Greater Mekong Subregion

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GMS Mid-Term Review cum Senior Officials Meeting

Introduction

The GMS Mid-Term Review Meeting cum Senior Officials Meeting (MTR-SOM) was held at the Merchant Court Hotel, Bangkok, Thailand from 30-31 May 2001. The Meeting Sessions were chaired by Dr. Pornchai Rujiprapa, Deputy Secretary-General, National Economic and Social Development Board of the Royal Thai Government; Mr. Somchith Inthamith, Director-General, Department of Economic Affairs, Ministry of Foreign Affairs of Lao PDR; Mr. Vongsey Vissoth, Deputy Secretary-General, Ministry of Economy and Finance of Cambodia; and Dr. Nguyen Van Phuc, Deputy Director, Foreign Economic Relations Department, Ministry of Planning and Investment of Viet Nam. The co-chairs from the Asian Development Bank (ADB) were Mr. Yoshihiro Iwasaki, Director, Programs Department West; and Mr. C.R. Rajendran, Manager, Programs Department West Division III (PW3).

The objectives of the Meeting were to: (i) review the GMS Program's sectoral accomplishments and key operational issues; (ii) review the progress in implementation of priority subregional projects; (iii) discuss the elements of the long-term strategic framework of the GMS Program and improvements in the institutional mechanisms of the GMS Program; (iv) assess investor perceptions of risk in the GMS and its implications on the GMS Program's resource mobilization strategy; and (v) prepare for the 10th Ministerial Meeting in 2001. The Program and Agenda is attached as Appendix 1.

The Meeting was attended by (i) GMS Senior Officials from the Kingdom of Cambodia, the People's Republic of China (the PRC), Lao People's Democratic Republic (Lao PDR), Union of Myanmar, Kingdom of Thailand, and the Socialist Republic of Viet Nam; (ii) representatives from bilateral and multilateral donor agencies and regional institutions that are active in the GMS; (iii) representatives from the private sector; and (iv) representatives from academic institutions. ADB staff and consultants also attended as resource persons. The list of participants is in Appendix 2.

Opening Session

His Excellency, Mr. Pongpol Adireksarn, Deputy Prime Minister of the Royal Thai Government welcomed the participants to the MTR-SOM. He reaffirmed the strong commitment of Thailand to the GMS Program and informed the Meeting that the Royal Thai Government has allocated US$225 million from the national budget to support various projects and initiatives under the GMS Program framework. Cooperation under the GMS Program has had encouraging results as evidenced in the expansion of intra-regional trade. Border trade between Thailand and neighboring countries has begun to increase and diversify, increasing at an annual average rate of 55 percent since 1993, and reaching a level of US$1.1 billion in 2000.

Thailand continues to attach great importance to strengthening its relationships with neighboring countries in the areas of agriculture, trade and investment, telecommunications, and transport, including aviation and commercial navigation. To maintain the momentum of the cooperation, he proposed an eight-point agenda, as follows: (i) completion of the East West Economic Corridor (EWEC); (ii) minimization of non-physical barriers along transport corridors; (iii) ensuring that poor and remote areas benefit from regional cooperation; (iv) promotion of agriculture-related activities among the GMS countries; (v) facilitating financial flows, in particular from the private sector and donors; (vi) strengthening the role of the private sector, in particular through the GMS Business Forum; (vii) addressing issues of environmental degradation in the early stage of project planning through the adoption of the strategic environmental framework; and (viii) addressing transborder issues such as drug trafficking, the spread of HIV/AIDS and labor migration. In concluding his statement, the Deputy Prime Minister stressed the need for a spirit of harmony, more than general cooperation, to maintain close relationships in the GMS. It is therefore essential for the GMS countries to understand their roles and reaffirm their political commitment to the Program.

Mr. Yoshihiro Iwasaki, Director, Programs Department West, welcomed the participants on behalf of the ADB. He explained that the MTR is the first such Meeting to be held within the institutional framework of the GMS Program. Its purpose is to broaden the discussion of GMS Program and project level issues to a wider set of participants in the spirit of partnership and participation in order to bring new perspectives on critical issues and cross-cutting concerns. The task of the Senior Officials Meeting on the other hand, is to prepare for the 10th Ministerial Meeting to be held in the third quarter of the year. In reviewing the economic performance for Southeast Asia, and by extension, the GMS, Mr. Iwasaki indicated that the region's performance for 2001 will be moderate at best. He underscored the need for the GMS countries to continue with the domestic reform agenda as a means to sustain economic recovery. The expected upturn in the global economy in 2001- 2002 is also expected to have a more positive impact on Southeast Asian economies. Despite moderate economic performance, trade within the region increased significantly. Economic recovery, however, will remain a major challenge for the GMS countries.

Regional cooperation can amplify national efforts at recovery by expanding access to resources and markets through physical linkages and joint approaches to cross-border issues in environment, health, and other social concerns (e.g., trafficking of drugs and people.) He outlined the key issues for the consideration of the MTR, among others, the need to expediting the implementation of priority subregional transport projects as well as the Trilateral Agreement on the Facilitation of Cross-Border Movement of Goods and People in the GMS; and the mitigation of unintended social and environmental effects of subregional infrastructure development. He also stressed the need for the GMS countries to begin laying the groundwork for the long-term sustainability of the GMS Program by strengthening the present institutional arrangements to cope with emerging new roles and functions, setting up resource mobilization strategies and mechanisms, and identifying the elements of a long-term strategy towards a shared vision of the future.

Review of Sectoral Accomplishments and Key Operational Issues

Overview of GMS Program Strategic Thrusts and Sectoral Accomplishments

In presenting the GMS Program overview, Mr. Toru Tatara, Head, GMS Unit, ADB, recalled the initiatives at confidence building and project identification during the early years of the GMS Program. He stated that noteworthy progress in project implementation has now been achieved despite the difficulties experienced by the GMS countries as a result of the Asian economic crisis. He reviewed the progress of work in each of the eight sectors of cooperation and outlined the key operational issues that have to be addressed. The most pressing challenges for the GMS Program at present are: (i) to facilitate greater subregional integration by around 2006 by completing the implementation of key transport corridors and the region-wide cross-border facilitation agreement; power transmission interconnection to pave the way for regional power market; and a telecommunications backbone network; (ii) the need to mobilize more financial resources and strengthen risk management capacity to attract private sector financing for public sector projects in the GMS; (iii) improvements in the existing GMS institutional mechanism to cope with new roles and demands of regional cooperation; (iv) a strategic approach to the mitigation of social and environmental consequences of subregional infrastructure development; and (v) better coordination with key agencies involved in the GMS such as ASEAN, the UN Economic and Social Commission for Asia and the Pacific (UN-ESCAP), the Mekong River Commission (MRC), the Mekong Institute (MI) and other bilateral initiatives (e.g. Japan). To support the GMS countries in meeting these challenges, he indicated that the ADB Management had decided this year to allocate US$300 million for regional cooperation projects over and above the funds for national projects. He also noted that the Thai government has established a neighboring countries cooperation fund with an initial amount of about 1 billion baht.

The Meeting noted the followed the following views and comments from the GMS countries:

i) The GMS countries confirmed the importance of physical infrastructure linkages for promoting closer integration in the GMS;

ii) PRC and Cambodia stressed the need to ensure that infrastructure development should be mutually beneficial and equitable. PRC suggested that full consultation is needed for multilateral initiatives, particularly those of legally binding nature. Careful study of implications and the feasibility of implementation of projects must be conducted before launching any new initiative in order to ensure its successful implementation.

iii) While Thailand confirmed the importance of subregional infrastructure development, it called for equal emphasis on "software aspects" as well as the development of economic activities (e.g. tourism and industry) to stimulate employment and incomes along the areas traversed by infrastructure routes; Thailand also gave importance to human resources development especially for upgrading the skills of the labor force and coping with advancements in technology;

iv) PRC proposed that trade cooperation in the GMS should be emphasized considering a more conducive policy environment in the GMS countries. They proposed two specific areas of cooperation: customs facilitation and dispute settlement;

v) Lao PDR emphasized the need for foreign investment mobilization and business development; and

vi) Lao PDR, Thailand, and Viet Nam expressed a common desire to accelerate the development of the East West Corridor.

The GMS countries unanimously agreed that institution and capacity building is fundamental for sustaining the long-term cooperation in the GMS. The establishment or strengthening of GMS Units in the countries will be an important element of institution building. Other areas of improvement include better coordination among the national GMS Units or national coordinators, longer preparation time for GMS meetings and closer consultation with and among GMS countries.

Dr. Robert Teh, Director, Bureau of Economic Cooperation, ASEAN Secretariat cited the important role of the GMS Program in helping to bridge the development gap between the old and new members of ASEAN . ASEAN has recognized that this development gap should be addressed before effective regional integration can take place in the region.

Mr. Mamoru Umemoto, Director, Development Finance Division, Ministry of Finance, stated that Japan attaches great importance to the GMS Program, citing the effectiveness of its bottom-up approach. He indicated that for Japan, the distinction between national and regional projects is an important consideration in allocating official development assistance (ODA) to the GMS. He proposed greater linkages among the eight priority sectors of cooperation in the GMS, for instance through the economic corridor approach. He announced that a mission from Japan soon be travelling to the GMS countries to determine the direction of Japan's future policy in the region. The mission will coordinate closely with ADB.

Subregional Transport Projects and the Trilateral Agreement on the Facilitation of Cross-Border Movement of Goods and People in the GMS

Mr. Ronald Antonio Q. Butiong, Advisor, GMS Unit, presented the status, and key issues and actions required for, ongoing and planned priority subregional initiatives in the GMS transport sector. He summarized the progress of the two ongoing subregional road projects, namely, the R1: Bangkok-Phnom Penh-Ho Chi Minh City-Vung Tau Road Improvement Project and R2: Thailand-Lao PDR-Viet Nam East-West Transport Corridor. Significant progress is being made in these two projects, portions of which are being financed by assistance from ADB and other donors. He informed the Meeting about further progress on the Chiang Rai-Kunming via Lao PDR Road Improvement Project. The 263-km section in Lao PDR is under public/private concession. This concession is under review for a possible negotiated settlement through which the Lao Government would take full ownership of the concession. An ADB-assisted mediation process is underway. Following successful settlement, ADB would provide technical assistance for project preparation as well as environmental and social impact assessments of the entire length. The Governments of the People's Republic of China and Thailand have confirmed their full support for the improvement of this road. A $20 million loan is included in the Lao Government's borrowing program from ADB in 2002. A satisfactory resolution of the negotiated settlement is a prerequisite for any future progress in implementing this important north-south road link. Following successful resolution, a quadripartite task force comprising representatives from Lao PDR, PRC, Thailand, and ADB would be convened to reach agreement on various aspects of project implementation. Mr. Butiong also reported on the Kunming-Hanoi-Haiphong Multimodal Transport Corridor, which involves road and rail improvement, as well as upgrading of inland water transport on the Red River, which flows from Yunnan Province to Viet Nam. A key issue is the need to confirm the support of participating countries for this project. Once support for the project is confirmed, ADB will provide a regional technical assistance to establish project feasibility. This will include the conduct of environmental and social impact assessments as well as regulatory and pricing policies associated with a multimodal project.

Mr. Butiong noted the following issues or actions required regarding cross-border facilitation: (i) ensure that the Amendment to the Trilateral Agreement and the Instrument of Accession is signed by the countries concerned during the 10th Ministerial Meeting; (ii) ensure that the signatory countries take the necessary steps to ratify the Agreement after they have signed it; (iii) ensure close cooperation between the GMS Program and ASEAN Secretariat in the preparation/ finalization of annexes and protocols; (iv) ensure that the timetable for the opening of GMS borders agreed upon during the 9th GMS Ministerial Conference is adhered to; and (v) given the broad implications of the cross-border agreement, each country should consult widely on a broad spectrum of sectors, such as customs and immigration, in the process of finalizing the annexes and protocols.

The following comments, views, and suggestions were made by the GMS delegations concerning the presentation:

i) Development of R3 in Lao PDR is vital to the north-south link in the GMS and must proceed as quickly as possible. As regards the R3 project, there is a need to expedite the process of its significant socioeconomic impact to Lao PDR;

ii) In developing R3, an integrated multisectoral approach must be adopted to maximize the economic benefits from the project.

iii) The PRC delegation expressed positive attitude that the PRC Government will consider the cross-border Framework Agreement;

iv) Documents and other international agreements that have been used as references in the preparation of annexes and protocols should be provided to the GMS countries;

v) Assistance is needed in rehabilitng the Poipet-Sisophon road link as part of the R1 project and R6 from Lao Borders to Kratie province;

vi) The feasibility study of R3, which was completed in 1998 under the auspices of ADB regional technical assistance, must be updated;

vii) The Thai delegation confirmed that the Royal Thai Government is undertaking the necessary internal preparations for: (1) the ratification of the Trilateral Agreement, and (2) the signing of the Amendment and Instrument of Cambodia's accession during the 10th GMS Ministerial Conference tentatively scheduled for the third quarter of 2001;

Telecommunications Backbone Project (Phase I)

Mr. Butiong also presented the planned GMS Telecommunications Backbone Project-Phase I, and the key issues related to project implementation. He explained the findings of the feasibility study of the Phase I telecoms backbone project as follows:

i) All the necessary minimum required facilities to establish the Phase I telecoms backbone network have been completed.

ii) The scope of the Phase I backbone network includes: the optimization and upgrade of the existing network; the establishment of a fiber optic route from Vientiane via Luang Phrabang, Luang Namtha to Mengla in Yunnan Province, which will open the East Loop to Yunnan Province, and establish cross-border traffic from Luang Namtha to Mengla; the establishment of a fiber optic route from Pakse in Lao PDR to Phnom Penh in Cambodia, which will increase the availability of the existing East Loop and expand the national backbone capacity in southern Lao PDR; establishment of a fiber optic route from Phnom Penh via Siem Reap to Sisophon, which will close a national ring configuration, and set up a national loop to connect the cities north of the Tonle Sap; and the establishment of a fiber optic route from Savannakhet in Lao PDR to Dong Ha in Viet Nam, which will improve the availability of the East Loop and increase the capacity of both national networks.

iii) Technical assistance studies should be conducted either prior to or in parallel with the implementation of the Phase I backbone network, in key areas that include, among others: policy and regulatory reforms, tariff or pricing issues, and telecommunications management networks.

iv) The Phase I backbone network project is financially viable with a projected EBITDA ratio of 49 percent.

v) The feasibility study strongly recommended that all GMS countries intensify their efforts to prepare an appropriate regulatory situation, and that a sector policy be developed that supports full competition in the telecommunications market.

vi) The estimated cost of the Phase I backbone investment project is about $45 million, attributable largely to new connections in Cambodia, Lao PDR, and Viet Nam. The section in Viet Nam is being upgraded using government resources.

Mr. Butiong explained that an integrated approach to the development of the Phase I backbone telecommunications network will be adopted that takes into account both the hardware and software elements of the development strategy. As a first step, a comprehensive GMS Telecommunications Sector Policy Study for Cambodia, Lao PDR, and Viet Nam will be conducted under the auspices of ADB regional technical assistance. The objective of this Study is to assist the three Governments concerned to prepare a sector policy, a telecommunications act, and a telecommunications reform program. If found necessary, ADB will consider providing a support program to the governments concerned to mitigate any fiscal burden that might result from the implementation of the reforms. The third component of this package is a proposed investment loan from ADB to Cambodia, Lao PDR, and Viet Nam planned for 2003 to develop the missing links. Sector reforms are expected to be implemented in parallel to the implementation of the Phase I backbone network project. Mr. Butiong outlined the key issues and actions required for the Phase I telecoms backbone project:

i) The Cambodia, Lao PDR, and Viet Nam must fully endorse the integrated approach to the development of Phase I telecoms backbone network;

ii) The participating countries must be strongly committed to implementing the Telecoms Sector Policy Study, recommendations;

iii) As part of the Study implementation, high-level workshops, seminars, and other related meetings must be held concerning the proposed policy and regulatory reforms, involving various stakeholders; and

iv) Establishment of a steering committee to high level officials to oversee implementation of the study recommendations.

The GMS delegations confirmed their support for the integrated approach to the development of the Phase I telecoms backbone network. It was noted that the policy sector reforms in the telecoms sector will take time to implement.

The East West Economic Corridor

Mr. Myo Thant, Senior Regional Cooperation Economist, ADB presented the results of the Pre-Investment Study of the East West Economic Corridor (EWEC) which provides a framework and identified the priority policy, program, project and institutional aspects of cooperation along the Corrridor. The Corridor, which traverses the route extending from Mawlamyine (Myanmar) through Mukdahan (Thailand), Savanakhet (Lao PDR), to the port of Da Nang (Viet Nam) offers a variety of complementarities. Major opportunities are in the areas of agriculture and agro-industry, light manufacturing, tourism, trade and investment, industrial estate development, and infrastructure development. Major constraints on the other hand consist of poverty and remoteness of areas along the corridor, low levels of literacy, poor infrastructure, and policy and institutional weaknesses. The long-term development strategy in the EWEC is to accelerate economic growth along the Corridor area and raise the incomes of its residents, through increased regional cooperation. In the short-term, the strategy is to concentrate investments in critical nodes, minimize costs of cross-border transactions, and create demonstration effects to catalyze change.

Mr. Thant noted the need for strong public sector supported and presented the elements of an action plan to realize the potential of the EWEC. An important first step is to obtain a commitment at high political levels, possibly through a ministerial declaration on the EWEC, and to put in place institutional mechanisms at the national (e.g. national committees for corridor development) and regional levels. In the transport and communications sectors, substantial investments are needed especially in the western part of the Corridor, the development of a telecommunications loop, and the pilot testing of single-stop customs inspection facilities. Human resources development (HRD) requirements for the Corridor could be provided in specific training centers (i.e., in Khon Kaen, or the agricultural school in Savannakhet). An important area of focus in HRD is the health risks associated with increased mobility from the expansion of transport routes. To promote investments in the Corridor, it would be important to disseminate more information about the Corridor through publications and the development of a website, undertake joint investment promotion activities, and develop tourism promotion and marketing efforts. A monitoring system should also be established to account for the economic, social and environmental impacts of corridor development.

The Meeting noted the following comments from the GMS countries:

i) The GMS countries expressed appreciation and support for the Pre-investment Study on the EWEC and agreed in principle with the goals and strategies that have been proposed;

ii) PRC noted that there are other Corridors being planned along the Kunming-Chiang Rai Road that could benefit from similar approaches to the EWEC; and

iii) Thailand emphasized the importance of human resource development along the Corridor and indicated that it is willing to share some of its experiences in this area.

iv) Thailand noted that efforts should be made to resolve the transport infrastructure bottlenecks on the western portion of the Corridor.

Mekong/Lancang Tourism Infrastructure Project

Ms. Lise Weidner, Private Sector Development Specialist, ADB, presented the Mekong/Lancang Tourism Infrastructure Development. She began by highlighting the relationship between tourism development and poverty reduction in developing countries. Tourism has contributed about 11 percent of the world GDP, with benefits estimated at $476 billion in 1999. She noted that tourism in the GMS is growing at a faster rate than globally, and is holds great potential as a source of economic growth and job creation. The relationship between tourism and poverty reduction is manifested through increased jobs and income opportunities, community and human development, infrastructure and rural development, and conservation and restoration of cultural and historical sites. Ms. Weidner stated that the objective of the ADB regional technical assistance for Mekong/Lancang Tourism Infrastructure Development (RETA 5893) is to prepare a feasibility study of priority tourism infrastructure projects within the GMS, and identify ways to strengthen subregional cooperation and management mechanisms to preserve and protect the Mekong River, its environs, and its cultural and historical heritage. She noted that cross-border links of infrastructure development create an excellent opportunity for the GMS countries to work jointly on promoting the Mekong/Lancang River as a unique tourism development. The implementation of RETA 5893 was supported by the 12th Meeting of the GMS Tourism Working Group held in Kunming, Yunnan Province, PRC. The provision by ADB of a separate fund for subregional cooperation over and above the ADB's country loan allocations, as well as the ADB's Private Sector Development Strategy, have provided the impetus to implement RETA 5893, and the ensuing investment project. She reported that reconnaissance missions to Cambodia, Lao PDR, and Viet Nam were undertaken by ADB in May 2001 to determine the willingness of the concerned countries in requesting ADB assistance to implement tourism infrastructure development projects. Ms. Weidner reported that Cambodia, Lao PDR, and Viet Nam expressed support for the implementation of RETA 5893. Cambodia and Lao PDR also expressed willingness to include tourism infrastructure development projects in their respective borrowing programs from ADB.

The Meeting noted the following comments, views, and suggestions made by the GMS delegations concerning the presentation:

(i) The PRC delegation proposed changing the name of the project to Lancang/Mekong River Tourism Infrastructure Development on the Greater Mekong River Tourism Infrastructure Development consistent with existing conventions in naming international waterways. The PRC delegation went on to point out that there are mistakes in the maps of the GMS in booklets published by ADB. The Lancang River within the PRC border is marked as "the Mekong River". The PRC delegation suggested that such marking be corrected and changed into "the Lancang River".

(ii) While the potential for tourism development is considerable, the tourism infrastructure requirements in most of the GMS are very extensive;

(iii) ADB assistance is requested in developing the infrastructure necessary to implement the Upper Lancang/Mekong River Quadripartite Commercial Navigation Agreement, an objective of which is to promote tourism development among the upper riparian countries. This was the comment on behalf of Thailand, who also confirmed their commitment to participate in the implementation of RETA 5893 and the interest in availing of ensuing loans;

(iv) Viet Nam will confirm with ADB their willingness to borrow for a tourism infrastructure project on or before the end of June 2001, including the list of possible investment projects in tourism infrastructure;

(v) Myanmar supported the need for developing infrastructure and mentioned that the scope of the Planning Study was very wide and needed updating;

(vi) Lao PDR confirmed the commitment to participate in the implementation of RETA 5893 and mentioned that the projects currently identified for an ensuing loan in 2002 included upgrading of a road and six ports; and

(vii) Cambodia mentioned that tourism is a priority sector for the country and supported the need for infrastructure development in order to be able to expand existing tourism potential. Dr. Hing Thoraxy mentioned that priority areas for Cambodia are (i) Phnom Penh and (ii) Siem Reap. Capacity building and training opportunities were further considered important.

Strategic Environment Framework

Mr. Robert Dobias, NGO Coordinator, NGO Center, ADB, explained the background of the Strategic Environment Framework (SEF) Project supported by a regional technical assistance from ADB. The project's objective is to prepare a subregional SEF integrating environmental considerations in economic development planning and implementation. It also aims to strengthen environmental performance monitoring through design of environmental quality indicators (EQIs) and EIA capacity building. The project consists of three phases. The first is the Inception phase, which includes data inventory, compilation, consultative meetings, donor dialogues and detailed work program preparation. Phase 2 will be data analysis in the form of layered maps on biophysical/ social conditions, infrastructure, and sensitive areas or hotspots. Phase 3 involves SEF development, covering institutional, policy and legislative issues, and monitoring/ public participation strengthening aspects. The completed draft SEF Report incorporating the hotspots report, data analysis, draft case study conclusions, and the Early Warning Information System (EWIS) was presented at a regional workshop held in April 2001 in Phuket. An important issue that was identified is the need to determine the implications of the SEF, particularly the hotspots analysis and the EWIS, on development planning in the GMS. There should be assessment of the required training and capacity building to manage the SEF processes.

Among the important features of the SEF Guidelines are: (i) the requirement that all GMS dam, hydropower and road projects must have a valid public involvement process and must involve the agreement of concerned member countries for resolving negative impacts; (ii) improved investment decision making; and (iii) information disclosure and transparency of decision-making. To implement the SEF, four strategic program interventions would need to be implemented. These are: (i) supporting informed decision making through improved planning and assessment; (ii) fostering public involvement; (iii) building effective institutions and enhancing governance; and (iv) innovative and sustained financing for ecosystem protection and social development.

The Meeting noted the following views, comments and suggestions from the country delegations:

i) PRC indicated that it would wait for the final SEF report for review;

ii) Thailand noted that information generated from the Subregional Environmental Monitoring and Information System (SEMIS) could be used for analyzing the hotspots; requested ADB to consider further assistance to the GMS countries in implementing the EWIS; proposed a more systematic cooperation with local and international NGOs; and stressed the need for an effective monitoring system to determine the extent of SEF implementation;

iii) Viet Nam expressed full support for the SEF, noting the comprehensive set of goals and strategies; suggested that country responsibilities should be identified; and indicated that it will also have to review further the final SEF report;

iv) Lao PDR expressed support for the SEF, suggested that the focus of intervention should be capacity building for agencies dealing with environmental management; and requested ADB assistance in the hardware and software requirements for implementing the SEF.

Promoting the Long-Term Sustainability of the Regional Cooperation in the GMS

Long-Term Strategic Framework for the GMS Program

Mr. Toru Tatara reminded the Meeting that the Ninth Ministerial Meeting in January 2000 requested ADB to initiate the development of a long-term strategy for the GMS. It was felt that in view of significant changes in the GMS Program's environment, there was a need to reinvigorate Program mechanisms to sustain the momentum of regional cooperation. Despite the notable gains under the GMS Program, Mr. Tatara noted that several shortcomings still remain, among others: (i) slow implementation of projects; (ii) limited national capacities; (iii) lack of active participation of the private sector; (iv) absence of effective coordinating mechanisms among major initiatives in the GMS; and (v) uneven distribution of benefits and costs.

He presented the indicative vision, goals and strategy that could be embodied in a long-term strategic framework for the GMS. He explained that a long-term strategic framework could help focus present and future initiatives and guide investment decisions to achieve specific goals. The emerging operational strategies that may be considered in the framework are: (i) equitable distribution of costs and benefits; (ii) extending the benefits of infrastructure development to the rural and border areas in support of poverty reduction objectives; (iii) strengthening sector linkages by focusing on the development of major corridors; (iv) expediting the framework agreement on facilitating the cross-border movement of goods and people by 2005; (v) developing economic corridors along the five major transport routes; (vi) broadening the participation of various stakeholders, including local governments (vii) better coordination with other key players in the GMS, such as ASEAN, ESCAP, MRC, MI and major bilateral donors such as Japan; (viii) building national capacities for regional cooperation; and (ix) strategic approach to environmental protection and managament.

The goals for the GMS Program should be defined in terms of what is achievable through regional economic cooperation, among others: (i) intra-regional and cross-border trade through better physical linkages; (ii) more positive investment climate through political stability and investment flows; (iii) protection and sustainable use of shared resources through cooperation on environmental cross-border issues; (iv) strengthening of labor force and markets through human resources development initiatives. Within these broad goals, Mr. Tatara suggested that it would be possible to consider the setting of specific goals for each sector, with specific targets and milestones being set.

To support the vision and goals for the GMS, Mr. Tatara indicated that it would be necessary to also address resource mobilization strategies, coordination with other major regional initiatives in the GMS (e.g. ASEAN) and the mechanism for involving stakeholders, local governments and the business community. Moreover, institutional mechanisms and capacities in the GMS countries would need to be strengthened to cope with more complex demands in Program management and implementation.

The Meeting noted the views of representatives from the ASEAN Secretariat, ESCAP, and Japan on the importance of coordination among the various initiatives in the GMS. More specifically:

i) Dr. Teh, ASEAN Secretariat, observed the natural complementarity between the goals of the GMS Program and the focus and objectives of ASEAN cooperation which makes it easier to address the need for coordination; for instance, the focus on cross-border cooperation complements ASEAN initiatives at further trade and investment liberalization; although ASEAN has a comprehensive program of cooperation in customs, it would not have envisioned the setting up of single stop inspection facilities at GMS border crossings which is now a priority in GMS customs cooperation;

ii) Mr. Marc, Economic Affairs Officer, International Trade and Industry Division, UN-ESCAP informed the Meeting that the programmatic approach developed by ESCAP for investment promotion calls for coordination among various donors, and stresses the need for focus and follow-up in implementing project activities;

iii) Mr Umemoto, Ministry of Finance, Japan noted that the ADB has been effectively performing a coordination role with other initiatives in the GMS. To strengthen this role even further, he suggested a possible upgrading of the GMS Unit within the ADB. He indicated the willingness of Japan to extend further assistance to Cambodia, Lao PDR, Myanmar, and Viet Nam to help them catch up with the other members of ASEAN.

The Meeting also noted the comments from other regional organization as follows:

i) Mr. Yan Flint, Director, Mekong Institute called for a more strategic and systematic approach to human resources development in order to provide the GMS countries with the capacity to address issues of poverty, inequality, and good governance.

ii) Mr. Chanthavong Siagnasith, Director, Natural Resources Development Planning Division, Mekong River Commission described cooperation among the four riparian countries in the Water Utilization Program as a strategic initiative for the efficient utilization and management of water as a future scarce resource.

The Meeting noted the suggestion of the Thai delegation for ADB to conduct a study on opportunities for cooperation in the agriculture sector as well as the development of a common information system among the GMS countries in order to complement other sectoral initiatives. One modality for pursuing agriculture cooperation in the GMS which is an area currently covered by the Trade Facilitation Working Group is to discuss this in the Second Meeting of the Trade Facilitation Working Group. With regard to HRD activities, the Thai delegation proposed that these should be based on the real needs of the GMS countries and categorized into those that should be conducted at the national or regional levels.

Mr. Jingjai Hanchalas, Director and Member of the Executive Board, Thai Chamber of Commerce, speaking on behalf of the GMS Business Forum (GMS-BF), cited the need for strong Government endorsement and support of the Forum in five areas: (i) recognition and citation of the GMS-BF in official publications; (ii) referrals to the GMS-BF of those seeking investment information on the GMS; (iii) use of the GMS-BF as a facilitator for issues involving Government and private business; (iv) Government-GMS-BF collaboration in trade and investment activities; and (v) involvement of the GMS-BF on specific studies (e.g. subregional financing facility, WTO issues, etc.).

GMS Institutional Framework: Review and Recommendations

Mr. George Abonyi, Senior Advisor, GMS Unit, ADB explained that a review of the GMS Institutional Framework was conducted in response to the request of the Ninth Ministerial Meeting in January 2001 for ADB assistance in strengthening institutions and capacity for an increasingly expanding GMS Program. The ADB initiated a review of existing institutional arrangements under the GMS Program in order to assess its strengths, weakness and gaps and to recommend the required improvements and strengthening measures. He explained that the GMS Program and its context have evolved in significant ways since the Program's inception in 1992. As a result of the economic crisis that engulfed Asia starting in 1997, the GMS countries have begun to face an increasingly difficult investment climate in the wake of higher perception of risks in the subregion. The decline in domestic revenues resulting from economic contraction, as well as the overall declines in the level of official development assistance implied a more significant role for the private sector in financing public investment. The increasing openness of the GMS economies also paved the way for their increasing participation in the regional cooperation schemes. At the same time, civil society became more involved in the development process, with community-based groups and NGOs taking a proactive role in design and implementation of the development interventions.

Within the GMS Program, there were also significant changes. Concrete achievements resulting from the Program's activity-driven and pragmatic orientation have created the momentum for more complex types of cooperation initiatives. Cooperation in the regulatory and policy aspects ("software" issues) to complement investments in physical infrastructure has been introduced and is making steady progress. Economic spaces (or corridors) where benefits of infrastructure development could be linked with production and trade potentials have been identified as a new area of cooperation. The social and environmental impacts of infrastructure projects are being given more attention to ensure sustainability and social justice. Partnership with the private sector, both as beneficiary of development and source of capital, is becoming increasingly important as trade and investment opportunities are created through economic progress. The emergence of these new trends is creating new demands on both national and regional institutional mechanisms under the GMS Program.

To strengthen the GMS Program institutional framework, the following recommendations were presented for consideration of the Meeting:

Ministerial Meetings

i) Ensure appropriate representation at the Ministerial Meetings as may be required by the agenda;

ii) Improve the Ministerial Meeting format by (i) allocating more time for interaction and dialogue and less for formal statements and presentations; ii) providing a greater role for the GMS countries in leading the discussion on certain topics and issues;

Working Groups and Forums

iii) Improve preparations for meetings, circulate meeting documentation well ahead of time, and provide greater involvement by the GMS countries;

iii) Improving communications by assisting the GMS countries to cope with English language difficulties (e.g. through translation services);

iv) Expand the agenda to cover wider issues and activities beyond the scope of the ADB-assisted GMS Program;

v) Increase the oversight role of the Working Groups and Forums in monitoring the progress of project implementation, identification and resolution of implementation-related issues;

vi) Develop separate secretariat support for each Working Group and Forum, with an increasing operational role for the GMS countries;

vii) With regard to specific Working Groups: (i) the Working Group on Human Resources Development should be more effective in identifying key issues central to subregional development; (ii) the Working Group on Environment should play a more effective role in linking environment issues with GMS issues in general; (iii) the Tourism Working Group should develop tourism activities that are closely linked with other sectors and areas of cooperation.

Senior Officials Meeting

viii) Reorient and restructure the SOM as a mid-term review meeting to support the Ministerial Meeting and define its role to include:

(i) identification and assessment of key issues requiring Ministerial attention;

(ii) provide sufficient time to follow-up and internal discussions prior to the Ministerial Conference;

(iii) greater role for the GMS countries in shaping the agenda and the required follow-up actions;

National Coordinators

ix) Provide a clear and high level mandate to National Coordinators in their respective countries, ensure their access to senior levels of Government, and provide them with the necessary support in performing an oversight function for the GMS;

x) Ensure adequate capacity and resources for the performance of their roles;

xi) Improve effective coordination at the country level through institution and capacity building support;

xii) Conduct regular meetings among National Coordinators to support the exchange of experience and provide opportunities for mutual learning;

New Mechanisms and Initiatives

xiii) Establish an Economic Corridors Working Group to oversee the implementation of corridor-related initiatives; particular corridor initiatives such as the East West Corridor may have their own steering group or committee within the borader framework of the Economic Corridors Working Group;

xiv) Develop a private sector development strategy focusing on foreign investors' involvement in GMS priority projects, including a resource mobilization strategy for fostering public-private investment collaboration;

xv) Develop a GMS Public Investment Program to help coordinate the investment priorities of individual GMS countries and to support discussion with donors and investors;

xvi) Reflect cooperation in the agriculture sector in the GMS strategy and provide an appropriate institutional mechanism (such as within the working group on trade and investment);

xvii) Assign a greater role to sub-working groups for relatively well-defined issues under the oversight of the respective working groups and forums;

The Role of ADB

xviii) Provide the foundation for an increasing role of the GMS countries in the management of the GMS Program, for instance, in the transformation of it Central Secretariat role over time to provide for an increasing responsibility of the GMS countries in certain activities;

xix) Conduct more intensive country consultations in the process of preparing for the Ministerial Conference; consider the constraints of time and language in preparing for the Ministerial Conference;

xx) Improve on regional technical assistance, as the principal modality of ADB assistance to the GMS Program, by addressing capacity building needs of the GMS countries, greater involvement of National Coordinators, and greater use of domestic consultants;

xxi) Given multiple donor initiatives in the GMS, perform a more effective role in donor coordination, including working more effectively with partners in particular areas (e.g. with ESCAP in trade and investment).

The above recommendations may be classified into three categories, namely: (i) those that could be implemented quickly, with little resources needed (e.g. improving meeting preparation process); (ii) those that would entail greater preparation and resources (e.g. subregional financing facility); and (iii) those that require a longer time to implement including shared understanding (e.g. GMS governments to take the lead role in GMS Program management).

The Meeting took note of the following views, comments and suggestions:

i) Mr. Paul Turner, ADB Resident Representative for Lao PDR, proposed that process of country programming should also consider the regional programs and activities;

ii) Mr. Urooj Malik, ADB Resident Representative in Cambodia stressed the importance of effective national coordinating mechanisms and called for a more active role of the ADB resident missions in the GMS Program;

iii) Thailand proposed further consultations among National Coordinators and ADB in order to prepare an action plan for institutional strengthening for consideration of the Ministers;

iv) Lao PDR suggested that the chairmanship of the Ministerial Meeting could be rotated among the GMS countries in alphabetical order; the National Coordinators could be upgraded to Senior Officials with supervisory functions over the Working Groups and Forums; the SOM could meet twice a year and report to the Ministerial Meeting; the role of the private sector should also be given increased recognition and priority; there should be more brainstorming workshops to discuss the work of ADB staff and consultants to promote the participatory approach;

v) Thailand proposed the need for follow-up mechanisms to implement agreements and recommendations resulting from technical assistance projects; there is a need to designate focal points for each sector or project to facilitate coordination;

vi) Cambodia stated that it is important to develop a framework or concept for national coordination mechanisms; proposed for an exchange of country public investment programs (PIP) as a first step in formulating a GMS PIP; and more regular exchange of information among the GMS countries; and

vii) PRC made the following remarks: ADB has played an active role in promoting and coordinating the Program and enhancing the trust, friendship and cooperation among the GMS countries. However, dialogue and exchange of information should be encouraged between the GMS Program and other initiatives in the subregion to avoid duplication and dialogue. National capacity building should be emphasized and should cover various ministries involved in the GMS Program. ADB assistance is required in building national capacities for Program implementation. The long-term strategic framework for the GMS Program should be reviewed regularly to take into account of changes in the Program environment and to have closer consultations with the GMS countries as well as with donors in this process.

Mr. Tatara provided the following response to the various suggestions:

i) Designation of a focal point for each sector to provide a regular mechanism for exchange of information on sector developments;

ii) Formulation of a more detailed capacity building plan for discussion in a meeting among national coordinators before the 10th Ministerial Meeting;

iii) Involvement of ADB resident representatives in internal coordination meetings for the GMS Program.

Investor Perceptions of Risk in the GMS

Mr. Eric Teo, Managing Director, Savoir Faire Consulting, Singapore shared his views on investor risks and project finance in the GMS. He cited the economic slowdown scenario in the US, Japan, and Europe, as well as political instabilities in Southeast Asia as key factors that have affected private financial flows in the region. Moreover, Asia's reputation has suffered after the 1997 crisis; recovery is impressive but a large part of the reform agenda remains unfinished. Mr. Teo explained three categories of impediments to private investors: (i) political-social, (ii) managerial-technical, and (iii) economic-financial. Political and social impediments include: political indecision; lack of a sound, fair and transparent legal system; non-transparent practices in the political establishment and bureaucracies; lack of good corporate governance, local content restrictions; and unreasonable demands from some NGOs. Managerial-technical impediments include: limitations in market size, protectionist sentiments, lack of skilled human resources, and negative attitudes to the private sector as a threat to national security. Economic-financial obstacles include: lack of resources, which has been compounded by the financial crisis, weak purchasing power, price distortions, inadequate financial systems, and inadequate financial and fiscal policies. Mr. Teo noted that both sovereign and project risks in the GMS are high which is the principal reason why private investments are not forthcoming. To reduce these risks, he advised the GMS governments to adopt a more investor-friendly orientation, and to acquire the capacity to manage, rather than to restrict them. He said that before even considering a subregional financing facility, the GMS governments must first set their house in order. He concluded by reminding the GMS countries that reducing the risks to investors is a national, rather than a regional issue.

Preparations for the 10th Ministerial Meeting

Mr. Tatara proposed a seven-point agenda for the 10th Ministerial Meeting as follows:

i) Review of developments relevant to regional economic cooperation focusing on regional integration;

ii) Progress report on actions and activities under the GMS Program;

iii) Long-Term Strategic Framework for the GMS;

iv) Review of the GMS Institutional Framework, together with specific action plans and specific proposals for strengthening national capacities;

v) Coordination mechanisms with other GMS initiatives;

vi) Proposed mechanisms for resource mobilization; and

vii) Ministerial Declaration on a GMS Program Action Plan

Mr. Tatara also proposed that the accession of Cambodia to the Trilateral Agreement for the Facilitation of Cross-Border Movements of Goods and Peoples in the GMS could be a highlight of the 10th Ministerial Meeting.

The Meeting noted the following suggestions from the country delegations:

i) Several delegations emphasized the need for deciding on the timing and venue of the Ministerial Meeting as soon as possible since the GMS governments would need more than a month to internally prepare for the Ministerial Meeting;

ii) PRC proposed that parallel meetings may be conducted to discuss specific issues;

iii) Viet Nam basically agreed with the proposed agenda; requested that detailed action plans on capacity building be prepared and circulated well in advance for the consideration of the GMS countries; and suggested that consideration be given to a fund for regional projects;

iv) Thailand raised the need for further consultations among countries on project issues or new initiatives; sought clarification on the mechanisms that would be proposed under the resource mobilization strategy;

v) Thailand raised the possibility of the GMS countries organizing the Ministerial Meetings by themselves in the future to demonstrate full commitment and ownership of the GMS Program by the participating countries;

vi) Myanmar stressed the need to prepare well in advance for the Ministerial Meeting; the discussion of the long-term strategy and institutional review may require a separate meeting among GMS senior officials;

vii) Several delegations suggested the need for a special SOM, focusing on the long-term strategic framework and the review of the GMS Institutional Framework.

Taking the above suggestions into account, the Meeting agreed on the following:

i) The agenda for the 10th Ministerial Meeting will be circulated at least four weeks prior to the Ministerial Meeting for comments by the GMS countries;

ii) A special meeting of GMS senior officials will be conducted before the Ministerial Meeting to discuss among others, project implementation issues, the long-term strategic framework and recommendations of the institutional review; and

iii) With regard to the institutional review, a more detailed action-oriented proposal on cwill be prepared and circulated to the GMS countries for their review.

The Meeting took note of the suggestions of a number of delegations to hold the 10th Ministerial Meeting in the second half of August 2001. The specific date and venue for the Meeting will be decided during the special meeting of the GMS senior officials prior to the 10th Ministerial Meeting.

Closing Session

On behalf of the GMS delegations, Dr. Nguyen Van Phuc thanked the Royal Thai Government for the excellent arrangements made in hosting the MTR-SOM Meeting and for the warm hospitality extended to the all the participants.

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