Annual Meeting

Reducing Poverty for a Brighter Future in Asia and the Pacific

Address to the Board of Governors
by
Tadao Chino
President, Asian Development Bank

At the 36th Annual Meeting, Manila, Philippines
30 June 2003

I.  Introduction

Your Excellencies, Ladies and Gentlemen, I am delighted to join the Chairman, the Honorable Ibrahim H. Çanakci, Governor for Turkey, in welcoming you to the Thirty-Sixth Annual Meeting of the Board of Governors of the Asian Development Bank. Due to the uncertainties that have affected many member countries, this year's Annual Meeting has been adjusted to concentrate on statutory requirements.

I would like to extend our deep appreciation to Her Excellency Gloria Macapagal-Arroyo, President of the Republic of the Philippines, for honoring us by her presence today. We express our gratitude to the Government of the Philippines for accommodating this year's Annual Meeting in Manila at extremely short notice. I see this as living proof of the partnership between ADB and its host country.

I would like to take this opportunity to bid a special welcome, on behalf of ADB's entire membership, to the Delegation of the Democratic Republic of Timor-Leste, whose country has become the 61st member of ADB.

I also extend a warm welcome to the representatives of our development partners, including multilateral and bilateral institutions, members of the financial community, civil society, nongovernment organizations (NGOs), and the media.

II.  Regional Economic Performance

Your Excellencies, Ladies and Gentlemen, after a marked slowdown in 2001, both the world economy and developing Asia got off to a strong start in 2002. As the year advanced, however, the pace of growth in the major industrial economies slowed and became uneven. In contrast to the industrial countries, economic growth in developing Asia generally strengthened in 2002, accelerating further in the second half of the year as export demand picked up. Expansionary fiscal policies and accommodative monetary policies, mainly in East and Southeast Asia, contributed to the strengthening of aggregate demand, particularly consumption, while firmer export markets provided a boost to industrial production.

Turning now to 2003, growth projections for developing Asia have been reduced somewhat from those made at the end of last year. While major downside risks have diminished, the economies of industrial countries continue to face challenges. Geopolitical uncertainties, combined with the severe acute respiratory syndrome (SARS) outbreak, have contributed to reduced growth forecasts for the region as a whole.

The SARS outbreak sent shock waves throughout the world and inevitably had negative consequences for economic growth prospects for Asia in 2003. However, due to strong actions by governments in the region and worldwide in combating the disease, the global outbreak is being brought under control. If this continues, the economic impact of SARS is likely to be moderate, though differing from country to country. Compared with other regions of the world, aggregate economic growth in developing Asia is still anticipated to be robust in 2003, and is forecast to be around 5 percent based on the steady growth in domestic and export demand expected in most countries, and generally supportive macroeconomic policies.

The economic outlook for our developing member countries (DMCs) for 2003 and beyond is highly dependent on global economic movements, and is susceptible to the risks associated particularly with disruptions in tourism, trade, investment, and other services. Although the SARS outbreak is receding, the region should remain vigilant to prevent it from recurring. Recently I signed a memorandum of understanding with the World Health Organization to strengthen our existing close cooperation in fighting SARS and other emerging diseases, concentrating on the longer-term issues of surveillance and prevention. ADB continues to monitor carefully economic performance in the region and at the country level, and we are constantly working with our DMCs to ensure that appropriate policies and institutions are in place to support long-term, sustainable economic growth and development.

III.  Key Events at ADB

Your Excellencies, Ladies and Gentlemen, 2002 was another year of enormous challenges for the region and for ADB. Nonetheless, under your guidance and with your strong support, ADB responded effectively to the emerging needs of its DMCs, and also strengthened its institutional capacity to assist them in reducing poverty and promoting development. I would like to report to you several of ADB's most important activities since last year's Annual Meeting in Shanghai.

First, we continued to strengthen our fight against poverty in the region. Our country strategies and programs (CSPs) are being aligned to support the Millennium Development Goals (MDGs) and build upon our DMCs' own national poverty reduction strategies. ADB is working closely with each DMC and other development partners to prepare detailed country-level poverty assessments and identify priority goals, policies, and programs for reducing poverty. The results of this collaborative effort are embodied in poverty partnership agreements (PPAs), 18 of which have been completed so far. Where countries prepare poverty reduction strategy papers (PRSPs), our PPAs have supported the preparation process and our assistance programs are integrated with the PRSPs to ensure coordination of all development partners. At the project level, we are continually incorporating innovative ways and means to reduce poverty. The provision of safe drinking water and sanitation to more than 300 villages in Punjab province of Pakistan, for example, is the first project in the country where local communities have successfully assumed full responsibility for the operation and maintenance of facilities. Another innovative approach to poverty reduction can be found in Mongolia, where the creation of savings and credit unions has enabled the poor to pool their resources to finance rural production activities which, in turn, have generated employment and increased incomes. Additionally, the contracting of health services to NGOs has improved the access of the poor throughout Cambodia to basic health services and, at the same time, cut their health care expenditures in half. ADB's extensive engagement with NGOs, the private sector, and civil society continues to be a primary source for many new and innovative approaches for reducing poverty across the region.

Second, ADB was proactive in postconflict reconstruction and rehabilitation, underscored by our resumption of assistance to Afghanistan. Early last year, ADB played a pivotal role with the Afghan authorities and other development partners in assessing the initial needs of Afghanistan. In addition to substantial grant funding for capacity building technical assistance (TA) and road rehabilitation from the Japan Fund for Poverty Reduction, ADB provided a highly concessional loan of $150 million for the Postconflict Multisector Program-the first loan to Afghanistan by an international financial institution since lending was suspended in 1979. The total amount of ADB's assistance to Afghanistan for 2002 was close to $200 million. ADB's significant and prompt assistance was made possible only through valuable contributions by our member countries. We are grateful for the United Kingdom's contribution of $18 million to clear Afghanistan's arrears with ADB, Spain's additional contribution of $100 million to the Asian Development Fund (ADF), and other contributions and support from our member countries. Our resident mission in Kabul is now in full operation, and we will continue to work together with the Government and the people of Afghanistan to build a brighter future.

Third, we have taken an active role in Sri Lanka. ADB moved quickly to develop assistance programs to improve the well-being of the people in the conflict-affected areas of the north and east, even before the ceasefire agreement of February 2002. We are strengthening our operations as the situation becomes more conducive to reconstruction and development. I visited Sri Lanka, including the conflict-affected areas, immediately after the ceasefire and again in March 2003. I witnessed many important changes, even in this short span of time. In the conflict-affected areas, farmers were returning to their fields, basic services were reviving, and people were regaining hope for a better future. These dividends of peace-the results of a cessation of hostilities-are real, and need to be sustained and strengthened. Some peace dividends have already been realized, but of course much more needs to be done to achieve more tangible peace dividends awaited by the people of the entire country. As long as there is hope among the people for a better future, it will help promote the peace process. I also attended the Tokyo conference on Reconstruction and Development of Sri Lanka in early June. Although the peace process will inevitably be complex, ADB is collaborating closely with other development partners to support ongoing efforts towards a lasting peace, and to address the challenges of reconstruction and development of the entire country.

Fourth, under the Charter, fostering regional cooperation is a major purpose of ADB. ADB played an active role in organizing the first-ever Greater Mekong Subregion (GMS) Summit Meeting in November 2002 in Phnom Penh, attended by the leaders of all six countries along the Mekong River. They celebrated 10 years of successful cooperation, and reaffirmed their political commitment to strengthen even further the subregional program to achieve a more integrated, prosperous, and equitable GMS. ADB also hosted the first Ministerial Conference on Central Asia Economic Cooperation in March 2002, and helped organize meetings of the Country Advisors' Group for the South Asia Subregional Economic Cooperation initiative. We will continue to support BIMP-EAGA (Brunei Darussalam, Indonesia, Malaysia, Philippines-East ASEAN Growth Area). We started supporting new opportunities across traditional subregional boundaries, such as a gas pipeline project connecting Turkmenistan, Afghanistan, and Pakistan, and possibly India. Another example is risk management through regional cooperation under which ADB is supporting regional information exchange and economic surveillance within ASEAN and ASEAN+3. As previously indicated, ADB is supporting regional cooperation to contain infectious and communicable diseases including SARS, and to address other cross-border problems such as narcotics, human trafficking, and environmental degradation. Regional and subregional cooperation provides larger markets and economies of scale, enhances mutual complementarity, helps boost cross-border trade and investment, and promotes accelerated sustainable growth. The most significant benefits of regional and subregional cooperation, however, are regional stability, peace, and security based on mutual trust and goodwill created by countries increasingly working together, as clearly seen in the GMS.

Fifth, ADB has made enormous efforts to increase the efficiency of its operations. To this end, ADB implemented a major reorganization in 2002, which overall proceeded as scheduled and virtually without disruption. The reorganization and accompanying new business processes aimed at improving the quality and efficiency of our operations as well as our internal governance, and provided for extensive delegation of decision making. As a result of the reorganization, ADB operations now have a greater country focus, with enhanced stakeholder ownership and participation. ADB is thus better positioned to work more closely with its DMCs in identifying their development needs and priorities, and in assisting them in their efforts to reduce poverty and promote development. We are in the process of reviewing the implementation of the reorganization. We also reviewed our Resident Mission Policy and found that it has led to enhanced country focus and made resident missions even more effective representatives of ADB. In keeping with the Resident Mission Policy, new resident missions have been approved in Afghanistan, Azerbaijan, Papua New Guinea, and Tajikistan, as well as in the Pacific with a Subregional Office in Fiji and the Pacific Liaison and Coordination Office in Sydney.

IV.  Challenges and ADB's Responses

Your Excellencies, Ladies and Gentlemen, I would now like to turn to some of the key challenges facing the Asia and Pacific region and highlight ADB's responses to these challenges. Over the past year, optimism and hope have been clouded by uncertainties such as heightened geopolitical tensions and persistent threats of terrorism which have contributed to a slowdown in global economic growth. Behind these uncertainties and various other pressing difficulties, the underlying problems continue to be deprivation, lack of opportunity, inadequate participation, inequity, and a sense of powerlessness-all are dimensions of poverty as defined under ADB's Poverty Reduction Strategy. Poverty is multidimensional. Poverty has both income and wider sociopolitical dimensions. Our Strategy, with its three pillars related to economic growth, social development, and governance, provides a holistic approach to tackle poverty in all its dimensions. The current global concerns convey a clear message that enduring peace, stability, and prosperity definitely need continued and strengthened investment in poverty reduction. Thus, poverty reduction, in its true sense, remains the first priority on the global agenda in this uncertain environment.

Poverty Reduction

In 1999, ADB defined its vision of an Asia and Pacific region free of poverty, and we established the Poverty Reduction Strategy to realize that vision. In early 2001, we formulated our Long-Term Strategic Framework (LTSF) to provide the important roadmap for translating our vision into action from 2001 to 2015. In addition to its three core areas of sustainable economic growth, inclusive social development, and good governance, the LTSF defines three crosscutting themes-promoting the role of the private sector in development, supporting regional cooperation and integration for development, and addressing environmental sustainability. The LTSF also identifies key operating principles of strong country ownership, strategic partnerships, and measuring development impact, and is well aligned with the MDGs. The LTSF is implemented through Medium-Term Strategies (MTS), the first covering 2001 to 2005.

The MDGs unite the international development community around a common global development agenda to reduce poverty based on partnership and country ownership. ADB strongly supports the MDGs that define specific goals and targets with appropriate indicators for measuring and monitoring progress toward poverty reduction. The MDGs also provide an important basis for DMCs to prepare their own poverty reduction strategies, in collaboration with development partners, and help align assistance programs with country-specific needs and priorities.

There is strong empirical evidence that pro-poor sustainable economic growth, the first pillar of ADB's Poverty Reduction Strategy, is indispensable for a steady decline in the incidence of poverty. Such growth creates employment and income for all, and increases public revenues that can be invested in poverty reduction efforts. Asia's experience shows that such growth calls for sound macroeconomic management, a robust private sector, a strong commitment to institutional reform including financial sector restructuring, productivity gains through technological advances, and human capital development. Pro-poor growth also requires improved targeting of ADB's assistance to areas and pockets bypassed by the mainstream growth process. 19. In this regard, provision of infrastructure is critical for realizing sustained economic growth that is necessary to reduce poverty. It has strong positive linkages with other sectors, enhances the delivery of goods, services, and information, including basic social services to the poor, provides an enabling environment for private sector development, and promotes broad-based growth. Physical infrastructure is one of ADB's comparative strengths, particularly in transport, communications, energy, and water supply. Its development is accompanied by structural reforms and, whenever possible, by active involvement of the private sector including public-private partnerships.

Social development, the second pillar of our Poverty Reduction Strategy, enhances human capability and the dignity of the poor. Social development is essential in expanding economic opportunities for the poor. It improves access to and the quality of basic services- education, health and nutrition, clean drinking water and sanitation-and promotes gender equity and social stability. ADB is vigorously implementing assistance programs to address this demanding social development agenda. For example, our new Policy on Education strongly commits ADB to support basic education. An interim progress report on the implementation of the 1998 Gender and Development Policy, submitted to the Board of Directors in 2002, noted progress achieved in addressing gender equity, and identified the need to increase the number of loans with gender and development objectives. In addition, within the reorganized ADB, four networks-gender and development, social protection, participatory development, and involuntary resettlement-are providing additional impetus to ADB's social development agenda.

Good governance, the third pillar of ADB's Poverty Reduction Strategy, is critical to sound economic management and for ensuring that the benefits of growth are equitably distributed to the poor, thereby contributing to greater security and stability. ADB has strengthened its own capacity to support governance initiatives, and we are actively implementing our action plan for promoting good governance. In April 2003, as part of ADB's efforts to promote good governance and to support anticorruption policies, we introduced a policy on combating money laundering and the financing of terrorism.

Continued efforts are needed to sharpen and enhance ADB's responses to development challenges facing the region. As part of these efforts, we are undertaking a comprehensive review of the Poverty Reduction Strategy, which will build upon our experience in implementing the Strategy in our DMCs, and respond to the emerging needs of a changing environment. We will complete this review later this year.

Private Sector Development

The second critical challenge facing the region is how to effectively promote private sector development. A healthy and vibrant private sector is the engine of economic growth. Reducing poverty in Asia and the Pacific depends largely on private sector development. This, in turn, requires increased investments from within and outside the region.

ADB has been working with its DMCs to create an enabling environment for private sector development. We help remove physical impediments to private sector investments by improving basic infrastructure such as transport, communications, energy, and water supply. We support policy, institutional, regulatory, and judicial reforms that improve governance, which is so essential for attracting private sector investments.

ADB also assists the private sector directly by providing both loans and equity to private sector projects. In addition, ADB's partial credit guarantee and its political risk guarantee have been increasingly used to mitigate risks through credit enhancements, thereby mobilizing additional funding for private sector projects. Guarantees accounted for nearly $1 billion of ADB's operations last year, reflecting the growing demand for more sophisticated credit enhancement products. To further promote private sector projects as well as to support the development of capital markets in the region, ADB is currently exploring the possibility of raising local currency funds through bond issues and swaps.

ADB is fully committed to assisting its DMCs meet the challenge of promoting private sector development and will examine new and innovative approaches to attracting higher levels of investment, both from within and outside the region. In ADB we have the unique advantage of public and private sector operations under one roof. In our public sector operations, we think private sector. In our private sector operations, we think development impact.

Environmental Sustainability

The third challenge is promoting environmental sustainability in the region. Poverty is a major contributor to, and consequence of, environmental degradation. The poor and most vulnerable segments of society bear the brunt of environmental degradation. We also recognize that Asia is vulnerable to many forms of natural disaster and that many of these have their roots in the degradation and ineffective management of the environment.

At the World Summit for Sustainable Development in Johannesburg last September, I, together with the heads of the other regional development banks, issued a joint statement stressing our continuing commitment to promoting sustainable development in our respective regions. ADB will work to support that agenda through our policies, including the new Environment Policy that responds to the poverty-environment nexus. ADB has forged a partnership with the Global Environment Facility to address land degradation and dryland ecosystems in the People's Republic of China and to improve environmental management of the Tonle Sap basin of Cambodia. Both projects aim to improve the lives of the poor by responding to pressing environmental concerns. In March 2003, ADB played a major role at the 3rd World Water Forum in Japan by organizing several major theme sessions, and announcing a number of initiatives and partnerships to help the region achieve the MDG target of halving, by 2015, the number of people without sustainable access to safe drinking water. Water is an essential part of human existence, but one in three people in Asia and the Pacific does not have access to safe drinking water. In collaboration with other development partners, ADB is committed to realizing its vision of "water for all." A concrete example in this area is the joint ADB and UN-HABITAT Water for Asian Cities Program, under which we will bring clean drinking water and sanitation to the poor in cities across the region.

ADB's Effectiveness and Accountability

As a premier development institution, ADB must achieve the highest standards of effectiveness and accountability. This means that we must focus on outcomes, achieve results, maximize development impact, and be responsive to our shareholders and the wider community of development stakeholders. We are committed to becoming more results-based in all aspects of our work. A special working group is currently studying the best approach to results-based management for ADB.

Together with our development partners, including multilateral development banks and bilateral agencies, we accelerated the pace of harmonization so as to reduce the transaction costs of assistance to our DMCs and improve development impact. The Rome Declaration on Harmonization was a landmark in building consensus among multilateral and bilateral institutions on how to enhance the effectiveness of development assistance, and also in contributing to meeting the MDGs.

To raise effectiveness, we must build a stronger synergy with all development partners, especially at the country level. ADB recognizes the need to more actively engage civil society. In May 2003, we introduced a medium-term strategy and action plan to strengthen tripartite cooperation among ADB, its member governments, and NGOs to reduce poverty in the region.

Our efforts to improve effectiveness are continuing. The work on improving portfolio management has begun to yield good results. A recent study by the Operations Evaluation Department has shown a clear, positive trend over the past 10 years in the percentage of project and program loans classified as successful. A major commitment of ADF VIII was the implementation of a performance-based allocation system for allocating ADF resources. This was fully established in 2002, and we are continuing to refine the system.

ADB can be an effective development institution only if our operations are based on sound knowledge of the region and its development challenges. We allocate significant resources to advance our knowledge of countries, sectors, and thematic areas. We are currently developing a knowledge management framework so that knowledge is better shared with our DMCs and other stakeholders, as well as within the institution.

We are building strong partnerships with our stakeholders through better communication and dialogue. To improve ADB's transparency and accessibility, our information disclosure policy is now being reviewed.

The innovative New Accountability Mechanism of ADB-replacing the previous Inspection Function-with a consultation phase and a compliance review phase, was approved by the Board of Directors in May 2003 after extensive consultations with all stakeholders. It will improve ADB's development effectiveness, project quality, and accountability by enhancing our responsiveness to the concerns of project-affected people and ensuring fairness to all stakeholders. Our first effort must always be to resolve problems amicably, and move forward with the development process. In this spirit, the consultation phase will seek to safeguard the interest of all parties in the development process. However, we recognize that at times we may need a more formal process to address grievances that persist. The compliance review meets such needs.

Evaluation is another important aspect of accountability. We will further strengthen our capability in this area and will soon present proposals for independent evaluation of our operations.

V.  The Importance of Continued Shareholder Support

Your Excellencies, Ladies and Gentlemen, with two-thirds of the world's poor living in Asia and the Pacific, ADB has a tremendous responsibility to respond to numerous and complex development challenges. To win the fight against poverty we need the continued guidance and strong support, financial and otherwise, of all our shareholders. In this regard, I would like to emphasize that ADF, ordinary capital resources (OCR), and TA funds are critical for empowering ADB to fulfill its mandate as the leading development institution in the region.

First, ADF is the most important resource for ADB to assist its poorer member countries, as it provides much-needed funds to finance projects and programs aimed at poverty reduction. In April 2003, the ADF VIII Midterm Review took place in Washington, D.C. Donors noted important areas where ADB performed well in implementing the ADF VIII program. They also identified a number of challenges facing ADB in order to achieve greater development effectiveness and warrant continued donor support. ADB sincerely appreciates the many constructive suggestions and recommendations offered by donors. Translating the understandings and agreements reached at the Midterm Review into concrete actions is a high priority for ADB. Donors also noted that the current level of demand for ADF VIII resources exceeds total ADF VIII resource availability, and understood the serious resource constraints ADB faces in responding to the development needs of its poorer DMCs. In early May, to bridge this resource gap, ADB allocated $200 million from 2002 net income to ADF. ADB will continue to explore all prudent means to augment ADF VIII resources internally, and I am committed to using existing resources effectively and efficiently. With the resumption of ADB operations in devastated Afghanistan, huge postconflict rehabilitation needs in Sri Lanka, new members such as the Central Asian republics, and the need to strengthen implementation of poverty reduction strategies in the region to achieve the MDGs, the demand for ADF resources continues to grow. As a response to the ADF VIII Midterm Review and my proposed follow-up Action Plan to address several priority issues in ADF, donors have agreed that ADB commence planning the ADF IX discussions, with the first meeting of donors expected to take place in October this year in Copenhagen. I would like to thank the Danish authorities for their generous offer to host the meeting.

Second, OCR provide the financial backbone to our operations. Three years ago in Chiang Mai, our Board of Governors requested the Board of Directors to study ADB's resource requirements to finance ordinary operations. I am pleased to report to the Governors that critical aspects of the resource requirements study have been completed. You may recall that the Board of Directors endorsed the LTSF in March 2001. This was followed by the MTS in September 2001, which provides the bridge between the LTSF and ADB's operational priorities and activities from 2001 to 2005. A further aspect of the resource study deals with ADB's financial framework and includes (i) a new liquidity policy, approved by the Board in June 2002, and (ii) a review of ADB's lending and borrowing limitations, approved in February 2003, which defines a set of policies that constitute the framework for assessing ADB's capital adequacy. In terms of next steps, we will carefully review our projected resource requirements and the assumptions on which they are based. This review will provide us with the opportunity to further discuss with our shareholders ADB's medium-term lending program. In this context, an important element will be our planned assistance policy for middle-income countries.

Third, through our TA operations we assist our DMCs to identify, formulate, and implement projects; improve their institutional capabilities; formulate development strategies; promote technology and knowledge transfer; and foster regional cooperation-all of which are essential for poverty reduction and socioeconomic development. ADB has two main sources for TA, the Technical Assistance Special Fund (TASF) and the Japan Special Fund, as well as a number of bilaterally financed cooperation funds. In recent years, the demand for TA funds has far exceeded available resources, and ADB faces a serious shortfall that could have a significant impact on the size and scope of our TA program in the coming years. In an effort to address this potentially serious problem, ADB has taken a number of steps. First, $80 million of 2002 net income was allocated to TASF as part of the annual income allocation exercise. Second, in May 2003, ADB completed a review of the management and effectiveness of TA operations that outlines a series of actions designed to improve the management of TA, enhance the effectiveness of the TA program, and thereby increase its development impact. We are preparing for discussion with our shareholders a framework for financing knowledge products and services to provide greater stability to the TA program.

VI.  Concluding Remarks

Through the Doha, Monterrey, and Johannesburg summits, the international community has agreed on a common agenda for a better, more prosperous, and more equitable world. These agreements provide us with a tremendous opportunity to give development a major thrust forward. The development agenda is known. Now all of us, developed and developing nations alike, and all development partners, must meet our commitments to implement it. We must build concrete programs of assistance, and take responsive actions to support the common agenda.

The world today is confronted with many uncertainties. Behind these uncertainties, we often find deprivation, inequity, lack of opportunity, and a sense of powerlessness, all of which are dimensions of poverty and contribute to social instability and insecurity. This often leads to conflict and violence, from which the poor suffer the most. They aspire to a better life and value peace. The events of the past two years forcefully demonstrate not only that peace is a prerequisite for development, but also that poverty reduction and development are essential for attaining peace.

With the wholehearted support of all our members and in close cooperation with our development partners, we will continue to do our utmost to realize our vision of an Asia and Pacific region free of poverty, a region that is equitable, inclusive and soundly governed, a region where all can live with dignity and hope. I firmly believe that all of us working together to achieve this vision will lead to enduring peace and prosperity in our region, and the world.

Thank you.