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

Inclusive Development and Closer Economic Integration
Keys to a Peaceful, Prosperous, Poverty-free Asia and Pacific Region

15 May 2004
ICC Jeju, Republic of Korea

I. Introduction

Your Excellencies, Ladies and Gentlemen, I am pleased to join the Chairman, the Honorable Lee Hun-Jai, Deputy Prime Minister and Minister of Finance and Economy of the Republic of Korea, in welcoming you to the Thirty-Seventh Annual Meeting of the Board of Governors of the Asian Development Bank.

We are deeply honored by the presence of the Honorable Goh Kun, Prime Minister of the Republic of Korea, at our gathering this morning. I would like to express my gratitude to the Government and the people of the Republic of Korea for their warm hospitality in welcoming ADB to Jeju. Special thanks are also due to the government of Jeju Province for its tireless work and dedication to ensure the success of this important meeting. This is the second time Korea, a founding member of ADB, has hosted an ADB Annual Meeting. The first time was in 1970 in Seoul. Both ADB and Korea, now a donor member country, have come a long way since then.

On behalf of ADB's entire membership, I would like to bid a special welcome to the Delegate from Luxembourg, whose country has become the 62nd member of ADB, and to the Governor for Palau, whose country has become the 63rd member of ADB. We gratefully acknowledge Luxembourg's contribution to the Asian Development Fund.

I also extend a warm welcome to all representatives of our development partners, members of the global financial community, civil society, NGOs, and our friends in the media.

II. Regional Economic Performance and Outlook

Your Excellencies, Ladies and Gentlemen, the economies of developing Asia and the Pacific generally showed remarkable resilience in 2003. Despite uncertainties caused by the war in Iraq, high oil prices, and the outbreak of the severe acute respiratory syndrome (SARS) epidemic, GDP growth reached 6.3 percent in 2003, half a percentage point higher than 2002.

Given the strong economic fundamentals in the region, and with a promising outlook for major industrial countries over the next two years, the economies of developing Asia and the Pacific are expected to expand robustly by 6.8 percent in 2004 and 6.7 percent in 2005. Such growth is expected to be increasingly broad based as consumer demand and business investment strengthen further, and as external demand, including intraregional trade, remains buoyant.

However, several risks remain. At the global level, these include geopolitical concerns, rising oil prices, and imbalances in industrial economies. Other risks, such as a slowing of financial and corporate reforms, relate more specifically to the region. All of these risks underscore the importance of close cooperation and continued implementation of key policy and structural reforms in the region.

III. 2003 in Review

Your Excellencies, Ladies and Gentlemen, I would now like to report on some of ADB's key activities over the past year.

First, ADB is at the forefront of rebuilding member states emerging from years of conflict. In Afghanistan, we played a major role in working with the Government and other donor agencies to reassess the resources needed to provide basic services to the Afghan people over the next decade. This formed the basis of the $8.2 billion pledge made at the International Conference on Afghanistan in Berlin in March this year, at which ADB announced $1 billion of assistance to support reconstruction activities over the next four years. We are focusing on building capacity, rehabilitating essential infrastructure, and establishing appropriate policy and institutional frameworks. Just last week, ADB approved the first major program loan to reform and revive agricultural production, which is critical for reducing poverty and replacing poppy production.

Second, in Sri Lanka, ADB worked closely with other donor agencies to assess the rehabilitation needs of conflict-affected districts. This needs assessment was a key element of the Sri Lanka Donors' Meeting in Tokyo last June, at which a total of $4.5 billion was pledged, with ADB contributing $1 billion over four years. In an effort to broaden peace dividends and support the peace process, ADB approved the Conflict-Affected Areas Rehabilitation Project last December.

Third, in close coordination with other international organizations, ADB also acted swiftly to provide emergency assistance in response to the SARS outbreak and, more recently, to the avian flu. Drawing on experience, we are finalizing a new Disaster and Emergency Assistance Policy that will sharpen ADB's effectiveness in responding to natural disasters, conflicts, and other emergencies.

Fourth, ADB is firmly committed to enhance development effectiveness. We conducted an intensive review of the reorganization of ADB that came into effect in January 2002. We launched an independent assessment of the reorganization, the results of which will provide additional guidance for enhancing development effectiveness at the institutional level. We established a new accountability mechanism to better address the concerns of project-affected people. We are preparing a new Public Communications Policy to promote greater information sharing about our operations and to encourage more public feedback. We now have an independent Operations Evaluation Department that reports to the Board of Directors, in line with international best practice. We have strengthened senior management through the creation of a fourth Vice-President for knowledge management and sustainable development. We have established a new results management unit to lead implementation of ADB's action plan for managing for development results. We adopted a new income planning framework that introduces credit-risk modeling to strengthen financial management. We approved the second phase of our Gender Action Plan, which brings us closer toward achieving gender balance in ADB. And, we are preparing a new Human Resources Strategy that will help direct staff incentives toward the achievement of development results and outcomes. We are determined to continue our reforms to be increasingly effective in our fight against poverty in the region.

IV. Challenges Facing the Region and ADB's Responses

Poverty Reduction-Achieving the MDGs

Your Excellencies, Ladies and Gentlemen, reducing poverty in Asia and the Pacific is the greatest challenge we face. Although income poverty has declined in recent years, progress toward the non-income Millennium Development Goals (MDGs) has been limited. Unless there is a redoubling of efforts, Asia and the Pacific, which is still home to two thirds of the world's poor, is at serious risk of not achieving the MDGs related to health, education, gender, and the environment.

Our comprehensive review of ADB's Poverty Reduction Strategy confirms that our strategy continues to provide a sound operational framework for ADB's overarching goal of poverty reduction. It also recommends that ADB's poverty reduction efforts be further strengthened by continuing to support governance and policy reforms; by including MDG targets in our country strategies and programs; by aligning our assistance more closely with national poverty reduction strategies; and by continuing to strengthen coordination with our development partners. ADB's Poverty Reduction Strategy is based on three pillars-pro-poor sustainable economic growth, social development, and good governance, and five thematic priorities-capacity development, environmental sustainability, gender equality, private sector development, and regional cooperation. All of these are indispensable for achieving the MDGs.

Private Sector Development-The Engine of Economic Growth and Poverty Reduction

A dynamic private sector is crucial for sustainable economic growth, a necessary condition for poverty reduction. ADB will continue to help create an enabling environment for private sector development by improving basic infrastructure and by supporting policy, institutional, regulatory, and judicial reforms that improve governance, which is so essential for attracting private sector investments. ADB provides, under the same roof, public sector lending and private sector finance, including loans and equity investments as well as credit enhancement products such as guarantees. Therefore, ADB can effectively deliver synergistic solutions to development challenges. ADB thinks private sector development in public sector operations, and development impact in private sector operations.

Developing and strengthening capital markets is another important element of our private sector operations. For example, a pioneering rupee bond issue in India earlier this year was the first time that ADB tapped the domestic bond market of a borrowing member country. ADB is also supporting the Asian Bond Market Initiative by ASEAN+3 countries. The increased availability of long-term local currency financing directly contributes to development of the private sector in our developing member countries. We will continue to examine new and innovative approaches to promote private sector development.

Infrastructure and Poverty Reduction

Ladies and gentlemen, pro-poor sustainable economic growth is vital 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. Infrastructure is critical for realizing sustained economic growth, and has strong positive linkages with other sectors. It is required for the efficient 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.

Recent initial estimates suggest that the infrastructure investment requirements for developing Asia and the Pacific will exceed $250 billion per year in the medium term, and the need for external financing is tremendous. The financing shortfall is a serious constraint to the region's continued economic growth and development, and to achieving the MDGs. ADB is examining means to streamline project preparation procedures and exploring innovative approaches and modalities for effective infrastructure financing.

Regional Cooperation

ADB's Charter mandates the fostering of regional cooperation. ADB has been supporting the Greater Mekong Subregion Program, the Brunei-Darussalam-Indonesia-Malaysia-Philippines-East ASEAN Growth Area Initiative, the Central Asia Regional Economic Cooperation Program, and the South Asia Subregional Economic Cooperation Initiative. These initiatives have been making significant progress in enhancing connectivity, reducing barriers to intraregional trade and investment, and addressing cross-border issues such as environmental degradation, human trafficking, and narcotics. The most significant benefits of regional cooperation, however, are stability, peace, and security based on mutual trust and goodwill created by countries increasingly working together.

The Asian financial crisis highlighted the virulent nature of contagion among neighboring countries, and brought the Asia and Pacific region closer together. Regional cooperation has since expanded to cover information exchange and economic surveillance, currency swap arrangements, and regional bond market initiatives. Combating corruption is another area where regional cooperation plays an increasingly important role.

With progress in market-oriented reforms and a narrowing of gaps in growth performance across the subregions, bridging and linking the subregions has gained momentum. Reconstruction in Afghanistan has accelerated cooperation, particularly between neighboring Central Asia and South Asia. More recently, the South Asian Association for Regional Cooperation Summit in Islamabad has paved the way for accelerated cooperation among South Asian countries and with the rest of Asia. Furthermore, intraregional trade has been increasing, contributing to further integration of regional markets.

Looking ahead, there is a distinct trend toward broader Asia-wide economic cooperation and integration. The number of free trade agreements and other regional cooperation arrangements is increasing, and there is a growing view that Asia and the Pacific as a whole should strive for closer economic integration. ADB's work in regional cooperation over the decades, and particularly since the early 1990s, places it in a unique position to help the region rise to this historic challenge.

V. The Importance of Continued Shareholder Support

Your Excellencies, Ladies and Gentlemen, ADB has benefited greatly from the guidance and support of our shareholders. The meetings for the eighth replenishment of the Asian Development Fund (ADF IX)-in Copenhagen, Tokyo, Lisbon, and Seoul-demonstrated clearly the wholehearted commitment of ADB's shareholders to our institution and to its mission of reducing poverty in the region.

Discussions were characterized by strong partnership and participation among shareholders, as well as between shareholders and ADB. Discussions also contributed to an agreement among shareholders to establish grants in ADF IX, thereby strengthening ADB's capacity to respond to special development needs without increasing the debt burden of the region's poorest countries. With shareholder support, grants will provide a welcome means to help us respond effectively to poor countries facing debt sustainability challenges, to post-conflict reconstruction needs, to combat HIV/AIDS and other communicable diseases, and to support deeper knowledge sharing and capacity building.

To underscore their commitment to a better and more effective ADB, donor shareholders have concluded discussions resulting in a total of $7 billion under ADF IX, significantly higher than the previous replenishment. I sincerely thank the donors for their strengthened support and generosity in the fight against poverty in Asia and the Pacific.

Looking forward, ADB's assistance and operations must also respond to the development needs of middle-income countries, where we still see a large number of people trapped in poverty and persistent inequality. It is essential that ADB have adequate ordinary capital resources (OCR) available to expand, accelerate, and sustain poverty reduction, and respond to emergencies. With full shareholder support, we must continually reassess ADB's capital adequacy in the context of responding to the wide-ranging needs for OCR in our developing member countries.

ADB's expanding role as a development institution has also placed increased demands on our technical assistance (TA) resources. At the same time, the resources available for TA have become scarce. I am pleased that donors to the ADF IX replenishment have agreed to allocate a significant share of new contributions to ADB's TA Special Fund. This is very welcome and greatly appreciated. However, this alone will not be sufficient to meet the increasing demand for TA, and ADB will continue to seek additional resources, including trust funds, in accordance with needs across the region.

VI. Concluding Remarks

Your Excellencies, Ladies and Gentlemen, it was exactly 40 years ago, in May 1964, when I arrived at the UN Economic Commission for Asia and the Far East (ECAFE) in Bangkok. My assignment was to prepare documents for the meeting of the Working Group of Experts on ADB, held in October that year.

In those days when ADB was being conceived (1964-1965), the Asia and Pacific region was very different from what it is today. Average per capita GNP (1964) in Latin America and the Caribbean was $430, in Africa $150, but in developing Asia it was only $90. Asia was the poorest region of the world. Asia was in turmoil, full of geopolitical tensions. It was a time of great upheaval, marked by armed conflict in some countries and deep social and political change in others.

Against this backdrop of widespread poverty and instability, it was imperative to accelerate harmonious economic growth of the region as a whole, with special regard to smaller or less developed countries, and to strengthen regional cooperation. These were considered to be the keys to peace, stability, and prosperity in the region, and are reflected in the Charter of ADB. ADB was established in 1966 to serve as the focal point for inclusive development and regional cooperation in Asia and the Pacific.

As we all know, over the past four decades much of Asia and the Pacific has made remarkable economic and social progress. Today, generally speaking, there is greater peace, stability, and security in the region. The open economic policies of governments, private sector-led growth, high savings, motivated labor forces, and an emphasis on education have all contributed to these achievements.

More recently, we have witnessed developing Asia's impressive recovery and economic growth after the Asian financial crisis. Learning from the crisis, Asian countries are now on a more solid and sustainable growth path. However, much remains to be done. For Asia to maintain this progress and to achieve peace, prosperity, and freedom from poverty, further structural reforms as well as a deepening and an expansion of regional cooperation are crucial. Consistent with its Charter, ADB must promote ongoing regional economic integration, and ensure that it will be pro-poor and equitable, both within and among countries, and open to the rest of the world.

Ladies and gentlemen, when ADB was being created, Asia was divided, stricken by conflict, and the poorest region of the world. Today, the vision of an integrated, prosperous, poverty-free, and peaceful Asia, is no longer a dream, but an achievable goal. We know the challenges are daunting, but with the strong support of all shareholders and by working together with all development partners, ADB will do its utmost to help realize this vision, not only for the good of Asia and the Pacific, but for the peace and prosperity of the whole world.

Thank you.