71

The United States and the Asian Development Bank

Nitish K. Dutt*

[Abstract: This article deals with a largely unexplored topic related to the economics of American support for the idea of regional cooperation in Souflw.ast Asia in gvaeral and the Asian Development Bank in partictdar. The findings suggest that American involvement in ~pearheading the formation of the Bank and shaping its organizational structure and lending philosophy was motivated by a deshe to expand American economic influence in the region and to use that influence to further its economic and political interests h the region.|

The idea of regional cooperation for mutually advantageous econoxmc development has been attracting growing attention in the years since World War II. The concept found acceptance in the United Nations, immediately following its establishment, which then set up agencies for dealing with issues pertaining to regional cooperation, one of which was-the Economic Commission for Asia and the Fm East (ECAFE). The United States too had from time to time shown an interest in promoting regional cooperation in Southeast Asia---an area of primary interest to the United States--- partly to further its own political security and economic interest, especially after its military setback in Vietnam.

In line with these concerns, America's future role in Asia was envisaged as involving support for regional organizations like the ADB. This support was seen as a means by which the United States could reduce its ¢om~nitment and involvement in Southeast Asia without endangering its political and security interests in the region. 1 The establishment in 1965 of the Asian Development Bank (ADB)~ largely under the aegis and direction of the United States, was a concrete refly~tion of this interest.

However, while much has been written about the political-security considera- tions underlying American enthusiasm for the idea of regional cooperation and ASEAN, very little has been written about the ADB as aregional financial institution? The situation is even worse with regard to the American role within the ADB. The virtual nonexistence of secondary source material on the subject is reflective of this fact. A close examination of the role helps to highlight the manner in which multilateral institutions funded by the rich counu'ies can be used to influence file policies of the poor member countries. Although fl~ere is nothing new about the fact that the U.S. seeks to further its economic interests (albeit under the guise of helping developing countries) through financial support for multilateral institutions, its role

*Faculty of Business and Economics Department of International Relations, Eastem Mcdit~rranc.au University Journal of Contemporary As/*, VoL 27 No. I (1997)

72 JCA 27:01/Dutt

within the ADB helps to further highlight this fact. Consequently, the purpose of the present article isto focus attention on, and to demonstrate, the economic rationale underiying Americaninvolvement in the ADB. specifically, it shall attempt to show that an important factor which motivated the United States to join the ADB was its belief that the Bank would directly and indirectly iletp promote American economic influence (besides political and security concerns) and interests in the region, and the mechanisms that were built into the Bank's structure at th¢ time of its founding by the major donors.

For this purpose, the article focuses on the years between 1965 and I972wa period of escalating American involvement in Southeast Asia, especially Vietnam, and one that ended with the ignominious retreat of American f6rees from the region. This period is also pertinent for our purposes for a number of other reasons. First, and most importantly, American involvement in the Bank was most pronounced during this period as theNixon administration saw multilateralism as a way to influence the policies of member countries, without raising the kind of questions related to bilateral manipulation. Second, the extOat to which a supposedly autonomous, multilateral financial institution can be used to further the policies of the most powerful members ff the need arises, is most clearly illustrated by the activities of the fledglhag Bank during this time period, under pressure from the United States, and to a lesser extent Japan. In the process it will become clear how the United States has sought to use its influence within the Bank to force Third World member countries to toe the political and economic line regarded as being most advantageous to their interests. The evidence presented in this article in support of this Contention is also meant to be illustrative of the mechanisms available for the covert promotion of the interests of the major donors (Japan today) in developing countries3 As is evident from the Proceedings of the Board of Governors, the manner in which the United States used its power during theearly years of the Bank was a Source of resentment among the more independently minded members.

Origins of American Economic Interests in Southeast Asia

American economic interests in the region can be traced back to the Second World War period when Southeast Asian petroleum, coal, tin, rubber and other: product~ were recognized by the allied force: as "strategic commodities." At that time, one of the prime objectives of the allied forces was denying the victorious Japanese forces the use of these resources. Prior to WorldWar H, Southeast Asia had been an important producer and exporter of coal, rubber, tin and other products which provided necessary raw materials for the industrialized countries of theNorthem Hemisphere. Even after the war ended, the United States continued to stockpile these commodities against the possibility of shortages in the event of some future conflict. Although the development of substitutes (e.g., synthetic rubber, of technological

Asian Development Bank 73

"stretch out" tin) and of alternative sources of supply were to some extent to reduce Western dependence on Southeast Asia production in 1950, "the continuing and increased availability of these commodities on open world markets constituted an important economic interest of the United States. TM

In addition, Western Europe's trade with and its dollar earnings from Southeast Asia corm-ibuted to reducing the cost of Marshall Plan aid to Europe, and perhaps to ending the programme earlier than might otherwise have been possible. Thus, during the years immediately following the end of World War II, the United States had an important financial interest, as well as a commodity interest, in the economic recovery and progress of Southeast Asia and in open economic access to the region.

More general, and long-run in nature, was the economic interest of the Uniled States in the development of all less industrialized countries, an interest underlying the Point Four program proposed by President Truman in his inaugural address on January 20, 1949. The program was based on political considerations too, but economic interests were an important factor as shall be shown a little later. This interest derived from the recognition that prosperous neighbors are the most profit- able neighbors; that international trade ~ d investment grows as potential economic partners develop higher levels of production and consumption. A concomitant interest of the United States was, and still is, its attempt to deny the two major socialist countries, as far as possible, the economic benefits that they might realize from exercising control of Southeast Asia and Pacific Rim countries such as South Korea and Taiwan. These broad economic interests were considerably strengthened over time, so that compared to the rest of Asia, this region, along with the Pacific Rim countries, had become the primary focus o f American economic interest in Asia. A major concern of this article is to demonstrate that one of the factors which motivated the United States to join the ADB was its belief that the Bank would, in an indirect way, help promote American economic influence and interest in the region.

It wa~ perhaps because of this expectation that Eugene Black (Special Advisor to the President on Economic Affairs) was able to persuade an otherwise recalcitrant Congress to make available a $200 million contribution to the Ordinary Funds of the ADB, The extensive discussions and hearings that accompanies the formation of the Bank are quite revealing in this respect. That the United States took into account the economic benefits to be derived tl~rough membership in the Bank is evident from the September I967 Report of the National Advisory Council in International Monetary and Financial Policies on the Special Funds of the ADB. The report stated:

The National Advisory Council has carefully considered ~e present proposal (for U.S. contribu- tion to the Special Funds of the ADB) from the standpoint of U.S. financial and econom/c objectives .., and from the standpoint of the benefit deriving from intensi~ecl regional coopetafi~a among the countries of Asia. 5

74 JCA 27:01/Dutt

The report concluded that in the Council's view, an American investment in the Special Funds, like its subscription to the capital of the Bank itself, would serve U.S. inte~-estby promoting economic cooperation in Asia.

The ADB is based on a multilateral approach (i.e., one in which the burden is shined by a multiplicity of participants) to the problem of helping the counties of Asia to be economically self-reliant. Such an approach in turn waspredicatedon abasic identity of purpose among the developed Western nations. The United States and Japan are foremost among.those developed nations which require stability and easy access to Asia so that their corporations can utilize the raw materials, markets and investment opportunities within the region. As this article will l~y to show the ADB can play, and in fact was designed to play an important role in the fulfillment of these goals, controlled as it is by its largest donors with similar interests.

The Triangular Relationship

Do.hating the.economic life of the "Pacific Rim" are the ADB's three major c0tributors--the United States, Japan and Australia---joined together in a triangular trading relationship. Japan is America's second best customer~ In 1972, she absorbed $5.8 billion/(ll.8%) of United States exports. The United States in turn was Japan's number one customer ~taking $8.8 billion (30.9%) of Japan's exports in 1972. 6 Anstraliawas the minor parmer in the network,/but her interest in it was substantial: Overone-third ofits trade was ~with the United States and Japan. In 1972, Australia's exports to the UnitedStates and Japan exceeded $3 biMon and its imports totalled more than $1.5 billion. As a unit, these three nations annually conducted $15A billion of wade with each other. This triangular wade grew 200percent during the 1960s while total United States exports increased by only 69% and total world exportsby 87 percent. 7

American investmentin these countries was also substantial. At the end of 1970, total United States direct invesmxent abroad amounted to $78 billion and was growing by over $7 biIlion each year. investment in Japan increased fivefoldduring the 1960S to a total of $5 billion? Under Strong United States pressure-the Japanese relaxed tbeh investment restrictions in I973 , so that theexpectation wasthat United States inveStment in that country would continue :to grow (as indeed it has) at a rapid and Perhaps accekrated pace? Americaninvestmentin Answalia and New Zealand tripled to exceed $3 billion by the beginning of this decade.

These figures suggest that there was a strong complementarity of economic in ter~ts mnong these three states. This was so, despite the fact that Japan was, and is, one of Ame~'ca' s closestcompetitors in the world marke~ However, this competitio~ although keen, was moderated to a certain extent because b0th countries needed each other'S help: While ~apan was dependent on the Uifited S t a ~ from the point of view of~ , security.tlie United States had increasingly come to ~ y e n J q m m l i gh~ i~s

Asian Development Bank 75

aid burden in Southeast Asia. Since the primary economic interests (trade and invesunent) Of these two countries-- and to a much lesser extent Australia as well-- were very similar and since they were closely tied to each other economically, militarily and politically, it was to be expected that when their basic interests are at stake, they would tend to act in concert.

Table I: US. Trade with Selected Asian Countries (in Millions of Dollars U.S.) " ~ t ~ o r t s . . . . . . . . . . . . t m p o r t s . . . . .

Percent Percent (+)increase (+)increase

,.Countries . ,.1965 1972 (-)decrease 1965 . !.972 (-)decrease Cambodia 92 73 (-) 20.7 ~ (a) (+) 1291,4 China 234 628 (+) 168.4 93 1294 (+) 264,1 Hong Kong I91 489 (+) 156.0 343 1249 (+) 68.5 Indonesia 42 308 (+) 33.3 165 287 (+) 1 211.1 Republic of Korea 274 735 (4-) 168.3 54 708 (+) -- Laos 9 8 (-) 1 1 . 1 (a) (a) (+) 42,0 Malaysia 91 128 (+) 40.7 212 301 (+) 33.1 Philippines 349 365 (+) 4.6 369 491 (+) - - Singapore NA 385 - - (a) 265 - - (+) 182.9 Thailand I07 170 (+) 58.9 41 116 South Vietnam (a) 318 - - ( a ) 2 - - (+) T0tal . . . . 1389 3607 . . . . 2558 4 7 0 4 ' " (+) Source: c~pi led from Statistical"A~tract of ~e Unite~i States 1973~p. i16. Note: (a) ---less than 600,000; NA= not available

These thw, e developed countries had significant tra~ relationships with most of the non-communist Southeast Asian and Pacific Rim-countries. I° It will be seen that United States export trade with these" countries had increased dramatically from $1.4 billion in 1965 t~ $3.6, billion in 1972 (a, little over 7% of total u. S, exports) representing a 157% increase.in its exports. The value of imports.during the same period increased fxom $2.6 billion to $4,7 billion (about 12% of total U.S~ imports), an increase of 80.8%. Of the total amount of United States exports fill 1972, the Republic of'China (Taiwan), Indonesia, Republic Of Korea (South Korea), l~ifip- pines, Thailand and Republic of Vietnam (South Vicmam)---~unlries which were politically, militarily and economically Ciosely aligned with the United States-- together accounted for 70% of United States export~ and 61.4% of its imnorts. Though these figures might seem unimportant compared to the overall world trade of the United States, ~aey assume much greater significance if comparedto its total.wade with Asia. In i972, U!dted:States' wade with these counlries acceunted for 68% 0fits total Asian exports and 69% of its total Asian imports." Consequently, it should be

76 JCA 27:01/l)att

The point to be noted here is that the ~harp increase in the vohtme of trade with Southeast Asia was indicative of the growing economic importance of the region as an area which was experiencing a faster rate of economic growth than many other parts of the .developing and developed world. Illustratively, the average annual growth rate for the five countries between t965 and 1973 was 6.6%, second only to the Middle Eas t (9.9%). In comparison, the rate for the industrialized countries, Latin America and Africa were 4.7, 5.3 and 4.8 percent respectively, n

United States' direct investment in the area, worth $1.4 billion in 1965, had more than doubled by 1972 to $3.2 billion, at an annual rate of about 35 percent. It was centered in Philippines and Indonesia (mainly in oil exploration and extraction), in Singapore, Taiwan, Republic of Korea and Hong Kong (m low wage manufactur- ing). 13 American investment in Asia, centered mainly in Southeast Asia, was not only fairly significant but continued to yield a higher rate of return than its earnings in the advanced industrialized countries (see Tablel). According to U~itetl States govern- ment figures the rate of return on investments in 1972 in Asia (11.9%) was more than twice that in the developed countries (5.2%)? 4 It was for this reason that American businessmen were interested in investing in the developing countries of Southeast and East Asia even though the risks were quite considerable because of political unrest and instability in the former. Within the context of. the present study, the important point to note is that the four countries--Philipphaes, Republic of China, Republic of Korea and Indonesia---in which American investment is concentrated are also its leading trading partners.

Australia's trading interests in Southeast Asia were a~o quite substantial and rapidly increasing. Between 1965 and 1972, Australian exports to the region increasedby about 189 percent from $234.4 million to $676.1 million. During the same 1Jeriod her imports increased by about 52~%, frown $176.6 ~ l i o n to $269.4 million. It is evidem from these figure s that not only wat Australia S trade with the Southeast Asian region highly Pr0fitablebut th~it it has been increasing fairly quickly at an annual rate of about 38 percent.t5 Australian investment in the region;although not as significant as that of the United States, was still quite substantial, and in 1972, totalled about $100 million, and was concentrated mainly in Indonesia and Papua New Guinea. 1~

WhileAmefican and Australian economic interests were substantial, Japan's economic interest in the region is more extensive and has been growing rapidly. Her economy is overwhelmingly dependent on the import of raw resources, many Of +which are available in Southeast Asia. In 1971, it depended on imports for 98% or more of its consumption of crude oil, iron ore, phosphate, bauxite, cotton, wool and crude rubber. ~7 To Fay for these imports and to sustain her rapid growth, JaPan ` needs foreign markets in Asia and elsewhere. Derek Davis, editor of the Far Eastern Economic Review, correctly points out that the most powerful groups in Japan see their economic future as lying at:

,4sirra Development Bank 77

...the center of an Asian common market or customs union (much along the lines of the old co- prosperity sphere) in which the countries of East Asia, plus possibly South Asia and Australia are gradually tied into the Japanese market by trade and tariff Agreements and by a planned prOgramme of original investment. Is

Southeast and East Asia have been, and continue to be, a major focus of Japanese trading interests in Asia. Japan's exports to this region (Table 2) during the period 1965 to 1972 more than tripled from $1,131.6 million in 1965 to $4,059.2 million in 1972 (an increase of 258%). Her exports continued to grow rapidlyat an average rate of about 42.1 percent. During the same period Japan's imports rose at an even faster

pace, climbing from $636.7 million to $2,638.4 million (an increase of 314%)Y

Table 2: J a p a n ' s Trade with Selected Asian Countries (in Million of Dollars U.S.) Exports Imports

Countries 1965 Taiwan ....... 271.9 Republic of Korea 180.3 Hong Kong 288.1 Indonesia 204.8 Philippines 240.5 Other 1058.9

Percent Percent increase (+) increase (+) decrease (-) decrease (-)

1972 1965 1972 1092.4 t+) 401.3 157.4 421.7 (+) 167.9

980.5 (+) 443.8 41.4 426.1 (+) 929.2 911.2 (+) 216.3 35.3 119~4 (+) 238.2 616A (+) 201.0 148.7 1201.0 (+) 707.7 458.4 (÷) 90.6 253.9 470.2 (+) 85.2

2264.3 (+) 113.8 769.I 1533.5 (+) 99A Total 2190~5 6323. 3 1405.8 4171.9 Source: Donald L. Whitaker et al., Area Handbook for Japan, Washington, D.C.I U.S. Government Printing Office, 1974, pp. 512-518.

Japan also has a strong and fast growing invesunent interest. Inflows of Japanese private capital into the regio n between 1968 and 1972 sharply increased from 39.2% ($216.5 million)to 74.4 percent ($411 million), accounting for the bulk of the total Japanese capital inflows to the Asian region. Within the region Japanese investments are concentrated mainly in the Republic of Korea, the Republic of China and Thailand, though in recent years Indonesia has also become another major focusof Japanese investments? °

It should be clear from the earlier discussion that there is a basic congruence of Japanese and American interests in these countries and that this interest has tended to band these Countries together (despite stiff economic competition between the two in the three developed countries. For instance, United States aid till 1972, mounted to $1,366.8 million to the Republic of China, $2,973;2 million to the Republic of Korea, $563.5 million to Thailand, $642 million to Indonesia and $349 million to the Philippines. South Vietnam received $4,721,2 million, but aid to this counu3, was motivated by special political and military considerations? 1

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The buLk of Japanese aid has all along been concentrated in the developing countries of Asia, which have, on an average received 95% of net disbursements. Although assistance has been extended to almost all developing Asian countries, the Republic of Korea, Indonesia, Philippines and Thailand have been the recipients of close to 70% of Japanese aid. Though cumulative aid figures by country are not readily available, we do have the figures for 1971 alone, which does give an indication of the size and direction of Japanese aid. In that year South Korea (with $124.2 million) was the leading recipient, followed by Indonesia ($111.9 million). Together these coun- tries accounted for 64% of total Japanese bilaterai aid. 22

Australia's aid prograrrane, in comparison with that of the United States and Japan had been much more limited its magnitude. Almost all of Australia's bilateral aid went to Papua New Guinea which alone accounted for 75% of total Australian aid. Since the late 1960s Indonesia has been the single largest recipient of aid (after Papua New Guinea). Disbursements increased from $1 million in 1965 to $17 million in 1971. With the introduction in 1970 of a three-year $60 million grant programme, disbursements to Indonesia have accounted for 9% of Australia's bilateral aid (and 37% of its bilateral aid to all recipients excluding Papua New Guinea). Australian aid in 1971 (cumulative figures are not readily available) to other Southeast Asian countries were as follows: Cambodia ($1.03 million), Laos ($1.41 million), Thailand ($4.88 million), and Vietnam ($3.78 million). 23

The channeling of aid to countries in which the United States and Japan (and to a much more limited extent Australia)have significant trade and investment interests is suggestive of the possibility that this aid was in part designed to further other economic interests. Since in most cases a large portion of aid provided by the United States and Japan was meant to finance the purchase of food, machinery and other manufactured items, economic aid helped to artificially stimulate and guarantee a market for the products of the donor countries and to that extent served to promote their sales abroad. More important is the point that when aid was offered for this purpose, it at the same time helped to make the recipient country or countries more dependent on the donors (for instance, in the case of sophisticated manufactured goods for spare parts). The control that the donor countries were thus able to exercise over the recipients, could then be used to pressure the aid receiving nations to relax restrictions on investments, create tax free zones, relax tariff barriers, grant most favored nation treatment and so on ad infinitum..

When their common interests were at stake (e.g., access to the markets and resources of Southeast Asia) they could be expected to act in concert. Thus, in the context of the ADB, the United States and Japan (with the support of like-minded countries like Australia), if they wanted to, could use the Bank to promote their economic objectives in Asia. This was possible given the system of weighted voting in effect within the ADB, as in other financial institutions in which the United State~ and Japan are major donors.In other words voting strength is based on the size of a country's contribution. Originally, Eugene Black, representing the UnitedStates, and

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Takeski Watanabe on behalf of Japan fought for 95% voting strength to be based on contributions. In the face Of considerable opposition from the smaller countries, they reluctantly accepted 80% of the votes to be based on donations of capital. 24 As a result, the four most powerful directors had nearly three times the votir.g power of the weakest (see Table 3). Along with Japan, the United States controlled 34.2 percent of the votes within the Bank till 1972, although subsequently their share of the vote declined somewhat. Thus, Japan and the United States by themselves had, and continue to have, considerably greater voting power within the Bank. In conjunction with the other developed regional and non-regional countries they controlled about 65% of the total voting power.

Given the asymmetrical distribution of power within the Bank, it was unlikely that any important decision could be taken against American' and Japanese interests. As Black testified: "The majority of the votes are from the capital exporting countries, which is very important. In other words, the borrowers can't run the Bank. '~ Consequently, as the proceedings of the Board of Governors annual meetings clearly document, the directors most active in policy formulation during its formative years, were also those with the largest voting power. Hence they were able to direct the activities of the Bank alongiines which helpedto promote their tcade and investment interests in the region.

An indication of the extent to which American (and Japanese) influence and pressure has shaped the Bank's operational philosophy can be clearly discerned from the ADB sponsored study, Southeast Asia's Economy in the 1970's, 26 published in 1972. The basic thrust of the study was that the economic salvation of the Southeast Asian couniries lies in concentrating their attention on the export of primary product (raw resources) by forging an effective economic link "to connect their abundant natural resources with the expanding world market for their export. "27 In effect what it suggested was that tlae developing countries, given their economic backwardness, should confine themselves to the role of producing raw materials for export to the western industrialized countries. To facilitate the exploitation of their raw resources, the Southeast Asian countries should encourage private capital investment in primary production (raw-materials) by making development of their resouroes, both human and natural, more attractive. This 0bjective, the study went on to suggest; could be achieved in two ways. First, the Southeast Asian countries could ease restrictions on foreign firms and create Confidence In them that nothing would be done which would hinder their operations. Second, and more significantly (from the point of view of ADB lending activities), the governments in these countries could invest in infrastruc- ture activities, such as improving transport and communications, in order to "reduce the Capital requirements of private foreign investors" which "will make the resources more attractive to them. ~a8 The study alsoprovided ma explanation as to why private fLrms of the developed countries were interbred in investing their money in the developihg countries of Southeast Asia despite their limited markets:

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Because of the rising wages for certain types of easily trainable skilled labour in the advanced countries, these corporations are interested in locating certain parts of their productive processes producing components in the underdeveloped cot, ntries, where a similar type of labour can be

obtained at lower wages. ~

In brief, this ADB sponsored study recommended the introduction of private capital into primary production, argued against serf-sufficiency and strategies of import substitution, and stressed that adequate power and transportation facilities, as well as cheap but skilled labor, and adequat*, government administrative and fiscal systems would draw needed foreign-capital. In other words it was a recipe which called for heavy reliance upon American and Japanese capital and techniques for the foreseeable future--an approach which would help to perpetuate a relationship of economic dependence between the United States and J a p a n o n the one hand and the developing countries on the other.

Given the emphasis which the ADB study places on encotiraging foreign investments, it was not surprising to fred that this institution, by leans designed to improve the infrastructure in Southeast Asia, sought to stimulate private investment and western style growth in the developing non-communist countries of the region. Investment in infrastructure is costly and unprofitable at first. However, because the potential for private investment is limited in a country lacking an adequate "infra- structure," American businessmen urged that:

The level of direct governmental aid must be kept sufficient to build an adequate infrastructure,

meaning by "infrastructure" an economic environment that is conducive to private investment..? °

With this objective in mind the Report of the House Subcommittee on Foreign Economic Policy of 1968 recommended that national policies should be coordinated so as to ensure that efforts to promote investment in these countries were not negated by their restrictionist policies. The report helped to highlight the role of the American government in pressuring the less developed countries to open up their economies for private direct investment in Southeast and East Asia, by laying down guidelines compatible with the above objective, when screening prospective 10an recipients. This approach found immediate favor in the United States because by perpetuating the dependence of the developing states on the developed countries for financial support and tecbhological know-how, rather than self-reliance and innovation, it served to further the economic interests of the developed states themselves. Indeed, ADB loans helped to pay for imports of American good s and technological know- how and to that extent they tended to enhance the market for American goods and services.

American economic interest in the creation of the ADB can be seen in another way as well. One of the major problems faced by foreign business interests in Asia

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pertains to the low purchasing power of people in the developing countries, which tends to have a constrictive effect on "effective demand" (i.e., demand backed by purchasing power) for goods in these countries. Thus arises the necessity of creating larger and more economically viable markets for American investments to prove profitable. In this endeavor, promotion of regional co-operation in general and regional institutions like the ADB in particular, can play a central rote. The importance of regional institutions like the ADB and others, for this purpose, was explicitly recognized by the Report of the House Subcommittee on Foreign Economic Policy of I968:

By American standards markets in the less developed countries are often too small to justify investment in them by large American corporations in large scale operations. For this reason the United States has been trying to encourage developing countries to form !arger integrated regional markets...? ~

From the United States' point of view, the ADB, by promoting regional economic cooperation among the Southeast Asian, countries, could help to bring about a greater integration of the economies and markets of these countries (something along the lines of an Asian Common Market as envisaged by Japan). This development in turn would help to create a larger and economically more viable market for the goods of American fh-ms, which in turn would attract American and other investors? 2

The pattern of ADB loans during the early years of the Bank played a significant role in facilitating these objectives of the United States. The loans offered by the Bank fall into two categories: "soft" or low interest loans and "ordinary" or higher interest ones. Unlike the ordinary loans, the soft loans were tie d to the purchase of goods and services from the donor countries. Consequently, those countries which received loans from the U.S. share of the contribution to the Special Funds were required to buy what they needed from the U.S. Since loans from the Ordinary Funds carded higher rates of interest, only the more prosperous of the Asian member countries could avail themselves of these loans. Thus, four nations--Taiwan, Philippines, South Korea, and Indonesia--accounted for 62.8% of all loans from the Ordinary Funds.

Significant segments of these loans were used to bring a greater integration of the markets and make them more attractivefor foreign investors. For this purpose a developed system of transport and communications and cheap power is required. Given this necessity, it is not surprising that $587 million (61.5%) 6f all ADB loans, between 1965 and 1972, were advanced for the purpose of creating infrastructure in Southeast Asia---roads (super highways) in ~ Taiwan and the Philippines, ports in Ceylon, Taiwan, Malaysia and Thailand, power grids in Taiwan, South Korea, Indonesia, Singapore, and West Samoa. 33 For domestic and foreign entrepreneurs the benefits were notable. Public funds were used to build infrastructure which would primarily benefit them.

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Similar priorities are evidem with regard to the sectorwise allocation of ADB loans for 1972 during the early seventies. Given the fact that the basic needs of the bulk of Southeast Asia's population consists of food, housing, health and some basic education, one would have expected a more significant portion of ADB loans to have been advanced for promoting these socially desirable projects with relatively long-run returns. However, these needs were not reflected in the sectorwise allocation of ADB loans. One of the urgent requirements in most of the developing Asian countries was, and continues to be, the necessity to produce enough food t0feed the region's people (to avoid expending scarce foreign exchange on food imports). Yet loans to the agricultural sector till 1972 totalled 0nly $124.7 million (13.1%), placing in fourth in the sectorwise allocation of loam.

Further evidence of the way in which the ADB helps to promote the interest of foreign and American investors ili Southeast Asia are evident from the fact that a substantial portion of the Bank's loam have gone to development banks, which then reloan the money to businesses in the recipient countries. This money can be used not only by local entrepreneurs but also by foreign investors.

Table 3: Industry-Loan Approvals (Cumulative 1965-1972)~ Projectand Country Amount

Dimethyl Terepthale (DMT} Manifacture : Taiwan Ahminium Plant expansion - Taiwan Copper Fabrication Plant - Talwan PUSRI Fertilizer Plant Expansion - Indonesia Cotton Spinning Mills - Pakistan C0prolactum Plant -Republic of Korea Cold Storage - Republic of Korea Sri Lanka Total Sodee: ABD AnnualReport 1972, Manila, 1973, p. 20.

(S millions) 10.20 2.67 1.15

10.00 12.00 25.00

7.00 4.15

72.17

As Table 3 indicates, by 1972, $164 million or 17.2 percent of the total loans of the Bank had gone to development banks in Malaysia, Pakistan, Papua NewGuinea, Philippines,. Singapore and Thailand. Of these co~Iries Republic of Korea, Republic Of China, Pl~lippines and Thailand together accounted for$97.5 million or 59.5% of all loans, advanced to national development banks--all these being countries which are militarily and economically beholden to the United States and in which ithas strong investment interests, s'

Thus, a pronoUnced bias can be observed in the countrywise ,distribution of the Bank's toans for industrial development, since the loans were given mainly to countries in which the United States and Japan had major trade and investment

Asian Dev~lopment Bank 83

interests. Again three countries, Taiwan, South Korea and Indonesia, accounted for five of the seven loans advanced to industry. By 1972, besides the~ loans, the bank had made two more, one to Pakistan and one to Ceylon. Even more importantly three of the seven loans were advanced to industries engaged in the processing of raw resources like petroleum and petroleum-based products.

Conclusion

To summarize, Southeast Asia has for long been an area of American economic interest. These interests gained importance over time so that Southeast Asiahas become one of the primary areas ofec0nomic interest in Asia in terms of aid, trade and investments. Furthering these interests in an indirect way were the lending operations of the ADB. For example, it was found that the Bank has tended tochaunel the bulk of its loans to selected Southeast Asian coun~es, reflecting the priorities of its major donors--the United States and Japan. These loans have been made for the purpose of building infrastructure, and for supplying development banks with capital for re- lending to small and medium sized business enterprises and semi-private industries. All these loans, it was noted, have helped to promote the interests of foreign investors in selected Southeast Asia countries, especiaUy American and Japanese investors.

Hence, the Bank has proven to be a useful multilateral institution for the covert promotion of the economic interests o f its major donors, without arousing the suspicions, and the resultant hostility of the countries and the people of the region. Earlier, these were some of the unpleasant features of American efforts to p m~u e these interests by bilateral means. Herein lies a crucial rationale for American involvement in, and subsequent support for, the ADB, although its level of financial support and influence has somewhat declined in recent years.

Notes 1. For academic versions of this perspective, though not specifically in the context of the ADB see Melvin

Guaov, Southeast Asia Tomorrow:. Problems and Prospects for US Policy. Baltimore: Johns Hopkins Press 1970, Robert A. Scalap'ino, Asia and the Major Powers: Implications for International Order, Washington D.C.: American Enterprise Institute for Public Policy Research 1974. Among other scholars who gave some thought to multilateralism as a policy option during the I~te sixties and early seventies were Bruce Russett, ~e Asian R/m/and as a "I~gion" for Controlling China; New Yolk." theAsia Society, n~ d.; Wayne A. Wilcox, Asia and United States Policy, Englewood Cliffs, N.J.: Prentice-Hall, Inc. 1967; Fred Greene, USPolicy and the Security of Asia, New York: McGraw Hill 1968.

2. Two important studies illustrative of such efforts are Faigone Black, A/temat/v¢ in South East Asia, New York: Pnmtice~Hal[l 1969. Other studies dealing with the ADB were primarily ooncemed with its role as a financial insfi"""~fion, though ignoring the political role of the Bank as an instmmont of American foreign poficy. See, fOr instance, John White, Regional Dovdlopment Banks: The Asian African and /nter-/aner/c.m/3Vve/opment/ha/~, ~ New York: Prager 1972; "Asian Development Bank:. A Question of Style," International ~ October 1968: 44, pp. 677-690. A few relatively recent additions to the fiteratme are R. Kfislmam~thy, TheLeadin$ Days, Manila: Asian Development Bank 1987; Dick Wdson, A/hik for Hafttbe l~orld: ~ e Story of the Asian Deve/0/ammt Bank 1966-86, Manila: Asim Development Bailk 1987. Books dealing with tile Japanese role in the Bank are Dennis T. YosuUmo, 1_qpan ~ the ADB, New Y od~.~Prager 1983; T aluphi W atanabe, Towards a New As'.m, Singapore: Tt~aes-Printer 1977 (memoir); P6rw~n Huang Jr., The AsranDeveJolxr~tlhnk: Diplomacy and

84 JCA 27:01/Dutt

Development in Asia, New York: Vantage Press 1983. . . 3. For another example of a similar use of the Bank by the US see Teresa Hayter, A/d As/mper/a//sm,

London: Penguin 1974. 4. See Samuel P. Hayes ed., The Beginning ofAmerican A/d to Southeast Asia: The Griffin M/ssion of

1950,Lexington, MA.: Lexington Books 1971, p. 21. 5. House Committee on Banking and Currency, Asian Development Bank Act Amendments Hearing,

90th Congress, 2nd session, February 27, 1968, p. 2~Emphasis added. Henceforth cited as ADB/tank Act Amendments, tlearings. Italics added.

6. Japan Ec6nomic Yearbook 1973, Tokyo, 1973, p. 6. Henceforth cited as Yearboot- 7. international Bank for Reconstruction end Development, D/re~en of Trade, Washington D.C., March

1972, pp. 51-67. Henceforth cited as Direction of Trade. 8. U.S. Bureau of the Census, StatisticalAbstract of the United States 1975, Washington D.C.: US

GovemmantPrinting Office 1975, p. 80. 9. Yearbook 1970, p. 6 and 1980, p. 80. 10. The countries refen~ to are Cambodia, Hong Kong. 11. Abs~-aot I975, p. 806. The volume of trade between the United States and Southeast Asia since then

has grown expotentiaily. For instance, by 1979, U.S. exports to the'region increased to $16.3 billion, while hnpom increased to $23.2 billion.

12. These average growthfigures are basedwn individual cotmtry figures for the period 1963 to 1973. See In~mational Bank for Reconstruction and Develoim~nt, World Tables 1976, Table 14, Baltimore and London: Johns Hopkins Press 1975.

13. Selected Date on USInvestmeatlactane 1966-76, Washington DC.: G.P.O. February 1982. This data source Was made available to me by the U.S. Bureau of Economic Analysis, Depamnent of Corameree, Washington D.C., and I would like to thank them for the same.

14. U.S. Direct lavestmeat lac, oa~ 1966-1976, Table 13,/bid. 15. Far Eastern Ec.onom/c Rev/ew, August 28, 1971, p. 27. 16. Yearbook 1973, pp. 73-293. 17. Economic Survey of Japan 1973-74, Tokyo: The Japan Times Ltd., 1974, p. 77. Henceforth referred

to as Econom/c Survey. 18. FEER, March 27, 1971, p. 30. 19. Gross figures are cumulative totals. The growth rate'figures are for the period 1965 to 1972 and

computed from data in Donald Whitaker et. al., Area Handbook of Japan, Washington D.C. 1974. 20. Econom/c Survey, fJa. 17, p.37. 21. Abstract 1973, p. 776. 22. Organization for Economic Cooperation and Development, Flow of Resources to Developing

Couatries, Paris 1973. 23./bid, Ch. 3. 24. FEER, April 14, 1976, p. 59. 25. House Committee on Banking and Currency, Subcommittee on International Finance, Asian

Development BankActAmeadments 1968, Heating, 90th Cong., 2nd sess., February 27;. 1968, p. 80 26. H. Myint, Southeast As/a's Economy:. Development Policies in the 1970s, Middlesex: Penguin Books

1972. 27./bid., p. 96. 28,/bid. 29. Report of the Subcommittee on Foreign Policy, The Iavolven~nt & U.£ PrivateEnterprise in

Developing Cotmtri~, House Doeuamat No. 127, Washington D.C. 1968, p, 3. Henceforth cited as House Subcomafittee Report 1968.

30. Fora detailed discussion on this point see Myint, pp. 71-72. 3 !- Home, Subcommittee Report 1968 p, 13. 32. For a detailed discussion on this point see Myint, pp. 71-72. 33. ADB Report 1972, p. 13. 34, Takeshi Watmabe, Pa&s To Pro~ess: A Collection of Speeches, Manila: March 1971, p. 63.