Development financing in Asia: a dissertation

Book review: Takehiko Nakao, The Rise of Asia: Prospects and Beyond. Memoir of the President of the Asian Development Bank 2013-2020 (Asian Development Bank, 2022)

In April 2013, just five months after Xi Jinping took office as General Secretary of the Communist Party of China, Takehiko Nakao was appointed President of the Asian Development Bank (ADB). He served for seven years until January 2020, overseeing a period of intense change in Asia, dominated by the rapid and assertive rise of China under Xi’s leadership.

During his presidency, Nakao also had to deal with the emergence of new financial institutions that challenged the role of the global financial architecture led by Bretton Woods. In 2014, the five BRICS countries – Brazil, Russia, India, China and South Africa – established the New Development Bank, headquartered in Shanghai, and in 2016 China launched the Asian Infrastructure Investment Bank (AIIB) based in Beijing. Both were designed as alternatives to the World Bank, AfDB and other existing development banks. At the same time, Xi launched the Belt and Road Initiative (BRI), which in less than a decade has become the largest — and most controversial — source of infrastructure funding in the world.

One of Nakao’s least grateful tasks was explaining to his international counterparts the large-scale government intervention to stabilize the rapidly appreciating yen.

Nakao begins with an account of his years in Japan’s Ministry of Finance just prior to his assignment to the AfDB, as Director General of the International Bureau and, subsequently, Vice Minister of Finance for International Affairs. This last position is often a stepping stone to the presidency of the AfDB, which until now has always been held by a Japanese national. In 2011, one of Nakao’s least grateful tasks was explaining to his international counterparts the large-scale government intervention to stabilize the rapidly appreciating yen. At the ministry, Nakao has established a strong network of global contacts that would serve him well at the AfDB.

Recounting his time at the AfDB, Nakao describes the day-to-day running of the President’s office, the inner workings of the AfDB and how he interacted with the bank’s Board of Directors. The sections of the book that at first glance seem like a digression – on how to deal with the media, conduct effective conference calls and write joint statements at international meetings – are actually useful for finance professionals. internationally and are not easily found elsewhere.

AfDB financing
The Asian Development Bank provides assistance to its developing member countries, the private sector and public-private partnerships (ADB/Flickr)

The most interesting chapters focus on Nakao’s engagement with China, including the creation of the AIIB and the BRI. Nakao provides details of his talks with three successive finance ministers as well as other senior officials, including Vice Premier Liu He, Xi’s closest economic adviser. Over the years, Nakao and his colleagues at the AfDB have provided China with consistent and sound economic advice, but with Xi’s growing emphasis on party and state control, the impact this has had is not clear.

Nakao’s account of the creation of the AIIB highlights the political tensions underlying international financial cooperation in Asia. When China decided to launch the AIIB, the United States, Japan and most other Western countries were openly skeptical. However, as the initiative gained momentum, the Chinese managed to convince an increasing number of non-regional countries. The dam broke on March 12, 2015 when the UK announced its decision to join the AIIB, followed a few weeks later by the rest of the European Union. Among Western countries, only the United States and Japan currently remain outside the AIIB.

In his memoirs, Nakao comes across as more supportive of the AIIB than in a controversial interview published by the FinancialTimes in April 2015.

In line with Japan’s Ministry of Finance, Nakao initially questioned the need for a new development bank and its ability to meet established standards of transparency and due diligence. However, he ended up accepting that the AfDB could help the AIIB get started by co-financing some of its projects. In his memoirs, Nakao comes across as more supportive of the AIIB than in a controversial interview published by the FinancialTimes in April 2015.

To his credit, Nakao oversaw a merger of the AfDB’s ordinary capital resources and its “soft” Asian Development Fund, consolidating the bank’s capital base and significantly increasing its lending capacity. He also introduced changes in personnel policy, although changes in the pension scheme proved less than popular among new recruits.

Nakao concludes The Rise of Asia: Perspective and Beyond with his personal thoughts on topics such as exchange rate management and what other countries can learn from Asia’s development. He acknowledges Asia’s political and economic challenges but remains cautiously optimistic about the region’s future.

Since its inception in 1966, the AfDB has had ten presidents, including the incumbent, Masatsugu Asakawa. Several have published their memoirs in Japanese, but those in English are rare. The bank’s first president, Takeshi Watanabe, released Towards a new Asia in 1977; and an informal translation of the memoirs of the fourth president, Masao Fujioka, exists but is not readily available. Nakao’s memoirs make a valuable contribution to the literature on multilateral financial institutions and deepen our understanding of the AfDB and the strained politics that underpin development finance in Asia.

About Emilie Brandow

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