Publications

	Table of Contents
p. 1 of 18 BACK | NEXT Executive Summary I. Introduction II. Long-Term Vision and Strategy for ADF III. Operational Priorites IV. Use of ADF VII Resources to Date V. Financial Management VI. Conclusions

Asian Development Fund VII: Progress Report (1999)

---

EXECUTIVE SUMMARY

In the January 1997 Donors' Report for the Asian Development Fund (ADF) VII, the Bank was requested to prepare a comprehensive midterm progress report on the implementation of the ADF VII objectives and recommendations, and to submit it to the Board of Governors through the Board of Directors for review in conjunction with the Bank's 1999 Annual Meeting. Specifically, the progress report should formulate detailed recommendations on the issues of access criteria, performance evaluation, and allocation methodology, and report on completed Bank policy reviews and changes with regard to lending terms, graduation, and financial policies.

Accordingly, this report first reviews the long-term objectives and strategy for ADF in general, and the policy and financial framework for ADF VII in particular. It emphasizes that ADF is, first and foremost, a long-term development assistance process for poverty reduction in the Region. The long-term vision of ADF comprises two complementary goals:

1. catalyzing and accelerating the pace of poverty reduction in the Region by supporting broad-based and equitable growth in developing member countries (DMCs), and
2. accelerating the pace at which ADF becomes self-financing.

The first goal envisages ADF as a principal means to catalyze and sustain well designed and concerted actions by poor DMCs to improve their living conditions and quality of life. With such improvements, the capacity of a DMC to access nonconcessional official development assistance such as the Bank's ordinary capital resources (OCR) and eventually, also commercial financing, is envisaged to improve over the long term. Such progression to enhanced access to nonconcessional funds is reflected in the Bank's graduation policy adopted in 1998 which sets out the criteria for different levels of eligibility for ADF and OCR. In this context, the Bank's newly adopted graduation policy is seen as an important addition to its policy framework for long-term development assistance and for more effective use of the limited ADF resources.

The report next focuses on the operational priorities set out in the Donors' Report and discusses how ADF VII is directly targeting and emphasizing those priorities in the framework of Bank policy initiatives such as those on environmental protection, cooperation between the Bank and nongovernment organizations (NGOs), indigenous peoples, gender and development, and anticorruption. The effectiveness of ADF in addressing the priority areas through a process of country-based strategic planning is reviewed. In particular, the responsiveness of ADF to DMC needs is enhanced through the Bank's newly adopted allocation framework, by which scarce resources are carefully targeted at DMCs that need the resources most and, based on country performance, are most likely to use them effectively. In this context, country performance is evaluated in terms of the effort made by a government to strengthen its policies and institutions. Governance aspects are taken into account across all components of country performance and receive due emphasis in country performance evaluation.

The continued relevance of ADF to its borrowers' needs is ensured by the increased country-focus in the Bank's operations, together with the mainstreaming of Bank support for policy reform, capacity building and good governance, and participatory development processes. These initiatives, and the Bank's new project performance management system, are expected to enhance the quality of ADF operations, as measured primarily in terms of sustainable development impact.

The report provides a summary profile of country allocations and development objectives targeted in the actual loan approvals during the first half of the ADF VII implementation period, and illustrates the range of projects and beneficiaries supported.

The report then proceeds to address the second goal of making ADF self-financing in the long term. Toward that goal, starting with ADF VII, priority is being given to maximizing the Bank's internal capacity to generate additional commitment authority through nondonor resources in a prudent and sustainable manner. Further, the synergy between donor and nondonor resources will be strengthened to increase the volume of commitment authority from nondonor resources. In this context, ADF resource management has undergone important and significant changes in the first half of the ADF VII term. These changes include adoption of the expanded advance commitment authority (EACA) and the associated establishment of a new financial planning framework for the management of ADF resources, as well as amendments in the terms of new ADF loans. The report describes the positive impacts of the new policies, and identifies areas and issues in relation to financial management that require further study and action.

The report takes note of the significant adverse impact of the Asian financial crisis on ADF VII. It highlights the negative effect of the crisis on the growth prospects of ADF borrowers and their resulting need for additional concessional aid to cushion the prolonged social impacts of the crisis. The adverse impact of the crisis on the supply side of ADF VII resources is also noted, including the detrimental effect of the dramatic exchange rate movements on the United States (US) dollar equivalent of ADF VII resources. Despite the crisis, the Bank has and continues to make its best efforts to maximize the amount of EACA available under ADF VII.

The report concludes that, at the midterm of the ADF VII period, the Bank has met, in a timely manner, all of its policy and financial commitments as specified in the Donors' Report. The long-term ADF framework established in the Donors' Report has achieved an effective starting basis to meet the increasing challenges on both the demand and supply sides of ADF resources. Further efforts on mobilization of donor support must be undertaken during the second half of the ADF VII term, with the goal of achieving the targeted donor contribution commitments to ADF VII and closing the existing funding gap.

Given the increasing demand for ADF, partly due to the need of affected DMCs to address medium-term social impacts in recovering from the backsliding effects of the financial crisis and partly based on the longer term requirements of new ADF borrowers from the Central Asian Republics, the Bank should aim for subsequent replenishments to be at least at the ADF VII level of $6.3 billion, or higher. This is particularly important if the Bank is to maintain threshold levels of ADF lending to retain leverage as an effective broad-based development institution in the poor DMCs and to promote competitive pluralism with the World Bank's International Development Association (IDA) operations.

Since ADF VII is expected to end in December 2000, the report recommends the start of planning for ADF VIII, which should become effective in 2001.

Back Asian Development Fund VII: Progress Report (1999)	Next I. Introduction