Catalog

72. The initial phase of the reform programs supported by ADB since 1995 have focused on good governance and macroeconomic stability. The triggers for reform in most PDMCs have been intrinsically related to fiscal crises, unmanageable government debts, public dissatisfaction with government performance, and election of reform-oriented governments. The areas of emphasis have been (i) supporting legislative reform of the role of parliament and the public sector; (ii) strengthening good governance institutions; (iii) introducing fiscal discipline and output focused budgeting; (iv) downsizing the civil service and strengthening its professionalism; (v) promoting more open and growth-orientated economic policies; and (vi) encouraging privatization and a larger role for the private sector. While some success has been achieved in these areas, much still needs to be done. By nature, these are endemic issues that need long-term and consistent attention before sustained change takes root. Hence, ADB’s emphasis in this area will continue over the longer term (Figure 3).

73. The new Pacific strategy will support deepening of government and public commitment to the reform process. ADB assistance will focus on building public awareness and support for reforms through continued dialogue with government, and promoting stronger government linkages with the private sector, NGOs, and community organizations that have vested interests in the reforms. In this connection, ADB continues to support the organization of annual national summits to bring together key stakeholders to review government progress on reforms. In line with ADB's governance policy,¹⁴ the demand-driven nature of ADB assistance should become more pronounced, particularly in the case of politically sensitive governance reforms, where the guiding principle must be to act on the basis of PDMC requests and ownership rather than simply using loan conditionalities. ADB will give priority to awareness raising, coalition building, and public information activities, where local support for governance reforms is weak. Thus, local ownership of the reform process is a key aspect of the strategy.

74. The strategy will support the maintenance of stable macroeconomic environments. The content of macroeconomic policy will depend on country circumstances. However, in general, emphasis will continue on implementing fiscal discipline, strengthening revenue management, promoting an export orientation, and encouraging private investment. Subject to domestic capacity constraints, ADB will support governments in preparing a rolling medium-term budget framework that reflects the country’s medium-term development strategy and integrates both the recurrent and capital budgets.

75. The strategy will emphasize enhancing efficiency and effectiveness of the public service. While major achievements have been made in downsizing the public service, the same cannot be said of the quality of public services. These remain poor, inadequate, and well below acceptable standards in most PDMCs. Of particular concern is the ability of governments to reach out to the rural areas and the poor who are usually most in need of these services. Since the strategy will also emphasize poverty reduction and improvement of quality of life for the people of the Pacific, the improvement of efficiency and effectiveness of the public sector will be a key focus. A related feature will be continuous impact monitoring by identifying and monitoring verifiable performance targets for each government agency. In this regard, and given the large need for capacity building, TA will continue to have greater importance than resource transfers in ADB’s assistance mix.

76. The private sector should replace the public sector as the engine of growth. Reduction in size and scope of the public sector over the last five years of reforms was not associated with a corresponding growth of the private sector; this left a gap in output and employment. Furthermore, the expected efficiency advantages through private operations also did not accrue to the PDMC economies. The limited growth of the private sector is explained by both the immutable constraints on economies, as well as the inadequacy of various factors required for growth of a dynamic and healthy private sector. The strategy will support a second phase of the reform process by addressing these various factors, as well as continuing to support the shifting the role of government from producer to facilitator of economic output.

77. ADB’s Private Sector Development Strategy¹⁵ will guide the Pacific strategy in its focus on the private sector. ADB will seek to (i) promote enabling environments for private sector development, (ii) identify and support business opportunities, and (iii) facilitate private investments in the PDMCs. To deepen the dynamics of the private sector, ADB will promote privatization of state-owned enterprises, private sector participation in infrastructure development, liberalization of investment and trade regimes, and greater competition. However, private sector growth will essentially depend on business perceptions of risks and rewards associated with investments. To reduce risks, ADB will facilitate the maintenance of stable macroeconomic environments, and the development of appropriate legal and regulatory frameworks. ADB will help improve the prospects of private investment through tax reforms, easier access to land, and skills development in the labor market. ADB already does and will continue to promote a sound policy of transport infrastructure development and maintenance, with related investments in physical, telecommunications, and IT infrastructure. Financial sectors will be supported to become more vibrant, transparent, and responsive to all segments of the economy. Some of these issues will be addressed as a part of continuing economic, governance, and public sector reform processes.

78. Special effort will focus on the areas of comparative advantage. Emphasis will be placed on resource and skill advantages of the PDMCs, such as tourism, fisheries, and agricultural products, and the development of niche markets in each of these areas. The development of small- and medium-size enterprises will be the focus, given the small factor and product markets. Diversification and value addition of the predominant primary products and exports of these countries will be supported. To improve financial viability of private operations, ADB will promote innovative public-private partnerships, including management contracting of public enterprises, and projects based on build-operate-transfer and build-own-operate or similar concepts. In smaller PDMCs, where development of an organized private sector is less feasible, marketable skills will be developed to enable the islanders to compete for employment opportunities outside of their respective countries.

79. Technical advice and investment support will be provided to the private sector. Given the small size of potential investments and high cost of project development, ADB, with the International Finance Corporation, will collaborate to support technical and feasibility advice services through the South Pacific Project Facility. ADB will also cooperate with the Foreign Investment Advisory Services (also supported by the International Finance Corporation) to promote foreign direct investment in the region. ADB will explore the possibility of establishing an investment facility to be run jointly by the Private Sector Group and the Office of Pacific Operations to finance smaller investments in the PDMCs, with simplified processing requirements.

80. Gender issues will be mainstreamed. While gender issues remain significant and important on the social front, such as in relation to health, hygiene, education, and population control, a breakthrough is necessary in recognizing the potential role of women in politics and the economy. ADB has an important role to play, given its influence in promoting economic and governance reform. Barriers to women’s participation as equals in the political and economic sphere need to be gradually eliminated. Education and access to finance for investment are perhaps the most powerful tools in this regard. ADB will focus its skills development and microfinance projects on women. In addition, ADB can do much to ensure the involvement of women in the (i) ADB-supported national summits on economic and governance reform, (ii) development of economic and poverty reduction strategies for each PDMC, and (iii) legislative and social reform to ensure equal opportunity rights for women.

81. ADB will continue to promote the role of women in the control of population growth, broadening the reach of education, and improving health indicators. These remain critical issues in the Pacific, and the most effective strategy to address them remains through women, and strengthening women's social and economic role in society. Gender analysis will be an essential component of the preparation of all TA and loan projects. In the annual country programming exercises, country-specific approaches to mainstream gender and development policies and programs will be identified. Although historically, ADB has not been substantially involved in population policy and programs in the Pacific, this sector has become a key area for its assistance, particularly due to ADB's new poverty reduction policy. Ways of directly influencing population growth rates through population policy, family planning, and improved access of women to health and education opportunities will be explored and supported with governments and other providers of external assistance.

82. Fragile environments will be actively protected through policy support and investments. Given the narrow resource base of the Pacific islands, and the limited economic opportunities for investment, the pristine environment of many of the PDMCs remains their most important comparative advantage. ADB will make strenuous efforts to underscore this issue in the economic and governance reforms it promotes, provide assistance for improving regulatory and management frameworks to ensure the protection and sustainable management of these environments, and support community-awareness and education projects where broad-based action and public support are required. The PDMCs hold some of the world's richest sites in terms of biodiversity, and there are opportunities for attracting cofinancing, e.g., from the Global Environmental Facility, for conservation and protection projects. ADB assistance in this area is well justified, but will depend on commensurate interest and capacity on the part of the government agencies concerned.