PIDB urged to dissolve

Due to failure to meet its goals, two officials of a United Nations agency have strongly urged closure of the Pacific Islands Development Bank, a regional lending agency that many Micronesian leaders had hoped would spur economic development in the region.

Faced with serious financial problem since its inception in 1989, PIDB will have a better chance to achieve a significant impact among island entities if regional leaders decide to reorient its policy away from loan operations into a specialized guarantee institution, the experts said.

But board directors of the bank, dismayed over the result of a study they had commissioned, rejected the recommendation by the two officials from the UN Economic and Social Commission for Asia and the Pacific, or ESCAP.

A.V. Hughes, ESCAP regional adviser on Economic Development and Planning, and Siliga Kofe, Economic Affairs officer, were contracted last July for $3,000 to draw up a “strategic plan” for the bank for the next 10 years.

Although specifying their report is not a plan, both called for closure of PIDB — a move that would mean a loss of about $355,000 and reimbursement of the net balance of contributions to the member states amounting to $4 million.

“By choosing to close the bank, the owners of PIDB would recognize that it has proven to be unsuitable vehicle for the promotion of Micronesian cooperation and cannot expect to have the financial and staff resources to be a significant lender of funds,” the report said.

“This conclusion is clearly supported by experience and we believe Micronesian leaders would be widely applauded for confronting reality,” it added.

The recommendation followed after Hughes and Kofe interviewed various government officials and bank executives in the Western Pacific as well as PIDB board members.

Completed in August, the supposed plan was initially viewed as a step towards hastening the bank’s functions amid worsening economic conditions in the region spawned by the Asian crisis.

But the ESCAP officials pressed for a shift in its original intention following inability by the bank to drum up financial support from member states and other lending institutions such as Export-Import Bank of Japan (JEXIM).

Founded in 1989, PIDB is a pet project of the Association of Pacific Island Legislatures whose aims run parallel to the group’s goal of fostering political and economic cooperation among Micronesian states.

The members include the Northern Marianas, Guam, Palau, Kosrae, Yap, Pohnpei and Chuuk who were all obliged to chip in $1 million each as seed money for the loan operations.

But the required capitalization amounting to $7 million has remained short by nearly $3 million due to failure by some members to meet their financial obligations, according to bank officials.

Only Yap, Palau and Pohnpei have paid up their contributions, while the CNMI still has to settle about $475,000 in outstanding account. The share of Guam, the largest economy among the current members, has reached to $100,000 only over the last nine years.

Because of this, the bank’s minimal resources is damaging its credibility among international financial institutions, especially JEXIM which has set out stringent conditions before it can infuse additional funds into the organization, the report said.

“(W)e consider that PIDB must address realities, as far as these can be identified, rather than continue to pursue dreams. The Bank has been handicapped throughout its nine-year life by the huge gap between what its sponsors hoped it would do, and what is feasible in the real world, with PIDB’s small resources,” Hughes and Kofe said.

But in a recent board meeting, PIDB has ordered ESCAP to undertake another study favorable to its mission or return the payment so that it can hire Bank of Guam, which mapped out the institution in 1989, to instead draft the plan for them.