U.S. speaks out, Japan differs

CHIANG MAI (Thailand), MAY 7. The U.S. today went on a diplomatic offensive of plainspeak on certain aspects of the profile and prospects of the Asian Development Bank. Japan, tuning itself to a wavelength different from that of the U.S., announced a 10- billion-yen fund within the framework of the ADB for poverty scale-down programmes.

The U.S. said there was no convincing case for additional capital resources for the ADB as a near-term priority. In contrast, Japan openly supported a study of the bank's future requirements of capital resources.

At the 33rd annual meeting of the ADB Board of Governors in this northern Thailand town, the Assistant Secretary for International Relations at the U.S. Treasury, Mr. Edwin M. Truman, took a dim view of the proposal for the creation of an `Asian Monetary Fund.' In maintaining that ``the devil is in the details,'' he echoed the objections articulated in the very same words by the Finance Minister, Mr. Yashwant Sinha, on this subject yesterday.

Mr. Truman was less harsh on the idea of a currency-swap arrangement, as agreed upon by the Association of South East Asian Nations and its East Asian dialogue partners, Japan and China, besides South Korea.

The currency-swap idea, widely suspected to have been blessed by Japan as an initiative that could enable it to keep an eye on a region it regards as being in its sphere of economic influence, is seen as a possible prelude to a regional monetary fund itself.

Noting that regional cooperation for mitigating financial crises was known to the western hemisphere too, Mr. Truman said that the idea of an ASEAN-plus-three currency swap could be commendable if it were to bring about the necessary adjustments. However, the question of an `Asian Monetary Fund,' not yet delineated, would need to be assessed on details.

Perceptional differences between Washington and Tokyo on the state of Japanese economy in the context of its role as the motive force for financial recovery in South-East Asia, came to the fore. Japan took the line that its own economic recovery had now attained a self-sustaining phase that enabled it to announce the fund for poverty alleviation. But Mr. Truman countered, when asked about this at a media event outside the meeting, that the evidence on the ground did not point to a self-sustaining recovery by Japan.

At the conference per se, Mr. Truman said that ``the Japanese economy continues to be a drag on both regional and global growth.'' Japan must ``provide an open and growing market for its neighbours.''

While he argued that ``the most potent weapons in the fight against poverty'' were ``market-led growth and economic openness,'' the Japanese Finance Minister, Mr. Kiichi Miyazawa, unveiled the 10-billion-yen tranche as an anti-poverty grant.

The grant, Mr. Miyazawa said, could be disbursed under the ADB auspices to make its own poverty-reduction programmes more effective. He later indicated at a media event that the amount could be deployed for information technology activities insofar as they were related to the anti- poverty agenda. Although the latest offer was in line with Japan's practice in recent times in taking financial initiatives of aid to either crisis- struck or poverty-hit economies at multilateral fora, the U.S. today was not amused.

Mr. Truman told the ADB Board that it ``still trails other institutions,'' notably its counterpart in Africa, in promoting good governance in member-countries as one of three critical aspects of the poverty-reduction strategy. ``This is particularly disappointing,'' he said, noting that the ADB ``was the first to have Board-approved policy on governance'' steps must be taken to restore the ADB's leadership role in this sphere.

Even the ordinary funding through the ADB windows should be extended to the members ``only when clearly justified by performance and where other resources are not supplanted.'' ``For emerging economies, assistance strategies must promote policies that serve to improve access to private markets.''

On the ADB's future role, Mr. Miyazawa said it should be assessed as to how the institution should respond to ``the decentralisation or the World Bank'' as part of a changing world economy. The accessing of international capital markets by the emerging market economies and the development of private sector would be other aspects of ADB's long-term strategy, he noted.

Evaluating the ADB's prospects, the U.S. representatives said that Washington would not be found wanting in playing the role of ``a reliable partner'' in the sphere of concessional lending. Noting that the ADB's ``current East-West organisational construct has its deficiencies,'' Mr. Truman said the U.S. would ``support a structure that promotes a more cohesive implementation of policies.'' Regions ``are not the most appropriate basic structure,'' he said.

The U.S. also advocated the early signing of a memorandum of understanding between the ADB and the World Bank for coordination between the two.