Catalog

86. Gradual but systematic and long-term capacity building will be emphasized. In terms of capacity building, there is a need to work with the PDMCs and target clients to formulate long-term plans for building the required skills by combining training, exposure to other systems, consultancy, learning-by-doing, and institutional twinning arrangements. Such plans should identify the milestones for each stage of skill development, emphasizing small but successful steps at the start and moving progressively to larger ones. Such plans can guide the activities of various external funding agencies over time, and ensure better aid coordination and planning. At the project level, consultants’ terms of reference should routinely include skill transfer as part of the expected output, with clear indicators for accomplishment of this result. Accordingly, consultants will need to be selected not only for their technical qualifications, but also for their ability to guide, coach, and mentor local counterparts. Domestic consultants should be used more often, for example, as long-term understudies of international consultants.

87. Infrastructure development and efficient maintenance will remain a basic priority. Better infrastructure improves access of the poor to private markets and public services, weakens monopolistic exploitation, and facilitates the flow of information and awareness. Infrastructure development is critically linked to private sector development and economic growth as it helps reduce market imperfections and stimulates the free play of the market. Based on lessons learned from past experience, special attention will be paid to maintenance of infrastructure, as it brings significantly higher returns on investments compared with investments in new infrastructure. Given the small size of markets and geographic difficulties, the public sector will have a continuing role in infrastructure development and operations. However, to obtain higher operational efficiencies, ADB will support public-private partnerships in infrastructure development where feasible. Private sector participation in infrastructure development will be promoted by unbundling infrastructure operations, wherever possible, improving availability of required long-term financing, and developing appropriate policy and regulatory environments. In terms of reform of public sector agencies involved in infrastructure, emphasis will be on increasing managerial and financial autonomy and accountability.

88. ADB support for infrastructure development will focus on transport, telecommunications, IT, and water supply and sanitation. While ADB has been already substantially involved in supporting transport and water supply development, telecommunications and IT will be relatively new areas. In view of the dispersion and remoteness of the PDMCs, the development of telecommunications and IT will help improve access and business communication, and reduce costs. The PDMCs should also be harnessing the power of telecommunications and IT for health and extension of services, distance education, investments, and monitoring of public activities. In all the infrastructure areas, assistance will be provided for investments as well as policy and regulatory development.

89. ADB will work with the PDMCs to take advantage of IT to overcome constraints associated with smallness and isolation, and to realize potential gains offered by links to a global market. Such assistance could initially take the form of country and regional studies to assess IT readiness. Following such studies, ADB could assist PDMC governments in (i) developing national policy and strategy for IT; (ii) increasing IT awareness and computer literacy; (iii) improving IT infrastructure in the public and private sectors; and (iv) using IT to enhance governance, social inclusion, and service delivery, particularly for basic social services such as health and education. Given the need to conduct field trials of new technologies, ADB-financed investment projects in particular sectors could include small pilot projects to test innovative IT-based approaches. If the pilot projects succeed, further funding can be provided by ADB to replicate the projects on a wider scale.

90. ADB will provide efficient financial intermediation for private sector development and optimal allocation of resources. Following the Asian financial crisis, a strong financial system and its effective supervision have emerged as crucial factors for reducing vulnerabilities, which is all the more important for the small open economies of the PDMCs. Inadequate private sector development and continued macroeconomic instability in the PDMCs highlight the need for urgent development of the financial sector. ADB will pay special attention to the basic constraints of the PDMCs, including the small size of financial markets; large population outside the formal monetized economy; problems with land use as collateral because of the customary land ownership structure; and sociocultural practices related to production, consumption, and saving in the region.

91. ADB will support financial sector expansion, supervision, and competition. In this connection, ADB support for nonbank financial institutions, such as venture capital funds and microfinance organizations, will be helpful. Work is already ongoing in PNG, Samoa, and Vanuatu. Financial sector supervision must be strengthened to give greater confidence to external investors. ADB will support the adoption and enforcement of internationally accepted accounting practices and other standards for financial institutions, and support widening the supervisory role of the central banks. In view of the small skill base and resource limitations of the PDMCs, ADB will support regional cooperation in regulatory and supervisory matters, along with harmonizing legal, regulatory, and institutional issues. In this connection, ADB has begun and will continue to work with the PDMCs to more effectively monitor and eliminate money laundering operations in the region. ADB will also continue to advocate reform of the government-owned development finance institutions, including improving their corporate governance and increasing private sector participation on their boards, strengthening their operational policies and procedures provide independence from governments, and promoting their eventual privatization. Given the small size of the PDMCs, ADB will support efforts to develop regional capital markets to channel domestic and foreign flows into productive investment. Efforts will be made to connect the existing stock exchanges in the region through the Internet. The possibility of establishing a new venture capital fund on a regional basis will also be explored to make finance available to local private sector investors in the PDMCs.