Catalog

1. Supporting Peace and Security for Development

222. The difficult peace and security situations in some areas preclude confident planning for long-term development assistance. The situation is most extreme in West Timor, but problems have existed over the last few years in a number of areas. The resolution of political issues is fundamentally a political matter. However, multilateral assistance can provide conditioning elements to enhance the efforts of public officials. In West Timor, for example, ADB provided water supply through small-scale infrastructure and equipment, supporting the Government’s efforts to reduce the appalling hardship of refugee camps while difficult political decisions were being addressed. Economic assistance will not, in every case, make the difference in whether sustainable, equitable political resolutions are met. But it will in some cases; and, if carefully and sensitively implemented, it will not hinder the process of crisis resolution. In many situations, small-scale infrastructure and livelihood activities can meaningfully mitigate social distress for the poor and vulnerable groups.

223. One need is for flexibility in ADB’s response to problems. In many cases projects already contain important components to address crisis needs. Adequate staffing and appropriate business practices will ensure that ADB’s projects can be suitably redesigned to respond to changes in priorities and conditions. To this end, IRM will closely cooperate with the Government and international agencies such as UNDP to ensure that project administration and design can cope with emergency needs, and changes in scope for some areas can be quickly considered.

2. Banking Sector Reforms

224. A healthy banking system is required to reduce the vulnerability of the economy to external shocks and also to permit long-term private sector growth. As discussed, there has been considerable progress and the World Bank and IMF and some of the bilateral funding agencies are supporting the Government’s efforts. However, the banking system is not yet strong enough to provide the underpinnings for sustainable, poverty-reducing growth. ADB should be prepared, in the event of performance failure in this area, to reexamine the targeted program of assistance. If, as in the recent economic crisis, TA and policy-based reforms can make a difference, ADB should be prepared to provide support in a package coordinated with other international funding agencies. If it is determined that ADB assistance would make little or no difference and that there was little likelihood of material progress, ADB’s program could not proceed as outlined in the COS. In particular, assistance in the nonbank financial sector would have to be reconsidered if banking reforms falter. Moreover, setbacks in either area would mean that private sector operations, with nongovernment guaranteed funds, would be considerably more difficult. If the vulnerability of the economy to a systemic crisis increases, ADB should be prepared to plan for additional assistance to confront this eventuality, especially in social protection.