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p. 3 of 13 BACK | NEXT I. Development Challenges for the Asia and Pacific Region A. Long-Term Challenges and ADB’s Response B. Medium-Term Challenges II. ADB’S Medium-Term Strategy (2001-2005) IV. The Strategy and the Planning, Programming, and Budget Process

Medium-Term Strategy : I. Development Challenges for the Asia and Pacific Region

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B. Medium-Term Challenges

5. The greatest challenge for the Asia and Pacific region is the need for robust and sustainable economic growth to address the poverty reduction agenda. The ability to dramatically reduce poverty is only feasible in the context of a vigorous, growing economy that creates opportunities for generating employment, improving efficiency, and increasing incomes. This must be accomplished, while retaining or improving the natural resource capital and the quality of the environment. In the past few years, growth prospects for many countries in the region have become uncertain due to a variety of factors, including the Asian financial crisis and a slowdown in growth and trade worldwide. Reviving and accelerating growth are the highest priorities, especially over the medium-term in the poorer countries of the region. To accomplish this, substantial investment in economic and social infrastructure is necessary.⁵ Such investment provides the foundation for sustainable economic growth to support poverty reduction and help achieve the IDGs.

6. To effectively reduce poverty, economic growth must be broad based and pro-poor. Initiatives must ensure that economic growth takes place with the participation of a wide spectrum of stakeholders, and that the benefits of growth are broadly shared. Economic growth must be accompanied by inclusive social policy and more targeted efforts to achieve the IDGs by supporting social development. Because achieving gender equality is crucial to accomplishing the IDG, special attention will be given to increasing the opportunities for women to benefit equally from growth resulting from investments in economic and social infrastructure. Should shocks such as the recent Asian economic and financial crisis occur, social protection systems should be in place to cushion the effects of such crises. Hence, social development must be an important ADB objective in support of economic growth in the region.⁶

7. Ineffective institutions and policies — the biggest constraints to growth and development in the region — must be improved. In fact, sound policies and institutions are as important for development as financial assistance; without them any financial assistance has limited impact. Poor governance, in both the public and private sector, retards and distorts the development process. The efficiency of investments, as well as equitable access to their benefits, largely depends on the quality of the policy and legal frameworks, and sound corporate governance and institutions within the country. Inadequate capacity of public institutions to provide and maintain essential infrastructure and services, and inefficient processes that prevent the active involvement of civil society or the private sector in the development process have a disproportionate impact on the poorer and weaker sections of society. Therefore, ADB must place the strengthening of institutions and policies at the center of its MTS to enhance the development impact of interventions and support sustainable and broad-based growth.

8. The role of the private sector must be enhanced to achieve the growth necessary for poverty reduction. Mobilizing the enormous resources required to provide economic and social infrastructure, improve management performance, and promote employment will not be possible without the active participation of the private sector. ADB must play a key role in helping create the enabling environment for the private sector to be fully engaged in the development process by supporting institutional capacity building and policy reform. In addition, ADB will help create investment opportunities; build public-private partnerships, particularly for infrastructure needs; and provide direct private sector investments.⁷ ADB will also act as a catalyst to mobilize private resources through commercial cofinancing.

9. Environmental degradation must be reversed because it constrains both agricultural and industrial productivity, and hence income growth and the region’s prospects for poverty reduction. Many of the region’s environmental problems are a result of ineffective institutions, inadequate regulatory frameworks, and inefficient compliance. Thus, the promotion of sound institutions and policies are also central to addressing environmental issues and to ensuring environmental safeguards. In addition, future economic growth must not be at the cost of further depletion of scarce natural resources. The many cross-border environmental problems must be addressed through regional cooperation efforts, an area of particular ADB strength.

10. Greater efforts at regional cooperation are essential to widen the range of development options. Regional cooperation supports pro-poor growth 8 by providing infrastructure that links participating countries, and by creating larger markets and opportunities. Regional cooperation can address issues of regional public goods that have impact across borders. Regional public goods include both shared problems and opportunities, for example, the environment (such as forest fires and riparian water rights), health issues (infectious diseases and HIV/AIDS,⁹), cross-border trafficking of drugs, trade facilitation, and regional financial stability. Regional cooperation can also enhance domestic efforts to develop effective institutions and policies by sharing experience. ADB has a unique mandate, experience, and strengths to support regional cooperation, an area that must receive increased emphasis over the medium term and become a key area of strategic intervention for ADB.¹⁰

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