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p. 3 of 46 BACK | NEXT Moving the Poverty Reduction Agenda Forward: Priorities and Outcomes Strategic Priorities Crosscutting Strategic Themes Regional Perspectives East and Central Asia Mekong The Pacific South Asia Southeast Asia

Annual Report 2003 : Moving the Poverty Reduction Agenda Forward: Priorities and Outcomes

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Crosscutting Strategic Themes

The crosscutting strategic themes of the LTSF and the Poverty Reduction Strategy are (i) environmental sustainability, (ii) gender and development, (iii) private sector development, and (iv) regional cooperation and integration.

Addressing Environmental Sustainability

Assistance focused on providing the poor access to basic water and sanitation services, on managing the natural resources on which the poor depend, and on improving the quality of the environment. Loans totaling $305 million were approved to finance clean energy development and wastewater management projects in the PRC, water supply and sanitation projects in Fiji Islands, Pakistan, Samoa, and Sri Lanka, and a project to manage floods in Azerbaijan (see box on page 44). ADB also approved grants to establish the feasibility of renewable energy projects for off-grid, rural, poor communities in the PRC, Philippines, and Uzbekistan. Indonesia received assistance to develop certified emission reduction ratings for greenhouse gases to promote reforestation and afforestation. In the PRC, forestry conservation programs were studied to alleviate the plight of poor communities.

To enhance environmental sustainability, ADB approved nearly $6 million in grants to strengthen institutional capacity for environmental management in Bhutan and Cook Islands, to improve land use management in Kiribati, to promote industrial environmental management in Pakistan and strategic planning and policy formulation in Tajikistan, to design pollution taxation and mobilize resources in Thailand, and to promote waste management and recycling in Samoa and Tuvalu. A study will also address arsenic and other groundwater problems in Bangladesh. Two regional grants will assist the Central Asian republics to integrate environmental considerations into development policies, plans, programs, and capacity building in information management systems.

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Regional and subregional initiatives will boost poverty reduction and address cross-border environmental issues. Better Air Quality Management in Asia will help to ensure that air pollution is considered in making and implementing environmental policies and in planning and implementing sustainable development policies. In Bangladesh, Bhutan, India, and Nepal, an air quality management program addresses the goals in the Malé Declaration. It sets standards, pilots clean technology programs, and monitors and evaluates air quality. The program will also examine how air pollution affects health. Two programs in the Central Asian republics will assess water management and improve the management of shared resources especially in the Aral Sea Basin. In Cambodia, Lao PDR, and Viet Nam, a program will assess poverty reduction and the potential for community and industrial forestry to reduce the vulnerability of forestdependent communities particularly poor ethnic minorities and women. In the South Pacific, the Renewable Energy and Energy Efficiency Program will develop a market-based rural energy sector and will mobilize external financing for funding or cofinancing.

ADB strengthened partnerships and fostered regional cooperation to mobilize resources. A $3.6 million Poverty and Environment Fund was established with the governments of Norway and Sweden to accelerate learning on how to mainstream the environment in ADB operations. The Fund will also finance the recently launched Poverty and Environment Program that will pilot environmental activities, finance research, disseminate lessons learned, and compile good practices (see http://www.adb.org/Documents/ News/2003/nr2003099.asp). The Clean Development Mechanism Facility provides DMCs access to additional financial resources by bridging the gap between buyers and sellers of emission reductions ensuring a fair return to DMCs on their greenhouse gas reduction initiatives and assisting developed countries to meet their commitments under the Kyoto Protocol. To facilitate direct access to Global Environment Facility resources, ADB negotiated an agreement and Memorandum of Understanding for the direct transfer of resources from the Facility. ADB also hosted a meeting of the Multilateral Financial Institutions Working Group on Environment in which a common environmental assessment framework was developed.

All ADB projects were designed to comply with environmental safeguards and included measures to address potential environmental problems during implementation. Out of 68 projects, a rigorous review was done on 52 (76%) that had potential risks, and the environmental implications of the remaining projects were also studied. Compliance review missions were undertaken for selected high-risk projects under implementation. The Forest Policy Working Paper that assessed the 1995 Policy and outlined investment priorities for the coming decade was reviewed, and environmental analyses were prepared for Bangladesh, Cambodia, Indonesia, Kazakhstan, Kyrgyz Republic, and Tajikistan to facilitate the integration of environmental considerations into country strategies and programs.

The use of cumulative impact and environmentally responsible procurement in environmental assessments was addressed. Orientation courses were held for project teams and resident mission staff on the principles and procedures needed to ensure compliance with environmental assessment requirements. A CDROM and brochure were prepared to improve ADB staff and stakeholders’ awareness of the safeguards.

In recognition of its outstanding contributions to the promotion and advancement of environmental assessment in its recipient countries, ADB was given a Corporate Environment Award by the International Association for Impact Assessment. It also became the first multilateral development bank to qualify for the joint ISO 14001 and OHSAS 18001 certification which indicates its commitment to sound environmental practices at headquarters.

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Gender and Development

Lending activity in 2003 confirmed that gender has broad relevance to all ADB operations. A multidonor Gender and Development Cooperation Fund was launched in 2003 to further expand ADB initiatives (see box on page 45 and http://www.adb.org/Documents/Others/GDCF/GDCF.pdf).

The Fund’s primary objective is to promote gender equality and women’s empowerment in the region. The Fund will assist DMCs to close gender gaps and to progress toward achieving the MDGs and will help ADB accelerate implementation of the Policy and Action Plan on Gender and Development. Initial contributors to the Fund were the governments of Canada, Denmark, and Norway.

ADB developed a rating scheme to assess gender mainstreaming in loan projects which has enabled the systematic monitoring of loans for their gender content. In 2003, the number of loans with gender equity objectives increased from 12 (14%) in 2002 to 15 (22%). An additional 14 (21%) loans were designed with significant gender mainstreaming. In total, nearly 43% of loans in 2003 mainstreamed gender issues, compared with 31% in 2002. Loans with gender mainstreaming were represented in all three core strategic areas of ADB operations—economic growth, inclusive social development, and governance—and in virtually all sectors that ADB supports, including agriculture, natural resource management, microfinance, rural and urban infrastructure, governance, health, and education. Examples of successful mainstreaming were noted in sector and program loans and in more conventional project loans. Almost all loans classified with a gender and development theme or with gender mainstreaming features were also classified as poverty related, demonstrating that addressing gender issues promotes ADB’s overall goal of poverty reduction.

ADB recognized gender impact in infrastructure and other sectors such as energy and transport. While those sectors present challenges in gender mainstreaming, increasing efforts were made. For example, three road projects addressed HIV/ AIDS and trafficking of women and children. In two of these projects (Bangladesh and India), loan funds were allocated to finance information campaigns targeting road construction workers, transport operators, sex workers, and decision makers. Recent transport loans have also required civil works contractors to use local labor for road construction and to adhere to core labor standards, including equal pay for work of equal value and a prohibition on child labor. These examples will be replicated in more physical infrastructure and road projects in future loans.

Aside from loan projects, ADB implemented advisory and regional technical assistance projects to support policy reform and capacity building to improve women’s economic and social status and to pursue regional cooperation in promoting gender equality. In 2003, two new regional technical assistance projects were approved. Phase 2 of the project Enhancing Gender and Development Capacity was approved following the success of the first phase under which locally recruited gender specialists were placed in six ADB resident missions to assist with gender capacity building. Under the second phase, three additional missions— Afghanistan, Cambodia, and Sri Lanka—were allocated gender specialists. The second project, Promoting Gender Equality and the Empowerment of Women, will develop projects to address gender equity, social mobilization, training of women’s groups, and gender capacity building of executing agencies and national women’s ministries to complement and strengthen gender benefits of ADBsupported projects and to contribute to overall development effectiveness.

Collaboration and cooperation with other development agencies was further strengthened in 2003. A joint country gender assessment was undertaken with the World Bank in Cambodia and was initiated in Mongolia. The regional Gender and Poverty Reduction Strategy Workshop and the Gender and Millennium Development Goals Workshop were cosponsored with the World Bank and other agencies.

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Promoting the Role of the Private Sector in Development

To achieve sustainable economic growth, ADB operations promote a conducive environment for private sector development, including supporting small and medium enterprises and microfinance. Increasingly, DMCs are using private resources to meet the considerable demand for social, financial, and physical infrastructure that cannot be met by the public sector alone. Central to DMC good governance and responsible fiscal management are measures to shift risk away from public to private parties better able to manage and deliver services (see box).

The public sector plays a major role in setting and enforcing rules in an unbiased manner. Private sector development is most effective in reducing poverty when it promotes efficient and equitable growth through competitive market activity that is unimpeded by special interests, either public or private. In collaboration with other donors, ADB promotes an enabling environment that provides for private property rights and sound rules adhered to by market participants and by the state. ADB also assists DMCs in establishing standards for the environment, corporate governance, and labor. In general, ADB helps DMCs design policies and reforms that support socially responsible private sector development and activities consistent with pro-poor development.

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Partnerships for Development

ADB makes direct investments in private projects or intermediaries without government guarantee. (For more on private sector operations, see tables 9–12 in the Statistical Annex.)

These investments bring knowledge and solutions to the local market. In addition to their direct and multiplier effects, they demonstrate to a global audience the potential for prudent investment within the DMC. Direct investments further complement the public sector reform agenda of ADB’s regional departments by working within DMC rules and regulations and by identifying practical changes that would improve the business climate.

ADB promotes good corporate governance with competent due diligence prior to investment and continued commitment to corporate responsibility within financial intermediaries and companies receiving investments. Private sector enterprises are discovering that traditional financial performance will be insufficient to attract investors.

ADB’s major private sector investment areas are infrastructure, housing, security, resolution of nonperforming loans, local currency financing, trade finance, privatization, and restructuring. The modalities used are long-term loans, guarantees, equity investment, and hybrid investment instruments such as convertible bonds. An important initiative in 2003 was the introduction of long-term domestic currency finance to local enterprises. This approach efficiently transfers risk to those who are better able to manage it. This value-added tool demonstrates ADB’s commitment to improving design and implementation based on lessons of the past and on awareness of global market dynamics.

ADB’s regional departments implement the private sector development strategy in DMCs in various ways including policy dialogue, interregional initiatives, technical assistance, loans, credit enhancement, complementary financing schemes, and equity. ADB’s public sector focus in terms of private sector development is on policies, legal and regulatory frameworks, and public-private partnerships.

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Implementing the Private Sector Development Strategy

In 2003, ADB mainstreamed private sector development into operations by producing the Private Sector Assessment Reference Guide (Guide). The Guide focuses on practical areas that use ADB’s strengths in public sector programs to promote an enabling environment while identifying developmental investments that are best implemented by the Private Sector Operations Department. The key added value of private sector assessment is the close consultation between primary stakeholders in the design of strategic and operational priorities that use DMC and ADB comparative strengths; that incorporate global lessons learned; that build on complementary work of other development institutions; and that are sensitive to cultural, social, and political realities.

In 2003, assessments were completed or under preparation in 15 DMCs including Cambodia, PRC, India, Kyrgyz Republic, Lao PDR, Marshall Islands, Mongolia, Nepal, Papua New Guinea, Pakistan, Philippines, Samoa, Sri Lanka, Tajikistan, and Vanuatu; one regional assessment was completed for the Pacific. Assessments are meant to provide the basis for a country-specific, private sector development strategy for each DMC. The strategy is tailored to the particular needs of each DMC; the strategic focus and detailed plans of the assessment inform the private sector development component of the country strategy and program. In line with multilateral development bank cooperative efforts, ADB is carrying out investment climate studies with the World Bank in three pilot countries: Indonesia, Philippines, and Sri Lanka.

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Supporting Regional Cooperation and Integration for Development

Regional cooperation promotes increased economic activity by creating new opportunities, generating more jobs, lowering transaction and transportation costs, improving access to existing and new markets and resources by eliminating impediments to trade and investment, accelerating joint infrastructure development, diversifying exports, and boosting trade and investment. Increased economic activity will in turn promote economic growth and reduce poverty.

Regional projects can (i) bring economic and social benefits to countries working together that otherwise may not occur through individual efforts alone; (ii) build on existing regional cooperation efforts and work within the framework of existing intergovernmental arrangements; (iii) manage and mitigate negative effects that spill over from one country to neighboring countries; and (iv) strengthen national development through complementary, regional initiatives that are beneficial, financially and administratively feasible, and sustainable. From 1997 to 2003, roughly 7% of investments either financed or planned to be financed under the Asian Development Fund have supported regional cooperation. Cross-border investments by private businesses are also increasingly important.

Four aspects of cooperation are most important to the Asia and Pacific region: addressing crossborder development challenges, enhancing regional public goods, promoting regional economic integration, and exploiting economies of scale.

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Addressing Cross-Border Challenges

Infectious diseases, maritime safety, terrorism, money laundering, trafficking of women and girls and other crimes, air pollution, and financial contagion are some of the major cross-border challenges. In early 2003, for example, severe acute respiratory syndrome (SARS) spread around the world, particularly in many East Asian countries; however, the collective efforts of countries supported by regional and international organizations such as the World Health Organization and the Association of Southeast Asian Nations (ASEAN) controlled the spread by June. ADB estimated an overall loss of demand and business revenue of $60 billion, but the outcome could have been much worse. ADB quickly assessed country readiness to effectively deal with the crisis and to mobilize financial support. Countries are currently using those funds, expert assistance, and training to strengthen their surveillance and control systems. This will not only help prevent a recurrence of SARS, but will also help contain the spread of new diseases.

To improve resilience to external shocks and to prevent financial contagion in the future, many members of ADB are enhancing regional monetary and financial cooperation. The ASEAN Surveillance Process and the ASEAN+3 Finance Ministers Process are important initiatives. ADB’s Regional Economic Monitoring Unit provides technical support to these regional mechanisms. The ASEAN+3 Policy Dialogue focuses on information exchange and peer review of economic policies. The Chiang Mai Initiative, launched by ASEAN+3 countries, has resulted in 16 bilateral currency swaps totaling about $36 billion. More agreements are under negotiation. In addition, efforts are under way to provide regional support to the development of Asian bond markets under the ASEAN+3 Bond Market Initiative. To support the ASEAN+3 Initiative, ADB approved and/or processed regional technical assistance for supporting guarantee operations, improving settlement and clearing systems, supporting regional credit rating agencies, and developing the Asian Bonds On-line web site.

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Enhancing Regional Public Goods

Addressing cross-border challenges helps protect regional public goods, including shared air space, watersheds, fisheries, financial standards, and security. For example, ADB is helping Cambodia improve the management of the Tonle Sap—an important, vulnerable wetland area in Southeast Asia, a seasonal breeding and nursery ground for migratory fish, and one of the most productive freshwater fisheries in the world. Sound management of Tonle Sap is vital to the health of the river system of six Mekong countries. Partners are working together with ADB support to improve planning and coordination, to enhance the communities' roles, and to conserve biodiversity. Although the costs of this project are largely borne by Cambodia, other countries in the Greater Mekong Subregion are contributing to complementary efforts by the Mekong River Commission and other bodies in managing the overall river system to maximize benefits for all.

Regional bodies are moving to agree on international standards for financial transactions and to make suggestions for improving regulatory environments to prevent money laundering and related crimes. ADB has supported this work in many ways including publishing a detailed manual of conventions, principles, recommendations, guidelines, model laws, and other reference materials.

In another example, nearly all Pacific members of ADB have signed a convention ensuring the conservation of straddling and highly migratory fish stocks including the introduction of total allowable catches for various species.

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Promoting Economic Integration

Regional economic integration promotes economic growth and strengthens competitiveness. The Greater Mekong Subregion program has improved transport connectivity through strategic economic corridors and has promoted and coordinated investments in telecommunications and power. These investments are supported by negotiated agreements and by institutional mechanisms that will facilitate cross-border transport, power interconnection, and trade.

Economic cooperation is largely driven by private businesses that have linked up across borders to integrate production networks that supply raw materials, manufacture components, assemble finished goods, and move them through regional and global distribution chains to consumers. Assisted by ADB, many DMCs are supporting this process by improving their regulatory environments and by freeing up trade.

Most DMCs are already participating in various trade and integration schemes such as the ASEAN Free Trade Area and the ASEAN-China Free Trade Agreement. These developments increasingly point to an outwardlooking region, an essential building block to closer integration with the global economy. ADB promotes accession to the WTO and compliance with the General Agreement on Tariffs and Trade and the numerous multilateral agreements that facilitate DMC growth through exports. Technical assistance was provided to strengthen the capacity of DMCs to more effectively integrate into the WTO multilateral trading system, which included increased awareness of issues that will be covered by the new WTO round (Doha Development Agenda) for policy formulation.

The Central Asian republics are landlocked and remote from major world markets, so ADB supported capacity building for trade facilitation to improve economic integration. A combined regional seminar and training session attended by the Customs Coordination Committee, a group of heads of customs administrations of the East and Central Asian countries, was organized to strengthen capacities for facilitating intraregional trade through joint-border processing, transit, and information and communication technology for information sharing and customs modernization.

In South Asia, technical assistance supported the integration of national economies of the South Asia Subregional Economic Cooperation group for efficient use of manpower, infrastructure, trade opportunities, and economic resources. A comprehensive study explored the role of private sectors and governments and further assistance and investment projects at country and interregional levels by ADB and other development partners to promote private sector cooperation. In addition, increased trade was promoted through an investment project in Bangladesh which includes improving the border access road in Panchagahr- Banglabandh to facilitate crossborder traffic from Nepal.

In the Brunei Darussalam- Indonesia-Malaysia-Philippines East ASEAN Growth Area, business cooperation and networking among SMEs included more private sector support. Under this initiative, national and subregional competitiveness is enhanced through the (i) removal of barriers to the efficient flow of goods and investments; (ii) creation of interregional industry and SME associations as mechanisms for promoting cooperation among the private sectors; and (iii) dissemination of information on trade and investment opportunities.

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Exploiting Economies of Scale

The final aspect of regional cooperation takes advantage of economies of scale in providing specialized and/or high-cost public goods and services. For example, ADB and its partners supported a regional center in the Fiji Islands, which provides specialized training in public financial management and in economic and monetary statistics so small island countries have access to world-class expertise. In another example, ADB’s partnership with the Consultative Group on International Agricultural Research helped ensure that research activities of its members link complex projects to advance regional knowledge on the genetic resources of the coconut palm and on sustainable rice-based cropping systems in rainfed lowlands among other topics.

Lessons from ADB Experience

Opportunities for regional cooperation are wide-ranging, and several broad principles apply. First, preliminary findings suggest that one can measure the value regional cooperation adds to economic growth, one of the three pillars of ADB’s Poverty Reduction Strategy. Although the incomes of the poor and vulnerable may not rise initially, they will improve over time.

Second, successful regional cooperation includes participation of central and local governments, the private sector, and civil society. ADB’s role as an “honest broker” can facilitate trust, provide knowledge, support capacity capacitybuilding needs to manage regional cooperation, or help mobilize public and private financing. ADB has found that the most successful projects use appropriate institutional mechanisms and have sufficient flexibility built into them to handle problems arising from the diverse interests of cooperating partners. An appropriate mechanism needs to be judged based on its context. In the Greater Mekong Subregion, for example, operational review and coordination are carried out by regular meetings of senior officials and ministers supported by a small secretariat at ADB. In the Pacific, cooperation tends to be anchored in established regional institutions such as the Pacific Forum.

Finally, successful cooperation takes time, patience, political commitment, and willingness to compromise. One mechanism found useful in Asia and the Pacific and other regions is to ensure that countries are engaged in many different types of cooperation, thereby ensuring that a broad range of stakeholders in each country is benefiting. In such situations, the particular stakeholders involved have the incentive to cooperate as lack of cooperation might threaten progress on other efforts. Different stakeholders in the full range of cooperative efforts help ensure that their counterparts will all live up to their respective agreements.

ADB’s regional cooperation strategies and programs improve cooperation. Based on an analysis of contextual issues and the impact of past assistance, focal areas for assistance are set out for the next 3 years. They include an investment program, monitorable performance benchmarks, collaborative approaches, risk-minimizing mechanisms, and arrangements for performance monitoring and evaluation. The first one approved in 2003 was for the Pacific in July.

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