Development Challenges for the Asia and Pacific Region and
the Role of the Asian Development Bank
Statement
By
Haruhiko Kuroda
President, Asian Development Bank
1 February 2005
ADBHQ, Mandaluyong City
Members of the Board, Management and staff of ADB:
It is a great honor for me to be elected with unanimous support as the eighth President of the Asian Development Bank. I promise to dedicate all my energy and efforts to ADB, and I look forward to working with all of you to address the development challenges facing the Asia and Pacific Region.
Today, I would like to share my views on "Development Challenges for the Asia and Pacific Region and the Role of the Asian Development Bank." First, however, I would like to express my heartfelt condolence to the people who were devastated by the recent tsunami in the Indian Ocean. I can assure you that ADB will do everything it can for our affected developing member countries (DMCs), in collaboration with the international community.
The views I will put forward today are my current thoughts. I look forward to discussing these issues further with staff, Management and our Board of Directors.
Diversity in Asia and Pacific Region
When ADB was established in 1966, the Asia and Pacific Region as a whole was poor and underdeveloped. During the past 38 years, the region has made remarkable progress in developing its economies and improving people's welfare. Now it is undoubtedly the most dynamic and successful region in the world. Speaking on behalf of all our member countries, I am proud of ADB, which has contributed to such progress in the region.
But, the Asia and Pacific Region is diverse, and so has progress been diverse. While some countries have graduated or are close to graduating from the developing country category, others remain in the middle- to low-income category. Some of the region's poorest countries are just emerging from conflict, or have economies in transition with weak institutional capacities. Small island countries in the Pacific continue to have difficulty in achieving sustainable development, and even countries with large populations, such as PRC, India, and Indonesia, have many areas suffering from dire poverty within their borders.
The region has made significant progress towards attaining the Millennium Development Goals (MDGs), but major challenges remain, particularly among low-income countries. The incidence of poverty declined from 34% in 1990 to 22% in 2002, which suggests that income related MDGs are likely to be met in the region. However, most of the poverty reduction is attributable to PRC and India. Some subregions may not be able to achieve income-related goals at all. And most other MDGs, such as reducing the child mortality rate, ensuring universal primary education, and securing environmental sustainability, appear to be difficult to achieve.
Development Challenges in the Region
Clearly, the primary challenge facing the Region is poverty reduction, and this challenge is particularly pressing in low-income countries. Here, the MDGs will continue to be the major guiding benchmark in the coming decade. Means toward achieving the MDGs, however, must be localized and prioritized according to each country's circumstances. Additionally, sustainable poverty reduction requires that long-standing gender issues and the special needs of children receive the attention and support they deserve. Regardless of which approaches are pursued by individual countries, the Asia and Pacific Region should endeavor to fulfill all the MDGs as quickly as possible.
A second challenge pertains to middle income countries, which must strive to maintain more balanced and sustainable growth in the midst of globalization. It is critically important to identify, and make continuous efforts to enhance their dynamic advantages. In view of large-scale internal migration from rural to urban areas, job creation in the urban areas is particularly important. More efforts are needed to foster a business friendly investment climate and to strengthen the financial sector. It is also crucial to overcome the bottleneck of infrastructure, and reduce income disparity between urban and rural areas.
Third, foreign direct investment (FDI) is key to economic growth and development. But FDI to developing countries has been declining, and tends to be concentrated on a limited number of countries, such as PRC. It is therefore imperative to foster institutions and policies that are attractive to private funds and businesses. Remittances by workers abroad to their homeland have recently increased substantially, sometimes surpassing other financial flows to those developing countries. The transparency of such remittances must be enhanced, and they must be incorporated into the formal financial system.
Fourth, building physical infrastructure is critical for realizing sustained economic growth in many developing countries. It is estimated that the infrastructure investment needs for developing Asia and the Pacific will exceed $250 billion per year in the medium-term. Financing of infrastructure investments requires both official development resources and, even more importantly, private resources. Even if financing comes from the private sector, the role of the public sector is crucial to ensure conducive policy and regulatory framework for private investments. Also, implementation of safeguard policies for environmental and social protection is important.
Fifth, regional diversification and specialization enhance intra-regional trade and economic interdependence among Asian and Pacific countries, and facilitate regional economic integration. The challenge lies in promoting regional cooperation to further accelerate economic growth and integration, and narrow the income gap among countries. The recent trend toward free trade agreements (FTAs) in the region should be encouraged. The Greater Mekong Subregion has gained considerable momentum in regional cooperation in recent years, and I am pleased to note that South Asia and Central Asia are following this precedence.
The sixth challenge is to prepare the Asia and Pacific Region to effectively deal with contingencies, such as financial difficulties and public health problems that may emerge at the country or subregional level. As we learned from the Asian financial crisis of 1997-98, financial systems must be strengthened, and social safety nets must be improved. A flexible and effective framework, which enables prompt response to contingencies, such as the outbreak of infectious disease and natural disasters, needs to be established. Preventive measures, including a monitoring mechanism for such contingencies, should also be established.
Finally, good institutions and policies are prerequisite for the effective and efficient utilization of official development aid and private investments. Therefore, the real challenge is to establish a framework for building institutions and developing human resources, and improving administrative capacity and governance. Corruption must be eliminated.
The Role of the Asian Development Bank
Given these fundamental challenges, I will now turn to the role of the Asian Development Bank. ADB must continue to build upon the foundation of mutual trust that has been established with DMCs through 38 years of history. The role of ADB as the region's "Family Doctor" should be reinforced, and made more meaningful. As the Asia and Pacific Region is experiencing dynamic and rapid change, ADB, as the "Family Doctor," should always respond to the region's needs in a flexible and timely manner. For this purpose, ADB will have to continuously strengthen its capacity through various measures, including further decentralization initiatives to meet the needs of our DMCs.
In view of the diverse economic structures and development challenges in Asia and the Pacific, ADB needs to place even greater emphasis on analyzing specific issues and challenges at the country level through policy dialogue and other knowledge exchanges, and identify priority areas for assistance. ADB should articulate its own country-specific development strategies, clarifying priorities and sequencing of interventions, and provide diverse instruments of assistance (grants, concessional loans, loans from OCR, and technical assistance) in response to diverse needs in the region. Since many low-income countries are moving toward the middle-income category, ADB should be particularly aware of their changing needs.
ADB must also assume an even more proactive role as catalyst, as well as coordinator, for regional cooperation and integration-a special and unique mission of a regional development bank. ADB must continue to support financial cooperation agreements in the region, such as the Chiang Mai Initiative and the Asian Bond Markets Initiative. In coming years, ADB should also work toward advancing regional economic integration as a Knowledge Leader.
Additionally, in order to effectively utilize the abundant savings in the region for investment and to accelerate economic growth, ADB must work as a catalyst for the private sector. To promote private sector development, ADB should expand its enhancement function through the proactive use of equity investments and guarantees. Our private sector operations should constitute an integral part of the Bank-wide strategy to increase development impacts of all our operations in the region.
Management Policy for ADB
As we move forward, steady implementation of the internal Reform Agenda is crucial. In particular, ADB must maximize the benefits of reorganization through appropriate follow-up based on the independent assessment report, and implement the new Human Resources Strategy committed by former president, Mr. Tadao Chino. Strengthening transparency and accountability, and recruiting people of the highest quality, will remain of paramount importance.
Other concrete measures to further improve management within ADB should be sought and implemented, and I would like to share some of my preliminary views.
- ADB must become even more client-oriented, so as to respond to diverse needs in a proper and efficient manner. For this purpose, we will seek ways to enhance policy dialogue with client governments, streamline procedures and tailor financial instruments to clients.
- In improving the performance and enhancing the effectiveness of ADB, a results-based system needs to be firmly established and fully operational.
- As President, I will pursue more proactive coordination with the World Bank and other donors, inter alias, in the poorest countries. Similarly, I will strengthen coordination with UN agencies.
- ADB should strive to develop a more effective external relations strategy. Further efforts are needed to have ADB's activities covered more by global media, and to utilize annual meetings and conferences to disseminate information and policy recommendations based on the experiences in the Asia and Pacific Region.
- ADB's role as a Knowledge Leader for regional economic integration also needs to be expanded. The research function of ADB can be further strengthened through greater synergy between related departments and offices, and with academic research institutions throughout the region.
- The financial risk management system must be substantially strengthened since ADB assumes more risks associated with its expansion of private sector operations.
- ADB also needs to make the best use of the latest information and communication technologies for external relations, knowledge management, and financial risk management.
As President, I will also work to further strengthen Management's relationship with the Board of Directors and our dialogue with each Director. I will keep in touch with the rapidly-changing events, both inside as well as outside Asia and the Pacific, and I intend to visit the capitals of our member countries to exchange views and ideas.
Concluding Remarks
The Asia and Pacific Region has tremendous potential to rapidly attain sustainable economic development and poverty reduction in the coming years. That is because the region's people have great potential. ADB can assist economies in realizing faster and more sustainable development, and help the people in the region enjoy higher and more equitable standards of living. ADB will continue its efforts as a valued and trusted member of the Asian and Pacific community. I am determined to contribute to that end.
Thank you.
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