ADB sets up $3 billion fund to aid fiscal spending amid global crisis

Indonesia, May 2 - The Asian Development Bank (ADB) will establish - pending Board of Directors’ approval - a US$3 billion fund to help developing member countries (DMCs) swiftly ramp up the fiscal spending needed to overcome the global economic crisis and help sustain longer-term growth.

The Countercyclical Support Facility (CSF) will provide short-term loans faster and cheaper than under ADB's existing special program loan (SPL) facilities, and will be available to DMCs who qualify for loans from ADB's Ordinary Capital Resources (OCR), said ADB President Haruhiko Kuroda, who announced plans for the new facility at a press conference at ADB's 42nd Annual Meeting in Bali. OCR is a pool of ADB funds available for lending to middle-income countries at near market terms.

"I believe this will be a very welcome initiative to assist faltering economies and, most importantly, protect the poor from the worst impacts of the crisis," Mr. Kuroda told journalists.

The CSF announcement comes just two days after the ADB's Board of Governors agreed to triple ADB’s capital base from $55 billion to $165 billion. The 200% increase allows ADB to substantially increase its support to countries affected by the global downturn. The new facility would form part of that assistance.

Details of the CSF, together with other proposed ADB crisis-related programs, were outlined in a report released by Mr. Kuroda at the press conference.

The report, The Global Economic Crisis: Challenges for Developing Asia and ADB's Response, says ADB plans to increase its lending assistance by more than $10 billion in 2009-2010, bringing total ADB assistance for these two years to about $32 billion. This compares with about $22 billion in 2007-2008.

The crisis support will include project investments, quick-disbursing policy-based loans, guarantees, and new initiatives designed to address specific crisis needs. ADB will also expand its support through grants for policy analysis and capacity building.

Export-dependent Asia has been hard hit by slumping demand for its goods in major global economies, such as the U.S. and Europe. A number of governments in the region have boosted spending to spur domestic consumption to counter falling offshore demand, but not all governments are able to do so. Moreover, with the global downturn likely to be deeper and longer than previously expected, economies in the region are likely to come under increased pressure.

Borrowing under the CSF will cost around 200 basis points over ADB's financing cost. That is set lower than the ADB's SPL facility set up after the 1997-1998 Asian financial crisis to help the region deal with balance of payments difficulties, which are not the problem for many DMCs today.

The ADB forecasts economic growth in its 44 developing member countries at 3.4% in 2009 and 6.0% in 2010. The current account surplus as a percentage of gross domestic product is likely to fall to 4.9% in 2009 from 5.3% in 2008 and further drop to 4.7% in 2010.

Source: Asian Development Bank

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