Countries and Regions

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p. 5 of 7 BACK | NEXT Executive Summary I. Development Agenda II. ADB's Development Experience III. ADB's Strategy IV. Operational Approach V. Three-Year Assistance Program VI. Performance Monitoring and Evaluation

Country Strategy and Program 2002-2004: Lao People’s Democratic Republic

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IV. Operational Approach

A. Modalities of ADB Assistance

72. Future ADB support should generally be preceded by agreements with the Government on (i) sector development frameworks that include clearly defined needs, proposed interventions, and the role of development partners in reaching development objectives; (ii) verifiable performance indicators of development impact; and (iii) monitoring mechanisms to ensure consistency in efforts to achieve sector and/or regional development goals. To improve the development impact of all modalities, ADB will emphasize (i) community participation in development planning and implementation; (ii) better financial management and more transparent procurement procedures; (iii) better monitoring and reporting against agreed upon performance targets; and (iv) better analysis and dissemination of information on social, economic, and environmental impacts. Active stakeholder participation throughout the project cycle and better financial planning and management are needed to make ADB support sustainable and efficient. Financing of community-managed, geographically focused projects could facilitate incorporation of local needs into project design. Parallel projects with a similar geographic focus may ensure complementarity across sectors.

1. Lending Modalities

73. The strategy identifies policy and institutional reform as critical to the success of ADB assistance. The Government faces budgetary constraints to institutional development. While this may suggest a need for program lending, ADB experience with program lending modalities in the Lao PDR has not been encouraging. To address institutional and policy constraints, sectoral current expenditure constraints, and long-term sector development approaches, investment lending components will be combined with reform-linked sector budget support, especially in the social sectors. Project-lending modalities with specific policy conditions and institution-building components will be emphasized for infrastructure projects. Such assistance will be directly linked to income-generating activities, and to analyzing and addressing adverse social and/or environmental impacts of proposed developments. Community-managed matching fund projects will be considered to improve rural infrastructure with community participation.

2. Technical Assistance

74. Project preparatory technical assistance (PPTA) must (i) ensure that local participation and support is strong in the design, implementation, and monitoring of projects; (ii) assess recurrent expenditure implications and strategies for financing recurrent expenditure; (iii) assess project design options for improving equity; and (iv) identify policy changes and project design options that could directly enhance private sector investment. Analysis of institutional and human resource capacity development needs, development of the loan-term capacity-building program, and participatory approaches in design and implementation should be incorporated into PPTA terms of reference. Effective institutional strengthening and capacity building will require long-term support. The strategy aims to focus on fewer, more substantive, and generally long-term TA to identify and address constraints in priority sectors.

3. Economic and Sector Work

75. The key to effective implementation of this CSP is high-quality and focused economic and sector work (ESW). ADB must undertake these studies in close cooperation with the Government and other stakeholders to ensure that their views are reflected, and to build support for implementation findings and recommendations based on long-term development strategies. ESW results will be directly linked to policy dialogue and ongoing CSP implementation. Recommendations for effective assistance should be reflected in program and/or project planning and design (para 85. for future ESW priority areas).

4. Private Sector Operations

76. ADB aims to play a catalytic role in mobilizing private sector resources. Support may be provided directly to private enterprises and financial institutions through loans, equity investments, cofinancing, and guarantees under ADB private sector operations. Consideration will be given to assisting (i) financial intermediaries; (ii) infrastructure projects in the power, water supply, transport, and telecommunications sectors; and (iii) other projects with significant economic development impact.

B. Participation of Civil Society, the Private Sector, and Local Governments

77. ADB will look at options to (i) allow for extensive consultation and collaboration with key stakeholders at all levels, and (ii) ensure better integration between ADB interventions to meet priority needs of local communities. ADB will work closely with the Government to implement its decentralization strategy, ensure close consultation with local authorities and local communities, and directly support local institutional capacity building. Progress in achieving these objectives will be closely monitored during annual programming.

78. Cooperation and consultation with local communities can strengthen project identification and design. Opportunities for such cooperation will be pursued during programming, country-level work, lending and TA implementation, and policy and institutional development¹⁶. The aim is to work with communities in order to understand their concerns, needs, and priorities, and to involve communities in the design and implementation of ADB-supported activities. ADB will support policy and institutional reforms where the Government can demonstrate that it involves all stakeholders in developing consensus, ownership, and support for these reforms. Consensus building takes time and there is the need for long-term support.

C. Strengthening Government Capacity

79. Weak implementation capacity of the Government and local agencies and inefficient delivery of public services have been major constraints to development. The Government plans to clarify the relationship between provincial and central government agencies, and to increase the involvement of provincial authorities in priority setting and decision making in the context of decentralization. However, local capacity is particularly weak, and implies an even greater need for careful analysis of institutional-strengthening requirements when supporting decentralization. Government capacity-building assistance will be an integral part of all ADB operations, but particular focus will be given to improving: (i) governance and the delivery of public services; (ii) capacity of local authorities, especially in resource mobilization, financial management, and planning and provision of social services; (iii) enforcement of environmental safeguards; (iv) Government accounting and auditing; and (v) project implementation and performance monitoring. A long-term capacity-building program for agencies concerned will be prepared and reflected in each ADB investment, if appropriate.

80. Substantial and sustainable development impact will directly depend on the Government removing structural and institutional constraints. Improving the quality of public investment and public service delivery is a greater priority than increasing public investment. Increased public sector efficiency is needed to extend coverage of public services. Institutional development, improved governance, and greater stakeholder participation in development processes are essential to efficient delivery of public services. These concerns will be addressed by all ADB interventions. Institutional strengthening will also address the need for equitable participation of ethnic groups, women, and other underrepresented groups in public institutions.

D. Aid Coordination

81. External assistance finances some 80 percent of public investment. Coordinating development partner activities and advice has been a major challenge for the Government. Some development activities were funder-driven without adequate Government and/or stakeholder commitment. The situation has improved recently as demonstrated during preparations for the 2000 RTM. Still, the broad consensus is that more improvements are needed and that continuing development business as usual is not a viable option. ADB is well positioned to take a facilitating and/or collaborative role in coordinating with other development partners in sectors where ADB has made major long-term commitments. Generally, ADB will cooperate closely with other development partners in implementing all policy-related work to help develop consistent approaches. ADB will also participate in and contribute to sector policy and planning initiatives by the Government and other development partners. ADB will be prepared to enter into parallel and/or cofinancing arrangements with other official funding agencies and/or private investors. Mobilizing grant cofinancing will be emphasized.

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