Regions and Countries

	Table of Contents
p. 6 of 9 BACK | NEXT Executive Summary I. Introduction II. Current Development Trends and Issues III. Pacific DMC Development Strategies IV. ADB's Development Experience V. ADB's Strategy VI. Delivering the Pacific Strategy VII. Risks and Performance Monitoring and Evaluation Appendixes

Responding to the Priorities of the Poor: A Pacific Strategy for the Asian Development Bank 2005-2009

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V. ADB's Strategy

A. ADB’s Role in the Pacific

77. Feedback from PDMCs and from other partners suggests that, as a development partner for the PDMCs, ADB brings significant value as an independent agency with a strong economic policy focus and sound operational experience in the Pacific. ADB can also bring to the Pacific experience from other regions, both within and beyond its geographic mandate, and potentially bring the synergies of having public and private sector operations under one roof. In a region in which strengthening the quality of policies and institutions must be a central objective, TA, policy dialogue, support for national development strategies, and analytic work play a central role, more so than in any other operational region for ADB. In these circumstances, and with borrowing from multilateral banks playing a relatively minor role in financing development expenditures, lending levels cannot be the primary measure of ADB’s performance in the Pacific.

78. As discussed in paragraph 57, major bilateral donors have recently increased and revitalized their engagement with the region. This provides opportunities for better coordination and also for ADB to complement their contributions and enhance the overall impact of development partner programs at this critical juncture for the Pacific. Australia, for example, is playing a vital role in strengthening law enforcement and public financial management in PNG and Solomon Islands. The World Bank is planning new work on regional labor markets and remittances. These interventions help the PDMCs provide much-improved conditions for a focus on private sector-led economic growth. Achieving complementarity with other partners will require selectivity by ADB, and a willingness to leave some important issues and fields to others, while agreeing to work collaboratively in other areas (noted below). Ongoing dialogue with other partners is also critical. To this end, ADB has prepared the Pacific Strategy in close consultation with the World Bank, and with the governments of Australia, New Zealand, and United States. Broad areas for coordination and for delegation to others have been identified as part of this process, and will be reviewed periodically.

B. Addressing Poverty in the Pacific

79. The adoption by ADB in 1999 of poverty reduction as its overarching objective has had important practical implications in the Pacific.²⁴ ADB continues to work closely with PDMC governments on poverty assessments, country-specific poverty reduction strategies, and building capacity for poverty analysis. These commitments, generally implemented under poverty partnership agreements between ADB and the PDMCs, have led to a clearer understanding of the priorities of the poor in the Pacific.

80. In the absence of a single development framework for the 14 PDMCs, and in support of ADB’s vision of the Pacific region free of poverty, ADB will adopt the two priorities of the poor— opportunities for cash incomes and improved access to basic social services—as goals for the Pacific Strategy 2005–2009. Attainment of these goals will be measured in terms of PDMC progress in meeting selected MDG targets, among others.

81. In addition to pursuing strategic objectives and key result areas (KRAs) that address poverty reduction goals, ADB will continue to take specific measures through its country and regional cooperation programs to ensure that the priorities of the poor receive targeted attention. This will include support to the Secretariat of the Pacific Community to collect and analyze poverty data at the country level, and assist PDMCs to address poverty issues effectively in national and sector development planning processes.

C. Strategic Focus

82. Box 2 outlines the strategic framework for the strategy, setting out a vision, goals, and strategic objectives that will be vital in addressing the priorities of the poor, and the KRAs that will be the focus of ADB’s contribution to achieving these objectives. The strategic objectives modify the three pillars of ADB’s Poverty Reduction Strategy in the Pacific context. Greater focus and selectivity in ADB activities in the Pacific is sought through the selection of KRAs, in order to maximize impact.

83. This strategy maintains a focus on engagement and operations at the country level, albeit with an emphasis on more effective and inclusive processes and with regional cooperation playing an important complementary role. Alternative options, such as a focus on regional engagement or on predetermined sectors, have less scope to address the fundamental need to strengthen policies and institutions. Responsibility for policies and institutions remains primarily with national governments, supported by civil society, the private sector, and regional institutions.

84. There are important links and potential synergies between the three strategic objectives. Each involves support for a transformation of the role of government, so that government will (i) enable private sector development, (ii) focus on efficiency in resource use and on service delivery outcomes, and (iii) involve people, communities and the private sector in a more participatory and constructive way. Various synergies among KRAs can also be identified, for example, increasing community participation will help ensure that social services are responsive to client needs, and increased dialogue between the government and private sector will likely contribute to a more effective institutional, legal, and regulatory environment for PSD. Enhancing the impact of regional cooperation will assist in the achievement of many KRAs.

85. The strategy provides a mixture of continuity and new approaches in response to the mixed performance of the countries of the region. A strong focus on strengthening governance, and effective management of the economy and of public resources will continue, although with the new goals and objectives providing a more specific context for this work. Lending for key physical infrastructure will continue where appropriate, often accompanied by TA on related policy and institutional issues.

86. ADB will significantly increase its discussion and involvement with PDMCs to help create the conditions required to generate private sector-led economic growth. This new emphasis will require frank discussion with governments on policy options and implications, sometimes addressing sensitive issues. PDMC leadership of the necessary reforms is essential. Increasing concern over low growth rates and growing youth unemployment are reasons to believe that progress on PSD issues is increasingly possible.

87. The focus on the development process itself also brings new areas of emphasis. How governments and development partners do business is fundamental to the quality and sustainability of development outcomes. ADB will focus on broader participation and ownership, and seek to build demand for good governance, and for effective markets and services.

88. The selection of strategic objectives and KRAs to meet the goals of the strategy involves several important assumptions. The first, supported by international experience, is that broadbased private sector-led growth is the only sustainable path to economic growth, and through growth, to poverty reduction. A second assumption is that efficient markets can operate in the Pacific and, related to that, that the private sector can respond to the new opportunities provided for growth in a more conducive environment. Although there is scope for some debate on these issues, positive examples of private sector activity occur now despite very difficult conditions. Given important prerequisites (public goods such as macroeconomic stability, physical security, and a culture of adherence to the rule of law), the arguments in favor of the potential for a private sector response are set out in more detail in ADB's Swimming against the Tide? An Assessment of the Private Sector in the Pacific (2004). As noted earlier, there will be significant constraints to overcome. Increased domestic investment and entrepreneurship, rather than substantial foreign investment, is the major response sought in most cases. A phased approach and balanced expectations are appropriate.

89. One assumption related to the social services strategic objective is that PDMC governments will continue to be significant funders and providers of social services (along with development partners), but that appropriate roles for communities, civil society, and the private sector will be increasingly explored, with a view to getting better outcomes with scarce public funding, especially in the face of emerging health and education challenges.

90. A key assumption underpinning the third strategic objective is that greater interaction and cooperation involving governments, civil society, and private sector groups will promote better policies and more effective implementation in the national interest. This will require the availability of high-quality information on which to base policy dialogue, high levels of transparency and trust, and a refusal on all parts to pursue individual interests at the expense of national interests. Trust, in particular, is a key ingredient. In some PDMCs trust will need to be built from a low base and over time, through appropriate consultation processes.

91. The Pacific Strategy also assumes that, in the context of the Pacific Plan, prospects for the pursuit of advantageous opportunities for regional cooperation will be more favorable than in recent years.

92. As noted earlier, if greater focus and selectivity are to be achieved in ADB activities, this inevitably requires that ADB not involve itself in some sectors and themes and, as necessary, discontinue work in some areas. Trade and regional labor market issues have already been noted as areas best left to other development partners, based on their experience and expressed intent to undertake further work. In health and education, ADB will not generally delve too far into technical issues, such as curriculum and examination design, and will be selective regarding the MDG targets directly addressed. The environment is a specific area in which ADB proposes to complete all ongoing work, maintain a strong focus on water resource management and the environmental aspects of sanitation as part of its water supply and sanitation programs, and promote mainstreaming of environmental issues into development planning and programs as a KRA. However, ADB will scale back involvement in other areas, including some activities proposed in the Pacific Regional Environment Strategy (see footnote 4 and Appendix 3, Section C).

93. Details of the selection of strategic objectives and KRAs, and likely measures to implement them, are as follows:

Strategic Objective 1: Support a Conducive Environment for the Private Sector

94. Enabling the poor to access efficient markets for goods and services and to secure decent work is the key to allowing them to generate the cash income they require. Creating a conducive environment for the private sector will both promote the operation of efficient markets and expand opportunities in those markets. ADB proposes applying a broad definition of “the private sector” in its operations in the Pacific—including farmers and informal small businesses. This approach is not primarily about foreign investment. No distinction is made for policy or program purposes between domestic and foreign private businesses, nor the scale of business—by definition all except multinational businesses in the Pacific are micro, small, or medium enterprises. Agriculture and fisheries are, of course, key sectors in most PDMC economies and, through some country-specific KRAs, can be expected to receive attention under this strategy, consistent with a nondiscriminatory approach to PSD. Box 3 sets out ADB’s approach to PSD in the Pacific.

95. Beyond the provision of essential public goods are several specific institutional requirements whose importance is now increasingly clear for PSD in the Pacific (and elsewhere): property rights, an efficient commercial legal system, light but effective regulation, an effective basis for financial intermediation, physical and social infrastructure, low-cost services, and institutions for developing appropriate skills. ADB KRAs will focus on these issues, while carefully monitoring and discussing with PDMCs the status of the above-mentioned prerequisites. ADB will work with PDMCs toward a significant re-orientation of the role of government, with a view to reducing high costs to business and ensuring the supply of these key public goods. A phased approach, taking highest priorities first, will be appropriate. Honest discussion of sensitive issues such as foreign ownership an ethnicity will be necessary. The World Bank will be an important partner in these areas, and ADB and the World Bank have agreed on the importance of coordinating their assistance to PDMCs.

96. Priority issues regarding the institutional, legal, and regulatory environment are most appropriately determined on the basis of a country-level assessment. Building commitment to policy objectives is a vital prerequisite. A few reforms that can be implemented relatively simply and/or that will have a significant impact on incentives for businesses should then be prioritized. Removing unnecessary barriers to business will often be a relatively easy step if policy commitment is in place. Simplifying the legal and regulatory framework and making it more transparent will reduce opportunities for corruption, and can be achieved in tandem with updating often transplanted and outdated laws and regulations.

97. Weak property rights, including but not limited to land tenure, are a significant barrier to business investment in all PDMCs. Only Pacific islanders can decide on appropriate land tenure systems that best meet their objectives. Because land tenure is a contentious issue with many dimensions, determining the way forward will be a long and slow process. The process should be reinvigorated, or started, now. Given the importance of the issue to PSD, economic growth, and poverty reduction, ADB is willing to support PDMCs who wish to address land tenure issues. ADB is already playing a role in strengthening property rights more broadly, for example by strengthening the legal framework for using movable assets (such as vehicles and machinery) as collateral for bank loans. ADB will also highlight in its analytic work the key issues and the costs and benefits of tackling the range of property rights issues.

98. ADB recognizes the importance of a well-functioning financial system for PSD and propoor growth. In the Pacific, financial services, limited in scope, are offered to a small segment of the population and are frequently unavailable in rural areas and on outer islands. Development partner support for the financial sector generally takes a niche-market approach to large-scale finance, SME finance or microfinance, thereby supporting fragmentation of the financial sector. The development partners have paid insufficient attention to the specific characteristics of PDMC financial markets as a whole, and how they might best operate, given their small scale.

99. ADB will support improved financial services by following a financial systems development approach, addressing the delivery of all forms of financial services by a range of institutions to everyone who needs them. ADB will collaborate with other development partners to leverage resources and enhance impact, and support a range of market initiatives covering (i) retail capacity (e.g., microfinance institutions, savings and loan societies, banks), (ii) service infrastructure (e.g., training and knowledge centers, credit rating), and (iii) policies and regulations. ADB will build on existing financial infrastructure and institutions where possible, and promote the development of innovative products and delivery mechanisms.

100. SOEs represent a large proportion of many PDMC economies. Their role and performance have a significant impact on PSD, in terms of potentially crowding out businesses and in affecting competitiveness through the cost and quality of services provided to the private sector. Improved ownership arrangements, accountability, and performance of SOEs are therefore essential. ADB will assist governments to assess the public good rationale for all SOEs, and to divest those without a clear public good rationale. A range of ownership and operational arrangements can be pursued for SOEs providing public goods, with maximum efficiency the overriding objective. Enhancing contestability should be a key principle, with specific arrangements determined by local circumstances. This may include promoting competition within efficient markets, or competition for the right to operate the market for a fixed period (e.g., outer-island shipping) in some cases. Whether SOEs are privatized or retained in public hands, creating appropriate regulatory frameworks that enhance contestability should be a priority. Given the shortage of regulatory skills and complexity of the issues, there is a strong rationale for exploring regional approaches to regulation.

101. The improved provision, operation, and maintenance of physical and social infrastructure, combined with governance arrangements for the competitive and reliable provision of related services, are essential to connect private sector producers to domestic and export markets. Most PDMCs have very limited infrastructure stocks, often in poor condition. ADB’s approach to infrastructure and related services in the Pacific will focus on: (i) efficient and effective ownership and management arrangements; (ii) rehabilitation and sustainable maintenance of physical infrastructure; (iii) improving services to outer-island and rural areas (e.g., through innovative arrangements for interisland transportation); and (iv) working toward rationalization and pooling of resources at the regional level for shipping, aviation, and communications services.

102. Severe skills mismatches in Pacific labor markets stem partly from problems in the basic and formal education systems, scale problems (e.g., smaller PDMCs may only need one or two refrigeration mechanics, but having none may be extremely problematic to business), and partly from previous (supply-driven) efforts to address skill supply shortages. Supporting an effective institutional framework for labor force skills development is therefore a key challenge for PDMCs and, in order to address scale problems, for the region as a whole. This framework should promote both formal and nonformal skills development, involving government, nongovernment organizations (NGOs), churches, and the private sector in rural and urban areas.

Strategic Objective 2: Enhance the Supply of, and Demand for, Quality Social Services

103. There is significant, largely grant, donor support for the social sectors in the Pacific. ADB needs to define its role carefully and establish close relationships with selected PDMC social sector agencies and with other development partners. Details will usually best be established at the sector level within countries. Analytic work and TA will play a central role, with lending for social infrastructure also provided where requested and appropriate. Building on current work, ADB envisages a lead role in improving approaches for the delivery of water and sanitation in the Pacific and will focus particularly on MDG health and environment targets that are best addressed through improving access to, and quality of, water supply and sanitation. ADB’s 2004 Pacific Regional Environment Strategy provides valuable lessons and recommendations for this work. A partnership role will be more appropriate in health and education.

104. MDG outcomes are likely to be significantly enhanced by the development and implementation of social sector strategies that are relevant and responsive to national objectives and client demands. Strategies that are closely aligned to national objectives can be expected to receive high-level support and fare better in budget processes. Services that respond to the need of the people in local communities create a virtuous circle of improving utilization, generating further demand and enhancing quality of outcomes. The strategy recognizes that social sector strategies will need to focus on both supply and demand aspects. Provision of quality services will lead to greater utilization, particularly by the poor and disadvantaged, only if social and economic barriers to use of services are reduced. ADB will explore innovative approaches for providing social services, such as NGO contracting.

105. Globally, sector-wide approaches (SWAps) are becoming an increasingly wellestablished basis for collaboration between DMC governments and development partners toward common objectives using shared resources. SWAps are still an emerging possibility in the Pacific. ADB, with the Australian Agency for International Development (AusAID), has been a key supporter of movement in this direction in PNG’s health sector. Significant progress is being made in the education sector in several PDMCs. ADB will be proactive in looking for ways to support SWAps. Coordinated donor approaches will also be explored at the regional level for regional public goods, such as surveillance and prevention of HIV/AIDS.

106. Demand for social services is growing, due to population increase, community expectations, and emerging social sector challenges, such as HIV/AIDS and noncommunicable diseases. However, public sector resources are limited, and stagnant in many PDMCs. This means that more effective public, private, and development partner resource allocations for social services will be essential to meet sector and MDG targets. In broad terms, increasing the proportion of public and development partner funds allocated to basic social services will make a significant contribution to this objective. In several PDMCs there is significant scope to do this, as secondary and tertiary services receive high proportions of public funds. Despite the large positive externalities, preventive health services receive only a marginal share of public funds. Options for mobilizing greater private contributions at the secondary and tertiary levels without unduly damaging usage rates (e.g., health insurance) might also be investigated in parallel. Detailed recommendations require careful assessment of specific issues for social service financing in each PDMC. Efficiency of expenditures and effectiveness of financial management are important related issues to be addressed.

107. The presence of appropriate plans and financing arrangements must be complemented by capacity and effective systems to manage and deliver quality social services. These systems must encourage service delivery organizations to manage for results. Human resource management is a key weakness to be addressed in many such organizations, along with asset, information, and financial management systems. Such systems, which will cover new infrastructure in some cases, must be robust and within the capacity of small organizations to sustain. Regional approaches will play an important complementary role, by promoting the sharing of lessons learned and providing economies of scale in addressing technical issues.

Strategic Objective 3: Effective Development Processes

108. The mixed development performance of PDMCs in recent years, notwithstanding significant development partner support, and the lessons learned from ADB’s analytic work and experience in the region, suggest that a focus on how PDMCs and development partners do business will be an important factor in determining development outcomes in the Pacific. The objective of promoting more effective development processes therefore underpins the achievement of private sector and social service delivery objectives. The focus on the development process will also make a significant contribution to good governance in the region—addressing the four key elements of good governance, i.e., accountability, participation, predictability, and transparency—in addition to the governance measures arising from the private sector and social service delivery objectives.

109. Encouraging greater participation and ownership in development programs by the people of the Pacific will be central to improving the outcomes and sustainability of development programs and projects. Box 4 highlights PARD work already completed or under way that strengthens participation. ADB will build on and replicate these initiatives.

110. Consultations prior to and during the development of the Pacific Strategy confirm that civil society and private sector groups want to be engaged and contribute to improving development outcomes in the Pacific. This enthusiasm is a great asset for PDMC governments and for development partners. Aside from commitment, these groups bring interesting ideas, experience, and a practical understanding of what works. For these reasons, promoting increased dialogue and cooperation among civil society, private sector groups, and governments will be an important focus for ADB. Combined with increased community participation, and measures to build the capacity and awareness of civil society and private sector groups, greater engagement by these groups with government is expected to contribute to increased public demand for good governance, and for effective markets and services.

111. However, to be fully effective, greater participation and public demand for governance will need to be complemented by several government measures. Strengthened government transparency and accountability will be essential, not least in the fight against corruption. Accountable public financial management, including audits of public expenditure, are a priority. Greater and more timely availability of current and proposed laws and regulations is also a key building block for good governance. Information and communications technology may provide opportunities for progress in these areas.

112. More broadly, governments and nongovernment groups and communities alike need to benefit from improved availability and dissemination of quality information on development issues as a basis for their dialogue, policy formulation, and planning. ADB’s economic, thematic, and sector work has played an important role in this respect in the Pacific for many years. However, past efforts to strengthen the quality generation of statistics and policy-oriented research within PDMCs has been undermined by a lack of demand from leaders. Working with leaders to help them see the benefits of decision-making based on quality data, is therefore an essential component in this field.

113. Finally, the capacity of PDMC governments, civil society, and private sector groups to plan and manage for development results will need strengthening if consensus, appropriate policies, and effective participation are to result in practical change. Aligning government processes with development targets is central to this challenge: political decision-making processes, the budget, sector plans, and staff performance incentives all need to support implementation efforts. Managing the political economy of necessary reforms is an important corequisite. Given the importance of external assistance in the region, especially in terms of development expenditures, PDMCs’ ability to manage development partner inputs—and to work with development partners to enhance their coordination and harmonization—is a key element of managing for development results.

114. Mainstreaming gender and environmental considerations into development planning and programs represents the best prospect to successfully address these important development concerns. The challenge is to ensure that processes in national planning, political decision making, and resource allocation are designed to take these important considerations into account in a systematic way. Building awareness of the issues at the political level and in finance and planning ministries is likely to be at least as important as strengthening the responsible line agencies. Improving the quality and relevance of key data and information on these issues, and integrating them with mainstream government information systems, is a specific challenge to be addressed. Important work undertaken by ADB to date in areas such as water resource management and climate change will be consolidated. Details on proposed ADB approaches for gender concerns and the environment are in Appendix 3.

115. Enhancing the impact of regional cooperation has a significant complementary role to play. Regional cooperation improves the environment for the private sector, by providing regional public goods in transport and communications and in specialized skills areas such as regulation. Regional public goods contribute to service delivery, including through support for effective financial management (e.g., the Pacific Financial Technical Assistance Centre), by promoting knowledge sharing and economies of scale (e.g., shared curriculum and education assessment systems or the University of the South Pacific). Finally, regional cooperation can also support improved governance and development processes through peer accountability (for example, the Forum Economic Ministers’ Eight Principles of Public Accountability).

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