ADB $13bn boost to fight crisis

The Asian Development Bank plans to pump an extra $3bn into economies struggling to respond to the financial crisis and boost its project lending by $10bn over the next two years.

The ADB's lending boost comes after shareholders approved a trebling of its capital base, from $55bn (€42bn, £37bn) to $165bn.

Haruhiko Kuroda, the ADB's president, said in an interview: "Although there are some promising signs of bottoming-out, generally the Asian economies are still slowing down - and some contracting significantly. It will take some time before we see any improvement."

While the planned capital increase still needs endorsement from national legislators, including US congressmen who have questioned the Asian lender's efficiency, Mr Kuroda said this week's agreement meant "we can start immediately stepping up our financial assistance".

Although the Asian lender is predicting a rebound in 2010, Mr Kuroda said there was no reason to revise upwards the ADB's gloomy forecast for this year. In March, the Asian lender lowered its 2009 growth forecast to 3.4 per cent from 7.2 per cent predicted in September.

The severity of the Asian downturn was also underlined yesterday by the Bank of Japan, which predicted more price falls in the world's second largest economy and forecast that the Japanese economy would contract 3.1 per cent in the fiscal year to next March, rather than a previously expected 2 per cent decline.

In spite of the gloomier forecast, the central bank kept its benchmark overnight lending rate at 0.1 per cent and fell short of announcing additional policy measures. Mr Kuroda's assessment also coincided with better-than-expected industrial output figures from Japan, South Korea and Thailand.

Industrial production climbed 1.6 per cent in March in Japan, twice the anticipated rate, and also rose more than expected in Korea, up 4.8 per cent in March from February. Production fell for a fifth consecutive month in politically troubled Thailand, down 15.4 per cent in March from a year before, but was still better than the 20 per cent average drop predicted by forecasters.

Economists have also been encouraged by improved business confidence surveys in countries such as Korea, as well as stronger export figures, notably from China, whose March exports to the US rose 33 per cent.

Chen Deming, the Chinese commerce minister, said in Washington this week that China had experienced "a slowdown in the decline of our foreign trade" in the first 20 days of April.

Asian governments have pledged billions to stimulate economies, while central banks have been cutting rates aggressively. Mr Kuroda praised countries for responding "relatively quickly" but also argued that more had to be done, without naming any country. In February, Indonesia sold $3bn of sovereign bonds, the largest Asian sale outside Japan since 2003. But Mr Kuroda suggested that investors' low-risk appetite would continue to undermine efforts across the region to raise money, forcing governments instead to rely more on bilateral and multilateral loans because of the excessive cost of borrowing on capital markets.

"Almost all developing member countries have now funding problems. The risk premiums that they have to pay are so high that it would be almost impossible to borrow from the capital markets, except for China," he said. "The medium and long-term trend of expansion of the bond market in Asia is going to continue but this year and probably next year the market conditions will not be so good."

Additional reporting by Andrew Wood