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p. 2 of 53 BACK | NEXT Classification of Developing Member Countries in Bank Operations Bank Operations in Pacific Island Developing Member Countries Lending and Relending Policies (Ordinary Capital Resources) Lending and Relending Policies (Asian Development Fund) Sector Lending Program Lending Assistance to Private Enterprises Financial Intermediation Loans/Credit Lines Financing of Interest and Other Charges During Construction Financing of Indirect Foreign Exchange Cost of Projects Lending Foreign Exchange for Local Expenditures on Projects Retroactive Financing Supplementary Financing of Cost Overruns of Bank-Financed Projects Use of Surplus Loan Funds Foreign Exchange Risk in Bank Operations Sector Development Programs Technical Assistance Guarantee and Security Arrangment for Bank Loans Environmental Considerations in Bank Operations Gender and Development in Bank Operations Project Performance Management System The Bank's Cooperation with NGOs Emergency Rehabilitation Assistance Loan for Small DMCs Rehabilitation Assistance After Disasters Cooperation Arrangements with International Organizations and Bilateral Sources Coordination with Aid Agencies Regional Cooperation Cofinancing Japan Special Fund Guarantee Operations Bank's Operational Missions Communication with Members of the Board of Directors Processing of Loan Proposals Project Financial Management Systems, Financial Analysis and Financial Performance Indicators Economic Analysis of Projects Procurement of Goods and Works Use of Consulting Services Formulation and Implementation of Loan Convenants Effectiveness of the Loan Agreement Loan Disbursement and Loan Closing Project Accounting, Financial Reporting, and Auditing Post Evaluation Country Planning and Programming Incorporation of Social Dimensions in Bank Operations Poverty Reduction ADB Accountability Mechanism Involuntary Resettlement Internal Audit Confidentiality and Disclosure of Information Indigenous Peoples Governance Anticorruption Enhancing the Asian Development Bank's Role in Combating Money Laundering and the Financing of Terrorism

Operations Manual

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OM Section 2: Issued on 12 September 1996
Bank Operations in Pacific Island Developing Member Countries

Bank Policies (BP)

Introduction

1. The Pacific Developing Member Countries (PDMCs) referred to in this OM section include Cook Islands, Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Papua New Guinea, Solomon Islands, Tonga, Tuvalu, Vanuatu, and Western Samoa. PDMCs share some common circumstances and difficulties: smallness in land area, population, and resource base as well as heavy dependence on external assistance and remittances for development expenditures. Article 2(ii) of the Articles of Agreement (the Charter) requires the Bank to have special regard for the needs of the smaller or less developed member countries. The Bank has, therefore, adapted its development assistance program and operational procedures to meet the special needs of the PDMCs.

Classification of PDMCs¹

2. Despite their relatively high per capita incomes, the PDMCs are classified as Group A,² keeping in view their limited debt-service capacity and economic circumstances. The Bank also recognizes the special needs of three PDMCs: Kiribati, Vanuatu, and Western Samoa, which are classified as least-developed countries by the United Nations.³

Lending Modalities

3. Bank lending operations in PDMCs will continue to be based primarily on project loans. Greater reliance will be placed on the sector lending approach. This modality can be a cost-effective means of financing a large number of small projects in a sector, thereby achieving a wider distribution of economic benefits. Strengthening sector institutions will also be pursued. Program lending will be used selectively in those sectors where policy reforms and institutional strengthening are required for the development of the sector. Bank assistance through development finance institutions (DFIs) and through multiproject loans⁴ (MPLs) will continue to be considered for all PDMCs.

Operational Procedures (OP)

Technical Assistance Operations

1. Special emphasis of Bank operations in PDMCs will be placed on the provision of technical assistance (TA), where possible through adopting regional approaches. TA will focus on:

(i) human resource development, particularly management skills and institution building (including manpower strengthening in the national planning agencies), through financing long-term consultant assignments or training for agency staff or both;

(ii) comprehensive sector studies (including assessment of sector policies, institutions, and programs and collection of relevant statistics as inputs to the planning process); these will serve as the basis for subsequent Bank involvement in these sectors, including project, sector, and multiproject lending; and

(iii) improvement of domestic capabilities to formulate and implement policies and to identify, design, formulate, and implement projects.

Lending Modalities

A. DFI Loans

2. Lending through DFIs will be undertaken with greater recognition of the special problems of small island economies. It will continue to be accompanied by TA for institution building, particularly to meet the training needs of DFI staff for appraising and supervising small projects. Commercial banks will be included, where practical, as additional funding channels under DFI loans to stimulate competition in the financial sector and improve the distribution of Bank assistance to the private sector in PDMCs.

B. Rehabilitation Assistance

3. In cases of natural disasters, in addition to the Bank's facility on rehabilitation projects generally applicable to all DMCs,¹ PDMCs are eligible to approach the Bank for financing of certain urgent rehabilitation requirements in economic infrastructure and social services available under the special emergency rehabilitation program loan facility for small island DMCs.²

C. Multiproject Loans

4. For MPLs, a more selective approach will be used to ensure more detailed subproject preparation before loan approval, and close administration of consultants, in order to minimize the heavy burden of coordination responsibilities placed on the principal executing agencies. The selection of subprojects should emphasize consistency, mutual reinforcement, modest size, simplicity of technology and design, and institutional arrangements for implementation that have proved to work in the PDMCs. MPLs normally contain subprojects in more than one sector, though efforts should be made, for good project administration, to limit this to a few key sectors.

Cofinancing

5. Cofinancing will be explored with official, commercial, and export credit sources. The Bank will also assist PDMCs in attracting grant finance from regional and nonregional developed countries.

6. High priority will be given to ensuring consistent requirements by the Bank and cofinanciers in procurement and reporting arrangements in order to minimize additional administrative burdens on the project executing agencies.

Aid Coordination

7. To improve cooperation and consistency of assistance to PDMCs from a diversity of sources, the Bank will support aid coordination on a country-by-country basis with the long-term objective of equipping the PDMCs with skills necessary to discharge these responsibilities effectively without recourse to further support. On a selective basis the Bank will agree to chair aid group meetings.

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