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p. 8 of 22 BACK | NEXT I. Summary II. Background and Rationale III. The ADB Initiative Towards Economic Cooperation in Central Asia A. Phase I: 1997-1998 B. Phase II: 1999-2002 IV. Sector Priorities and the Proposed Program 2001-2003 V. Addressing Poverty and Governance and other Cross-Cutting Concerns VI. Issues and Challenges

Central Asian Regional Economic Cooperation : III. The ADB Initiative Towards Economic Cooperation in Central Asia

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A. Phase I: 1997-1998

17. Since early 1997, the ADB has been providing technical assistance to encourage regional economic cooperation among its developing member countries in Central Asia. The initiative follows from the charter which directs the ADB to encourage cooperation and regional programs. The Central Asian program, which follows a phased approach,⁴ has been tailored to fit the specific needs of the countries involved and also to benefit from the lessons learned from other regional initiatives including those in the Greater Mekong Subregion and the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA). Activities under Phase I of this ADB initiative concentrated on identifying infrastructure needs and policy issues impeding cross-border trade and traffic specifically in the areas of energy, trade, and transportation. These sectors were selected on the basis of initial discussions with the participating Governments of Kazakhstan, the Kyrgyz Republic, the People’s Republic of China (focusing on the Xinjiang Uygur Autonomous Region), and Uzbekistan. The initial discussions emphasized the importance of focusing ADB activities in a region new to staff and where other multilateral funding agencies were working.⁵

18. In Phase I, transport was considered the key sector because: (i) the overwhelming need to reduce transport barriers to regional development was clearly accepted by the Governments; (ii) the ADB's technical expertise could potentially be the key to resolving sometimes divisive political issues; (iii) the ADB was the lead agency in road financing and an important one in the rail sector; and (iv) no other international funding agency provided the important mix of policy advice, loan and TA resources at levels likely to have an impact on sector issues. Thus a broad approach in the transport sector for the ADB was advocated and adopted. The energy sector was also an area in which the ADB focused due to: (i) the critical regional problems which were not being addressed by international funding agencies with the full mix of assistance modalities needed; (ii) the possibility of developing projects with potentially clear economic benefits; and (iii) the belief that ADB's technical expertise and experience could make a critical difference in the sector. In view of the commitments of other agencies such as the World Bank and the United States Agency for International Development (USAID) in the closely aligned areas of water resource management and the ADB's relatively smaller involvement in the region in national energy programs, the ADB adopted a more narrow program for the energy sector than in transport. Finally, it was recognized that trade issues, if unresolved, would frustrate any potential benefits from transport and energy projects. Thus a measured approach to trade encouragement was adopted for the ADB that complemented the more macroeconomic initiatives of institutions such as the World Trade Organization (WTO), the World Bank, and USAID and focused on issues such as non-tariff barriers and poor governance that directly affected trade and transit and could be addressed through workshops, policy advice, and in our transport and energy projects.

19. In summary, the sectoral strategic concerns of the ADB’s initiative were three-fold:

• To lessen the economic isolation of the region through improvements in transport systems within Central Asia and from Central Asia to other parts of the world, particularly East and South Asia.

• To rationalize and encourage regional energy trade based on market principles and the preservation of existing infrastructure.

• To ensure that the underlying policy environment encourage trade, traffic and transit within and to the region.

20. The findings and recommendations of the initial study of Phase I were reviewed and validated in a series of five workshops conducted in 1998 at ADB headquarters and in the region (Appendix 4). These workshops led to (i) the identification of a high priority transport project, the improvement of the Almaty-Bishkek Highway, and (ii) a structure for Phase II operations. The rehabilitation of the highway is designed to foster regional economic cooperation in Central Asia through the development of an efficient and safe road transport link for movement of people, goods and vehicles between these two commercial centers and across the Kazakh/Kyrgyz border at Georgievka. The Project, expected to be presented to the Board in the fourth quarter of 2000, will assist the Governments of Kazakhstan and the Kyrgyz Republic in rehabilitating the Almaty-Bishkek road, removing physical and nonphysical cross-border barriers, and improving coordination and management of road safety and introducing a road maintenance system by contract. The project is expected to be supported by loan cofinancing from the EBRD and grant cofinancing from the European Union.

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