 Good morning everybody. Welcome. This is Law Across the Sea. My name is Mark Shklav. I'm the host of this program. And today we have a very special guest, Gerald Sumida. Jerry is a good friend of mine. He has been a lawyer here in Hawaii for a good number of years. He presently is at Carl Smith Ball Law Firm in Honolulu, where he is chair of the Firm's Corporate and Business Practice Group. However, Jerry did something I think was very daring and very exciting, and we're going to talk a little bit about that today. But first, Jerry, welcome. Good to see you. Jerry, let me say personally how much I've enjoyed our relationship over the years. And you've always been one to share your wisdom and knowledge, and I appreciate that. And I'm asking you again to do that. The topic that we're going to talk about today I call Take it to the Bank. What I was mentioning about you and something that I found rather daring is that you were a lawyer here in Hawaii. You had a practice going. You were with Carl Smith. You were working. And then you took off. You went to work as general counsel of the Asian Development Bank in Manila from 1999 to 2003. You know, that took a lot of courage and something that I thought was very special, very interesting. And you know, you led a large number of lawyers while you were there as general counsel. You did a lot of work with international finance. But I don't really understand what the bank is about, and I want you to fill us in and tell us a little bit about it. So what is the Asian Development Bank and talk a little bit about what its purpose is and how it came into being? Sure, I'll be happy to. And let me also say that I've enjoyed our relationship and friendship over the years, and you've also been one who has been extremely, not only innovative, but taking the leadership in a lot of aspects of how Hawaii could contribute to the greater Asia-Pacific region, both among the legal profession as well as other professions and the communities. So I think you are also to be recognized and very highly commended for that. I'm not sure I'd put too much emphasis on the courage part about joining ADB. I was asked, was not solicited, I was asked by both New York and Washington if I might be interested in that position. I knew the Philippines and actually had a great many friends there, particularly in the business and the political communities, so that was not too much of a mystery. But as far as ADB is concerned, the Asian Development Bank is one of several international financial institutions, and these are basically international governmental organizations, meaning their members are governments, and they're set up by international treaty. The most famous of them, of course, is the World Bank. And then the World Bank is not one bank, it's a group of five institutions, but as a group it's generally called the World Bank Group. Complimenting the World Bank Group are a number of regional development banks. There's one for Africa, there's one for Latin America, and there's one for Asia, and the one for Asia was the most recently established back in 1966, and that is the Asian Development Bank. All of those banks have basically the same purpose, and that essential purpose in more traditional terms is to promote the economic and social development of their developing member countries, what used to be called the developing countries or less developed countries, and in most cases to promote and assist in regional cooperation. More recently, for the past several years, the main objective has been stated in the form of reducing poverty as much as possible, and poverty in this case has been defined traditionally as people who are living on less than $2 a day. Which in the past decade or so has been a tremendous percentage of the population, certainly in the Asia Pacific region, but also within that same period, tremendous success has been made to bringing people out of poverty, meaning graduating from less than $2 a day to more. Now, there still is a tremendous amount of work still in that reduction of poverty aspect, but that's the overarching goal. Related to that are other development projects, the most visible of which tend to be infrastructure projects, dams, highway, railroad, transportation systems, airports, other kinds of infrastructure that we perhaps tend to take for granted, but without a decent road system, without a decent transport system, trade, development, economics, all of these are less readily available, less easy to develop with the infrastructure. That's a tremendous foundation. But then, in addition to that, you have other kinds of, you might say, social infrastructure, healthcare, education, disease prevention, agricultural development, skill setting of various sorts. And then also the establishment of institutions to make economies work, such as banking systems, financial systems, credit systems, everything else that are necessary for a society to really achieve and sustain economic development. That's what the purpose of all of these institutions are for. And as I said, the World Bank has a global coverage. The regional development banks have regional coverages. I have a general idea about it. I have a bank in Honolulu. That bank you can make deposits to, put money in that bank, write checks on your bank account. You can make loans from that. Now, I hear a little bit different about this bank. It's more of the Asian Development Bank and these other banks, these World Bank and perhaps these other regional banks. I hear that their purpose is a little bit higher. And I'm curious as to who promotes that. Why is that? You don't think of banks necessarily and social good in the same sentence always. But what I hear you telling me is that these banks, that is what they are set up for. They're there to help people get out of poverty, maybe set up some sort of social system that is better than they have. Now, why? Why are we doing this? Who is doing this? What motivates people to do this? Okay, well the contrast you draw is a very good one and a good base to start with. As you said, you have a bank. People deposit money in it. You pay them a certain amount of interest on the deposit, savings accounts or whatever the case may be. They can write checks on them. You take the extra money, including money you get from elsewhere. You make loans to other people. From the loans you charge them interest. They can buy houses, cars, this, that and the other thing. The interest and the payback you can then use to pay interest on your depositors. And it's a very nice circulation that supports the local economy and beyond that. You're right. The development banks are banks and they have many of the same principles, objectives and forms of organizations. But the purpose is different. Their purpose is to help in essence the economic development and the social development of their borrowing member countries. And by the way, I should add that all of these banks have two groups of members. One is the set of countries that borrow money to support the economic development. And they have to meet certain criteria to be within that group. And then the other group are the donor countries, which essentially are North America, the European countries and a few others. And they are the ones that essentially contribute substantially in different ways to the bank. The banks are banks in the sense that all of the members, whether donor countries or borrowing countries, are shareholders. So each commits to, like any stock corporation, to buy a certain amount of capital which they put in an investment and invest in the bank. The bank, because it's comprised, the banks are comprised of governments, have a very, very good credit rating. So the banks themselves borrow on the international capital markets at below market, that is below private commercial market rates. And that's where they get their funds, which then they can lend out to developing borrowing member countries who have to pay back those loans with interest. And so the interest and the payback, those reflows, then come back, support the bank and allow other kinds of lending to take place. The borrowers comprise traditionally two kinds of parties, actually just a little bit more, but for this purpose two kinds of parties. One are countries that are relatively on the path to development. So they can borrow at essentially commercial rates and pay the interest and a pretty good credit risk. Then there are the borrowers that are very poor countries, and these get, in effect, loans that, for all intents and purposes, are the equivalent of grants. And that assists them to balance their budgets and to do all the other things that are necessary to run the country in a way that benefits as best as possible their pockets and their needs. So yes, it's different. You cannot go to the Asian Development Bank. You march cloth and ask for a loan for your automobile or for your house or whatever. If you were the head of Nepal or India or the Maldives, you could go to the bank and say, you know, I've got a project to build a new school system or to modernize my highway system or whatever. Can we talk about you making a loan and some technical assistance to me to do that development project? And here is why it would be beneficial to the economic and social development of my country. Okay, so I hear you saying that some of these loans make money. Some of them actually get paid back with interest and at a lower rate because the banks themselves are able to obtain the money at a lower rate. So they can facilitate a loan for a good cause and make a little bit of money on it. And some of them I hear you're saying are more like grants. Now in both instances, however, I'm still wondering what is motivating people to set up these banks for good. I mean, I like it. I'm not complaining, all right? But I want to know why. I want to know why we have these banks that I hear you telling me are doing good things, positive things socially and economically for countries that are developing. Well, if you look at the origin, for example, of the World Bank Group, what are called the Bretton Woods institutions because that's where the treaties ultimately were negotiated. We're coming out of World War II. Countries around the world, particularly but not exclusively in Europe, were devastated in many cases. Some had been, quote-unquote, relatively advanced, particular ones in Europe, but with the ravages of war were in pretty bad shape. Others, like many in Asia, with the exception, if you remember back to the World War II, your World War II history period, Siam or Thailand was the only independent country, all the rest were colonies. And there were independence and other movements that were beginning to develop and emerge in those areas. And that was in part the legacy of World War II. The United States and the other allied countries recognized, among other things, and among many different reasons, that in order for the world economy to be re-established and developed to bring prosperity that had existed before the war, these economies and these countries had to be developed again, and the resources had to be made available. We had a lot of bilateral programs like the Marshall Plan, which has become very famous for Europe. But at the same time, to develop a global economic and financial system, you needed institutions to be able to do that. And that's where the whole set of negotiations were very key players, John Maynard Keynes, among others, et cetera. The U.S. was a major leader on this, as were the U.K., and set up these institutions of which the World Bank Group was it. And the purposes there, reconstruction, lending, assisting countries to get back up, stabilize as much as possible fluctuations in a global currency system that was a purpose of the IMF, guarantee loans from developed countries to developing countries, which could include European countries. That was MIGA, Multilateral International Guarantee Agency, part of the World Bank. That was its purpose, and so forth and so on. So that's where it started, and the whole purpose was to get these countries back up as time progressed. And you did have the Cold War and a whole bunch of other things that were happening both within and between and among countries. The question of, and the philosophy, that if you have countries that are increasingly economically and socially well-off, that is, the people were not in very desperate economic and political and social situations, but the countries became more and more prosperous. The global economy, stability, regional and global peace, and so forth and so on, would be byproducts of that. So you put all of that together, that's where much of the motivation was. And with respect to ADV, in 1966 it was formally formed. You already had a number of countries that were pretty much putting themselves together, which Japan was a major party, but others there that could benefit from this kind of financial assistance that otherwise would only have come generally on a bilateral basis, foreign aid, as we would call it. So that was one of the reasons for these kinds of things. It's given me optimism. Optimism. And I want to talk a little bit more about that after a break. Okay, so let's take a break right now. That's fine. Hi, I'm Chris Leetham with The Economy and You, and I'd like to invite you each week to come watch my show each Wednesday at 3 p.m. Hi, my name is Kim Lau, and I'm the host of Hawaii Rising. You can watch me live every other Monday at 4 p.m. Aloha. Welcome to ThinkTekHawaii.com. This is Johnson Choi. I'm the host for the weekly Thursday 11 o'clock show, Creation Review. See you next month. Hey, how are you doing? Welcome to Abachi Talk. My name is Andrew Lanning. I'm your co-host. And we have a nice program here every Friday at 1 o'clock, Think Tech Studios, where we talk about technology, and we have a little bit of fun with it. So join us if you can. Thanks. Aloha. Aloha, and welcome to Think Tech Hawaii. I am Inna Chang. I am the guest host for Small Business Hawaii with Reg Baker. Tune in every Thursday at 2 p.m. and watch us. Aloha. Well, Jerry, you know, you've helped me understand a little bit about not just the Asian Development Bank, but all of these other banks and their background for social good. And there's self-interest involved in that, which makes sense. I mean, to me, that's logical, and it's also very positive. It's a very positive thing. What type of things specifically is the Asian Development Bank doing today? What type of projects? I understand what you said about post-war makes great sense. I mean, improve everybody's situation, everybody will rise up. What is the Asian Development Bank doing now? Where is it going? Well, ADB, right at this moment, has a number of, you might say, strategic initiatives. In terms of the kinds of projects it undertakes, there are basically two large groupings. One is private sector oriented, and the other is governmental oriented. What that means is if you're talking about a dam system and electrification, power plants, harbors, roadway systems, improvement of schools, nationwide health programs against HIV, AIDS, for example, malaria, other kinds of things, those generally tend to be assistance to governments. And those are loans then given and used for those purposes, the proceeds are given and used for those purposes. The other sector would be private sector developments, on the recognition that if you have strong private sectors and developing private sectors in countries, they will spin off a whole bunch of very, very productive byproducts. Employment, income, tax revenues, expanding opportunities, cross-border transactions, any number of other things. So those kinds of projects are loans to, in effect, private businesses and private ventures. But those private ventures are not just, you know, the interests Carlton or whatever. Those are projects that, even though they're private sector projects, are looked to have developmental benefits. Okay, so if somebody wants to develop a private waterfront system, for example, but is going to make possible freight handling, freight forwarding, recreational, commercial fishing, you know, et cetera, et cetera, then yes, it's a private sector project, you rent out space, you get rental revenues and so forth, but you provide things that encourage other jobs, encourage the economy to grow, develop a particular geographic sector, or regional sector of the economy, and so forth and so on. So it's a private deal, but with developmental aspects of that sort. And then beyond that, ADB has also done a number of other things, of course. A lot of the loans, as I mentioned, get into social welfare-oriented things such as administrations of public, or improvements of public administration processes, courts, bureaucracies, or whatever, to make things run better and more efficiently, schools, health, and so forth. Increasingly, there has also been an effort on encouraging public-private partnerships, and there's much, much innovation that's going on there. And for the past several years, ADB has been, I believe, the strongest and the most aggressive proponent with the most funds dedicated to climate change issues. Who makes those decisions within the bank? Who makes the decisions on what to invest? Ultimately, the decisions are made by the members of the Board of Governors. And these are, in general, the financial ministers, in our case, the Secretary of Treasury, of each of the member countries who meet annually and decide a number of things on bank policy, equivalent of shareholders, if you will. But ADB has a Board of Directors comprised of 12 directors and 12 alternate directors. So 24 people altogether, but basically 12 directors. It is the Board, and it's a resident Board, so people actually live and reside in Manila. So they're there 24-7. It's a resident Board, like in a corporation, your Board of Directors, that is responsible for managing the affairs of the organization. And within that, you have the usual corporate structure, president, vice presidents, and department heads, and so forth and so on, to run the whole organization. The Board of Directors, within the general policy set by the Board of Governors at their annual meetings, the Board of Directors decide to approve or not to approve or to modify initiatives proposed by the bank leadership, loans, grants, technical assistance, and so forth that the bank itself does. Let me step back a little bit. And you talked about the Board lives in Manila. That's right. You did too. Yes. What was your experience like? I want to talk a little bit about your personal experience with the bank. What did you do? What was your life like as the general counsel for this bank? I guess there are a couple of things. One is, you know, living in Manila. I mean, that was very interesting. It was fun. One of the aspects of that, which perhaps in my case might have been a little bit unusual, I first went to Manila in 1986, and it was a somewhat special situation because I was invited by the person. When he invited me, he was the chairman of one of the most major corporations there, Benget Corporation. When I finally, about a year or so later, was able to go to Manila on my first trip. He was a finance minister. Marcos had left, and Aquino was in. And my host and friend was one of the leaders of the anti-Marcos group. He had been the head of the Makati Businessmen's Association. So I was there and was introduced to a lot of people in the Philippines. He became very, very close friends in Manila. So when I went back to Manila with ADB, it was a place that I was very familiar with in terms of the people and the welcome and so forth and so on. Manila now is a much more, I would say, improved environment than it was there, given growth and development and so forth, but also combating of pollution and a few other things. But as far as living was concerned, it was, you know, a very, for me anyway, for us, a very pleasant experience. For ADB, you mentioned earlier, ADB has an office of general counsel as to all of these banks. And I had 29 lawyers from 25 countries. All of them were top lawyers from their countries. Many had been educated in the U.S., both undergraduate as well as law school. A few were U.K., one or two were other countries. They were, if they came from various countries, they generally came from the top firms in those countries. Some came from other organizations. I had one woman who was Belgian and she came from the International Legal Organization. And they did the work of the bank, which is everything you could imagine. They all lived right there. Everybody lives in London. Unless, I mean, ADB at that point had a number of regional officers, scattered throughout its developing member countries, and then one in Frankfurt, D.C., and in Australia. But yes, and then they were staffed obviously. So it's like a United Nations of Attorneys in a way. Yeah, you could say that. This group, and you were in charge of them, and how did you make it all work? I mean, were there cultural problems or language problems? Or was everybody there just on the same line? We have a good purpose and we're here to work together? Yes. I answered the question. Right, English is the official language. I see. So everybody spoke English, and as I said, many of them have educated in the U.S., so obviously they were very, very fluent. If there was one kind of difference that actually was more enlightening than difficult, was that those lawyers who were generally from Europe, Europe has a civil legal tradition as opposed to North America and the U.K., which has the Anglo-Saxon American legal tradition, common law tradition. A lot of similarities, but a few differences around the edges. For us, it really did not make that much difference because we had our own rules, policies and procedures. ADB, like all of these banks, are essentially a legal regime unto itself. It's based on a treaty, and that treaty is a governing law. Now, there's a lot of jurisprudence that, you know, amongst the various international financial institutions, including things like, you know, Bank for International Settlements and Basel and so forth and so on, common areas and in finance that get carried over. So you look to what the World Bank does and they look to what we do and we look to what African and Latin American do. For example, in employment law, each bank is separate, but we do have employees who file grievances, they get terminated, they protest, they don't get promoted, et cetera, et cetera. So again, each bank is separate, but we look at what other people do because Bayanlor's treaties are essentially similar in many respects. Jerry, look, I have to tell you that I think what you did was pretty extraordinary and I think you are a great asset in our community, especially in our legal community, and I'd like to thank you today for coming on. And I have a lot more questions to ask you, but we're out of time. Okay. So maybe we'll have to come back another time, but thank you, thank you very much. That's right. Well, thank you, Mark, for the opportunity. There's a lot of fun as always.