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p. 62 of 95 BACK | NEXT Message from the Chairman of the Board of Directors Members, Capital Stock and Voting Power The Record Abbreviations 2004 in Review: Board of Directors' Report Special Theme: The Changing Face of the Microfinance Industry: Building Financial Systems for the Poor Part 1: Institutional Effectiveness Part 2: Poverty Reduction Strategic Priorities Thematic Priorities Regional Perspectives East and Central Asia Mekong The Pacific Cook Islands Fiji Islands Kiribati Marshall Islands Micronesia, Federated States of Nauru Palau Papua New Guinea Samoa Solomon Islands Timor-Leste Tonga Tuvalu Vanuatu South Asia Southeast Asia Part 3: Financial Statements: Management's Discussion and Analysis

Annual Report 2004 : Part 2: Poverty Reduction

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The Pacific

The Pacific DMCs face significant challenges in generating broad-based, sustained economic growth from small, high-cost, narrowly focused economies. Some are on track to achieve the MDGs while others are not making significant progress. Poverty is a growing concern in many. HIV/AIDS threatens to destroy progress in Papua New Guinea and potentially elsewhere in the region.

The aggregate GDP increased by 2.4% with the two largest economies (the Fiji Islands and Papua New Guinea) growing solidly due to strong tourism performance and improved commodity prices, respectively. Timor-Leste emerged from recession. Solomon Islands rebounded from previous instability albeit high growth involved unsustainable rates of logging of natural forests. More generally, the region benefited from strong commodity prices and higher returns in overseas financial markets. Some progress was made in formulating and implementing the private sector development reform agenda including initiatives on the productive and economic uses of land, reforms of the legal business environment, and rationalization of state-owned enterprises.

Political instability, or the threat of it, remained a major concern in Papua New Guinea and Vanuatu. Voters in Nauru elected a reformist government after years of economic mismanagement. Governance challenges, including corruption, persisted, but there were also notable improvements in fiscal management, particularly in Papua New Guinea, Solomon Islands, and Vanuatu. On the other hand, the potential burden of underperforming public enterprises was demonstrated by the bankruptcy of Royal Tongan Airlines and continued support for Samoa's Polynesian Airlines.

The Board of Directors endorsed the Pacific strategy for 2005– 2009 in November. It takes the expressed priorities of the poor—opportunities to earn cash income and better access to basic social services—as its starting point. Key result areas fall under three strategic objectives: (i) to support an environment conducive for the private sector, (ii) to enhance the supply of and demand for good basic social services, and (iii) to promote effective development. Detailed strategies will be developed at the country level with a strong focus on governance and building demand for effective markets and services.

The South Pacific Subregional Office in Suva, Fiji Islands was officially opened in June 2004, and the Papua New Guinea resident mission in Port Moresby and the Pacific Liaison and Coordination Office in Sydney, Australia will be formally inaugurated in 2005. These new offices significantly enhance ADB's capacity to deliver the Pacific strategy.

A potentially significant development in 2004 was a decision by Pacific Island Forum leaders to create the Pacific Plan for Strengthening Regional Cooperation and Integration. ADB is supporting this important initiative through regional technical assistance financed from the Japan Special Fund.

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