Rajat Nag - Managing Director General, Asian Development Bank HARDtalk


Rajat Nag - Managing Director General, Asian Development Bank

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That's it from me but now it is We are used to the idea that we're

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living in ASIO's century, that China and India are leading an

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irreversible shift of power from west to east. -- Asia's. Maybe now

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it is time to challenge that new orthodoxy. Asian Nations are facing

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huge challenges, poor governance and environmental degradation. My

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guest is Rajat Nag, from the Asian Development Bank. Are reports of

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Asia's economic advance somewhat premature? Rajat Nag, welcome to

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HARDtalk. Thank you. Thank you very much. It strikes me that in recent

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years, Asia has hardly been short of investment. What exactly is the

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point of the Asian Development Bank. The way you introduce did it is

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spot-on. There is a certain euphoria about Asia and the reality

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is they receive huge unfinished agenda. We have done very well. We

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have done well on poverty, in comes have increased. Asians are

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healthier and more educated. But there are still 600 million people

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without access to clean water. Two- thirds of the world's poor live in

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Asia. $1.25 a day. That is a huge unfinished agenda. We have a lot of

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work to do. And I come back to my point, which was based on some raw

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facts. Last year you disbursed up to $20 billion worth of investment.

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We approved more and disburse to west. China, $50 billion overseas

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in 2009 and it says by 2013, that figure will be of $100 billion.

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important thing is not the amount of money that has been provided.

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You should look at what is being invested in China. China can invest

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around Asia so what seems to me China represents a force, a wall of

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money, investment money, that you cannot defeat -- compete with.

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we are providing China is not money. They do not need it. It needs

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access to knowledge and best practices. We invested an

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environmental project. Carbon capture, energy efficiency. That

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will reduce China's carbon footprint, which will be useful for

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China and the rest of the world said there is an important synergy

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here. That is a proposition I would like to test. Before we get there,

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people watching this will be looking at the world economy and

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looking at the sense of doom we see in the rich industrialised West and

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wondering whether you, as the leading figure in Asian economic

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analysis, believe it is bound to have an impact on the Asian economy.

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Will it? Certainly. We will be affected by what happens in the

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West but because our macro-economic fundamentals are strong in Asia,

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debt is lower, we have strong domestic demand, we will be able to

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weather the economic crisis much better and we are forecasting

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growth in Asia this year of about 7.5%. Edit down. A bit down since

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April. But the West is not doing as well. I wonder if that is wildly

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optimistic and based on the fact that Asia recovered so quickly and

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impressively from the financial crisis of 2008 but this time around,

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it could be difference and worse. One of the leading American

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economic analysts told us last week but in his opinion, we are looking

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at the phrase "the great contraption", to be compared to the

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Great Depression. It is hard to see how Asia will continue to grow.

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Does that mean there will be orderly resolution of the US-owned

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crisis? That is a heck of an assumption. One has to make certain

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assumptions based on what we see happening and if that does not

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happen, we have to look at all the numbers again. We feel that 7.5% in

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that neighbourhood it is not. has what one of China's best known

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economic analysts, now the Chief of the Beijing International Finance

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Forum, said. He said China is entering a tough period indeed.

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Inflation and growth rates are conflicting with each other and it

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is troubling. It is troubling. Not only in China but in India.

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Inflation rip pressures. It prevents -- presents several

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challengers. Given the fundamentals as we see it, but potential for

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economic growth is strong. What it will come down to from 7.5, we

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cannot say but there will be a need on a greater balance in. Asia will

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have to become consumer a share, not just factory Asia. I have been

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hearing that for a long time. China takes that seriously and eases its

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monetary and fiscal policy and encourages domestic consumption.

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The inflation rate could go a whole lot higher and it could be looking

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at a bubble, particularly in terms of property which could be damaging

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to China and the rest of the world. That is why we have said inflation

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is a concern. Asia's macro-economic management has been pretty sound

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and these factors are balanced but what we are see in his -- saying is

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Asia has to consume more. Not irresponsibly, like Europe or

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America, but much more. Asia consumes 10% of the electricity.

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We're not saying in we go up to American levels but certainly,

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consumption levels in Asia can increase. Consumption we might come

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back to as a philosophy to drive growth but before we get there, let

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us think a little deeper about your bank, the Asian Development Bang.

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It seems anachronistic back the bank, its two most intellectual

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partners, are the United States and Japan. It is a throwback to the

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1960s. That is the shareholder in now. We had a capital increase last

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year. Shareholder has tripled our capital. -- shareholders. When

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you're taking big investment decisions and you say it is very

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important in the terms of how you want to affect Asian growth, the

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biggest and most influential voices are coming from America and Japan?

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China and Coria are important shareholders. -- Korea. Path is

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America and Japan. That is changing. It should be changing now.

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The important thing is how we increase our operations, how we

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leverage our resources to fight poverty because poverty is a huge

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challenge, and unfinished agenda in Asia.

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How does it work, this idea that to fight poverty best by sticking to

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aid decades old notion that a development is all about building

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big project. -- to a decades-old. Building dams and highways. How

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does that alleviate poverty? For it does significantly. We supported a

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huge bridge in Bangladesh which made a big difference to poverty

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levels in Bangladesh because it connected the poorest part of

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Bangladesh with the south-western part. Infrastructure by it self is

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not enough but it is a very necessary condition for growth.

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Growth is necessary to reduce poverty. One of the signature

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pieces of infrastructure you have invested in this in the greater

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Mekong River sub region, a huge hydro power project, in Laos. Local

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people report it has drastically reduced fish stocks and a damaged

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agricultural production, affecting the lives of tens of thousands. How

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was that part of poverty alleviation? That project was one

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of the first projects, done in the 1990s. They are still feeling the

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effects today. As soon as we learnt about it, we were there and many of

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these issues have been addressed. You should look at other projects

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we have supported. Another one you referred to in a previous programme.

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That project has now got the best practices on resettlement, on

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safeguards so we learnt from mistakes but those projects are

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making a difference to the people. Action Aid. They have looked at

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some of your biggest infrastructure projects and say you have

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exaggerated the poverty problem and created new environmental to a

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branch. -- damage. They say you have not served to deliver the poor

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a decent life. We have heard this and we are in dialogue with them

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and others. It is not quite right. We have to look at the figures.

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Asia has reduced poverty. 50% were poor in 1970. That is down to 20%.

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With respect, this is a question of making sense of the micro and the

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macro. They are saying some of your biggest signature schemes are

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counter-productive. That is where I disagree. They are not. I do agree

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that all these large infrastructure projects have some affects and

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sometimes negative. We are conscious of that. We have

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safeguard policies which try to avoid that him back but when we

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cannot, we minimise it. -- impact. Income generation. Exactly the

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point you made. Those safeguards are not working. A watchdog group

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accused you of consistently sideline in civil society

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organisations who want to complain about adverse affects of your

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policies. With all due respect, and we talk to them frequently, we have

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an accountability mechanism. It is a question of whether you were

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listening or just talking at them. We listened but we have

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stakeholders who include the civil society, who include the

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government's, the other shareholders, the affected people

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and we have to build a consensus. - - governmentgovernmentmes, civil

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society might feel we have not listened to them a but we listened

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to others as well. Here is perhaps the biggest point of all. You have

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said sustainability is important and he expressed concern about

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environmental degradation. -- you. Is it not the case that so much of

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what you are funding, the economic growth you're sitting in Asia, is

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having an extraordinarily come to - - counter-productive affect?

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have to keep it in perspective. 800 million people in Asia are up

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without access to electricity. That is the population of North America

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and Europe combined. Providing them wi wi we have to have

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options. Renewables will be the best. Nuclear? Maybe. Wind and

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solar, we support and strongly. They can provide and the 10% of the

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requirement and wind dies down, the sun gets covered over. They are not

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reliable. Is this a way of you financing coal-fired power

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stations? No. How many are your financing? We are financing one.

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Fewer and fewer. Let mwer. Let mHow do you provi you provicity?

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Renewables on not enough. Nuclear as an option but it has issues.

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Hydropower has downstream effects. Cole is another one. -- coal. It is

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the cheapest in Asia, renewables on the balance. When we Finance call,

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-- coal, we look at all other options. We want to look at the one

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with the lowest carbon footprint. This is a difficult one for you.

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The smile of pleasure on your face, you refer to meet the degree at

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which India and China are going to see car owners rise. He replied

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that as a positive. The construction of 30,000 kilometres

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of new roads have been financed. That should be applauded but he was

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simply inviting more and more Asians who do not a dry individual

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cars to acquire and use their own cars and if that continues, that

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That is the point - not that we would have the consumption levels

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of a miracle or Europe but that people with a bicycle could be

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justified to have a motorcycle or scooter. We are very involved in

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ent. It is not just a question of

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providing the roads. It must be sustainable. Asia is down there in

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terms of car ownership and consumption. It is conceivable that

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it will increase but it must be sustainable. The question is how

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much you ape Western models of consumption driven quarry if. --

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growth. "someone who thinks a lot about this and he said: Too many

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Asians go to US business schools and take on an ideology dearer.

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They are smart but they are intellectually neutered. People

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like that just to buy into western growth models. A think we should

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take the best from everywhere. Western universities, if they give

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the best education, I will go there. But we should not have a Western

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presumption -- consumption model. We will have an Asian model. You

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cannot say, it is good for you to have no electricity. But you do not

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need three cars in the garage. It is not a bin a Western model - it

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is a question of coming up with our own model. So it is A delicate

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Balance. Do you think you got it wrong when you decided to fund

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private water companies? They are improving water supply in Asia but

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at a price that some people in Asia are finding unacceptably high.

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should give an example of manilla, where I live. It is a water

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supplies are owned by a private company. -- Manila. But had to

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decide what is acceptable? We keep talking about water supply. The

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poor pay the highest price. They need to either buy bottled water or

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they drink polluted water. We need people to pay zero. I think society

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and the poor are better off than being told, there is no water

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supply. You say you want an Asian style of economic development that

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strikes a balance. How do you square that with the fact that some

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of the most vulnerable communities in the world when it comes to the

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effects of climate change, how do you squeeze your belief in quoth

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with the fact that in Bangladesh or the Philippines there are people

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who right now are facing potentially disastrous

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consequences? Absolutely. Asia is very concerned. Nine out of ten

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cities in Asia will be submerged if sea levels rise. Two-thirds of

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people in Asia depend on agriculture so they are affected by

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climate change. It is one thing you tell me you are concerned but could

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it affect the investment decisions that you make? It is not a question

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of getting over coal. We want to invest in Hydra. Ever a time you

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making investment decision on coal- fired power one could say that you

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are at inviting suicide For your own region. No. It is a question of

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has sensibly do it. You do not just turn off the light. -- how you

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sensibly do it. I suggest we look at the options available. Asia is

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unilaterally taking steps on reducing greenhouse gas emissions.

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We are looking at how we can produce and consume much less. But

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China end India and Japan and Korea have done is investigate these

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alternatives. We are investigating many of these projects. Asia could

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say, let the west take care of it, but I do not think the answer is

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not to consume. You have talked to other Asian governments about where

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you can best put your money to work. At what point do you think

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yourselves at the bank, we should not necessarily give them money at

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all because there are such serious Governance transparency and

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accountability issues that we can never trust them to disperse the

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funds properly. That is a valid point. He does not stop you

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dispersing the money! We put everything through a simple filter.

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When our actions make a difference, we believe that being there and

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Steyne engaged and raising issues... Give me one recent case. They are

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fantastically serious governance issues. Give me one time when you

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still up to officials and demanded they change their practices or

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demanded the removal of individuals. In eight of the countries I

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mentioned. We have procurement systems that are robust. We have

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sanctioned individuals and companies in the last seven years.

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Who have you ever close down a project because of corruption? Yes.

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With several governments. A give me one government. A day is not fair

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to give you one country. You are talking about transparency!

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billion worth of investments, we have. We have cancelled loans for

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issues including Governance, so we did take actions. It is very

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important that we talk about the specifics with the Government's

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Private lives. A not with people like me so their populations back

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in Asia know what is drawing on. The important thing is: What effect

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does it hurt? You issued a report and posed the question: Is Asia are

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going to be economically Supreme by 2050 or will it fall into the

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middle income trap and never fully advance took nation status? It is

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probable but not pre-ordained. If Asia does not mend its Governance...

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There are two things not happening well: Fear is rising inequality and

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rising governance issues. Things are getting worse. In some

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countries. We are very concerned about Governance. If Asia does not

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handled this issue,... The two giants of Asia, China and India,

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would you say they are getting worse when it comes to Governance

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and inequality? In a quality is getting worse in both countries,

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years. Governance is not just corruption - there is a rule of law,

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accountability, effectiveness. Both of them are just about at the same

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level, which is not good enough. You started by saying there is a

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danger of too much euphoria. You have poured a bucket of cold water

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on it. I have not. I have been realistic. I have said it is too

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early to pop the champagne cork because when you visit Asia it is

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