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SCMP Reporter

HONGKONG Monetary Authority chief Joseph Yam Chi-kwong will seek an early resolution to the row over radically increasing the Asian Development Bank's (ADB) capital base during the bank's annual meeting in Manila this week.

    The ADB could be forced to start cutting back on lending next year if it cannot overcome resistance from the United States to doubling its capital base.

    The issue is expected to dominate the three-day event, which formally starts tomorrow morning with an address from Philippine President Fidel Ramos.

    It will feature in the statement to be delivered by Mr Yam, who is serving as attorney governor for Hongkong at the conference.

    Hongkong is expected to throw its support behind a capital increase to enable the ADB to get on with its work. The last increase was in 1987.

    Failure to win Washington's support on the issue would theoretically mean cutting lending to Asia's developing economies, such as China, next year.

    Hongkong's future prosperity is heavily linked to the burgeoning economy of southern China.

    Only Indonesia and India received more from the ADB than China's US$903 million last year.

    Bank president Kimimasa Tarumizu wants the ADB's 52 member states to agree to increase the regional development bank's $23.2 billion capital by up to 120 per cent to support operations between next year and 1998, but has said he will settle for 100 percent.

   ''The early completion of negotiations is very critical,'' he said. He warned that lending, which topped $5 billion last year, could be slashed next year unless new money was made available.

   ''China and India's requirements alone are huge,'' an official said.

   But some members feel the US administration of President Bill Clinton, preoccupied with domestic problems and focused on Europe on the foreign policy front, is cool to the idea of such a massive commitment of capital.

   While refusing to single out the US, Mr Tarumizu said ''some member states are scared of budgetary problems'' and had different priorities.

   ADB sources said that budgetary problems aside, the US felt the bank might have lent money too fast without sufficiently monitoring the quality of its loans.

   Of the more than $42 billion the ADB has lent since its founding in 1966, more than half has been approved in the past five years.

   Japan is, by a small margin over the US, the top shareholder of the bank. Each has about 13 per cent of voting rights, but Japan has always held the bank presidency, with the US holding veto power.

   The ADB has 36 regional and 16 non-regional members, including western European nations.

   Mr Tarumizu said if the meeting of some 1,400 finance, central bank, planning and aid officials failed to resolve the capital issue, negotiations would have to be concluded no later than the third quarter this year.

   ''If we fail to reach agreement, it certainly is negative to our operations in the future,'' he warned.

    Mr Yam will head Hongkong's four-strong official delegation. The other delegates, all from the territory's new Monetary Authority, are executive director Norman Chan, division head James Lau and senior manager Eddie Yue.

    They will be working to promote confidence in Hongkong's future after 1997, its credit-worthiness, and its general image as a monetary centre.

    It will also be a perfect platform for the Hongkong delegation to explain the workings of the Monetary Authority, which took over the central banking functions of the Government's Monetary Affairs Branch a month ago.

    The Monetary Authority has greater financial independence than the branch, allowing it to take a more aggressive investment strategy.

    At last year's conference the US rejected the idea of soft loans for China, linking its stance to China's growing trade surplus with the US. This issue could emerge again.

    China's $18.2 billion trade surplus with the US last year, and the long-running Sino-US market access issue, are high on the US list of concerns.

     The Japanese last year supported the US refusal to permit the ADB to lend to Vietnam. However, observers believe Japan is this year close to breaking with the US, opening the door for soft loans.

          The ADB has said it is ready to extend $300 million in soft loans to Vietnam.

     The go-ahead was last year given for five central Asian republics, formerly part of the Soviet Union, to apply to join the ADB.

   Mr Tarumizu said there was ''broad agreement'' among members that Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, Uzbekistan and Tajikistan were eligible for membership.

    Official requests for membership are likely to be tabled by the five at this year's meeting. Controversy is also likely over whether the ADB should turn away from growth-orientated lending towards social development lending.

    That would mean shifting its emphasis from large infrastructure projects, such as power stations, towards areas such as education and training. It would also mean more and smaller loans.

    Projects designed to fill Asia's energy gap have dominated lending over the past two years, followed by transport and communication.

    Mr Tarumizu has said social infrastructure lending, the third biggest sector, is likely to grow in future.

   The ADB conference comes amid continued optimism that Asia will outperform the rest of the world in economic growth, with China as the new rising star following the success of the ''dragon'' economies of East Asia.

   Developing countries in Asia grew an average seven per cent last year, when the global figure was 0.5 per cent, according to the ADB, which expects this level to be maintained this year and next.



HK delegates to seek settlement of ADB cash row