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ADB admits to problems over lending to poor nations

MANILA - The Asian Development Bank admitted in an internal study released Friday that some of its loans to poor countries over the last few years had failed to achieve all their goals.

The release of the study comes after reports that disillusioned major donor nations such as the US and Britain want big changes at the Manila-based international lender.

The study said the administration of some 5.4 billion dollars worth of cheap loans approved between 2001 and 2004 was ‘less than efficient,’ adding that ‘effectiveness’ declined over the period.

The report assessed the result of loans extended by the bank’s Asian Development Fund, which accounts for a quarter of the bank’s total lending.

The bank’s wealthy Western members contribute to the fund, which charges little or no interest on the loans it extends to poor nations for a range of development projects.

Conflicting demands from donors and recipient governments led to less of the loans going to projects like health, agriculture and microfinance that promote the UN’s Millennium Development Goals for poverty reduction, the study said.

The study also criticised the bank’s reliance on consultants ‘who often lack authority’ rather than on staff to oversee projects.

It added that efficiency had improved since 2005, which should ensure some seven billion dollars of cheap loans allotted for 2005-2008 are ‘likely sustainable in terms of effective poverty reduction.’

But it urged the bank to avoid ‘congestion’ in its operations because supervision and resources may be spread too thinly.

‘Some country programs spread resources thinly, and the operations in some sectors have little critical mass,’ it said.

The study said the bank had to be willing to suspend the disbursement of loans if reforms, like improving governance in developing member nations, failed to make sufficient progress.

It said the bank should work with the IMF and the World Bank ‘to require that all developing member countries, within five years, have a legal framework regarding public debt’ in a bid to ensure it is kept under control.

The bank said it revised the Asian Development Fund’s focus in 2006 to devote more support to agriculture, social infrastructure and transport and communications.

Concerns about the bank have prompted Britain to withdraw a commitment to provide more funds because of a ‘lack of significant progress on the reform agenda,’ the Financial Times newspaper reported on Thursday.

Twenty-eight member countries can receive loans from the fund. Pakistan, Bangladesh, Vietnam, Afghanistan, Indonesia and Sri Lanka are the main borrowers.