Cambodia Resident Mission
(See
Departments and Offices.)
CAP
(See
Country Assistance Plan.)
Capacity Building
(See Governance and Capacity Building)
Capital and Financial Markets
ADB focuses on the following areas of the capital and financial markets.
Bank Restructuring
Banks dominate financial intermediation in Asia, and banking is linked to almost all other sectors of the economy. Banking is a key area where ADB can leverage the impact of its assistance. In the wake of the financial crisis, major banking restructuring has been under way. Critical questions on bank recapitalization remains. ADB’s Banking Sector Reform and Restructuring (September 1998) sets clear conditions and modalities for ADB assistance to banking. Assistance for restructuring the banking subsector will be provided only when there is a systemic or macroeconomic risk, a clear commitment and capacity of government to the reform process and implementing reform measures, full disclosure of information, and adequate ADB capacities and resources.
Capital Markets
Recognizing that a lack of access to long-term capital in domestic markets in Asia caused excessive reliance on foreign short-term capital, it is important to mobilize domestic savings and develop long-term capital markets (stocks and bonds), with particular emphasis on the government bond market as a benchmark. This will diversify the sources of capital, reduce the risk of capital flight, stabilize the supply of capital, and improve the allocative efficiency of the financial markets.
Corporate Governance
Greater efforts are directed at improving financial and corporate governance through information disclosure and stricter accounting standards. Enhancing transparency and accountability in private and public corporations also ensures better corporate monitoring by the market and reduces the risks of corruption and fraudulent transactions. In addition, new corporate laws are introduced to increase competition and realign interests of corporate management and shareholders. The legal process of bankruptcy, foreclosure, and enforcement of creditors’ remedies remains weak and needs substantial improvements.
Regulatory Framework
ADB works to enhance transparency and accountability and restore investor confidence by strengthening financial sector supervision and prudential norms supported by the independent regulatory authority. ADB advocates that standards for capital adequacy, loan classification, and loan-loss provisioning should be consistent with global standards. A legal framework, including bankruptcy and foreclosure laws, must be in place for resolving problems associated with non-performing loans with distressed financial institutions. Liberalizing foreign investment laws on foreign ownership of banks and corporations is being encouraged in parallel with banking and corporate sector restructuring.
Capital Structure
The capital structure of ADB is fundamental to its strength. The subscribed capital consists of paid-in and callable capital. ADB’s equity is made up of paid-in capital and accumulated earnings (reserves). The largest subscriptions to the capital stock are those of Japan and the United States, which, together with other nonregional members, provide about 52 percent of the total subscribed capital stock.
The relationship between borrowings and callable capital and the relationship between loans and subscribed capital underline the conservative policies followed by ADB in its financial operations.
The paid-in portion of ADB’s subscribed capital is available for disbursement of OCR loans as part of ADB’s ordinary operations.
Callable capital is available for the protection of ADB’s creditors, such as bondholders and other lenders, and can be called only if required to meet ADB’s obligations in relation to borrowings or to cover any guarantees outstanding. ADB’s outstanding debt and guarantees cannot exceed its callable capital.
Currently, ADB’s policy is not to enter into any new borrowing or guarantee chargeable to its ordinary capital resources if such borrowing or guarantee, when added to outstanding borrowings and guarantees, would exceed 95 percent of the amount of the callable capital stock subscribed by members whose currencies are deemed convertible by ADB.
OCR loans, equity investments, and guarantees are limited to the level of ADB’s unimpaired subscribed capital, ordinary reserve, and surplus, or a one-to-one ratio of loans to capital.
While ADB does not foresee any event that might require a need on its callable capital, all members (including those whose currencies are nonconvertible) would be required to meet any call on a uniform percentage basis. Failure by one or more members to honor this obligation would not relieve any other member from its obligation to meet a call. If the amounts received on such a call were insufficient to meet ADB’s obligations, ADB is authorized to issue further calls until it has the necessary funds to satisfy its obligations completely, up to the full amount of each subscription to callable capital.
The authorized capital stock of ADB may be increased by the Board of Governors by a vote of two thirds of the governors, representing not less than three fourths of the total voting power of the members.
No increase in the subscription of any member may be authorized if such an increase would reduce the percentage of capital stock held by regional members below 60 percent of the total subscribed capital stock of ADB.
CAR
(See
Central Asian Republics.)
Central Asian Republics
The Central Asian republics (CARs) include Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. These former Soviet republics face daunting constraints to economic development. The economic integration of the CARs within the former Soviet Union, with its focus on Moscow, resulted in inadequate investments in infrastructure to facilitate intraregional trade following independence. Moreover, these republics are sparsely populated and have low per capita incomes, resulting in limited internal markets for domestically produced goods. Economic growth and poverty reduction in the region will depend largely on developing new trading relations within the region, as well as new trading partners and transport links to external markets. Economic cooperation is essential for realizing their development objectives.
Through regional technical assistance, ADB has explored opportunities to enhance economic development by increasing cooperation in the region. The aim of the assistance is to help the governments identify and prioritize development projects that will increase trade and other types of economic cooperation, for example in energy and transport—both among the CARs themselves and with other trading partners in the region. ADB is also looking at the potential resource and market complementarity among the members of the CARs and the Xinjiang Uygur Autonomous Region, the far western region of the People’s Republic of China, which shares borders, economic interests, and cultural ties with the CARs.
Central Operations Services Office
(See
Departments and Offices.)
CER
(See
Country Economic Review.)
CFS
(See
Complementary Financing Scheme.)
Channel Financing
Grant funds support ADB’s technical assistance program and finance soft components of its loan projects. A majority of such grants are provided by bilateral donors under channel financing arrangements (CFAs). ADB acts as an administrator of the funds and applies its own guidelines and procedures in recruiting consultants, procurement, disbursement, and project supervision.
Under a CFA, the donor enters into a comprehensive agreement with ADB, providing an untied grant fund to be administered by ADB; but the fund does not become part of ADB’s own resources. The donor indicates its preferred sectors and recipient countries in the use of the fund; ADB regularly provides the donor with a list and description of proposed technical assistance projects that satisfy the donor’s preferences. The donor and ADB agree on the specific activities to be financed under the fund.
(See also Cofinancing)
Classification of Developing Members
(See Asian Development Fund)
Code of Conduct
ADB’s Code of Conduct took effect in 1998. The Code is a set of guidelines on behavior expected of staff members. It is a proactive endeavor to ensure that every staff member’s overriding concern is duty toward ADB.
ADB’s new Code of Conduct covers ADB staff members and their immediate family members, plus former staff members. Similar codes of conduct have been adopted by most international organizations, such as the IMF, World Bank, other multilateral development banks and UN organizations. Basically, the code requires staff members to perform duty entirely to the international organization, avoid conduct that reflects unfavorably upon their positions, and act with reserve, tact, and discretion. The Code stipulates certain general principles and contains provisions regarding disclosure of information, business affiliations, financial interests and other situations where there may be a perceived conflict of interest.
Cofinancing
Cofinancing refers to any arrangement under which funds from ADB are associated with funds provided by sources other than the governments and the project proponents in financing an ADB-assisted project or program. The term applies when ADB provides its own resources for project financing, while also arranging for other financing institutions’ participation.
Cofinancing offers ADB a way of ensuring that its operations serve as a catalyst for increased capital flows to its developing member countries. Cofinancing is intended to mobilize additional resources from official and private sources and to supplement ADB’s resources in its lending operations.
Cofinancing also helps share risks that might otherwise prevent private sources from lending on their own.
Benefits
Cofinancing benefits both lenders and borrowers. For borrowers, cofinancing can facilitate the flow of resources from various sources and catalyze the flow of additional resources from official and private institutions. For projects and programs that are too large to be handled by one funding agency, mobilizing cofinancing from various funding sources can help meet these large resource requirements. Cofinancing can also help mobilize resources that are sometimes provided on equal or better terms than those available from ADB’s own funds.
For lenders, cofinancing with ADB may bring about substantial cost savings—in terms of project preparation and loan administration—and helps reduce lending risks. Cofinancing with ADB also offers expanded business opportunities, together with greater security and lower cost. ADB’s thorough project preparation and appraisal ensures that cofinanced projects are viable and in accordance with the development objectives of the borrowing country.
Sources and Modes of Cofinancing
ADB derives its cofinancing funds from official funding agencies, export credit agencies, and market institutions.
ADB’s official cofinancing operations can be categorized as follows.
Parallel Financing. A project is divided into specific and identifiable packages of components, and each package is financed separately, either by ADB or by cofinanciers.
Joint Financing. The funds of ADB and cofinanciers are pooled to finance, in agreed proportions, a common list of goods and services required for a project.
Umbrella or Standby Financing. ADB initially finances an entire project but cancels a portion of its loan when cofinancing becomes available.
Channel Financing. This occurs when cofinanciers provide untied grant funds to finance a portion of ADB’s technical assistance program or components of ADB’s loan projects by channeling their funds through ADB.
Under commercial cofinancing, commercial lenders (typically commercial banks or other private financial institutions) participate in ADB-assisted projects. Depending on the risk associated with cofinancing, cofinanciers can participate with or without support of ADB’s credit enhancements. The former takes the form of uncovered cofinancing provided in parallel with ADB’s direct loan. The latter takes the form of debt financing structured with the support of the following credit enhancements of ADB:
Complementary Financing Scheme,
Partial Credit Guarantee, and
Political Risk Guarantee.
It should be noted that these ADB credit enhancement products can only be used to support projects in which ADB has some form of direct participation. In the case of public sector projects or programs, a direct ADB loan is required to meet this participation requirement. For private sector projects, ADB's participation typically consists of a direct loan and/or equity investment.
Further information on the Complementary Financing Scheme, the Partial Credit Guarantee, and the Political Risk Guarantee is provided under the corresponding alphabetical subject listings of this booklet.
Complementary Financing Scheme
ADB's Complementary Financing Scheme (CFS) is a credit enhancement product that involves the prearranged sale to commercial lenders of participation in a cofinanced or "complementary" ADB loan without recourse to ADB for debt service. The CFS is used solely to facilitate commercial cofinancing of ADB-assisted private sector projects. ADB is the "lender-of-record," since the complementary loan is made in ADB's name.
Though funded by commercial lenders, the complementary loan receives the benefit of ADB's "preferred creditor status" since ADB is the lender-of-record. The complementary loan thus enjoys the same privileges and immunities as those applicable to ADB's principal loan.
Cofinanciers providing CFS loans also benefit from ADB's project appraisal, supervision, and loan administration services. In the case of the latter, ADB acts as a channel for disbursements and debt service payments.
(See also Broad-Based Development Institution; and Cofinancing)
Confidentiality and Disclosure of Information Policy
ADB’s Policy on Confidentiality and Disclosure of Information took effect in 1995, prompted by the growing realization that ADB should provide the greatest possible degree of transparency and accountability in its activities to ensure the success of ADB’s mission and to sustain public support for ADB, while recognizing important legal and practical constraints.
The basic objectives of the policy are to encourage debate and dialogue on policies and operations, generating new and varied perspectives; ensure effective local participation in decision making for better implementation and sustainability of projects; broaden understanding of ADB’s role among donor and borrowing members, cofinanciers, nongovernment organizations, academic institutions, and the public to strengthen support for ADB and its mission; facilitate coordination with others interested in the common goal of development of the region; and increase ADB’s accountability to its shareholders and indirectly to its constituents.
To implement this policy, ADB emphasizes a presumption in favor of disclosure where disclosure would not materially harm the interests of ADB, its members, borrowers, and private sector clients.
ADB’s disclosure policy provides guidance concerning the declassification of specified types of documents plus procedures, enabling members of the public to gain access to such documents.
All questions regarding the implementation of this policy should be directed to the Chief, Office of External Relations.
(See also Information)
Consultants
-
Guidelines
The Guidelines on the Use of Consultants by the Asian Development Bank and Its Borrowers sets out the principles to be followed and procedures to be used when recruiting consultants financed by ADB.
-
Recruitment of Consultants
ADB recruits consultants to assist with its technical assistance activities. Staff consultants are also recruited when ADB finds it necessary to supplement its staff in carrying out its operations. Depending on the nature of the work and the number of experts required, either individual consultants or consulting firms (including academic institutions and government or international agencies) may be contracted to provide the services.
For loan projects financed by ADB, the borrower is responsible for selecting and recruiting the required consultants. However, ADB monitors the recruitment process to ensure that the ADB guidelines’ principles and procedures are followed.
Consultants engaged by ADB must be nationals of an ADB
member and be technically qualified experts who are self-employed, or employees of a firm/organization providing consulting services.
To select individual consultants, a minimum of three candidates, normally from different ADB members, are shortlisted, evaluated, and ranked based on a review of their academic qualifications and relevant work experience.
When the services of a consulting team are required, the process begins with preparing a long list of firms/organizations that have expressed interest in providing the services. A Consultants Selection Committee (CSC) reviews the experience and capabilities of each firm/organization and prepares a shortlist of five to seven firms. Those included on the list should represent ADB’s members in a reasonable geographically balanced manner without any rigid share.
The invitation documents define the assignment objectives, scope of work, and tasks to be performed; and identify the types of expertise required. Shortlisted candidates are provided a copy of criteria used to evaluate proposals. Financial details are not included in the consultant’s proposals as evaluation is based entirely on technical qualifications. In evaluating proposals, the CSC members consider the experience of the candidate, proposed approach and methodology, capabilities of personnel, and other relevant aspects.
-
Domestic Consultants
Domestic consultants are nationals from ADB developing members where the work is to be carried out. ADB’s policy is to encourage the use of domestic consultants and consultants from other developing member countries who are qualified to perform the work.
Contract/Commitment Award Ratio
Contract/commitment award ratio is the ratio of contract awarded/actual commitment during the year over the value available for contract/commitment awards at the beginning of the year. The value of the contracts/commitments to be awarded/committed under newly approved loans during the period is added to the opening balance of the value available for contract/commitment awards.
Controller’s Department
(See
Departments and Offices.)
COO
Cook Islands
Cooperation with Nongovernment Organizations
Cooperation with nongovernment organizations (NGOs) strengthens the effectiveness, sustainability, and quality of development assistance that ADB provides. ADB’s policy on such cooperation, approved in 1998, states that ADB should work with NGOs and incorporate NGO experience, knowledge, and expertise into its operations, so that its development efforts can more effectively address the issues and priorities of its developing member countries. NGOs often hold comparative advantages in representing people and identifying development needs, designing effective programs that reach people, and representing alternative ideas and views in development.
Corporate Planning
ADB recognizes that its ambitious medium-term objectives to be achieved effectively and efficiently, it must be both a planning and a learning organization. Accordingly, it follows a three-year rolling plan that is updated each year. In this planning cycle, the next year’s work program is finalized and budgeted, and the ensuing two years’ work plans and priorities are mapped out and sharpened.
Specifically, each year
individual country assistance plans, covering the next three years, are developed or updated in close consultation with the government and other stakeholders;
the plans are translated into departmental work programs within ADB and aggregated into an overall work program and budget framework on which feedback of the Board of Directors is sought; and
the administrative budget for the coming year is proposed.
ADB’s planning and programming process is designed to retain the flexibility required to respond efficiently and adequately to unanticipated development assistance needs in the region.
As an essential part of its planning process, ADB continuously reviews its business practices to increase operational efficiency and development impact. The strategic planning and learning processes continue to guide gradual changes in staffing plans and organization. Management considers an effective organization structure and a robust but flexible staff skills mix to be critical success factors for ADB’s business processes and objectives.
COS
(See
Country Operational Strategy.)
COSO
(See
Central Operations Services Office.)
COSS
(See
Country Operational Strategy Study.)
Cost Overruns
ADB finances cost overruns on its projects. This financing covers cost overruns in foreign exchange and local costs, and also cost overruns resulting from causes other than currency readjustments and price increases on a case-to-case basis.
Before ADB approves supplementary financing, it must be satisfied that the balance-of-payments position of the country concerned warrants it; the government is making a strong effort to mobilize its own domestic resources; and government policies are geared toward allocating resources efficiently. Financing for cost overruns is considered on a case-to-case basis after the project concerned is reappraised and the following are fully taken into account:
the main reasons for the cost overrun must be established, and ADB and the borrower must have a plan of remedial action;
the project must be clearly economically viable and one of high priority in the government’s national development strategy;
the possibility of reducing the project scope or changing design standards must be examined to determine if the existing approach is still feasible; and
the borrower must have made a genuine but unsuccessful attempt to find alternative financing on reasonable terms.
(See also Supplementary Loans)
Country Assistance Plan
The country assistance planning process starts with preparing the country programming mission (CPM) position paper. It ends with finalizing the country assistance plans (CAPs), regional assistance plans, and bank assistance plan; and relaying to the developing member country (DMC) concerned the confirmation of or changes to the memorandum of understanding/aide-mémoire left by the CPM.
The CAP is a crucial document in the planning and programming cycle. The programs officer responsible for the DMC concerned is the principal author of the CPM position paper.
The draft CPM position paper consists of an issues paper and a draft CAP. The issues paper includes four sections: ADB’s operational strategy in the DMC, the strategic thrust of ADB’s program in the DMC, issues to be discussed by the CPM, and mission terms of reference and composition.
The CAP process requires interdepartmental coordination within ADB. A country team is responsible for preparing the CAP, with the programs officer and the country economist playing the key coordinating role. The projects managers are responsible for ensuring that the work program of project processing and administration proposed in the CAP can be achieved efficiently and effectively; the programs managers are responsible for guiding the preparation of CAPs in close consultation with their projects counterparts.
The Compendium of CAPs is prepared annually by the programs departments and the Office of Pacific Operations to inform the Board of Directors of the proposed ADB assistance program for each borrowing DMC in the coming year and on an aggregated basis in the succeeding two years. The document contains an overview section summarizing the ADB-wide program, together with notes on individual DMCs by region, covering the assessment of recent country performance, ADB’s operational strategy, its sectoral underpinnings, aid coordination issues, proposed economic and sector work, and the operational program. The Board of Directors reviews annually the Compendium of CAPs together with the corresponding ADB three-year rolling work plan.
(See also Corporate Planning; Country Economic Review; Country Operational Strategy; and Programs Departments (East and West))
Country Economic Review
The country economic review (CER) is the principal economic background document on a DMC for the use of Management and the Board of Directors for general reference and for considering specific loan and technical assistance proposals for the DMC. This document also provides the projects departments with the macroeconomic information that they may require. The country assistance plan and related documents also draw information from the CER. The CER does not simply describe the current economic situation in a DMC but also analyzes short- and medium-term economic prospects for the DMC and assesses recent economic performance of the DMC in the main sectors of the economy and in the key sectors in which ADB operates. The CER gives a detailed analysis of the secular macroeconomic trends and the manner of management of structural change in the economy.
The CER may include a section on a special theme or topic of current importance in the DMC. To allow meaningful analysis, the CER should include a reasonably comprehensive statistical data set covering production, national accounts, prices, fiscal and monetary data, balance of payments, and external debt. The CER is a public document and is available on the ADB’s web site at http://www.adb.org.
(See also Programs Departments (East and West))
Country Groups
(See Asian Development Fund; and Graduation Policy)
Country Operational Strategy
The country operational strategy and program provides a framework for ADB’s operations in each developing member country (DMC) in the medium term by setting out ADB’s approach contributing to a DMC’s development.
ADB’s country operational strategies and programs are driven by the Long-Term Strategic Framework and the poverty profiles of the countries (development promotion, resource mobilization, and regional cooperation), overall policy frameworks, and country circumstances. The country operational strategy defines a distinctive role for ADB within each DMC and seeks to maximize the opportunities for pursuing ADB’s overarching goals and thematic priorities in the context of a DMC’s particular needs and in coordination with other agencies. A strengthened country operational strategy will result in a more focused country assistance plan that should progressively lead to the selection of projects whose rationale is embedded in attaining ADB’s strategic development objectives.
(See also Country Assistance Plan; Strategic Agenda; and Strategic Planning)
Country Operational Strategy Study
The country operational strategy study (COSS) is the primary country-specific document in the planning and programming cycle. The COSS is prepared in close consultation with the developing member country (DMC) and is anchored on strong sectoral analysis, requiring close cooperation between programs and projects staff. The COSS should provide the basis for determining ADB’s country-specific thematic and sectoral priorities, as well as a framework for the country performance review.
The COSS is based on a process of consultation with the DMC government and other funding agencies. It identifies and describes the distinctive role of ADB in the DMC in the context of ADB’s strategic objectives and the DMC’s development priorities. By integrating the key issues of strategic importance, the COSS facilitates ADB’s decisions regarding choices in its operational program in the DMC.
The COSS is usually prepared once every five years.
The COSS provides the strategic framework to guide the preparation of the country assistance plan, and should reflect the social dimensions of concern to ADB in the DMC. Human development aspects in the COSS are dealt with directly by the operational divisions responsible in ADB. For issues on poverty reduction, gender and development, indigenous peoples, and involuntary resettlement, the Social Development Division (SOCD) interacts with the programs departments to determine the efforts and time needed to address the issues. SOCD helps compile information and participates in the COSS mission where necessary. In addressing the social dimension aspect, the COSS highlights areas where there are significant differences in emphasis between ADB’s strategic objectives and those of the DMC. These differences may be a point of departure for policy dialogue between ADB and the DMC.
(See also Country Assistance Plan; Strategic Agenda; and Strategic Planning)
CPM
country programming mission
Credit Line
This is a government-guaranteed loan provided to selected financial intermediaries in developing member countries for onlending to small and medium private enterprises.
(See also Lending)
Credit Risk
Credit risk is risk of inability to service a debt and the potential loss arising from default of a borrower. As a development finance institution, ADB regularly assumes credit risk on its loan portfolio. ADB manages this risk through a rigorous capital adequacy framework. This framework, articulated through the Charter and policy documents, is at the foundation for managing lending risk within ADB. Pursuant to ADB’s Charter, the sum of its disbursed and outstanding loans and undisbursed loan balances should not exceed the total amount of its subscribed capital plus retained earnings.
(See also Financial Risk Management; Income and Reserves Policy; Liquidity Policy; Overdue and Nonperforming Loans ; and Risk Management Committee)
Creditworthiness
ADB has received a Triple-A rating since it first issued rated debt in 1971. The creditworthiness of ADB, shown by the successful bond issues it has made, is the result of its
Funds borrowed by ADB are not used for concessional lending. Concessional loans are made from the Asian Development Fund (ADF), ADB’s soft-loan window. ADF resources mainly come from contributions made by its member governments. In accordance with the Charter, such resources must at all times be held, used, and committed entirely separate from ordinary capital resources (OCR). ADF loans are examined just as carefully as OCR loans. Standards of evaluation, appraisal, and follow-up for OCR and concessional loan projects are the same.
(See also Financial Management; and Graduation Policy)
Crosscutting Concerns
It is increasingly recognized that people are at the center of development, and that development is for all people. In addressing crosscutting social concerns, the Bank works to capture key elements of human and social perspectives of development. Examples of crosscutting concerns encountered in the Bank’s operations include participation, gender and development, involuntary resettlement, protection of vulnerable groups, poverty reduction, environmental protection and management, and human development. The Bank assigns importance to crosscutting concerns in all its processes, from the formulation of development strategies, to the design of specific interventions, to the monitoring and evaluation of interventions in progress and completed.
(See also Governance and Capacity Building; Social Dimensions of Development; Strategic Agenda; and Strategic Planning)
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