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p. 18 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)

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VI. CONCLUSIONS

67. With the submission of this progress report at the conclusion of the first half 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 Bank’s policy actions have served the objective of increasing the effectiveness with which the Bank can put ADF resources to use. In particular, the Bank has addressed the issues of access criteria, performance evaluation, and allocation methodology with the approval of the new operational policy on graduation and the systematic framework for allocation of ADF resources among DMCs. During the first half of ADF VII, the Bank has also effectively implemented several new policies for strengthening the financial management of all ADF resources, including a new financial framework that will facilitate the sustained progress towards ADF self-financing. As demonstrated by the use of ADF VII resources to date, the long-term ADF framework established in the Donors’ Report has gotten off to an effective start. But the ADF challenge continues. On the demand side, even those ADF borrowers not so directly or immediately affected by the regional financial crisis are experiencing the widespread secondary effects of the crisis and consequently, also increased requirements for concessional resources to address, particularly, the medium-term social impacts of the crisis. Moreover, new members from the poorest of the Central Asian Republics are adding to the demand for concessional aid from the Bank. Also, it is necessary 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 IDA operations. Taking these factors into account, the Bank should aim for subsequent replenishments to be at least at the ADF VII level of $6.3 billion, or higher.

68. On the supply side, ADF continues to face a number of risks and issues, which must be carefully managed. In this regard, the Bank deems it appropriate to undertake further actions in relation to ADF financial management and to report on them to donors in the context of negotiations on the next replenishment. Specifically, the Bank proposes to: (i) establish appropriate mechanisms to give full effect to the new ADF financial planning framework; (ii) further examine various alternatives for minimizing ADF’s vulnerability to adverse movements in exchange rates and the institutional and legal implications of such alternatives; and (iii) formulate a fixed encashment schedule for the next replenishment with a view to minimizing the probability of annual deficits in note encashment set against the donors’ pro rata share of disbursement requirements.

69. Despite the detrimental effects of the Asian financial crisis, the Bank has and continues to make its best efforts to maximize, in a prudent manner, the amount of EACA available in ADF VII. Further efforts on mobilization of donor support must be undertaken during the second half with the goal of achieving the targeted donor contribution commitments to ADF VII and closing the existing funding gap. In particular, donors should consider providing further supplementary contributions to ADF VII. Finally, the interests of ADF would not be well served if other donors exercised pro rata rights against the current outstanding balance of the US’s second installment payment to ADF VII.

70. Since the ADF VII period is expected to end in December 2000, there is a need to plan now for the next replenishment, ADF VIII, which should become effective in 2001. Accordingly, the ADF VIII negotiations should start in the second half of 1999 and be completed in the year 2000. It is expected that the number of meetings in the negotiations will be limited to four.

71. In approaching future ADF replenishments, the Bank will increasingly emphasize the framework of performance-based lending with the long-term vision and strategy for ADF in mind: promoting the acceleration of poverty reduction in the Region and, at the same time, accelerating the pace at which ADF can become self-financing.

Back C. ADF VII Financing Structure and Burden Sharing	Asian Development Fund VII: Progress Report (1999)