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p. 2 of 13 BACK | NEXT I. Introduction II. ADB's Governance Policy III. Implementation of ADB's Governance Policy IV. Lessons Learned V. Medium-Term Governance Agenda and Action Plan 2000-2004 VI. Conclusions and Recommendations

Promoting Good Governance: ADB's Medium-Term Agenda and Action Plan (2000)

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II. ADB'S Governance Policy

5. The 1995 policy defined governance as "the manner in which power is exercised in the management of a country's social and economic resources for development." It then identified four elements of good governance: (i) accountability, (ii) participation, (iii) predictability, and (iv) transparency. In two important respects, ADB policy and practice since 1995 have extended this approach to governance and development.

6. First, the 1995 policy cited Article 36 (Prohibition of Political Activity) of the Charter and the legal opinion of the General Counsel on that Article. Based on Article 36 and the opinion, only economic-and not political-considerations will be relevant to ADB's decisions. However, ADB is not prohibited from taking into account demonstrable and direct economic effects of noneconomic factors as part of the economic considerations on which it must base its decisions. The economic effects of such noneconomic factors must however, be clearly established before ADB finances programs focusing on such noneconomic factors⁶.

7. As discussed in detail in chapters III and IV, since 1995, in the process of implementing governance reforms in various sectors of its DMCs, ADB has gained a more comprehensive and in-depth understanding of what effective governance means. It has become increasingly clear that efforts to improve the quality of governance are more likely to succeed if the political realities underlying governance problems are taken into account. Indeed, the political and economic aspects of governance are often inseparable and the latter cannot be addressed in isolation. Thus, while political rights are outside the purview of its operations, ADB's Poverty Reduction Strategy (of which good governance is a pillar) recognizes poverty as an unacceptable human condition. This implies an approach to development that recognizes the rights of people to decent living conditions⁷. Similarly, ADB's policies on nongovernment organizations (NGOs) and participation are implicitly linked with the rights of assembly, expression, and association. The transparency requirements of good governance are better met when there is freedom of access to information.

8. Second, the 1995 policy (para. 14) stipulates that "Given the role of government as economic development manager, policies that best suit these responsibilities need to be followed. Once these policy choices are made, however, good governance is required to make sure that implementation is effective and consistent." This appeared to imply that in ADB's policy, good governance was about processes that made the implementation of the policies and decisions effective and consistent, without regard to the content of those policies or decisions.

9. ADB has since learned that sometimes even good processes cannot be exempted from accountability for outcomes. A good example is the degree to which officials are made answerable for their decisions on the magnitude of unproductive expenditure. Policy mistakes and the economic inefficiencies associated with them are, indeed, capable of subverting sustainable development. As such, they may constitute part of the demonstrable and direct economic effects of noneconomic factors that ADB can take into account in making its decisions.

10 .Thus, the 1995 policy, based in part on the General Counsel's opinion on Article 36, has proven flexible enough to accommodate subsequent development of ADB policy and practice. In view of this, the issues that need to be considered in relation to ADB's governance policy at this juncture concern implementation rather than substance. ADB has implemented its governance policy through a process of learning-by-doing and the next two chapters describe ADB's governance activities under various categories and discuss the lessons learned.

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