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THE
chemistry of debts, desperation and development turns
toxic, especially when lenders change focus midstream
and seek fund replenishment through inordinate
refinancing profits. To the detriment of beneficiaries,
these occur when large-scale government infrastructure
projects are initially funded through concessional ODA
(official development assistance), only to be
privatized—with the sale subsequently refinanced under
higher commercial rates.
This
accusation is gaining ground among the Asian Development
Bank’s (ADB) critics as it has, in recent years,
increasingly relied on private-sector lending as a major
profit center within its organizational structure.
In and
out of its annual stakeholders’ meeting in Madrid this
week, the question of the ADB’s recent directions, even
its continued existence, punctuated internal debates and
external pickets and placards. At the center was the
dilemma between development initiatives against profits
and fund replenishment. In both, where focus shifts from
the public sector to private borrowers, whether
inadvertent or deliberate, the net effect on economies
that rely on development assistance, first from
international funding agencies, and eventually, from
corporate lenders, can be disruptive.
Where
global economies are linked by markets and bridged by
international development institutions, drastically
altering lending focus can quickly lead to these
economies’ fall in a world increasingly short on
everything, save for poisoned politics and population.
Uncontrolled, development agencies can become conduits
for higher-cost utilities and expensive infrastructure
when private-sector lending replaces public-sector debt.
One
example is the privatization of a major baseload power
plant in Luzon. In this case, public-sector debt
negotiated through concessional terms dominated the
power plant’s capital structure, thus affording lower
generation tariffs.
Unfortunately, following ill-advised privatization to
exorcise the liabilities of a state-run government-owned
and -controlled corporation, the plant was hocked to a
private investor that readily financed its purchase and
its expansion with commercial debt papers. With public
debt effectively transitioned into private liabilities,
the cost of financing increases as it is altered and
reflects not simply a new set of borrowers and greater
risk profiles, but also shorter tenors with corporate
hurdle rate requisites.
The
latter takes priority over development, and while Adam
Smith’s invisible hand still operates in such an
arrangement, the detrimental impact of higher financing
costs cannot be denied.
The
public that once enjoyed lower tariffs realized under a
regime of concessional debt thus now faces imminent
higher, perhaps even prohibitive, energy tariffs under
commercial rates imposed on the new owners of the power
plant. Worse, when the new lenders to the new owners
turn out to be the same lenders to the old owners, the
sushi served up starts to smell fishy.
It
wasn’t half as bad when international development
agencies extended infrastructure capital through
concessional loans, legitimizing as they did
intervention through behest fiscal policies imposed on
debtor states. That was expected. After all, it was
their money, and extending low-cost capital justified
some intervention in not only on how these were spent,
but also the manner of repayment. It was the World Bank
model whereupon lenders rule.
It
wasn’t even an issue when these agencies through their
in-house lending appendages extended Third
World-friendly loans to private utilities heavily
invested in infrastructure. For as long as terms and
tenors remained within long-term development horizons,
the assistance imperative remained legitimate.
Developing economies need capital and have few, if not
near nonexistent, choices open to them. Worse, with the
US subprime contagion and economic slowdowns east and
west of the Mississippi, wells are drying up.
Concessional interest rates, even with a profusion of
policy intervention, can no longer compensate; not when
Harvard-educated despots, economists and illegitimately
installed leaders cart off borrowed cash and replaced
good economics with default corruption.
Among
the global development bankers, to beneficiaries, the
ADB seemed the least interventionist, less politically
inclined to support what a parliamentary Diet desired
when compared with the Ferengi inside the World Bank,
the residents along 1600 Pennsylvania Avenue and the
even more influential Capitol Hill overlooking the
Potomac.
From the
perspective of the ADB’s major donors, however, that was
not the case. Coated with accusations of a lack of
vision, even relevance, donors, specifically the United
States and the United Kingdom, threatened to hold back
fund replenishments if reforms were not undertaken. This
pushes the ADB to desperate measures that lead to
increasing laxity over social safeguards. Faced with
aggressive competition from China as the region’s
friendliest ODA lender via government-to-government
facilities, the ADB’s private-sector initiatives turn
critical.
Harking
to its rationalization in 2005, the ADB’s major donors
are now demanding more representation in the ADB’s
hierarchy, noting that its upper echelons have long been
dominated by the Japanese.
In
Madrid the ADB confronted some of these issues that
threaten not only its relevance but its role as Asia’s
premier development lender. The nongovernment
organizations now bearing upon it have multiplied and,
like white corpuscles and anti-bodies procreating in the
presence of infections, criticism of the bank’s lending
focus, strategy and programs have intensified recently.
The stepped-up debate over the ADB’s direction reflects
well the anxiety that the bank might deteriorate into
the kind of political tool the World Bank has become.
But if
the venue is to be symbolic, then the ADB’s prospects
appear dim. That Madrid is far detached from Kyoto where
it met last year, and Indonesia, where it will meet next
year, is somewhat a dark figurative foreboding of the
non-Asian influences, perhaps even insidious donor
intervention and external pressures, bearing on the ADB. |
