ADB revving up reform, commits to cooperation with AIIB

BAKU - The Asian Development Bank (ADB) formally announced here Saturday that it will combine the lending operations of its Asian Development Fund (ADF) with its ordinary capital resources (OCR) balance sheet, in order to boost its lending capacity for Asia's poor members.

The big reform initiative, which will take effect in January 2017, came as some new regional financial institutions are taking shape on the horizon, including the Asian Infrastructure Investment Bank (AIIB).

ADB President Takehiko Nakao said that the merger will boost the ADB's total annual lending and grant approvals to as high as $20 billion, or up by 50 percent from the current level.

In particular, the initiative will increase the ADB's annual financing commitments to poor countries by up to 70 percent, from the current level of $6.5 billion to somewhere between $7.5 billion and $11 billion, said Nakao.

According to the ADB, the ADF, established in 1973, provides concession loans -- longer loan maturities and lower interest rates -- and grants to poorer countries. OCR loans are provided to middle-income countries at market-based rates.

Under the new initiative, OCR equity will almost triple to about $53 billion as of January 2017 from the about $18 billion now, said Nakao.

He added that poor countries currently eligible for ADF loans will continue to receive concession loans from expanded OCR on the same terms and conditions as current ADF loans, with the ADF to be retained as a grant-only donor fund to provide assistance to eligible countries.

"This initiative is a win-win-win situation because it increases financial support for poorer members, expands capacity for operations in middle-income countries and the private sector, and reduces the burden for ADF donors," Nakao noted.

With the rise of the AIIB and other new regional financial institutions, the ADB has speeded up its paces on financial reforms so as to increase its lending capacity by more efficiently and effectively utilizing its existing resources.

The ADB reportedly started deliberations on the initiative in the summer of 2013. By the end of February 2015, all 34 of the ADF's donors gave their formal and unanimous consent to the merger, and the ADB's Board of Directors delivered its endorsement in the following month.