses of the ADB to the crisis, but private capital flows are estimated to fall by some $30 billion this year from this region. Obviously you can't fully compensate for that. Can you talk a little bit about how concerned you are about this financing gap and whether you see any signs of an improvement in private capital flows to the region, and, very briefly, is this new countercyclical fund, this $3 billion, part of the roughly $15 or $16 billion that you are lending this year, or is it something additional to that?

Mr. Kuroda: On the first point, certainly it is a matter of concern that capital flow is changing direction. As you said, this year we expect some capital outflow, compared with capital inflow. That means that many countries would find it very difficult, if not impossible, to raise necessary money from the capital markets to finance infrastructure, the social sector, and even fiscal stimulus measures to be implemented. So we, as I said, intend to provide an additional $10 billion in two years, inclusive of the already pipelined something like $32 billion in two years.

Of course, compared with capital outflow and the reduction of capital inflow, it's not so big, but at the same time I think we have to bear in mind that still some developing countries like China are able to borrow from its domestic market at reasonably good terms and conditions.

Of course, many developing member countries in Asia are finding very high risk premiums almost prohibiting them from borrowing from the market. But we continue to encourage developed member governments to explore private-sector borrowing, of course with reasonable costs. I think ADB support, and also World Bank support, and bilateral agency support, coupled with some private capital market borrowing, I think Asian countries, including governments, would be able to finance necessary investments and expenditures.

Media: I was told an hour ago by the NGO Forum downstairs that in ASEAN member countries as much of 70 percent of the funds from ADB are wrongly allocated by local governments for projects and investments that destroy the environment. What is your response? Thank you.

Mr. Kuroda: First of all, as I said in the NGO Forum, ADB has made utmost efforts to make our projects environmentally sustainable, environmentally appropriate, and I don't believe this figure of 70 percent at all. We have proper accountability mechanisms through which any problems, complaints, regarding environmental safeguards, resettlement issues, could be resolved, appropriately.

So I do think that ADB has learned quite a lot from past experiences in Asia and the Pacific, and we have made substantial progress, and I must say that most of our infrastructure projects have actually improved the environment rather than downgraded the environment.

Now, I have missed the second question raised by Anthony Rowley: The $3 billion dollars are included in the $10 billion in the next two years.

Media: I am interested in the new finance from ADB to the Indonesia government together with Japan, the World Bank, and Australia. You have just released that announcement. Just now, you mentioned you are going to expand your finance to other regions, too, in the next two years. So, do you intend to expand or make use of this new system to countries other than Indonesia, and, if so, which countries are you going to do it for?

Mr. Kuroda: As you mentioned, Indonesia requested significant additional financial assistance from the international community, including ADB, and I understand that the World Bank committed $2 billion, the government of Japan committed $1.5 billion, Australia, I think, $1 billion, and ADB is, I think, going to commit $1 billion.

All of them would help the Indonesian government to smoothly implement the various infrastructure projects, the social safety net improvements, the recently announced fiscal stimulus measures. Of course Indonesia, I understand, the government of Indonesia, will continue to explore the opportunities to finance its expenditures through borrowing from the capital markets, but, depending on the capital market conditions, the government would utilize those guarantees, those lending commitments by multilateral and bilateral donors. Now, CSF is additional, additional even to the $1 billion additional assistance, to Indonesia, and CSF, subject to the board approval, would be in operation for two years. And there would be short-term lending, and with approval, could provide emergency assistance to any country in the Asia and Pacific region. Of course, because this is relatively short term, the country must have appropriate macroeconomic conditions, including debt sustainability, and so on and so forth. But the facility would be open to all member countries which have access to our ordinary capital resources.

Media: Pascal Lamy in Geneva and Bob Zoellick of the World Bank have been quite outspoken about their concerns about rising protectionist actions associated with the financial crisis. How does it look from your perspective?

Mr. Kuroda: I am also concerned about protectionist actions in the world, particularly at this difficult time. Now, of course, protectionist actions nowadays are not import restrictions or heightened import tariffs. Rather than these, they are subsidies to domestic companies and sometimes even rescue packages for the financial sector or the industrial sector, and as such they are more complicated to detect, but already, even among the G20 countries, there are quite a few that have somehow introduced protective measures. So there's a real danger here in the world, at this moment. Fortunately in Asian countries, there are very few cases of recent protectionist measures taken. The reason is that most of them are very open and they are dependent on exports, so they are by nature afraid of protectionist measures by others, so they refrain from such measures themselves. But I agree that this is a real danger so we have to always be alert to this danger.

Media: In your meeting with the NGOs this morning, concerns were raised about an ADB-funded hydroelectric project in Nepal. Some of the affected or involved believe that upwards of 20,000 people will be displaced as a result of the project into an area that is a homeland for a completely separate group. So I am wondering what the ADB's take is on that figure, if you think that that is a reasonable assessment, and what steps you are able to take to mitigate some of the problems that could result from that?

Mr. Kuroda: I think the ADB has always been very careful, prudent, in assessing the environmental impact, and the resettlement impact, of any projects in developing countries, including in Nepal, and I must say ADB will continue to do so and strengthen our safeguard policies in coming months and years. On this particular issue, I think you'd have to talk to my staff about particular figures you mentioned.

Media: Just want to clarify how much in total the ADB plans to lend this year and next year, and secondly, on the new loan facility, will this take the total project lending to $10 billion over the next two years?

And the third question, how much faster and cheaper will this new facility be compared to ADB's existing facilities? Could you elaborate? Thanks.

Mr. Kuroda: On the first the first point, as I said, from $22 billion in 2007 and 2008 to $32 billion in 2009 and 2010. And that exact annual amount could fluctuate depending on requests, but I suppose larger lending this year than next year.

The $3 billion Countercyclical Support Facility will be operative in the next two years, this year and next year, this $3 billion is included in the $10 billion increase in two years, from $22 billion to $32 billion dollars. The exact conditions, terms and conditions, including the charges, the rate of interest, has to be decided by the board, but, as I said, compared with the special program loans, it would have to be less costly, significantly less costly, because it would be necessary to provide assistance at a reasonable cost.

Media: ADB released some figures about the number of people that would be kept in extreme poverty in Asia as a result of the slowdown in growth. It seems that even when the broad economy does recover from recession, it does seem that the growth rate over the medium term could be significantly lower than it was in the past. So what implications is this going to have for ongoing poverty reduction and in terms of achieving the Millennium Development Goals?

Mr. Kuroda: The impact would be quite serious. If you look at figure eight of this paper, you can see the increase of poverty in comparison with the situation where the growth rate, the high growth rate, was sustained. It shows a substantial increment of poverty in the region. Although we are still hopeful that major MDGs, including the target of halving the number of absolute poor, could be attained in Asia. But there are a number of non income-related MDGs, including child mortality, education, and so on, which are more difficult to attain by the target date. And I'm afraid that in some countries, poverty could actually increase and could make attainment of MDGs, including income MDGs, in Asia more difficult. So we, as I said, intensify, expand our finance as well as technical assistance to those affected countries, including some social protection measures, to alleviate the intensifying poverty situation, in those countries.

Ms. Quon, Moderator: If I could just elaborate on what President Kuroda is saying, the figures that you are referring to are that 60 million Asians would remain mired in poverty if you look at the $1.25 a day poverty line because of the crisis, and if that situation were to continue it would go up to 100 million in 2010.