Board of Directors

The Board of Directors strongly supports President Kuroda’s call for the Asian Development Bank (ADB) to enhance its relevance, responsiveness, and results orientation. These are key benchmarks for ADB’s effectiveness that require increasing both the quality and quantity of assistance. ADB is gradually shifting from a focus on loan approvals to a focus on outcomes. Its country strategies are becoming more selective, more responsive to country priorities, and have better monitoring frameworks. Project design frameworks have improved but need to continue to do so. The proportion of projects at risk is declining and project performance has continued its upward trend. Devoting sufficient attention to implementation and monitoring, however, remains an ongoing challenge.

The Board considered a number of new or revised policies and strategies that target ADB’s greater relevance, responsiveness, and results orientation. These included the medium-term strategy, financing partnership strategy, and regional cooperation and integration strategy. A recurrent theme in discussions on policies was the need to ensure that they support development in developing member countries without unduly burdening them with conditions for ADB involvement. The policies’ resource implications were repeatedly raised in Board discussions, and Management and staff were encouraged to strengthen the link between policy and strategic priorities and ADB’s resource allocation.

Strengthening ADB’s Strategic Frameworks

ADB’s second medium-term strategy (2006–2008) reorders ADB’s priorities, including giving new emphasis to regional cooperation and integration. In endorsing the regional cooperation and integration strategy, the Board asked Management to concentrate on cross-border infrastructure and regional public goods. In considering the approach of greater selectivity and focus, the Board concluded that ADB needs to have strengths in key areas but must also be able to meet the most pressing development needs of a wide variety of developing countries. Weakly performing countries have particular needs for policy advice, knowledge products, and institutional capacity building. Board members stressed throughout the year the importance of technical assistance in delivering knowledge and skills and in strengthening capacity. Board members asked ADB to intensify efforts to coordinate the work of the knowledge departments and expressed increasing concern about pressure on technical assistance resources, including as a result of adopting new policies and priorities.

A review of ADB’s long-term strategic framework commenced, with an Eminent Persons Group established to provide inputs. The Board welcomed the opportunity to meet with the group and to discuss related issues at the Board’s annual retreat in October. The review of the framework is a key means of helping ADB become as effective as possible. The Board looks forward to contributing to the strategic choices that will be made as a result.

Scaling Up

ADB’s approach to support middle-income countries encompasses measures already taken under the innovation and efficiency initiative to scale up operations and better meet the needs of these countries. These measures include new mechanisms such as the multitranche financing facility. Board approvals totaled $3.8 billion in multitranche financing facilities that will give rise to future loans for increased development. Optimal governance arrangements are still being developed to ensure that new instruments such as the multitranche financing facility, subsovereign lending, and greater use of guarantees not only provide more money more conveniently but also deliver demonstrably stronger development outcomes.

Country Partnership Strategies

The Board discusses every country partnership strategy (formerly the country strategy and program) that ADB negotiates with its developing member countries. Board discussion of a strategy guides its implementation. The Board paid particular attention to responding to country demands, strengthening the strategies’ results orientation, and promoting greater focus and selectivity in the country programs.

Risk Management

While considering the middle-income country strategy, the Board debated the trend toward increased use of country systems. Many members saw it as potentially positive, where adequate capacity and transparency could be demonstrated, but also as creating areas of vulnerability and risk that need to be carefully managed. In discussions on credit enhancement and in the Audit Committee, Board members welcomed the evolution of ADB’s risk management architecture but pressed for a more comprehensive approach to identifying and mitigating major risks facing the institution. They also called for a strengthening of staff and managerial skills in risk management.

Transaction Costs

The Board discussed ADB transaction costs on many occasions. Board members share the desire to shorten the project cycle where possible but also want ADB to uphold high standards of quality, equity, and transparency. Getting the balance right is a key institutional challenge, brought into sharper focus in ADB’s safeguard policies. Reviews of these policies commenced in 2006. The Development Effectiveness Committee considered two studies by the Operations Evaluation Department on the environment and resettlement and asked Management to diligently work through the issue to deliver better outcomes for all stakeholders.

Institutional Management and Oversight

The year saw increasing calls for managerial changes that would allow ADB to respond more quickly and effectively to its clients. These included greater delegation of authority to managers and staff to make sound professional judgments and be held responsible for them. The operational role of vice presidents has become better defined, and accordingly, they contribute more substantively in steering the institution.

The Board saw some progress in human resources management in key areas such as introducing staff assessments that more clearly distinguish between different levels of performance, strengthening management training, and designing a competency framework. However, as the Board observed during budget discussions, progress needs to become more consistent and approaches less mechanistic to make the best use of ADB’s largely talented and committed staff.

The Board sought to play a greater role in the design and approval of overarching strategies such as the second medium-term strategy and to become involved earlier and more deeply in the budget process. Board inputs helped guide the internal administrative expense budgeting and work program processes at various stages. The Board’s discussion in September 2006 on the 3 year work program and budget framework for 2007–2009 led to the finalization of the budget framework by Management, and further served as policy guidance in finalizing the 2007 budget for internal administrative expenses, approved by the Board in December. The Board also gave its policy guidance on a number of financial issues, most notably by approving the new asset and liability management statement and the borrowing program for 2007, as well as recommending the allocation of net income for various uses.

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Board approvals totaled $3.8 billion in multitranche financing facilities that will give rise to future loans for increased development

Improving Board Effectiveness

The Board recognizes that the demands for greater relevance, responsiveness, and results challenge it to think and rethink the way it operates and supports the overall reform process. In doing this, the Board fully respects the provisions in the Charter on its role, responsibilities, and functions.

The Board bears the ultimate responsibility for approving the projects and programs funded by ADB. The Board repeatedly emphasized its role in setting the policy-level strategic directions for ADB. It has streamlined some of its procedures to be able to pay more attention to policy and strategic issues.

The Board proposed a series of initiatives to improve the quality of efficiency of its working procedures. These initiatives relate to matters such as strengthening the feedback to the Board by Management following Board decisions, and how the Board arranges its formal and informal meetings, including committee work and planning the Board agenda.

The Board held 45 formal meetings. It approved or discussed a number of strategy or policy papers (Appendix 3) and approved 67 projects and programs. It held 36 informal seminars or sessions on a variety of sectoral, thematic, or country-related topics.

Although the Board focuses mainly on strategic and policy issues, it also tries to stay in close touch with the operational part of ADB’s work. One means of doing this is through visits by groups of Board members to developing member countries, both to have policy discussions with the country authorities and to get firsthand information on the implementation of selected projects through field visits. Two such Board group visits were arranged. In March 2006, a group of five Board members went to Afghanistan, Pakistan, and Sri Lanka, and in September another group of five Board members visited Indonesia and the Philippines, ADB’s host country. The Board appreciates the experience and knowledge gained through such visits and is grateful for the support of the host country authorities as well as of ADB Management and staff, particularly in the resident missions.

In March 2006, a group of five Board members went to Afghanistan, Pakistan, and Sri Lanka, and in September another group of five Board members visited Indonesia and the Philippines