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Poverty Debates Series:
The Role of International Assistance in Poverty Reduction Strategies
AIM - W. Sycip Policy Center/World Bank Institute, 27 March 2001

Remarks by
Günter Hecker, Country Director
Philippines Country Office
Asian Development Bank

Mr. Chairman, Ladies and Gentlemen. I would like to thank the W. Sycip Policy Center of the AIM for inviting the Asian Development Bank (ADB) to these debates on the "Role of International Assistance in Poverty Reduction Strategies," especially since these discussions take place in the halls of the prestigious World Bank Resident Mission.

A lot can be said on the topic but I am given only about 10 minutes, so I will focus on the five questions listed under this subject in the Program and from ADB specific viewpoints.

However, let me first introduce ADB and highlight its difference from the World Bank, as many ask, why do we need an ADB when we have the World Bank, which is quite a legitimate question, also legitimate would be the reverse question - why we need a World Bank in Asia when there is ADB? The World Bank and ADB have basically the same overall objective - reduce poverty through:

• promotion of sustainable growth
• developing human resources
• improvement of status of women
• protection of environment
• governance

The major difference between the World Bank and ADB is the share ownership. The majority of ADB is owned by Asian member countries, by around 55 percent, while substantially less in the World Bank. The Asian voice does not have the same influence in the World Bank as it has in the ADB.

When ADB was created in 1966, there was a perception that World Bank was neglecting the Asian region and was too much focused on South America and Africa. The World Bank and ADB have more or less the same instruments. Soft Funds (Asian Development Fund [ADF]), contributed by developed member countries, from where loans at very concessional terms (1 to 1.5 percent during and after project implementation respectively, 8 years of grace period, 32 years maturity), are given to lesser developing member countries (DMCs). Ordinary capital resources (OCR) are funds that the Bank gets from the world financial markets through issues of bonds at rates better than developing countries would get as ADB is a triple A-rated financial institution. These OCR funds are onlend with a mark-up to cover our administration cost (soon it will be LIBOR + 60 basis points, at 2-5 years grace period largely depending on the construction period, and up to 15 years maturity). We then have the technical assistance funds (own and trust funds) for project preparation, institution building, training and other advice to our DMCs. So far, ADB has lend $81 billion for 1,550 projects in 38 DMCs and $2 billion for technical assistance. 37 percent went to the agriculture sector, 34 percent for social infrastructure (transport, communications, energy), and the rest for multisector, industry, finance and other sectors.

Let me now go to Question 1: "What is the relative effectiveness of financial flows versus technical assistance and institution building activities?"

By and large, we believe one cannot go without the other. Projects (loans) without technical assistance (TA) will seldom be successful. TAs alone are helpful in their own right, but often countries lack funds to carry out the related projects. We also do not see our task limited to providing or implementing projects only. They are normally carried out in connection with a detailed policy dialogue that preceeds the loans approved and/or are done parallel to the implementation of the project. In this dialogue, systemic bottlenecks, which hamper the development are identified and action plans for their alleviation are implemented. Just two hot topic examples in the Philippines: Energy Sector Restructuring in the Philippines: Why is it that the Philippines has the highest power rates in Asia, why has it a public electricity entity with a record deficit, and substandard operational and maintenance performance? Why is it that the Philippine agricultural sector has the lowest yield per hectare in almost all products, has the highest market prices for agricultural products so that the import prices are below producer cost in the Philippines?

So, how effective have we been with our interventions? We have a group in the ADB, the Post Evaluation Group to check whether our interventions have delivered what we planned them for. In 2000 for example, they have rated 47 projects as follows: 4 highly successful, 22 successful, 16 less than successful, and 5 unsuccessful. Is this good or not? I wish to state that the success is measured against ambitious original targets but I also believe it should and could be better. These reports also focus on the identification of the things that may have gone wrong for us and our clients. They provide us with the opportunity to learn lessons.

Regarding TAs, it was found that some changes are necessary to make TAs better strategic instruments in the reform process. They should not be a one-off exercise, they should be more integrated into the context of economic sector work and overall country programming. It also requires ownership by the client, which is not always there, partly because the reform program expected to come out of it is not wholeheartedly supported and sometimes considered onerous. The TAs are often seen by the recipients to be a hobby of the donors. The attitude is: Okay, let's do these TAs if these guys want them, anyhow they are on a grant basis. Logically there cannot be ownership in this scenario.

Question No. 2: "What is the record on using foreign rather than national experts?"

ADB has to procure its goods and services from its member countries, both developed and developing. The question relates to consultants. We select consultants based on the criteria for qualification in the advertisement, irrespective of nationality and even remuneration. Experience in the sector, the specific type of expertise, local experience - every item is being given a weight at the tender specifications. The quality evaluation determines the selection, then we check the price. With TAs, ADB selects the consultants with the concurrence of the recipient country. Under a loan, like construction supervision, the borrower selects the consultants, following ADB's guidelines, with the ADB reviewing to see whether said guidelines have been followed. We know that part of our development work is to strengthen the local consulting industry through transfer of knowledge and the best way is to learn by doing. Thus, we give preference to joint ventures between foreign and local consultants. Are local consultants disadvantaged?

In the last five years, for TA projects 48 percent of the 37,000 person month came from developing countries; for loan consultants, 72 percent of 100,000 person month came from developing countries; for domestic consultants, 36 percent in TAs and 67 percent in loans. I believe this is not a bad distribution and this will further increase towards the use of more domestic consultants, the more experiences are gained.

In summary, it is difficult to make strict rules. Certain areas, particularly where knowledge of language, culture, and custom is important such as in community empowerment, local consultants will invariably have competitive advantage. In other areas we are reaping the benefit of investment in overseas training and development of higher education and areas that might have once been preserved for foreign experts are increasingly met by domestic consultants.

Question 3: "Are there advantages to tied aid?"

No clear answer. I will give several aspects. The amount of development assistance will be less, as for the individual donor Governments it will be easier to allocate higher amounts to development assistance if it can indicate that these "gifts" have a benefit of overseas business and jobs in their own country. On the other hand, competition will be limited, thus possibly higher prices and not the best technology may be chosen for a project. So, the developing countries should clearly identify good matches for the projects and the donor to make it a win-win situation. ADB assistance is fixed to its member countries, but since most major developed countries are members, the aid is practically untied.

Question 4: "Constraints to the absorption of foreign assistance."

There are a number: lack of counterpart funds; lack of implementation capacity; and lack of experience in newest approaches in project management and technologies. Often, it is also the lack of ownership of the proposed reform process. There is also too much assistance especially in emergency cases. East Timor is an example. Donors have to carefully coordinate their assistance.

That leads to the last question, No. 5: "How can aid be made consistent with country ownership."

Experience shows that there is a strong relation between ownership and prject success. Stakeholder participation in design, implementation and monitoring is becoming more and more important in democratizing societies. We have to develop local pilot projects which, if successful, could be replicated with decreasing donor involvement.

ADB's performing cycle is designed to guarantee as much ownership as possible. Our development strategy is based on the DMCs own development priorities and strategies. We review, together with the respective planning agencies, their programs and strategies, make our recommendations, and agree on how we can assist to bring their plans to fruition. We agree with the Government on a 3 - 5 year rolling plan that is being reviewed and updated on an annual basis.

Our general strategies for our countries are based on strong poverty, economic, social and sector analysis. These translate into the country-specific poverty reduction strategy, thematic and sectoral priority.

For poverty reduction, we following the following process:

First: We commission a Poverty Identification Study, which is country-based, to identify country-specific constraints and opportunities for poverty reduction.

Second: This Study will be discussed in a high level forum with the participation of Government, NGOs, community-based organizations, th eprivate sector, and the donor community to reach a common understanding on how to achieve poverty reduction targets.

Third: This will be feed into our own country operational strategy. This process will assure maximum concurrence with the Government's own poverty reduction strategy.

As a Fourth step, this will be formalized in a Poverty Partnership Agreement between the ADB and the Government that provides the basis for our annual 3-5 Year Rolling Plan.

We believe this will aid in substantial way towards making our assistance consistent with country ownership.





Thank you.