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p. 21 of 29 BACK | NEXT Executive Summary I. Introduction II. Development Challenges III. Key Variables Influencing Development IV. External Assistance V. Review of ADB Assistance and Strategy A. 1996-1999 Pacific Strategy B. Assessment of Past Strategy and Lessons Learned VI. The New Pacific Strategy

A Pacific Strategy for the New Millennium : V. Review of ADB Assistance and Strategy

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A. 1996-1999 Pacific Strategy

49. The 1996-1999 ADB Pacific strategy made a case for special approaches to assistance to the Pacific. The 1996 Pacific strategy was based on the premise that the PDMCs—while exhibiting considerable physical, linguistic, cultural, social, economic, and political diversity—differ from the ADB’s other developing member countries “in nearly every physical and economic respect, and [that] this requires development strategies adapted to their special circumstances.”¹¹ These circumstances include smallness, remoteness from major markets, geographic fragmentation, economic vulnerability (because of reliance on a narrow range of primary product exports, aid, and/or remittances), and environmental vulnerability.

50. Despite high gross investment ratios, economic growth in the 1980s and early 1990s was disappointing. Smallness and remoteness were recognized as “formidable obstacles to private sector development” (footnote 10), but there were other factors identified as causes of this generally disappointing economic performance. Public investment had been dominant and was concentrated in the low return areas of physical and social infrastructure. Large and inefficient public sectors had crowded out private sector investment and failed to deliver good policy environments. Public expenditure was skewed toward the wage bill and away from productive investments.

51. Aid was judged to have been unsuccessful in facilitating growth. Aid had supported large public sectors and involved TA that financed line positions without leading to durable capacity building. Additionally, inadequate aid coordination had contributed to weak or nonexistent linkages between aid programs and sound policy environments.

52. The PDMCs' capacities to maintain and improve their high living standards differed. The Fiji Islands, PNG, Solomon Islands, and Vanuatu had growth potential because of relatively large natural resource endowments, although PNG, the Solomon Islands and Vanuatu had a human resource constraint. The Cook Islands, Samoa, and Tonga had reasonable growth prospects because of modest natural resources and well-educated populations, although Samoa and Tonga continue to rely on private remittances. Kiribati and Tuvalu had very limited growth prospects and continue to rely heavily on their trust funds. The FSM and the RMI had aid-distorted economies in need of major restructuring (footnote 11, p. 23).

53. Consistent economic policies and good governance were generally seen as prerequisites for sustainable development. External funding agencies lacked the necessary focus to assist the PDMCs develop better policies. Against this background assessment, the 1996 Pacific strategy affirmed that

and that

54. Under the strategy, ADB interventions were to involve significant reform or capacity building, and address key factors contributing to economic growth.

55. A consequence of the 1996 strategic focus was the expectation that the TA function would become relatively more important than resource transfer. The influence of the 1996 strategy on the operations of the Office of Pacific Operations is reflected in the fact that during 1996-1998, program lending in support of economic, public sector, and governance reforms assumed a significant proportion of ADB lending in the Pacific.

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