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	Table of Contents
p. 3 of 14 BACK | NEXT I. Introduction II. Taking Stock of Progress III. The Current Development Environment in the Region IV. The Changing Role of the Bank V. The Bank's Strategic Directions FRO 1995-1998 VI. Organizational Implications and Capacity Building Requirements of the Bank

The Bank's Medium-Term Strategic Framework

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III. The Current Development Environment in the Region

9. The Asian and Pacific region is currently the most dynamic region within the global economy. Over the last five years it has averaged an annual growth of over 7 per cent, which is twice the average of other parts of the world. This growth is balanced with creditable results in the reduction of poverty and in social development, particularly in the newly industrializing economies (NIEs), Malaysia, Thailand and Indonesia. These achievements in economic and social development have, in large measure, been set in motion by progressive policy changes, supported by growing investments in necessary physical and social infrastructure. While financial liberalization has helped stimulate investment and finance rapid development, new liberal outward-looking trade and industrial policies have encouraged private sector investments. Large investments by both the public and private sectors in transportation, communications, energy, and education infrastructure have provided the necessary basis for continued growth and social development.

10. Within this overall positive context however, lie some significant trends with important implications for Bank operations. The first and most apparent is the asymmetry in economic growth among DMCs within the region. While East Asian DMCs have generally enjoyed robust economic growth ranging from 7 to 10 per cent annually over the last five years, South Asia, some Pacific DMCs and the Philippines continue to Iag with growth rates of about 5 per cent or less per annum. The Central Asian Republics and Mongolia are even further behind as they struggle to transit their respective economies from centrally planned modes of economic management to market-oriented ones. It is obvious that not all Bank DMCs have been able to adopt with equal effectiveness the policy and institutional restructuring regimes that are necessary to achieve robust levels of growth.

11. The second trend of significance, and closely related to economic growth within the region, is the role and contribution of the private sector in supporting this growth. Foreign direct investment (FDI) flows into the region have been considerable, and have been particularly important for export-oriented manufacturing. FDI in the Bank's DMCs is estimated to have been over $27 billion in 1993, having increased at an annual rate of 27 per cent over the period 1987-1992. In many cases, the private sector is also seen to assume development initiatives and investments that would normally have been left to the government, particularly in the sectors of urban infrastructure, energy, and communications. However, the asymmetry in rates of economic growth within the region also extends to the inflow of private sector investments. In 1993, net FDI into developing countries in East Asia was almost $26 billion; in comparison, similar investment flows into South Asia in 1993 amounted to only $667 million.¹

12. Despite rapid advances in growth, trade and investments, the region continues to face a trend of socioeconomic and environmental problems, in some measure an unwanted effect of its economic success. While the emerging development paradigm emphasizes market openness, financial sector liberalization, and the role of the private sector, the market has not worked effectively enough in certain areas. The income and quality-of-life gaps between men and women, between urban and rural populations, and between landowners and the landless continue to be substantial and to widen in many parts of the region. Of the more than one billion poor people in the developing world, between 700 and 800 million are in Asia and about 500 million of these live in absolute poverty.² The region's huge population, more than half of the world's, and its high rate of population growth have determined that, despite major economic advances, the Asian and Pacific region remains home to more than two thirds of the world's poor. Associated challenges include environmental degradation, aggravated by high population growth, and rapid rates of industrialization and urbanization. This degradation includes tropical deforestation: related soil erosion, desertification, loss of biodiversity, global warming, the emission of toxic and hazardous wastes, and urban pollution.

13. As DMC governments continue to press for increased economic growth while coping with poverty, population growth, and environmental ill-effects, a fourth significant and closely related trend within the region becomes apparent: the increasing openness and willingness of DMC governments to experiment with and assume new roles and approaches to the management of development. A number of governments perceive themselves less and less as the major providers of development finance or as primary investors in the productive sectors. They appear progressively at ease with the role of catalysts, promoters and regulators of development, leaving the private sector to play an increasing and constructive part in economic growth. In part this is due to the realization that the public sector does not and will not have the financial means of addressing all development needs. In part, it is also due to an increasing awareness of the potential of a conducive policy framework and of fair and transparent regulation, in catalyzing private initiative. Governments, however, are equally cognizant of the limitations of the market and the need for more active and efficient governance in providing social services, addressing poverty and protecting the environment.

14. One other trend worthy of mention in this overview of significant regional developments, is the growing interdependency among the Bank's DMCs. This is reflected in increased trade and market linkages among DMCs, closer economic and political cooperation, and increased efforts to manage common property resources more effectively to mutual and equitable benefit. The region is now home to three major subregional cooperative bodies: the Association of Southeast Asian Nations, the South Asian Association for Regional Cooperation, and the more recently established Asia-Pacific Economic Cooperation forum. Together with the approval of the Uruguay Round of the General Agreement on Tariffs and Trade by member countries/economies, trade and economic linkages between DMCs within the region are expected to deepen and broaden.

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