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ADB-World Bank Coordination Meeting

Opening Remarks
by
Tom Crouch
Country Director
Asian Development Bank

World Bank, Ortigas Centre
9AM-12N, 24 May 2007

• Our purpose today can be stated simply: to highlight areas of “best collaborative practice” – we have some very good examples; to identify areas where our client will benefit from better collaboration between us; and to address any hindrances to the process.



• The Philippines Development Forum provides the principal vehicle for development partners to work closely with the Philippines to support the development agenda. The PDF allows us to have a real voice, although neither to decide nor drive the development agenda, but in a collaborative and effective way to support the Philippines to implement its prioritized economic and social program.



• This ADB-World Bank bilateral dialogue is an integral part of the broader, multilateral development partner-Philippines engagement in terms of honoring the principles of the Paris Agenda (2005), especially that relating to harmonizing among development partners to reduce transaction costs for countries like the Philippines. ADB has planned similar discussions with other development partners.



• ADB’s Country Strategy and Program 2005-2007 was endorsed by the Board of Directors in mid-2005.



• The CSP eschews “business as usual”, makes a clear break from the past, and provides a framework for a higher quality ADB-Philippines engagement.



• Major changes from past practices include:

• Lending level: the Board suggested a ceiling of up to $1.5 billion over 2005-2007, the actual amount to depend on the quality and pace of fiscal and sector-specific reforms.



• Structure of lending: CSP prescribes a high proportion of program lending in view of
• Philippines low absorptive capacity
• decision to support improved policy environment


• The “high case” scenario triggers have been met, and we have reached 73% of the $1.5bn ceiling (May 2007). Tables 1, 2 and 3.

• Chart 1 shows ADB’s annual new lending commitments, differentiated by investment (project) loans and policy-based (program) loans. Chart 2 shows comparative lending by the Philippines three largest ODA creditors – ADB, JBIC and World Bank. Chart 3 shows how the combined lending level of ADB and World Bank has tracked improved fiscal performance in recent years (these are not “cause and effect, but are mutually reinforcing within a context of “a virtuous circle of improved performance and reform leading to higher ODA lending, in turn supporting further reform …”

Investment vs Program Lending. Since 1998, 72% of new lending has been for policy-based program loans. Under the Country Strategy and Program 2005-2007, ADB agreed with the Government that it would be appropriate to continue to provide a high proportion of lending as policy-based loans. This reflects

• limited absorptive capacity (lack of budget cover) for investment projects as Philippines implemented its fiscal consolidation program
• the decision to support priority macroeconomic and sector reforms, to strengthen the policy environment for sustainable investment projects in the future

Thus, in 2005 and 2006, 86% and 100% of new lending was for program loans.

Policy-based lending under the CSP 2005-2007

• ADB and Government signed an MOU in March 2007, confirming the operation program for 2007 and 2008, the latter being the bridging year leading to the new County Partnership Strategy 2008-2012, expected to be finalized in the second half of 2008.
       — For 2007-2008, the “S” of the Country Strategy and Program 2005-2007 remains relevant and robust, based on the binding constraints analysis.
       — The “P” component is extended to 2008, which is not covered by the current CSP.



• Features of ADB’s 2007-2008 operations.
       — The proposed program (Table 4) retains the strategic focus and operational selectivity of the CSP.
       — We expect relatively more investment lending (higher absorptive capacity; Gov’t prioritization of infrastructure and social sectors; implementation of ADB’s more liberal cost-sharing and expenditure eligibility; application of ADB’s new lending instruments, including direct sub-sovereign lending, multi-tranche financing facility, and peso-denominated lending – these responding to emerging needs of middle income clients like the Philippines).
       — Policy-based lending will continue to be aligned with macroeconomic stability and sector-specific reforms.