Catalog

	Table of Contents
p. 37 of 39 BACK | NEXT The Record Chairman’s Message Board of Directors' Report 2005 in Figures Management Board of Directors Operations in 2005 East and Central Asia Mekong The Pacific South Asia Southeast Asia

Pacific

Cook Islands, Fiji Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, Vanuatu

Subregional Perspective

The area covered by ADB’s Pacific operations is vast. Just one country alone, Kiribati, spans nearly 6,000 km from east to west. Most of the region’s island nations are remote, have small populations, and face a peculiar set of developmental challenges as a result.

The economic performance of most Pacific countries has improved in the past 2–3 years, following variable but often weak or negative economic growth in the preceding decade. On average, economic growth in the Pacific countries weakened slightly in 2005 compared with the previous year. Real GDP expanded on average by 2.7%—down from 3.1% in 2004—and was barely enough to keep ahead of regional population growth, which was 2.4% in 2004.

However, the average conceals significant variations among the Pacific countries, including in the key factors affecting growth prospects and performance. High oil prices, for example, continued to weigh heavily on most Pacific economies in 2005, although higher global commodity prices for exports offset these in several countries.

In Papua New Guinea and Timor-Leste, higher oil prices in 2005 were clearly beneficial, given the importance of petroleum exports to both countries. In Papua New Guinea, existing oil projects were expanded, while agreements were secured with an Australian aluminum refinery and a gas wholesaler for a proposed gas pipeline. As of end-December 2005, Timor-Leste government deposits held abroad by the Banking and Payments Authority totaled $506 million, including $370 million in the Petroleum Fund.

Of the 14 countries, growth in 2005 GDP was strong in Palau (5.5%), Samoa (5.5%), Solomon Islands (4.4%), and Marshall Islands (3.5%). Vanuatu (3.1%), Cook Islands (3%), Timor-Leste (2.5%), and Tonga (2.5%) grew modestly, with Tuvalu expanding by 2%, and Federated States of Micronesia by 1%. Kiribati (0.3%) experienced the region’s lowest growth. No figures were available for Nauru.

Papua New Guinea, the region’s largest economy with 49.2% of regional GDP, grew by 3% in 2005, similar to 2004’s 2.9%. Excluding gold production, all sectors of the economy expanded, with agriculture particularly strong. Palm oil and copra benefited from high world prices. The country’s economy has improved greatly in recent years, as reflected in a buildup of foreign reserves, fiscal consolidation, a stable exchange rate, and much lower interest rates and inflation.

GDP growth slowed in the Fiji Islands to 1.7% in 2005 after 4.1% in 2004, as the region’s second largest economy faced significant adjustment pressures. Fiscal deficits continue to be moderately large, and the textile and sugar sectors are under considerable pressure, reflecting reductions in preferential trade advantages in Australia and the European Union. GDP growth slowed in the Fiji Islands to 1.7% in 2005 after 4.1% in 2004, as the region’s second largest economy faced significant adjustment pressures. Fiscal deficits continue to be moderately large, and the textile and sugar sectors are under considerable pressure, reflecting reductions in preferential trade advantages in Australia and the European Union.

In Vanuatu, growth was 3.1% compared with 4.2% in 2004 and -4.7% in 2003, led by agriculture, forestry, and the fishing sectors.

Throughout the region in 2005, tourism remained a significant income source; it has grown substantially in recent years, supported by a consumer shift to safer destinations, improved country and regional marketing, and structural reforms that are allowing low-cost air carriers to enter the market. In the Fiji Islands, tourist arrivals increased by 6% in the first 8 months of 2005; Palau broke its 2004 visitor arrivals record; and the Cook Islands enjoyed a rise in arrivals, shaking off the destruction of the March cyclones.

Inflation decreased a bit in the region, although it remained slightly high in Samoa, Solomon Islands, and Tonga.

Regional Cooperation

Each Pacific country is unique, but they also face common challenges related to high transport and other transaction costs, limited human resources and weak institutional capacities, governance difficulties, and narrowly based economies vulnerable to natural disasters and external shocks.

Regional cooperation and integration can help the Pacific countries minimize constraints and expand economic opportunities. They can gain economies of scale and improve governance, for example, by building regional institutional capacity that complements national strengths. A regional approach can also expand access to labor markets, including to larger neighboring countries, and can be part of an important strategy for increasing economic opportunities.

In 2005, heads of government of the Pacific Islands Forum reinvigorated Pacific regionalism by approving the Pacific Plan for Strengthening Regional Cooperation and Integration. ADB preceded the initiative with the report Toward a New Pacific Regionalism and supported the effort with technical assistance. Published jointly by ADB and the Commonwealth Secretariat, the report provided Forum island countries with a timely analysis of major issues and opportunities for Pacific regionalism, and recommended several initiatives that were later adopted under the Pacific Plan.

Safer Skies

ADB established the Aviation Safety Office under its first-ever loan to a regional organization

Aviation safety and security is one area where the benefits of Pacific regional cooperation have been clearly demonstrated. Under an ADB loan and technical assistance grant package totaling $1.95 million approved in 2005 and the first ever made directly to a regional organization, ADB is helping Cook Islands, Fiji Islands, Kiribati, Papua New Guinea, Samoa, Solomon Islands, and Vanuatu establish the Pacific Aviation Safety Office. The office will help the region meet international aviation requirements by providing safety and security inspections, and technical assistance to airlines, airports, and civil aviation authorities.

The ADB loan will establish the office in its new headquarters in Port Vila, Vanuatu, while the grant will finance regulatory and legislative harmonization and update the certification of airlines. The office will standardize the operating environment across member countries and support implementation of the Pacific Islands Civil Aviation Safety and Security Treaty. The regional approach adopted will reduce costs to governments, airlines, and airport operators, and the office will become financially self-sustaining through service fees.

Fighting HIV/AIDS

A regional approach can also help better equip the Pacific in the fight against HIV/AIDS. Many small Pacific nations share a vulnerability to the disease because of low condom use, high mobility, and various cultural and sexual taboos. Reported contraceptive use averages around 30–35% in most Pacific countries. At the same time, many of the region’s health care systems have trouble ensuring safe blood supplies, have a poor record for treating other sexually transmitted infections, and do not provide adequate counseling or testing for HIV/AIDS.

At the end of 2005, Papua New Guinea was the only Pacific country considered to have an HIV epidemic, with cases estimated between 23,000 and 90,000 in the 15–45 age group, or about 2% prevalence.

HIV/AIDS programs will be improved by strengthening surveillance and supporting community prevention in 10 Pacific countries

In 10 countries in the region—Cook Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu— the reported incidence of HIV/AIDS was over 120 cases in 2005, although the real number may be considerably higher because of less than adequate surveillance systems.

vulnerable communities, such as seafarers, will be targeted

Under an $8 million ADF grant approved in 2005, ADB will help improve the management and delivery of HIV/AIDS programs by strengthening surveillance and supporting community prevention in the 10 countries. The project will help countries develop the skills to identify risk factors and vulnerable sectors of the population, design surveillance programs, and improve laboratory work and data collection.

Community assistance will include social marketing programs for condoms, launch events, peer education, and campaigns to influence and change sexual behavior. The project will increase facilities for diagnosing sexual diseases, and will help fund 20 clinics in the 10 countries.

Educational materials on HIV/AIDS and other sexually transmitted infections will be available at drop-in centers to provide information to vulnerable communities such as seafarers. There will also be special training on health issues at regional maritime schools as well as for NGOs working with vulnerable groups.

For HIV-positive people, the project will provide skills training for livelihoods and fund antiretroviral drug treatments. Education campaigns will hopefully reduce high-risk behavior.For HIV-positive people, the project will provide skills training for livelihoods and fund antiretroviral drug treatments. Education campaigns will hopefully reduce high-risk behavior.

Papua New Guinea, because of the scale of its HIV challenge, is receiving targeted country-level assistance, with an ADF grant being prepared.Papua New Guinea, because of the scale of its HIV challenge, is receiving targeted country-level assistance, with an ADF grant being prepared.

ADB Assistance

ADB provides a range of services to its Pacific DMCs, with lending and grant operations supplemented by extensive technical assistance, analytical work, and policy advice. Priorities are determined by matching country needs with key result areas identified in ADB’s Pacific Strategy for 2005–2009, which began implementation in 2005.

Total ADB assistance to the subregion was $73.4 million. Four loans and two grant projects approved by ADB for the Pacific in 2005 highlight the diversity of the countries and the challenges facing the subregion. Valued at $63.1 million, they address the need for agriculture sector restructuring and alternative livelihoods for sugar farmers in the Fiji Islands, a multidonor education sector partnership in Samoa, cyclone recovery in Cook Islands, grant financing for national roads in post-conflict Timor-Leste, and regional cooperation for aviation safety and HIV/AIDS prevention.

ADB updated its strategy and program for three countries during 2005: Federated States of Micronesia, Papua New Guinea, and Timor-Leste. ADB also approved $15 million for 24 technical assistance grants, including significant new regional assistance. Improving ADB’s project and technical assistance portfolio performance in the Pacific was a major focus in 2005, with the number of active technical assistance operations substantially decreased to improve focus, and loan projects judged to be “at risk” reviewed and either managed for better performance or closed.

The year 2005 was significant for publishing— in its Pacific Studies Series—the outcomes of ADB’s economic, sector, and thematic analytical work. Economic studies included a country economic assessment for the Federated States of Micronesia and studies on the roles of remittances, trust funds, and business development services in the Pacific. Thematic studies published covered Pacific regionalism and “climate proofing”—a risk-based approach for adapting to climate change. An ADB education and training sector strategy was also released, and private sector assessments for the Fiji Islands and Solomon Islands were posted on ADB’s website and widely disseminated in those countries.

Strengthening partnerships is increasingly important to ADB’s effectiveness in the Pacific. ADB resident missions in the subregion are enhancing dialogue and responsiveness to member countries, while improving coordination and advancing harmonization with development partners are also a high priority. The Samoan education sector offers just one example of the new ways of doing business. In addition, ADB has consciously upgraded its relations with two key Pacific regional organizations: the Pacific Islands Forum Secretariat and the Secretariat of the Pacific Community.

Support Holds Back Rising Tides Coastal areas are being made safer with climate proofing King tides, storm surges, and severe cyclones are part of life for Pacific islanders, particularly for those living on the region’s many thousands of low-lying atolls. Adapting to severe weather is a well-scripted routine learned over the millennia. However, these normal events are becoming abnormally frequent due to global warming, many scientists now claim. ADB is helping Asian and Pacific countries prepare for climate change through “adaptation” projects under the Renewable Energy, Energy Efficiency, and Climate Change Program. The Climate Change Adaptation Program in the Pacific, for example, is aiming to climate-proof six infrastructure projects in the Federated States of Micronesia and Cook Islands. The program, funded by the Canadian Cooperation Fund for Climate Change, has designed adaptation measures and helped provide the institutional and human resource capacity to carry them out. The effort addresses economic, financial, technical, and legal issues, plus social and environmental dimensions. In the Federated States of Micronesia, the project identified cost-effective adaptation measures in the Sapwohn coastal community in Pohnpei. A Kosrae road project was put on hold until funds were made available to climate-proof the road during construction. Estimates suggested that spending the money early for “climate proofing” would save roughly 11% in costs due to lower maintenance and repair.

Encouraging the Private Sector

Improving the environment for the private sector so it can lead to economic growth is one of three main goals of ADB’s Pacific Strategy for 2005–2009. Business success stories exist in some Pacific countries, but on the whole policies and institutions for private sector development are unfriendly to business and job creation. In many cases, state activity crowds out private business, exacerbates the problems of geographic isolation, and harms economic growth. Development partners have sometimes unwittingly contributed to this situation.

Loan Sows New Opportunity “It’s very hard for us to manage,” says Roshni Chand (middle), whose husband Ramesh earns $3.50 a day The Fiji Islands’ sugar industry, at the core of its economy for over a century, is in sharp decline, jeopardizing the livelihoods of many thousands of farmers and workers. The Fiji Islands’ economy floated on high sugar returns for many years, but favored treatment insulated growers from the need for improvements. The industry is now plagued by high costs and low yields that stem from antiquated sugar mills and inefficient infrastructure. These leave it in poor shape to cope with world competition as the European Union reduces longstanding subsidies on much of the country’s crop, in accordance with World Trade Organization rules. This dire situation is exacerbated by the anticipated expiry of some 10,300 farm leases over the next 25 years, which will likely cause hardship both for experienced farmers leaving the sugar industry and for new farmers entering with limited capital and experience. In anticipation of the difficulties now being faced by the Fiji Islands’ sugar farmers, ADB in March 2005 approved a $25 million loan to help cushion the impact through support of viable livelihood alternatives and by promoting agricultural diversification. The Alternative Livelihoods Development project targets 8,000 sugarcane farmers as well as cutters, mill workers, and landowners, including women, in the sugarcane belt of the western and northern divisions on the main islands of Viti Levu and Vanua Levu. It will promote agricultural diversification, better agricultural services, and effective public-private sector partnerships in commercial agriculture communities, offering farm households opportunities for substantially higher incomes. The project will also improve about 600 km of farm roads to provide farming communities with better access to markets. In addition, it will encourage offfarm livelihoods by promoting the development of small and microenterprises and supporting vocational training. It will also strengthen rural financial services in areas poorly served by commercial banks.

Improving conditions for private sector development was therefore a major focus of ADB’s Pacific operations in 2005, building on the knowledge gained from private sector assessments to better understand the problems of private business in the Pacific. Having consolidated the common issues under a regional assessment—Swimming Against the Tide: An Assessment of the Private Sector in the Pacific—which helped shape ADB’s new Pacific Strategy, ADB has sought to raise the profile and elevate the discussion of private sector development issues in individual countries and regionally. Private sector development road maps were formulated and used to sharpen country and strategy program updates and to strengthen ADB’s portfolio of private sector development projects, technical assistance, and analytic work.

Private sector assessments have proved to be a powerful tool for engagement with governments. Increasingly, private sector organizations are using them as a basis for their contributions to policy formulation and policy dialogue with governments.

The financial sector was one key area that passed substantial milestones in 2005. Samoa, for example, has followed up financial sector reforms by establishing a credit reference bureau, a key step in making credit more available to business. In Vanuatu, a national task force on policy, legal, and regulatory frameworks for rural and microfinance was established to build on recent successes in rural microfinance provision. Significant successes were also achieved in microfinance operations in Papua New Guinea, Timor-Leste, and Vanuatu, with Papua New Guinea’s recently established Wau Microbank attaining operational financial self-sufficiency in 2005.

While individual countries were the primary focus of ADB’s private sector engagement in the Pacific, 2005 also saw substantial progress in regional technical assistance activities to promote reform across countries. One initiative, Improving the Legal Business Environment in the Pacific Region, is working to promote efficiency and reduce risk, uncertainty, and transaction costs for private businesses through updated companies laws and associated regulations. Diagnostic Studies for Secured Transaction Reforms in the Pacific Region is developing road maps for promoting secured financial transactions, as well as funding selected analytic work on financial sector issues. Improving Delivery of Infrastructure Services, approved in 2005, aims to promote publicprivate partnerships, regional cooperation, and cost and delivery efficiencies in providing infrastructure services— water, power, telecommunications, and transport.

Samoa Builds Its Knowledge Base An ADB loan is helping Samoa update a 25-year-old school curriculum to raise basic standards of education; maintaining quality is critical ADB is supporting a joint government and development partner program of improvements in the Samoan educational system with an $8 million ADF loan and a technical assistance grant of $350,000, approved in 2005. Although Samoa has high levels of school enrollment and has achieved gender equity, maintaining the quality of education is a critical challenge. More than half of fourthyear Samoan students in 2003 fell short of basic English language standards, and about 71% of 6th-year students were deficient in basic mathematics. Samoa’s primary school curriculum is 25 years old, and many teachers lack in-service training, as well as teaching and learning materials. Samoa also needs a more effective student assessment system. The ADB loan is integral to a $30 million program financed by the Australian Agency for International Development, New Zealand Agency for International Development, and government of Samoa to improve the curriculum and student assessments and to provide better schools, learning materials, and teaching methods. The program will help about 40,000 primary students get better education, targeting schools with many pupils at risk. Project partners are developing harmonized approaches in support of Samoa’s own systems to ease the transaction costs of the program and ensure it remains responsive to Samoan needs and priorities.

At The Mercy of Nature

Timor-Leste is rebuilding its roads, port facilities, bridges, and power infrastructure, restoring normalcy to the country—and providing jobs

Between 4 February and 8 March 2005, five cyclones ripped across the Cook Islands. The storms, four of them in the maximum category 5, tore up public infrastructure, businesses, and private homes, with potential long-term harmful effects.

To help recovery, ADB approved a $2.83 million loan in June for restoring basic social services and economic activities, covering part of the economic damage, estimated at about $7.9 million. The governments of Australia and New Zealand will cover 17% of the projected total cost, equivalent to $1.16 million, while the government of the Cook Islands will take up the rest.

The project includes cleanup efforts, reinstatement of infrastructure and basic services, and restoration of essential materials and supplies related to roads, ports, power and water supply, waste management, and buildings.

These storms are a reminder of the vulnerability of many Pacific countries to severe weather. ADB’s work in 2005 identified several successful approaches to preparing for climate change by “climate proofing” Pacific infrastructure under the Climate Change Adaptation Program in the Pacific. To help implement this approach, the Cyclone Emergency Assistance project also included a technical assistance grant—Strengthening Disaster Management and Mitigation—to prepare disaster management strategies to cope with severe weather caused by global warming, and a master plan for developing environmentally sustainable infrastructure.

Post-Conflict Infrastructure

In September 2005, ADB approved the first ADF IX grant to Timor-Leste of $10 million for the Road Sector Improvement project. The project will rehabilitate about 123 km of important roads in isolated rural areas with insecure food supplies. These roads have the potential for industrial and port development and for international trade.

The project also incorporates gender design features aimed at ensuring women’s involvement in project activities, including rehabilitation and maintenance of selected roads, community empowerment initiatives for sustainable rehabilitation, road safety, and prevention of the risks of HIV/AIDS.

At the same time, the Timor-Leste government continued with road sector reforms in 2005 by creating the Road Fund in the National Road Authority to efficiently fund and implement routine maintenance starting in 2006. This reform was possible through ADB’s policy dialogue in the sector.

In Solomon Islands in 2005, the Post-Conflict Emergency Rehabilitation project has provided a highly visible peace dividend for the people of two main islands, rehabilitating vital roads, bridges, local administration centers, and water supplies. The goal is to reinstate access to markets and social services affected by years of conflict and political instability. Recognizing the primary importance of this infrastructure to economic and social recovery in Solomon Islands, Australia and New Zealand have recently committed funds for an extension of the project and are working with ADB to prepare a long-term road rehabilitation program.

Web Kiosk Spreads ADB’s Message

In June 2005, ADB celebrated the first anniversary of its South Pacific Subregional Office in Suva, Fiji Islands, by launching a public access information kiosk and website. The new office provides additional ADB capacity and responsiveness to the needs of Pacific clients. It undertakes country programming, economic analysis, and project administration for Cook Islands, Fiji Islands, Samoa, Tonga, and Tuvalu.

Designed to provide better information services to the public, the kiosk will offer users free access to downloads of ADB’s website, including the new subregional office web pages, and ADB studies and reports on the Asia and Pacific region.

Back Mekong	Next South Asia