[The Guardian] Asian Development Bank will focus on lending to tackle inequality, says MD

Rajat Nag says the bank plans to make more loans for education and health, rather than infrastructure, to address rising inequalty and boost inclusive economic growth across Asia

armers carry wheat crop bundles at Kisari village, near Allahabad in India

As part of a social protection programme, in 2005 India launched a plan that promised 100 days of employment annually to adult members of rural households. Photograph: Rajesh Kumar Singh/AP

The Asian Development Bank traditionally has invested in infrastructure projects, roads, railways and dams, but now wants to shift its focus to education and health to deal with the threat posed to social cohesion by rising inequality.

Despite its economic success, with countries such as China and Vietnam registering impressive economic growth for decades, east Asia is home to 830 million people living on less than $1.25 a day, and inequality is growing. The Gini coefficient, a measure of inequality, has risen to 0.47% from 0.36% in Asia in the last 20 years. Inequality and inclusive growth, of great concern to policy-makers and development officials, are expected to feature prominently in the next set of development goals, so the ADB’s concern with inequality is very much in keeping with current development thinking.

Rajat Nag, the ADB’s managing director general, acknowledges the development community has neglected the importance of inequality, which now must be addressed. “We did not focus on inclusive growth as we should have, and we need to do so much more aggressively so that everyone can be part of the process. Inclusive growth will be part of ourStrategy 2020,” said Nag in an interview in London. “We had thought if you had growth it would cover all ills and that a rising tide would lift all boats.”

Although economic growth is necessary to reduce poverty, there is the realisation that attention has to be paid to inclusive growth. This will mean a big strategic shift at the bank.

Based on figures in its 2011 annual report, the ADB lent $540m for education and $20m for the health sector. That sounds like large amounts, but those sectors accounted for only 4% of total loans for 2011. Infrastructure – energy, transport, information and communications technology, and water supply – accounted for 69% of the bank’s total loans.

For 1967 to 2011, the percentages were 4% for education, 2% for health, 21% for energy, 25% for transport and ICT, and 8% for water supply and other municipal infrastructure and services. The total for the infrastructure sector over the period was 54%.

“We will have to invest in health and education to make sure people are skilled enough and well enough to benefit from growth,” said Nag, highlighting the importance of social protection – health insurance, unemployment benefits. He pointed out that the ADB is working on social protection systems. India and China in recent years are placing increasing importance on social protection.

In 2005, India launched the Mahatma Gandhi National Rural Employment Guarantee. The act promised 100 days of employment annually to adult members of rural households.

This year India introduced an ambitious cash transfer scheme, depositing government pension and scholarship payments directly into the bank accounts of about 245,000 people, cutting out state and local officials so they have no opportunity to divert the money into their own pockets. Hundreds of thousands more people will be added to the programme in the coming months.

China has introduced a voluntary rural heath insurance scheme, the New Rural Co-operative Medical Scheme, aiming to provide health insurance to 800 million people in rural areas. The World Health Organisation says the scheme appears to have successfully provided some protection against the impoverishing effects of illness in rural China and to have reduced out-of-pocket health spending.

Nag makes a distinction between “good” and “bad” inequality. Good inequality is a result of different levels of efforts and skills. Bad inequality is the result of lack of access to opportunity through factors such as birth or gender.

“We now require every partner country to include an inclusive growth strategy,” said Nag, who said the ADB wants to target education at all levels, but particularly technical and vocational training to produce, for example, plumbers and electricians. In health, investment will be targeted not just at health centres but water supply and sanitation, which have a major bearing on decent health.

As for those who lose out from Bank projects, particularly those who have to vacate land because of a road or railway projects, Nag made the point that development is about trade-offs, with governments having to make difficult decisions that might penalise some in order to bring benefits to others.

“We have rigorous resettlement and compensation policies, you just can’t throw people off their land. We are very sensitive to such issues,” said Nag. “We try to implement projects as sensitively as we can and to ensure that governments act as sensitively as they can.”

Another area Of ADB concern is the increasing toll – in lives and in financial terms – from natural disasters. Less than 5% of disaster losses in Asia are insured compared with 40% in developed countries, a recentADB study said, although disaster losses are expanding at a faster pace in Asia due to environmental degradation and demographic pressures.

The bank called on governments to develop and implement comprehensive disaster risk financing strategies to provide adequate and timely support to strengthen financial resilience. But Nag acknowledges that the very idea of insurance is hard to get across. “It is a challenge in getting people to think about insurance when they are thinking of putting their next meal on the table, and people don’t believe that insurance companies will pay out,” he said.

• This article was amended on Wednesday 6 February 2013. The original headline said Rajat Nag was head of the ADB. This has been changed.



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