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p. 4 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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IV. The Changing Role of the Bank

15. The Charter of the Bank requires it, above all, to "foster economic growth and cooperation in the region" and to "contribute to the acceleration of the process of economic development of the developing member countries in the region." The Charter goes on to specify various functions for the Bank, including the promotion of investment in the region of both public and private capital for development purposes, support for the effective utilization of such resources for enhancing economic growth, and the provision of technical assistance (TA) to its DMCs as required in this connection.

16. During its initial years of operation, the Bank translated this mandate into the role of a project financing institution. This interpretation of its role was reinforced by another provision of the Charter, which says that "the operations of the Bank shall provide principally for the financing of specific projects..." Thus, the Bank successfully embarked on and managed, over the first 20 years or so of its existence, a project financing program in each of its DMCs, which has grown in stature, size, and impact. Today, the Bank is considered a leading regional development institution, contributing, in most cases, over 25 per cent of official development assistance (and in some cases far more) to its DMCs.

17. In the mid-1980s it became increasingly clear that the Bank and its project investments could not continue to be disassociated from the overall policy and investment environment in the countries and sectors where it worked. A Bank review of its program lending policy in 1991 indicated that "a major lesson learned from the Bank's experience over two decades is that it is virtually impossible to have good projects in a poor policy environment." Thus, Bank operations moved into a new phase, which takes a broader view of the Bank's development mandate, viz., promotion of an improved policy environment in its DMCs.

18. Today, the rapidly evolving development environment in the region appears to call for yet another review of the Bank's role. In the first place, the dimensions of development financing needs in the region have grown enormously in size and complexity. For instance, the external financing gap of the region is currently estimated at approximately $90 billion per year.³ The Bank's limited financial resources can hope to address only modest proportions of these investment requirements. In some DMCs, and particularly in some sectors, commercial financial flows are already playing a major role in filling the gap. It is expected that this trend will gradually extend itself to other DMCs in the region as well. In this context, the question arises as to how the Bank can continue to substantively influence development in its DMCs despite the scope of its project financing capacities remaining relatively limited in relation to needs.

19. Secondly, DMC governments (which are the Bank's major borrowers) are increasingly withdrawing from the role of lead financiers of development, and are evolving into catalyzers and promoters of development, their focus is shifting to policy management and regulation, though most retain an active investment role in the provision of public services and infrastructure, in poverty reduction and in environmental conservation. This changing role of government among the DMCs in effect presents new needs, opportunities and challenges for the Bank to address. It is an opportunity for the Bank to enlarge its own role beyond that of a project financing institution, to one with a broader mandate for catalyzing more efficient, effective, and sustainable development in the region. The specific areas that present themselves for expanded Bank support include:

1. The Formulation of Public Policy. The role of public policy in catalyzing and promoting social and economic development has been amply demonstrated within the region. The very positive experiences of certain DMCs with the adoption of policies supportive of the market, the role of the private sector, and the promotion of environment conservation have encouraged them and other DMCs to expand reviews and revisions of their policy frameworks in key sectors. The Bank can and does act as a catalyst in this regard, supporting the examination and adoption of alternate policy frameworks, though primarily at the sector level (generally leaving macroeconomic policy support to the World Bank). It does so through its program, sector, and selected project loans, as well as though TA. The issue is the extent to which the Bank can expand this role of policy support, making the progression of policy changes in a sector the cornerstone of its assistance, and using its investment operations to more widely influence and pro- mote policy change and reform in key sectors in DMCs.

2. Streamlining Public Sector Management. With the changing role of government has come the need for privatization, corporatization, "downsizing," decentralization, public sector reform, and more active public-private sector interface and collaboration. The sustainability of the effects of revised policy frameworks is, in large measure, contingent on strengthened government administrative capacity to implement and enforce the policy changes. This governmental capacity is even more significant than project-related administration (another aspect of public sector management), on which depends the 'sustainability of benefits from specific project investments. While the Bank does provide extensive TA financing for capacity building, this is done on a rather ad hoc and intermittent basis, without the benefit of adequate needs assessments, forward planning and linkage with policy-related or project-specific investments. It is timely for the Bank to consider a systematic and long-term capacity building role for key sectors in each DMC, managed in partnership with key DMC institutions.

3. The Promotion of Regional Cooperation and Trade. Accelerating economic interaction among economies in the region can have positive spill over effects on economic growth in the DMCs concerned. This interaction can potentially cover facilitation of trade and investment, coordination of macroeconomic policies, mutual recognition of technical standards, complementary environmental policies and strategies, and cooperation in the management of common natural resources. The Bank is in a good position to promote and facilitate this regional cooperation. Some significant activities in this regard under- taken by the Bank include the Indonesia-Malaysia- Thailand Growth Triangle Development Project and the program for cooperation in the Greater Mekong Subregion. The Asian and Pacific region is also home to the NIEs, from whose development experience much can be learned. The Bank can playa useful role in ongoing assessments of lessons from the experiences of the NIEs and can support the trans- fer of these lessons, as appropriate, to other DMCs in the region.

20. In the context of the above, it appears appropriate that the Bank assume a developmental “niche" and role vis-a-vis its DMCs, that may be characterized as follows:

1. a sector-focused development institution, which provides an integrated package of policy support, capacity building and investment services to key sectors of DMCs; this distinguishes the Bank, to some degree, from sister institutions such as the World Bank and the International Monetary Fund who focus substantially on macroeconomic management and related structural reform;

2. a regional development institution, with a mandate to promote regional cooperation, to translate global concerns into regional initiatives, and to represent regional concerns at global fora; and

3. a catalyst development institution which uses its project investments to leverage policy change, capacity development and greater private sector investment.

21. This role of the Bank capitalizes on its comparative advantages as a development institution. These advantages include its capacities to provide objective sectoral policy guidance, long term capacity building support and substantial development project assistance, as well as its regional focus and location. The latter part of this document outlines the Bank's strategic and operating objectives within the framework of the Bank's enlarged role as described above.

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