Publications

	Table of Contents
p. 13 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 A. Bangladesh: Sundarbans Biodiversity Conservation B. Bhutan: Financial Sector Intermediation C. Nepal: Rural Microfinance D. Lao PDR: Basic Education for Girls E. Kyrgyz Republic: Flood Emergency Rehabilitation F. Pacific DMCs: Partnerships with the Bank V. Financial Management VI. Conclusions

Asian Development Fund VII: Progress Report (1999) : IV. Use of ADF VII Resources to Date

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F. Pacific DMCs: Partnerships with the Bank

50. While altogether the Pacific DMCs accounted for only $110 million or less than 5 percent of total ADF lending in 1997-1998, the impact of such Bank assistance has been very significant because it has broadened in scope since formulation of the 1996 Strategy for the Pacific.¹⁹ Working in consultation and agreement with governments, the Bank has taken the lead role in the external funding community as a catalyst and facilitator of policy reform and capacity building in development management, while retaining the traditional role of project financier. Unlike other parts of the Region where the Bank normally works in tandem with the World Bank and the IMF in support of stabilization and adjustment programs, in the Pacific the Bank is often the major (and sometimes the only) multilateral financial institution providing support for macroeconomic and civil service reform. Economic reform programs in seven PDMCs have been undertaken with Bank technical and financial assistance during 1996-1998 (Cook Islands, the Republic of the Marshall Islands, the Federated States of Micronesia, Nauru, Samoa, Solomon Islands, and Vanuatu). All of these programs aim at generating sustainable economic growth through the creation of a leaner, more efficient public sector and a better enabling environment for the private sector. Program effectiveness in improving governance and the economic policy framework also permits a refocusing on project-based and sector-specific lending. Such lending has been proven effective in good governance and policy environments.

51. Reform has usually been triggered by fiscal crises of varying degrees of severity, but government and community commitment to overall economic reform and improved governance has developed quickly in all cases. The Cook Islands Economic Reform Program, for example, is notable for local ownership from the outset, and for the creation of substantial and effective public participation in the reform process through the National Development Council and annual national retreats. New legislation has established principles of fiscal responsibility, accountability, and transparency. These principles have been reinforced by the formation of the independent Public Expenditure Review Committee with powers to review public finances and investigate any allegations of misuse of public resources. The concept of performance orientation has also been introduced to the public service. In Vanuatu, strong public participation in the Comprehensive Reform Program and a convergence of local ownership on the key theme of improved governance are striking features. The legislative framework for better fiscal and general governance has been established rapidly. A major improvement in public servants’ autonomy and efficiency has occurred as a result of selection of Directors-General on merit, the new independence of the Public Service Commission, and the introduction of a performance orientation.

52. In the Cook Islands and Vanuatu, periods of threatened macroeconomic instability have been avoided with Bank financial assistance, and progress toward fiscal balance has been made through public service restructuring. In the Cook Islands, where there were 18 government employees for every 100 residents, the number of public servants was reduced by 60 percent during 1996-1998, while in Vanuatu the number of ministries was reduced from 34 to 9 and the number of public servants reduced by 10 percent. Progress in creating an environment conducive to private sector growth has been made through removal of distortions in the tax systems and impediments facing foreign investors. In the Marshall Islands and the Federated States of Micronesia, substantial public service downsizing has been achieved as part of a reform process begun before commencement of renegotiations of block grant funding under the Compact of Free Association with the US. In Solomon Islands, Bank funds and TA are crucial support to a reformist government committed to addressing a severe fiscal crisis compounded by the impact of the Asian economic crisis. In Samoa, financial sector reform has occurred in a stable macroeconomic environment.

53. In broad terms, the reform programs supported by the Bank in the Pacific have aimed not only at macroeconomic stabilization and fiscal balance, but also at the reorienting of the entire public service towards results-based management. In some Pacific countries, the key policy action of the Government was the formulation of measurable or verifiable output targets as part of the budgeting exercise. In other contexts, the key step was the introduction of performance contracts to govern the employment arrangements of seniormost officials in the public sector. These contracts specify the “deliverables” of each senior official in government, and, in some cases, financial incentives are tied to actual accomplishment of the targets. These innovative arrangements, which have proven to be effective in private sector enterprises, contribute to good governance by helping to make public servants more accountable for results and for the resources that they manage.

54. Experience with reform programs in the Pacific shows that in partnership with government and other funding sources, and where appropriate, the Bank can generate the critical initial momentum for an economic reform process. It can support that momentum through the provision of TA and program loan funds that buy time for governments. Equally, it is clear that the Bank is involved in a learning process. Future design of reform programs will need to pay more attention to the careful and realistic prioritizing and sequencing of reform actions over time (in recognition that the reform process extends beyond the usual three-year life of a program loan). In this context, special attention will need to be paid to the suitability of new technologies and the domestic capacity to implement reforms and ensure their durability.

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