Asian Development Bank Head Takehiko Nakao Boosts Regional Lending

Takehiko Nakao has been president of the Asian Development Bank for just two years, but he’s already made a big change that will boost its ability to finance development throughout the region.

By late February donors to the Asian Development Fund, the ADB’s concessional lending window for poor countries, had unanimously endorsed Nakao’s proposal to merge it with the Ordinary Capital Resources fund, the Manila, Philippines–based bank’s nonconcessional lending mechanism for middle-income nations. This tie-up will nearly triple the ADB’s equity base and let it hike annual lending to its 48 developing member countries from $13 billion to as much as $20 billion.

“We are trying to increase our lending capacity dramatically, and we are also trying to reform ourselves a lot,” Nakao, 59, tells Institutional Investor. “Instead of preaching to countries to reform, we should also reform ourselves. It is the responsibility of the management, especially the chief executive, to promote continuous reform and innovation.”

The ADB’s recent shift puts the bank in a stronger position to defend its turf as the top Asia-based multilateral lender. It comes ahead of the formal launch of two financial initiatives led by China, which has long argued that the ADB, the International Monetary Fund and the World Bank Group are dominated by the U.S., Europe and Japan.

The first is the Asian Infrastructure Investment Bank, which is slated to launch next year with registered capital of $100 billion to finance highways, bridges and ports. The second, the $40 billion Silk Road infrastructure fund, will provide similar investments to nations in Central Asia so they can build stronger logistical ties with Europe and Asia.

Once the ADF-OCR merger takes effect, the ADB will have an equity base of $53 billion that it will leverage to provide loans to governments, helping them to fund a wide range of projects, from schools to hospitals to highways and subway systems.

Under Nakao the ADB, whose 67 members include 19 non-Asian countries with observer status, has also shifted much of its attention to relatively undeveloped Central Asia. In 2014 the bank held its May general meeting in Astana, Kazakhstan; this year’s gathering will take place in Baku, Azerbaijan. “We should continue to promote inclusive growth in the [Asia-Pacific] region,” Nakao says. “To do that we should continue to promote economic development, and for that we need investments in infrastructure, education and health. We also need good macroeconomic and structural policies.”

Nakao’s bid to remake and strengthen the ADB isn’t the first bold move of his career. Before his 2013 appointment to the bank, where he succeeded Haruhiko Kuroda, now governor of the Bank of Japan, he spent 35 years with Japan’s Ministry of Finance. As vice minister of Finance for international affairs, the Ministry’s top civil service post, Nakao won respect for his cool oversight of the Japanese government’s biggest-ever currency intervention.

In late 2011 he and then–Finance minister Jun Azumi ordered the sale of tens of billions of yen after the Japanese currency peaked at 75.35 versus the U.S. dollar on October 31. This action kicked off Japan’s successful reversal of the yen exchange rate, which has since fallen to about 120 to the greenback, a level much more amenable to a nation that relies on exports to power growth.

Nakao, whose term with the ADB ends in November 2016, believes Asian economic development hinges on the region’s political stability. “In that regard, compared to other regions, Asia has been more stable and prosperous, and growth has been robust,” he says. “As an important partner in Asia, ADB wants to help promote the idea of regional cooperation, friendship and stability.”