Korea, Indonesia bailouts bite into agency's capital resources

PUBLISHED : Monday, 27 April, 1998, 12:00am
UPDATED : Monday, 27 April, 1998, 12:00am

The Asian Development Bank has seen its annual lending to the region soar by nearly 70 per cent, as the full weight of the financial crisis bites into its capital resources.

Its annual report, due for release today, reveals that lending to the mainland - traditionally among the largest beneficiaries of the bank - was dwarfed by huge bank loans to South Korea and Indonesia, with urgent lending for financial sector projects occupying almost half of the bank's loans.

Lending rose to US$9.4 billion, nearly $4 billion more than in 1996 and financial sector loans made to Korea and Thailand both came from the bank's ordinary capital resources, which jumped almost 101 per cent to $7.8 billion.

Korea accounted for 43 per cent of the bank's lending, an amount without which the ADB would have seen a 2.6 per cent drop in loans granted.

The mainland was the third-largest borrower of funds.

Both the International Monetary Fund and the World Bank are also expected to reveal that their lending capital has been severely depleted.

The ADB report comes on the eve of its annual meeting in Geneva, where regional finance ministers and central bank governors are set to try and tackle the financial crisis.

The ADB believes far greater technical assistance is rapidly becoming crucial for countries trying to escape the crisis, where lending is focused on improving skills to manage and initiate structural reform programmes.

Last year the mainland - which the ADB believes will be the 'anchor' for the region's recovery - was the largest recipient of technical assistance, at $19.5 million.

The bank launched 298 such projects last year worth $162.5 million, up sharply from the 135 projects worth $41.9 million in 1987.

It said the trend had transformed its role from principally a project-financing institution, to a broad-based development institution, and turned such lending into 'a strategic tool for development assistance'.

Such assistance is particularly important to its strategy of enhancing the mainland's economic efficiency, promoting growth to reduce poverty in poorer inland areas and improving environmental protection and natural resource management.

The bank said it planned to focus on strengthening the country's macroeconomic management and building legal and regulatory institutions to support market reforms.

The ADB said for Beijing to achieve macroeconomic stability and improve investment efficiency it needed to learn how to better use fiscal and monetary tools, establish more efficient financial markets, quicken state enterprise reform and boost legal and regulatory frameworks.

Last year the ADB said it approved 64 loans for the mainland, and awarded contracts of $694 million.

Disbursements reached $714.7 million, but it said it experienced difficulties in securing counterpart funds in a timely manner, due to the high cost of domestic borrowing, as well as insufficient co-ordination and synchronisation of the bank's processing cycle and Beijing's internal approval procedures.

The ADB did not have any operations in the SAR last year, although it noted it was faced with strains from the regional crisis, and that a key challenge was to moderate the economic slowdown, while simultaneously preserving the Hong Kong dollar peg to the US dollar.