Catalog

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p. 4 of 5 BACK | NEXT Special Theme: Law and Institutional Reform: Catalysts for Inclusive Development in the Asia and Pacific Region The Challenge: Unleashing Human Capability in Asia The Role of Institutions in Inclusive Development ADB's Experience and Lessons Learned Conclusions and Challenges for the Future

Annual Report 2003

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ADB’s Experience and Lessons Learned

Improved Market Functioning and Access to Resources for Pro-Poor Economic Growth

Central to the efficient operation of markets is improving the security of private property, the sanctity of contracts, and the predictable and consistent application of rational laws ensuring access to economic resources by all, particularly the poor and the vulnerable. ADB has been assisting institutional reform in these areas. In addition, support has been provided for promoting competition, reducing market distortions, and introducing fair terms for labor.

Improving the Security of Property and Exchange

The need for a legal framework for a market economy is particularly salient in transition economies, i.e., the Central Asian republics, Cambodia, PRC, Lao People’s Democratic Republic (Lao PDR), Mongolia, and Viet Nam. The demand for law and legal institutions has also accelerated in the wake of economic growth; for example, ADB has actively collaborated with the PRC in the development of bankruptcy laws, regulations on antidumping, and subsidy and countervailing duties and safeguards.

The Asian financial crisis highlighted the importance of strong insolvency and debtorcreditor regimes for crisis prevention, mitigation, and resolution (see box). The crisis exposed weaknesses in the proper functioning of financial and corporate institutions.⁵ The rules under which the markets functioned were also scrutinized. Postcrisis assistance often included a cluster of loans supporting reforms in the financial and corporate sectors and in the policies governing competitive market functioning.

Specific attention has also been paid to improving the rules governing the functioning of corporations and stock markets so that they are more open and accountable. The Indonesia program loans in the financial governance sector are examples. In Thailand, operations focused on improving institutions to strengthen market regulation and supervision; restructuring the Securities and Exchange Commission into an autonomous agency was a key element. Philippine operations focused on reforms in the capital market and nonbank financial sectors.

The 1997 crisis raised awareness of the need for reforms even in countries that were not directly affected. That led to ADB assistance to several DMCs on institutional reforms in the financial and corporate sectors including projects in Cambodia, Kyrgyz Republic, Lao PDR, Marshall Islands, and Pakistan.

Improving Access to Resources and Opportunities

The most important resource for the poor is land. Cultivating land remains the primary means of sustenance for Asia’s rural poor,⁶ yet their access is often barred physically or legally. This also prevents them from accessing credit. Several projects have addressed these problems. In Cambodia where the great majority of land is unregistered, ADB collaborated with the Government in developing a land law and a system for registration of ownership. In Indonesia, legal empowerment support in an irrigation project is helping farmers get better access to water (see box).

Indonesia: Legal Empowerment of Water Users’ Associations An ADB-assisted Asia Foundation study has helped to develop a legal empowerment component of the Participatory Irrigation Sector Project. As a result, water users’ associations will become better positioned to negotiate agreements, and farmers can better negotiate irrigation transfer, management, and service agreements with the Government. Government officials are better informed and become more responsive to farmers’ needs. Women play greater roles in irrigation management and in other community affairs. Farmers and their communities are better able to respond to outside encroachment on their water rights. Legal empowerment is enabling farmers and communities to address issues outside of irrigation, e.g., gender, local governance, and natural resource management. Through paralegal development and other mechanisms, farmers can assert their interests beyond the term of the Project. A network of nongovernment organizations, lawyers, law schools, and farmers’ associations is further contributing to irrigation reforms.

ADB is supporting several microfinance and SME projects throughout the region to improve access to credit and to promote entrepreneurship. For microfinance services, this requires social intermediation covering (i) awareness building; (ii) disseminating information on service providers; (iii) training in basic literacy, numeracy, and skills; and (iv) forming community-based organizations and solidarity groups to actively participate in markets. Enhancing the capacity of the poor to effectively manage microenterprises⁷ and service debts is critical for sustainability. Several governments have sought ADB support in the microfinance sector. A typical example is the Microfinance Sector Development Program in Pakistan (see http://www.adb.org/Documents/profiles/LOAN/29229013.asp).

Improved functioning of the labor market is crucial to efficient market performance and growth. The benefits of economic growth cannot be maximized if employees do not have proper working conditions and the right to fair termination. ADB has provided support to many DMCs in improving labor skills and training.⁸ The 2001 Basic Skills Development Project in Bhutan is one such project (see http://www.adb.org/Documents/Profiles/LOAN/31317013.asp).

ADB’s Social Protection Strategy aims to help DMCs create supportive labor conditions. In Indonesia, labor legislation provides help for workers facing retrenchment as a result of privatization. In Bhutan and the Maldives, support for employment legislation has been provided. In Bhutan, Maldives, and Pakistan, ADB also assisted in the development and operation of a labor administration system. ADB has promoted innovative approaches to labor protection such as labor law compliance strategies that include self-reporting and self-inspection.

Rectifying Geographical Exclusions and Imbalances

Left entirely to markets, growth and development tend to agglomerate resulting in spatial imbalance. In several countries, ADB has focused on the poorest, most isolated areas through targeted interventions. In the Philippines, Mindanao’s conflict areas and poor ethnic minorities have been the targets of the country strategy and program. Other countries that have growing internal disparities such as the PRC and India are also considering area-specific interventions.

In many cases, the absence of effective transport links with the economic mainstream has been the primary constraint to balanced development. ADB has supported several transport strategy studies and projects that helped to link lessdeveloped areas and hinterlands with growth centers. An example is the PRC Western Yunnan Roads Development Project that supports development in poor western and central regions of the country (see http://www.adb.org/Documents/ADBBO/LOAN/32336013.asp).

In addition to infrastructure investments, ADB also provides macroeconomic policy support for addressing regional disparities. An example is recent technical assistance to the Indonesian central planning and development agency for decentralized management of regional disparities. Often, lessdeveloped regions comprise remote areas in different countries where international boundaries have posed significant constraints to trade and infrastructure development. DMCs are addressing this with ADB support through regional cooperation.

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Institutional Reforms for Social Development

Lack of access to basic social services has immense economic consequences, and social stratification prevents mobility of labor and skills, placing constraints on production. It is generally believed that the success of the East Asian economies in the late 20th century compared to other areas in Asia rested significantly on their ability to focus on widespread social development.⁹

Access to Basic Social Services and Empowerment

ADB encourages a shift in domestic policy and legislation to ensure better access and empowerment for disadvantaged groups. A recent project to improve decentralized health services in Indonesia, for example, focuses on strengthening delivery of services used mainly by the poor, by vulnerable groups, and by women. The 1997 health sector development program for Papua New Guinea and the 2002 health project for Cambodia are other examples. The importance of education, particularly basic education, has been one of ADB’s primary areas of support to its DMCs. The possibility of changing social mores through education makes it an even more compelling intervention.

Legal reforms including constitutional provisions can also be significant. India, for example, has a policy of reservations for poor castes and tribes in public sector employment. India, Pakistan, and recently Afghanistan have reserved seats for women in local or national parliaments. These are big steps toward gender empowerment. Experience, however, shows that mere legislation is not enough to eliminate discrimination and that the process of changing social mores is long and slow.

Addressing Gender Exclusion

ADB has mainstreamed gender in its operations since the 1980s to improve the formal legal status of women and to encourage their active and equal participation in society.¹⁰ Legal empowerment has been a major focus through training judges, lawmakers, lawyers, court officers, and law enforcement personnel in gender awareness and gender sensitization and through support for legal aid offices and women’s organizations that promote women’s legal awareness and protect their interests. The Governance Reform Program for Nepal, for example, recommended several amendments to the civil service act to increase the proportion of women and to address the sociocultural impediments to women’s career advancement.

Supportive research and analysis are critical to policy advocacy for gender mainstreaming. In Indonesia, studies identified maternal mortality and disadvantages in the labor market as critical barriers to women’s empowerment; the country strategy incorporates a detailed gender strategy and action plan to address these problems. An ADB loan to support capacity building of regional governments following decentralization requires the development of gender action plans as an integral component. ADB is monitoring these action plans to see if significant improvements in women’s participation result from these efforts.

Another example of gender mainstreaming is a health care project in Bhutan where a number of gender-sensitive policy reforms were suggested. Similarly, Pakistan’s Access to Justice Project removes barriers and encourages women to enter the legal and judicial professions. It also provides gender sensitivity training for the judiciary and the police and a legal empowerment fund to advocate the rights of poor people and disadvantaged groups, particularly women (see box ).

Support for Indigenous Peoples, Ethnic Minorities, Bonded Laborers

ADB approved a strategy that addresses both adoption of their legal safeguards and rights as well as measures to bring about lasting changes in social values and institutions (see box). Concerns of indigenous peoples are mainstreamed into projects implemented in areas that have significant ethnic minorities. For example, in the Greater Mekong Subregion Northern Economic Corridor project, special efforts are under way to ensure that the benefits reach ethnic groups living there. Bonded laborers are the focus of the Sindh Rural Development Project in Pakistan. Reforms promoted by the Project include greater transparency for accounting of debts and payments as well as civic education on the rights of tenants.

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Institutional Reforms for Good Governance

Governance reforms are crucial for inclusive development. While ADB provides a wide array of support for introducing good governance measures, important initiatives have involved institutional changes that improve bureaucratic responsiveness and access to justice.¹¹

Improving Bureaucratic Responsiveness

This requires a combination of approaches. Internal activities focus on performance standards and incentives, rules of business, and the framework for civil administration including decentralization. Administrative grievance mechanisms are also an essential dimension. Programs in Nepal and Mongolia are examples. In Nepal, the program helps the Government develop its own internal capacity to lead and undertake governance reform. ADB has supported reform in Mongolia since 1995 and has helped with the adoption of the Governance Reform Program with a 10-year roadmap (see box ). Likewise, the governments of the Fiji Islands and Samoa have been assisted to strengthen public financial management and their treasury and finance ministries.

Decentralization and devolution can be important. Given its scale and nature, Indonesia’s program is considered as one of the most comprehensive attempts at decentralization in the region. ADB has supported it at all levels. ADB was also extensively involved in all aspects of the legal framework of Pakistan’s devolution program and worked particularly closely on the access to justice dimensions of the program.

Strengthening Enforcement Capacity for Justice and Access to Information

Considerable work has been undertaken to improve access to justice. The strongest argument in support of formal legal systems is that courts are the ultimate enforcers, and implementation of judgments spawns all sorts of less formal and informal bargaining and agreements. Alternative institutions to resolve disputes have their place but operate with weak enforcement capacities.¹² Such institutions, in fact, can only be effective in the shadow of a well-functioning formal legal order as is evident, for example, from the fact that arbitral awards ultimately rely on the enforcement power of the state through courts.

Preference and value given to formal legal systems have been confirmed by public opinion surveys like the ADB-Asia Foundation study in Pakistan. Thus, fixing the formal system is likely to be a strategic, popular intervention. ADB also funded surveys to ascertain the perspectives of litigants and wouldbe litigants and carried out case-file analyses. Of various access to justice projects, the one in Pakistan was the earliest and provided valuable insights for later interventions (see box).

Regional interventions include a study on judicial independence and assistance to the Philippine judiciary to strengthen its independence and enhance its accountability. Other studies include strengthening the commercial division of the judiciary in the Lao PDR and widespread regional interventions to combat corruption and to enhance international security through anti-money laundering legislation and training.

Credible information and easy access to it are most important for creating an environment in which citizens may act and public institutions may become more responsive to citizens’ needs. Since 1997, ADB has assisted policymakers and others engaged in legal reform in its DMCs through the Development of the Internet for Asian Law project. This Project assisted the creation and development of the World Legal Information Institute¹³ and is the largest collection of freely accessible legal databases on the Internet. ADB supports the publication of annual reports, court decisions, budgetary information about the courts, and legal literacy/citizen information kiosks in Pakistan. Draft legislation for freedom of information has also been prepared. In Nepal, ADB is assisting the Government to develop a legal information center to provide access to supreme court cases and to laws, amendments, and consolidations through a publicly accessible, easy-to-navigate web site. The result will be a one-stop legal information center. Empirical data on case management and disposition times will also be available. In Tajikistan, a database of over 5,000 legal acts has been created and is expected to be on the Internet in the near future.

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Promoting Inclusion at the Global Level

Inclusive development also requires that countries do not face exclusion at the global level. People everywhere must be able to participate in the general prosperity associated with globalization though there must also be protection from its external shocks and other drawbacks.

Globalization opens up opportunities for developing countries for optimal use of resources and economies of scale. Countries that facilitate the functioning of global firms and participate in a high value-added link of the global supply chain can reap its benefits (e.g., Indian and Philippine software firms which provide services for multinational software companies).

Another aspect of globalization is movement of labor. The movement of workers from job-scarce settings to those with more employment opportunities can also make significant contributions to private and national prosperity. Remittances from workers abroad constitute an important share of foreign exchange earnings for many countries; in fact, in terms of financial flows to developing countries, remittances are now more than two and a half times as much as annual official development assistance.

ADB pursues inclusive globalization. Considerable assistance has been provided to DMCs to modernize domestic institutions to participate more effectively in the global marketplace while also safeguarding and promoting the interests of smaller economies and the weaker sections of society to avoid exacerbating inequality. ADB’s Social Protection Strategy specifically addresses this problem (see http://www.adb.org/SocialProtection/strat.asp). ADB has also attempted to influence international institutions to strengthen the region’s capacity in handling globalization and to address geographical exclusions through regional cooperation. One of ADB’s major efforts to promote global inclusiveness is its special attention to helping the Pacific nations to increase their links to the global economy (see box ).

ADB has supported inclusive globalization by promoting stable macroeconomic and prudent financial policies and by supporting foreign direct investment. In this context, labor issues have been important. The proper functioning of labor markets depends on labor laws that allow entrepreneurs flexibility in increasing or reducing the labor force and in setting wages, and policies that improve labor productivity and development of skills. Many DMCs need assistance in modernizing labor legislation as well as in improving skills and safeguards. ADB supports these measures in collaboration with other development partners.

The Pakistan Trade, Export Promotion, and Industry Program is a comprehensive attempt to improve institutions. Another example is the Indonesia Industrial Competitiveness and SME Development Program loan that has striven to promote foreign investments. A follow-up loan (the SME Export Development Project) has specifically attempted to bring the SME sector into the global mainstream by providing assistance for modernization and export facilitation.

ADB has also played an important role in helping governments cope with the rigors and downturns of globalization, particularly in the wake of the Asian financial crisis. The best examples are the programs in Indonesia and Thailand—two of the worst affected countries.

Regional Institutional Arrangements and Regional Cooperation

Calls for ADB to play a more proactive role in this effort have become more emphatic since the Asian financial crisis. The Association of Southeast Asian Nations (ASEAN) Free Trade Area was implemented in 2002 much ahead of the original target of 2008. The ASEAN summit in Bali in October 2003 agreed to eventual extension of the free trade area to include PRC, India, Japan, and Republic of Korea. A consensus among the Asia and Pacific countries has emerged to establish a broader institutional arrangement for cooperation, extending beyond trade to financial and monetary areas. Better utilization of the vast savings of the region as a cheaper and more stable alternative to international financial markets is one area of focus. Another is the need to strengthen monitoring systems to provide early warning of financial volatility and threats to DMCs.

ADB established a regional monitoring unit in 1999 and set up an Asia Recovery Information Center and web site (http://www.adb.org/REMU/aric.asp) soon after that has been providing useful information on high-frequency economic, financial, and social indicators. To preempt future financial crises, technical assistance has been provided for the establishment of national surveillance units in countries and for strengthening their capacity for detecting emerging macroeconomic, financial, and corporate vulnerabilities. A study outlined modalities of monetary and financial cooperation including multilateral ASEAN swap agreements and transitional arrangements toward a single currency in the long term. An important new step is the Asian Bond Market Initiative. ADB has helped this initiative by strengthening networking among Asian domestic credit rating agencies. The Asian Bonds Online web site is expected soon (see http://www.adb.org/Documents/Profiles/GRNT/38080012.asp).

Regional cooperation addresses the needs of countries that could gain substantially by facilitating movement across international boundaries.¹⁴ These initiatives include the Greater Mekong Subregion Economic Cooperation Program as well as the Central Asia Regional Economic Cooperation, the Brunei Darussalam-Indonesia- Malaysia-Philippines East ASEAN Growth Area, the South Asia Subregional Economic Cooperation, the Central and South Asia Transport and Trade Forum, and the Subregional Economic Cooperation in South and Central Asia.

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