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ADF VIII Donor's Report: Fighting Poverty in Asia
Executive SummaryAsia’s record of economic growth and improvement in the quality of life during the past three decades is one of the most remarkable achievements of the 20th century. The developing countries have led these advances, but their efforts received significant support from Donors - directly and through the Asian Development Fund (ADF). In the early 1970s, half the Region’s population was poor, average life expectancy at birth was 48 years, and only 40 percent of the population was literate. Today, less than one third of the population is poor, life expectancy averages 65 years, and 70 percent of the adult population is literate. Despite an increase in population from 1.8 billion to 3.0 billion, the number of poor in the Region has fallen by roughly 100 million. Notwithstanding the progress achieved, most of the world’s poor live in Asia. In many parts of Asia, social indicators are worse than those in Africa. The Asian and Pacific Region contains close to 900 million poor people. This is by far the largest concentration of poor in the world. As a result of high population densities and high incidence of poverty in some parts as well as rapid growth in others, problems of environmental degradation and natural resource management are particularly severe in developing Asia. ADF, in collaboration with other development partners and the developing countries, remains a necessary instrument to assist countries in Asia to fight the war on poverty. ADF’s vision - to eliminate absolute poverty in the poorest countries in Asia and thereby make an important and significant contribution to the achievement of the international development goals (IDGs). ADF’s mission is to achieve the vision by supporting broad-based and equitable development in low-income countries in Asia-Pacific and accelerate the pace of poverty reduction. ADF will fight poverty with operations formulated on the basis of ADB-wide strategies that promote pro-poor sustainable economic growth, social development, good governance and the private sector, and reflect close partnerships with governments, civil society and other development organizations. The implementation of these strategies in ADF VIII will stress the necessity of supporting a development process in poor countries that: involves systematic inclusion of the poor, women and other disadvantaged groups; promotes good governance; gets demonstrable results from scarce development resources; produces results that generate sustainable development impacts; allocates scarce resources on the basis of performance; contributes to improving the environment; and contributes to a more equitable society. A framework for poverty reduction. ADF’s assistance is provided under a broad policy framework approved by ADB’s Board of Directors, and representing the guidance and reflecting the priorities of Donor members. This guidance and the priorities of the Donors are set out in this report. The ADF VIII replenishment will also be guided by the IDGs. ADF VIII operations will be implemented under the general ADB-wide framework for poverty reduction as contained in ADB’s Poverty Reduction Strategy. In this context, Donors have agreed that ADF VIII resources will focus on three key areas:
The private sector is essential in the fight against poverty. Donors reaffirmed that the private sector is needed for sustaining economic growth and that the Asian experience has shown that growth is a powerful weapon in the fight against poverty. Growth creates jobs that use labor, the main asset of the poor. Donors endorsed ADB’s Private Sector Development Strategy in ADF VIII including the strategy’s three main thrusts: (i) to support DMC governments in enabling business; (ii) to generate business opportunities in ADB-financed public sector projects; and (iii) to catalyze private investments through direct financing, credit enhancements, and risk mitigation instruments. Donors also agreed that ADB’s support for the private sector should aim to strengthen the rule of law and associated legal frameworks and the application of international standards for corporate governance. Donors agreed that all of ADB’s instruments for advice and financing will be used to pursue private sector development outcomes targeted by the three strategic thrusts, and concurred that the three thrusts are mutually reinforcing when brought to bear on the challenge of poverty reduction. Combating Infectious Diseases and HIV/AIDS. Donors concluded that infectious or communicable diseases particularly affect the poor and more generally adversely affect a country’s economic and social development initiatives. The benefits for the whole population from addressing communicable diseases are very high. Donors noted that according to UNAIDS estimates, close to one-third of the world’s HIV/AIDS population lives in Asia and the Pacific. South and Southeast Asia are the most affected regions. Infectious diseases and HIV/AIDS epidemics in the Region are not only a serious health problem but also have important economic and social implications. However, experience has shown that communicable disease control interventions are generally low-cost and cost-efficient. Donors concluded that it is appropriate for DMCs and ADF to allocate scarce domestic and international resources to combat these diseases. Donors endorsed ADB’s medium-term operational plans (Appendix 7) for combating infectious disease and HIV/AIDS. Mainstreaming gender, environment, and core labor standards. Donors agreed that insufficient attention was being given to including gender issues in ADB’s overall lending program. They suggested that during the ADF VIII period, ADB should increase the number of loans focusing directly on gender equality, and that gender equality considerations should be mainstreamed in planning all loan operations. Projects should address gender equality at both the national and subnational levels and across all key economic sectors in individual DMCs. Projects should be designed and implemented to encourage women to achieve their full economic potential and thereby expand the base for sustainable economic growth in a DMC, and to earn incomes and acquire access to social protection that reflect their full contribution to the nation’s economic and social development. Donors agreed that the implementation of ADB’s poverty reduction strategy, along with a new environment policy and revised guidelines for environmental assessment, as well as a performance-based allocation system including environmental criteria, provides an opportunity for improved mainstreaming of environmental considerations in all ADB operations. As the partnership with the Global Environment Facility (GEF) develops, DMCs will benefit from investment projects that blend ADB finance with GEF grant resources. On core labor standards (CLS), ADB will, in selected DMCs, assist in preparation of national compendia. These compendia will consist of studies, guidelines and checklists provided to policy makers of key ministries and staff of executing agencies of ADB-assisted projects. The compendia will identify relevant issues and address them when designing and implementing programs and projects. ADB will prepare an associated framework and action plan that will be readily applicable in ADB’s operations. In 2001, ADB will expand the scope to other DMCs as well as cover other standards. Supporting regional cooperation to achieve prosperity and stability. Donors reaffirmed that ADB has a special Charter mandate to promote cooperation among developing countries in the Region. As with governance, there is a consensus among Donors that ADB’s regional character gives it a comparative advantage to support cooperation among DMCs. Regional cooperation, therefore, provides a potentially important mechanism for poverty reduction, especially where the cooperation involves marginal and less developed areas. Donors also agreed that regional cooperation should not be confined to the economic dimension of development. It is also highly relevant to addressing cross-border issues, such as common property resource management, labor migration, disease prevention and control, human resource development, and for resolving disputes on policies and practices in relation to these issues. Combating Money Laundering, and Drug Trafficking. Donors agreed that money laundering—which is frequently associated with serious crimes, including drug trafficking— occurs in many countries, including developing countries in the Region. In ADF VIII, ADB will plan to combat money laundering in DMCs through various approaches. ADB will support operations that develop and improve the regulatory framework and supervisory systems for the financial sector in poorer DMCs, including law reform efforts that promote transparency practices and good governance principles, including effective internal controls. Drug trafficking related issues will be covered in country strategies, and ADB will seek opportunities to support alternative development projects in those key drug-producing nations where it has lending programs. ADB will work closely with other relevant organizations, in particular the Financial Action Task Force (FATF) and the United Nations International Drug Control Program (UNDCP). Building Partnerships. ADB is taking important measures to work closely with other development partners to carry out operations on the basis of its comparative advantages and to achieve greater development impact. Donors reaffirmed the need for development partnerships for ADF operations, including much closer and sustained donor coordination and taking a lead in building development partnerships using the principles of the Comprehensive Development Framework (CDF). Donors recommended ADB take the lead in strengthened donor coordination in DMCs in situations where ADB has a comparative advantage to do so and when requested by the Government, and to play an active role in donor coordination in situations where it does not take the lead role. On the basis of a new formal protocol (Appendix 3), ADB will collaborate closely with the Bretton Woods institutions, and the European Bank for Reconstruction and Development (EBRD) as appropriate, to assist DMCs in preparing national poverty reduction strategies. Each development partner will design its own country strategy or institutional business plan that will be consistent with the national poverty reduction strategy. In addition, ADB will build on the formal protocol and work with the World Bank to develop a mutually satisfactory memorandum of understanding to ensure that these institutions maximize their respective institutional and operational strengths, and concomitantly minimize any unnecessary duplication, for development efforts in this Region. Allocating ADF’s resources according to each country’s policy performance. Donors reaffirmed that aid works best in reducing poverty in countries with sound policies and institutions. The main lesson has been that in order to realize the objectives for which aid is intended, it must flow to those who need it and make the best use of it. Against that background, Donors endorsed ADB’s plans (Appendix 5) to strengthen its development impact and realize its overarching goal of poverty reduction through a closer linkage between country performance (effective development management) and the allocation of scarce ADF resources among recipient countries. Donors concluded that the proposals contained in ADB’s work-in-progress establish a strong linkage between country performance and allocations and ensure a transparent and fair but flexible performance-based allocation of ADF resources. Donors also agreed that the performance-based allocation system should be structured to reflect the three pillars of ADB’s Poverty Reduction Strategy (i.e., pro-poor sustainable economic growth, social development, and good governance). This approach will enable greater differentiation to be made in allocations to ADF recipients based upon their efforts and progress on measured reductions in poverty. Donors requested ADB to submit the country allocations derived from the performance-based allocation system to a formal meeting of the Board of Directors for their endorsement. Reinforcing good governance principles in ADB’s corporate management. Donors expect that the good governance principles of transparency, accountability, participation and predictability will be applied to ADB’s own internal governance. They consider them to be relevant to relationships between Management and the Board of Directors, and between Management, senior management and staff in ADB. Donors emphasized that ADB should be a model for institutional governance, reflecting international best practice. They encouraged ADB to take measures to improve its internal governance. In this regard, Donors welcomed and endorsed Management’s recent initiatives, including: (i) informal meetings with members of the Board of Directors, on a quarterly basis, to discuss the schedule of Board meetings and work program; (ii) meetings of the Budget Review Committee of the Board of Directors, as needed, to review major undertakings with substantive budget implications, with meetings scheduled at least semi-annually; (iii) examining the strengthening of the Operations Evaluation Office (OEO); (iv) adoption of a formal Board meeting to endorse the Three-Year Rolling Work Program and Budget Framework paper; (v) examine how to incorporate Board input into the Country Strategy and Program (CSP) including CSP endorsement in a formal meeting of the Board; (vi) establishing the practice of semi-annual retreats, to further strengthen communication between the Board and Management; and (vii) work on the establishment of a Development Effectiveness Committee, and enhancing the Inspection Function. Donors requested that these initiatives be pursued forcefully and in full consultation with the Board of Directors. Donors also considered the experience with the Inspection Function. They expressed concern about the paucity of requests for inspection and the absence of instances of the actual inspection approved by the Board of Directors. In that context, Donors noted and welcomed that Management plans, in full consultation with the Board of Directors, to strengthen and make more independent the inspection function of ADB. Donors called on ADB to establish soon a Development Effectiveness Committee of the Board. Developing better evaluation systems and strengthening their linkage to the planning of ADF operations. Donors agreed that timely access to results of evaluation of ADF-financed operations is necessary to enable Management, the Board of Directors and Donors to assess the stewardship of ADF resources. Donors considered existing evaluation systems and concluded that they limit ADB’s ability to fully assess the results and impacts from ADF-financed operations. Donors requested ADB to continue its efforts to strengthen ADB’s evaluation systems (in particular, methodologies, databases, and indicators) to allow for better measurement of both quantitative and qualitative impacts of ADF operations at the project, sector, and national and subregional levels, as well as contributing to cross-institutional comparisons of development impact. Redesigning and strengthening operational processes to support ADF. Donors considered ADB’s current operational processes. They concluded that these processes do not always result in the desired level of “quality at entry” for key products: country operational strategy (COS), country assistance plan (CAP), Technical Assistance (TA), and loans. This reduces the potential development impact of ADB’s assistance. Donors noted and endorsed ADB’s new integrated approach to operational business processes where country planning, programming, and TA and loan processing will be treated as one integrated process. Donors agreed that the redesign of the operational business processes should focus on three key areas: (i) ADB’s procedures for accountability, review, and approval; (ii) improvement of economic and sector work; and (iii) improvement of the quality and efficiency of country planning, programming, and TA and loan processing. Donors endorsed the notion that the core of the redesign is to significantly change the processes for country planning, programming, and TA and loan processing. Donors endorsed ADB’s plans to improve project quality and portfolio management, which aim to foster a proactive approach and to place the quality of portfolio performance at the forefront of ADB’s dialogue with DMCs. ADF’s financial management. Donors decided to extend the existing ADF operational and financial planning systems with the exception of two changes. First, Donors recommended that operational planning for ADF should be in Special Drawing Rights (SDRs), to alleviate commitment risk. Second, Donors also recommended ADB adopt the IDA practice and have no loan loss provision for ADF loans. Donors believe that provisioning for ADF was not practicable because of ADF’s concessional character. Donors requested the ADB to re-examine in ADF VIII the basis for the allocation of ADB’s administrative expenses between ADF and OCR. ADF VIII Funding. The ADF VIII replenishment will cover the four-year period from 1 January 2001 to 31 December 2004. In that context, Donors agreed to a replenishment size of $5.645 billion consisting of $2.905 billion of new donor contributions and $2.740 billion of commitment authority to be generated from existing resources (Table 3). Two countries, i.e., Portugal and Singapore, became Donors to ADF. Donors agreed to plan to provide their installment payments as soon as possible in each calendar year of the replenishment, and also agreed on a fixed encashment schedule for their contributions. In ADF VIII, technical assistance will be financed from ADB’s internal resources. Donors agreed that the operational priorities for ADB during the ADF VIII period were ambitious, and that continued strong support to ADF from Donors would be required, along with support from all members for strengthening the administrative budget and staff, and the exercise of sound judgement by Management and the Board of Directors for selecting and prioritizing operations. ADF Accountability—The ADF VIII Mid-Term Review. Donors agreed that they should meet for a Mid-Term Review of ADF VIII immediately before ADB’s 2003 Annual Meeting. In that context, Donors requested ADB to provide them with certain reports on ADF (p. xvi) at least one month before the 2003 Annual meeting. These reports should inform Donors on the status of implementing the operational priorities and recommendations contained in the ADF VIII Donors’ Report. These reports should, if needed, formulate recommendations for strengthening timely implementation of the recommendations in the ADF VIII Donors Report, or where considered appropriate, provide explanations for any revisions to the original timetable in the Donors’ Report.
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