Catalog

	Table of Contents
p. 5 of 13 BACK | NEXT I. Development Challenges for the Asia and Pacific Region II. ADB’S Medium-Term Strategy (2001-2005) A. Differentiating Between Countries B. Operations in a Subregional Context C. Applying the Operating Principles III. Aligning the Organization with the Strategy A. Align the Organizational Structure and Business Processes B. Develop a Learning Organization C. Make Assistance Modalities More Flexible D. Improve Integrated Resource Management IV. The Strategy and the Planning, Programming, and Budget Process

Medium-Term Strategy : II. ADB’S Medium-Term Strategy (2001-2005)

---

A. Differentiating Between Countries

16. While selectivity must be determined at the country level, a typology of the DMCs can be defined to help understand the broad range and scope of activities that could be undertaken in different groups of countries over the medium term. The DMCs can be broadly divided into three categories: (i) very low-income countries, (ii) low-income countries, and (iii) middle-income countries. The different needs and priorities of each of these groups of countries will guide the implementation of the MTS, and thus ADB’s range of operations in each. For a complete list of the DMCs in each category see Appendix 1.

17. The very low-income countries include many landlocked and island economies such as Bhutan, Cambodia, Lao People's Democratic Republic (PDR), Mongolia, Nepal, and several Pacific island economies. They are characterized by poor basic infrastructure, weak institutions, and limited economic opportunities. They have practically no access to capital markets, domestic private resources are scarce, and their debt repayment capacity is very low. Per capita incomes are very low, and the incidence of poverty very high. Accelerated economic growth is key to addressing their poverty problem. However, because of the very high levels and incidence of poverty in several of the countries in this group, direct poverty interventions to supplement pro-poor growth will also be necessary. The needs of these countries run across many sectors. The provision of concessional development funds for basic infrastructure, human development (particularly basic education and health services), and institution building will remain very important over the medium-term.¹³ Gender equity remains a key issue for many of these countries. Mobilizing private resources in the very low-income countries poses a major challenge as the high growth necessary to tackle poverty reduction will not be possible through only public investments.

18. The high growth needed in the very low-income countries must not be accompanied by environmental degradation or be at the cost of depleting scarce natural resources. ADB needs to assist these countries adopt appropriate safeguards and design country programs that contribute to reversing environmental degradation. Particular emphasis must be placed on the poverty-environment nexus. For the smaller DMCs in this group, ADB's role in regional cooperation activities will be particularly important. The broader markets and opportunities created through regional cooperation will make these economies more attractive to private investors.

19. While low-income countries might be better served by basic infrastructure, they generally also have weak institutions and limited debt repayment capacity. Countries in this group include Bangladesh, Pakistan, Sri Lanka, and Viet Nam. The incidence of poverty in this group is high, and as in the very low-income group, addressing basic human development including gender issues remains central to ensure broad-based growth. Addressing selective infrastructure bottlenecks and constraints affecting, in particular, productivity and income growth in the rural areas, and attracting both domestic and foreign private investment will further support growth and employment creation in these countries. In line with the overall thrust of the MTS, ADB priorities for this group of countries should include (i) removing institutional bottlenecks (financial and others) that impede the development of a dynamic private sector, and (ii) developing a policy environment supportive of labor intensive growth. While development conditions and debt repayment capacity vary across the low-income group of countries, their human development indicators are all very poor and significant effort will be needed to achieve the IDGs. Therefore, most of these DMCs will continue their need for concessional funds from ADB over the duration of the MTS. Market-based funding should be selective and well targeted, and supplement concessional funding. For all countries with access to concessional funds, allocation of such funds will be based on an evolving and increasingly better-defined country performance system and will depend upon progress made in several key areas related to development management.¹⁴

20. The majority of the poor in the region live in India and the PRC, where the level of poverty remains very high in significant parts of the two countries. Reducing poverty in these two countries is absolutely necessary if the IDGs for the region are to be met. Both countries share characteristics of both low-income and middle-income countries. Of the two, India could more readily be categorized as a low-income country. Due to robust growth for over a decade and significant poverty reduction, parts of the PRC could be categorized as middle income. However, large parts of the country remain very poorly developed. Partly because of the sheer size of their markets, both countries have some access to international capital markets and foreign direct investment, particularly the PRC. For growth to be robust and sustained, both countries face an extensive and complex reform agenda over the medium term. Neither India nor the PRC have access to concessional funding for loans from ADB.¹⁵ The challenge for ADB over the medium term is to determine how it should best use its ordinary capital resources to assist these countries in addressing their poverty reduction agenda. ADB’s assistance will have to be targeted at development of the poorer areas of both countries, and support their complex reform process and institution building. To make the assistance suitable to both India and the PRC, ADB must combine selective investments, policy and institutional support, and knowledge transfer that will be financed by a combination of instruments (lending, TA, regional cooperation initiatives, and possibly other sources of grant financing).

21. Middle-income countries in the Asia and Pacific region include a diverse group comprising Malaysia, Thailand, Philippines, Indonesia, the Fiji Islands, Papua New Guinea, Kazakhstan, and Uzbekistan. Most of these countries have access only to nonconcessional funding from ADB.¹⁶ Poverty remains a problem although the incidence of poverty varies significantly across and within the countries. Most of these countries have access to international capital markets, and some, such as Malaysia and Thailand, have attracted large amounts of foreign investment. However, access to external capital fluctuates greatly. Over the medium term, the growth prospects for these countries will be significantly affected by slowdown of growth in the world economy. Growth prospects will be further impacted by continued structural weaknesses in these economies often resulting from the Asian crisis, internal security issues, weak institutions, and for some transition-related governance issues. Indonesia, for instance, has already experienced a significant drop in per capita income over the last few years. A period of slower growth for all these countries could substantially reverse the poverty reduction gains they have achieved, and many of the indicators for the IDGs could worsen as a result. ADB’s assistance will remain very important over the medium term. Besides interventions targeted at the poorer regions and possible support for social protection, ADB will support institutional and policy reforms including financial sector reforms and corporate governance to reinvigorate and accelerate private-sector-led growth. Program lending, particularly for institutional reforms, could become more important. The access that these countries have to domestic and international private capital markets could fluctuate because of uncertainty and this could result in fluctuating demand for ADB assistance. Therefore, ADB will need to incorporate a greater degree of flexibility into its assistance programs in these countries.

___________________

Back II. ADB’S Medium-Term Strategy (2001-2005)	Next B. Operations in a Subregional Context