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The Long-term Strategic Framework of The Asian Development Bank (2001-2015) : The Strategic Agenda

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Crosscutting Strategic Themes

Promoting the Role of the Private Sector in Development

The remarkable development of many Asian economies has been driven to a large extent by private investment, both domestic and foreign. However, there is great diversity among countries, and the role of the private sector in promoting development in many countries in the region has been limited. At a time when governments are faced with an increasingly complex development agenda, and when resources available to them are becoming more constrained, private participation will release scarce resources from public budgets. The private sector thus has an essential and increasingly important role in the development process, both on its own and through public-private sector partnerships, including those for the provision of physical and social infrastructure. However, the effective contribution of the private sector to development in general, and infrastructure provision in particular, has been hampered by institutional shortcomings, weak corporate governance systems, unclear rules and regulations, and corruption, all of which drive up the costs and risks of doing business. Therefore, better governance is necessary to ensure the contribution of the private sector to the development process.

Because ADB has both public and private sector operations within the same institution, ADB is uniquely positioned to broker, through its lending and nonlending operations, public and private sector linkages to support the development process. In this activity, ADB will put particular emphasis on strengthening the capacity of the DMCs to

1. create an effective enabling environment for the private sector—a long-term process—and
2. encourage the development of innovative public-private partnerships.

ADB will help its DMCs design policies and reforms that will support private sector development and promote private sector activity that is socially responsible and consistent with a pro-poor agenda. Responsive to particular conditions and needs, ADB will assist individual DMCs in addressing issues such as strengthening commercial legal frameworks, reforming taxation systems, supporting efficient and competitive markets, and establishing environmental and labor standards. The Asian crisis of 1997 demonstrated the necessity for properly functioning regulatory frameworks for the financial sector and for corporate governance—two areas of particular interest in ADB’s private sector activities.

ADB will also help broker effective partnerships between public and private investors in countries and sectors where there is a basis for commercial participation, but where the private sector may be reluctant to invest on its own. Effective public-private sector partnerships allow the sharing of risks and costs in the development process, particularly in the provision of infrastructure. Promoting such partnerships in agriculture and the rural sector, where the greatest concentration of both poor people and private sector production occurs, can make a significant contribution to development in general and to poverty reduction in particular. ADB’s activities will include

1. helping finance the public investment portion of such initiatives,
2. assisting in building the long-term capacity of governments,
3. developing effective partnerships with the private sector, and
4. providing risk mitigation services to private investors.

In implementing its strategic agenda, ADB will put particular emphasis on strengthening the domestic private sector in the countries of the region, an especially important task in countries with emerging private sectors, such as economies in transition. Strengthening entrepreneurship, small and medium enterprises, and the informal sector, all major sources of employment and income, will contribute directly to poverty reduction. Many countries of the region have high domestic savings rates; the challenge is to create policies and institutions that mobilize these savings for productive investment to support development. In particular, ADB will support small-scale enterprises and the informal sector, in both urban and rural areas, through microfinance programs and other appropriate means.

Although private sector operations are a very small part of ADB’s total portfolio at present, involvement with the private sector is expected to increase substantially in the years to come, as a consequence of the increasingly important role of the private sector in the development process. For ADB’s private sector operations to have a meaningful and relevant impact, it must undertake a critical mass of private investment. To support this involvement, there will be a greater integration of ADB’s public and private sector activities. With the great diversity of conditions and needs in the region, the general elements of the strategy to promote the role of the private sector in development will be tailored to the particular conditions and needs of DMCs in country-specific strategies and programs.

Supporting Regional Cooperation and Integration for Development

Regional cooperation enhances and amplifies domestic efforts at development and widens the range of options available to the participating countries. This is an area where ADB has unique experience and strengths, which will be used to develop new initiatives across the region. The challenges of regional cooperation involve three related dimensions:

1. supporting the development of participating countries through cooperation,
2. providing, protecting, and conserving key regional public goods, and
3. ensuring regional economic and social stability.

Many individual economies experience supply- and demand-side market and resource constraints on their development capacities. Regional cooperation expands access to key resources and markets, providing wider development options for the participating countries. This is especially important for countries with limited access to markets and resources, for the poorer areas of some countries, and particularly for Pacific island DMCs.

51. Regional cooperation includes addressing the problems associated with regional public goods, those activities and outcomes that have impacts across borders: for example, environmental issues such as shared watershed management or pollution from forest fires, health-related issues such as the transmission of HIV/AIDS, and social concerns such as trafficking in drugs and people. However, while national governments provide the institutional framework for correcting market failures in the area of traditional public goods, no corresponding institution is responsible for regional public goods. Consequently, cooperation among countries is clearly needed to ensure that such regional issues are addressed collectively, so as to produce the most effective outcomes. Ensuring regional economic and social stability is a particular type of regional public good that is fundamental to the development of the region and to the challenge of reducing poverty; unless economic and social harmony and stability are maintained within countries, and mutually supportive and cooperative relations exist among countries, regional development and, hence, poverty reduction is at risk. ADB will emphasize the importance of regional economic and social stability as a focus of economic cooperation and integration.

52. ADB supports a number of broad-based regional and subregional cooperation initiatives to accelerate the development of participating countries, of which the Greater Mekong Subregion initiative is the most prominent example. ADB has also led regional cooperation efforts in South Asia. Subregional programs often involve poorer regions of individual countries (e.g., Mindanao in the Philippines, Yunnan in the PRC), lagging economies (e.g., Cambodia, Lao People’s Democratic Republic, Central Asian republics, and isolated small Pacific island countries), so they have potentially important implications for poverty reduction; they also contribute to regional stability. As a key priority in enhancing the development options in the region, ADB will continue its support for subregional cooperation and economic integration; in fact, such support must increase in importance over the next 15 years, given the dynamics of regional and global integration.

53. ADB has an important role in the provision of a wide range of regional public goods in areas such as environment, health, and finance. With interdependencies and economic integration growing among the countries of the region, this role will increase in importance. A particular type of regional public good in which ADB is playing a significant role is the sharing of knowledge and information to strengthen economic management. Through the Regional Economic Monitoring Unit initiative, for example, ADB has been assisting the Association of South East Asian Nations (ASEAN) in monitoring the economic recovery of its member states since the 1997 economic crisis. ADB is also becoming a key resource to DMCs of analysis and information on their economic performance.

54. Building on this initiative, ADB will expand the scope of cooperation to the exchange of information on the “best practices” in development and poverty reduction. Similarly, ADB, in collaboration with the Asian Development Bank Institute, will support cooperation between regional research centers and educational institutions in areas of common interest. Research and educational institutions will also be made partners in the creation and development of policy programs for the DMCs. ADB has been collaborating and coordinating with the Asia Pacific Economic Cooperation organization in several areas of regional interest, such as trade issues, financial sector concerns, and corporate governance; this activity will be enhanced. In the context of regional sharing of knowledge and information, ADB will place special emphasis on regional cooperation in and through information and communications technology, in order to help reduce the growing gap between “information rich” and “information poor” economies and groups

3. Addressing Environmental Sustainability

55. Asia’s environmental record has come nowhere near matching its economic performance in the past 30 years. In many parts of the region, natural resources are being depleted at a frightening rate, and the damage to fragile ecologies is alarming. Overfishing, overgrazing, deforestation and the intensive farming of marginal agricultural lands are causing air and water pollution, water scarcity, and desertification.

56. For too long, the environmental impact of development was ignored in most parts of Asia and the Pacific; when policymakers did try to adopt regulations and standards, they were all too often badly designed, inadequately implemented, and easily flouted—a major governance issue. Environmental considerations were viewed as an adjunct to or afterthought of economic and development policymaking. Today, the region is paying a steep price for that neglect. Environmental degradation constrains agricultural and industrial productivity; causes increasingly frequent disasters, such as floods and landslides; and has become a serious threat to the region’s prospects for development and poverty reduction. It also constitutes a potentially lethal assault on the quality of life of all Asians, particularly the poor. These effects can only worsen as industrialization and urbanization accelerate and expand.

57. While pollution, in the form of dirty air and water and crowded, filthy cities, is often a byproduct of economic growth, environmental degradation is even more strongly associated with poverty. The poor are disproportionately affected by the “brown” issues of air and water pollution in cities, because they generally reside in more polluted areas and are less able to protect themselves from environmental health hazards. “Green” issues, such as deforestation, depletion of natural resources, and land degradation, also impact heavily on the poor, who generally find themselves occupying marginalized, denuded, and less productive lands and hence deplete resources in a desperate effort to gain a livelihood. Similarly with “blue” issues, such as pollution of lakes, waterways, and oceans that spoils fisheries and fresh water and marine resources: here again, the livelihood and quality of life of the poor are disproportionately diminished.

58. For these reasons, environmental considerations are a major crosscutting strategic theme of ADB’s strategic agenda. The environmental sustainability of the economic growth necessary for reducing poverty and meeting the IDGs has to be in the forefront of all decision making and development in the DMCs and in ADB initiatives at all levels. Just as poverty reduction will be integrated into national development strategies, so sector development policies and regional plans must include environmental protection to ensure effective resource management within each DMC and across the region.

59. Environmental degradation not only has to be stopped, but reversed in key areas, and the links between poverty and environmental degradation have to be broken. The poor should be given a stake in the management of the environment and natural resources. The price of environmental mismanagement to industry and the society at large is enormous: it is estimated that correcting past unsustainable development might cost as much as $175 billion per year in 2004, rising to about $250 billion per year by 2025¹⁰. To begin with, policy and institutional approaches to environmental issues must be changed to make a “pollute now, pay later” approach unattractive. Delays in taking action will only increase the price to be paid later.

60. ADB’s programs must be designed to promote environmentally sound development without compromise. In addition to advocating the integration of environmental policies and objectives into national development policies and objectives, ADB must ensure, in conjunction with DMCs, that environmental policies adopt an integrated resource management approach. The recent water policy adopted by ADB¹¹ takes such an integrated approach; the forestry and energy policies, which are under review, will do the same. ADB will advocate a greater reliance on economic instruments and incentives to address environmental issues, combined with regulatory controls. The advocated environmental policy will address specific market failures, such as open access resources, and government policies that exacerbate environmental problems, such as subsidizing the extraction of scarce resources.

61. Environmental problems are long term and require long-term solutions; countries must take action today to ensure a better environment a generation from now. Time is not on their side: if Asia does not take the appropriate measures immediately, at a minimum the gains derived from growth will be eroded and support for growth-oriented policies will be undermined. ADB is committed without reservation to the goal of better environmental management and protection of the region's ecology and resources.

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