INTERVIEW-UPDATE 1-ADB aims to raise borrowing limit, capital

* To sharply cut emerging Asia '09 growth rate forecasts

* Seeking approval to increase capital 2-3 times

* Sees Asia FX swap pool growing from current $120 bln

By Umesh Desai

HONG KONG, Feb 13 (Reuters) - The Asian Development Bank aims to increase its capital by 2 to 3 times so it can raise its borrowing ceiling, which it could hit by 2011 under the current capital base of $55 billion, a top official said on Friday.

A higher borrowing base would allow the development bank to raise more funds which it can lend out to support emerging Asian economies. The ADB has said it expects much slower growth for the region than previously forecast because of the global downturn.

"We are discussing with our shareholders to increase our capital," ADB Managing Director General Rajat Nag told Reuters in an interview. "We are looking at several scenarios. One calls for a doubling, one calls for a trebling and the third is 2.5 times -- in between."

The Manila-based development bank is seeking to raise its capital base from about $55 billion, which will enable ADB to leverage by 13 to 15 times, and a decision would be made by May, Nag said.

ADB has said it expected a sharp downward revision to its previous estimate of 5.8 percent growth for emerging Asia as gloomy data from across the region indicates the global financial crisis is hurting the region more than previously anticipated.

"We are revising those numbers down considerably. We will come up with a new set by end of March," he said, when asked for an indication about the latest forecast.

Although he expects China and India, the biggest economies in emerging Asia, to show growth, he said the pace may not be quick enough to absorb the new supply of labour.

"China and India need to grow at about 8 percent just to keep employment levels where they are, so that the youth entering the job market are absorbed," he said, while indicating that India and China were likely to slip below the mark.

In December, ADB said China's growth would slow to 8.2 percent in 2009 from 9.5 percent in 2008 while India would decelerate to 6.5 percent from 7 percent.

REFORMS AT ADB

Nag said reforms that were currently ongoing at the ADB were part of a self-improvement process rather than in exchange for any additional capital infusion.

"Reforms are part of the ongoing process of any institution's efforts to make itself more effective," he said.

Earlier this month, at an ADB board meeting several donor nations insisted any capital increase must be accompanied by reforms, according to sources.

Some board members are concerned about the bank's review of its energy and social safeguard policies, and the need for internal reforms, including staff management issues.

Outlining the reforms, Nag said ADB's evaluation department had become more independent and now reported only to the board, a corporate performance management system had been adopted, an annual development effectiveness review would be made, and the bank's human resources strategy had been reviewed.

"It is not a condition for capital increase but it is fair the shareholders ask us and hold us accountable for it," he said.

On the Chiang Mai Initiative, Nag said the pool of swap lines needed to be expanded and the arrangement would boost confidence among the region's countries.

"The financial crisis which has become a major economic crisis has given a greater impetus to integration which is a positive thing," he said, while confirming talks were under way to expand the fund from the current $120 billion.

Many East Asian countries have sealed bilateral currency swap agreements under the Chiang Mai Initiative and later agreed to transform the individual agreements into a single fund.

China, South Korea and Japan have pledged to contribute 80 percent of the fund, with the 10 member countries of the Association of Southeast Asian Nations taking up the rest. (Editing by Jacqueline Wong & Kazunori Takada)