ADB Annual Report 2003

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Asian Development Bank 2004

Every effort has been made to ensure the accuracy of the data

used in this publication. Variations in data in Asian Development Bank (ADB)

publications o ften result from different p ublication dat es, although differences

may a lso com e from source and interpretation of d ata . ADB accepts no

responsibility from a ny conseq uence of their use.

The t erm coun try, as used in the co ntext o f ADB, refers to a memb er of ADB

and does no t imply any view on the pa rt of ADB as to t he members sovereigntyor independent status.

In this publication, $ refers to US dollars.

Also available in CD-ROM and can be downloaded from ADBs web site at

http://www.adb.org/publications/.

ISSN 306-8370

Printed in Singa pore by Tien Wah Press (Pte) Ltd .


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For Asia and the Pacific, 2003 was a year of manychallenges and uncertainties marked bygeopolitical concerns, threats of terrorism, globaleconomic and financial instability, and outbreaksof epidemic diseases such as the severe acuterespiratory syndrome followed by the avian flu in

early 2004. In our ongoing efforts to be an effective anddynamic development partner for our developing

member countries (DMCs), we at ADB have initiatedmany changes and reforms in our organization and inour operations to address these challenges and to betterposition ourselves to respond to future challenges. All ofthese initiatives emphasize greater developmenteffectiveness by focusing operations on the achievementof impacts and outcomes.

The extensive reorganization and the introductionof new business processes in January 2002 marked thebeginning of a series of organizational changes andreforms. In 2003, we conducted a review of the reorgani-zation and business processes, and initial findings andrecommendations of the review have already been

implemented. In 2004, an independent assessment of thereorganization will be conducted by a panel of externalexperts and will also include consultations with keystakeholders in our DMCs. Other steps ADB took in2003 toward greater organizational effectiveness includethe appointment of a fourth Vice-President to overseeknowledge management and sustainable development,and the creation of a new Managing Director Generalposition to facilitate the coordination of the work ofsenior management.

To reinforce accountability, particularly to addressin a fair and proper manner the concerns of persons

affected by ADB-assisted projects, a new accountabilitymechanism was established in May 2003. The newmechanism consists of a consultation phase and acompliance review phase, and the offices for the SpecialProject Facilitator and the Compliance Review Panel arenow operational. A comprehensive review and revision ofall sections of the Operations Manual were completed inOctober, and copies have been disseminated to ADBManagement and staff as well as to the public on ADBsweb site to promote greater and clearer accountability.ADB is now preparing a unified public communicationspolicy that will help increase transparency in all aspectsof its activities and will hence improve outreach to all

stakeholders and development partners. In addition,ADB has initiated a review of the implementation of ourgovernance and anticorruption policies. In 2003, ADBalso adopted the policy, Enhancing ADBs Role inCombating Money Laundering and the Financing of

Terrorism.In December 2003, the Board of Directors approved

a set of recommendations to enhance the independenceand effectiveness of the Operations Evaluation Depart-ment (OED). Effective January 2004, OED reportsdirectly to the Board of Directors. This important

ANNUAL REPORT 2003 iii


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iv ASIAN D EVELOP MENT BANK

organizational change not only brings ADB intoharmony with practices in other international institu-tions, but it also enhances the external credibility ofADBs evaluation procedures and results.

To address the human resource dimension ofdevelopment effectiveness, ADB is preparing a newHuman Resource Strategy with three strategic objectives:to enhance organizational capacity, to establish an

effective performance management system, and tostrengthen leadership and accountability for perfor-mance. One of the priorities is to implement the GenderAction Plan II as part of our diversity framework and tomainstream gender issues in ADBs internal initiatives aswell as in the regional development agenda. The Boardof Directors on the recommendation of the President hasrecently appointed ADBs first female Vice-President.

All of these initiatives have helped ADB maximizeits institutional effectiveness. As a result, ADB is now amore accountable, more efficient, and more transparentinstitution that is better positioned than ever to respondto the needs of its DMCs.

For ADB to provide the necessary assistance to itsDMCs, it must optimize the management of its financialresources. This requires making the most efficient use ofexisting resources as well as securing adequate levels ofadditional funds, particularly in the Asian DevelopmentFund (ADF) which offers concessional loan terms topoorer DMCs. To strengthen ADBs strategic planningand efficient allocation of existing resources, theperformance-based allocation system of the ADF wasreviewed. Discussions with donors also started in 2003concerning the replenishment of the ADF. Significantmilestones have been achieved including ADF IX donors

meetings in Copenhagen and Tokyo in the last quarterof the year and in Lisbon in early 2004. Additionally, thereview of the management and effectiveness of technicalassistance operations resulted in important improve-ments in the management of those limited resources.

The most important initiative of 2003 was acomprehensive review of ADBs Poverty ReductionStrategy, the outcome of which is so crucial to refiningour operations to achieve our overarching goal of povertyreduction. Based on empirical evidence across countrieswhich demonstrates that robust and sustained pro-pooreconomic growth is the single most important factor inattaining rapid poverty reduction, initial findings of the

review emphasized the importance of infrastructuredevelopment and private sector participation. The reviewalso reinforced the importance of the nonincomedimensions of poverty, especially the need to focus onthematic and crosscutting issues like environment andgender, many of which are included in the MillenniumDevelopment Goals (MDGs). We have sharpened ourfocus on the attainment of the MDGs by aligning ADBscountry strategies and programs with them; in fact,achieving the MDGs has become a framework formeasuring development progress in the region.

Significant efforts were also made in 2003 toformulate an agenda and action plan for moving towardmanaging for results that will allow us to better gaugedevelopment effectiveness. We created in 2004 a ResultsManagement Unit that will lead the implementation ofthe action plan at the country, institutional, andpartnership levels. Furthermore, ADB is currentlypiloting results-based country strategies and programs in

selected DMCs.Recognizing that knowledge is of critical importance

in development and that ADBs enhanced role inknowledge generation and sharing is a prerequisite forachieving our overarching goal of poverty reduction,ADB is committed to becoming a primary source ofdevelopment knowledge in Asia and the Pacific. To guideADBs transition to a knowledge-based organization, thepreparation of the Knowledge Management Frameworkstarted in 2003.

We all know that peace is a prerequisite fordevelopment, but we also know that poverty reductionand development are essential for attaining peace. As a

regional development bank, we at ADB are aware of therole we should and can play in promoting developmentand reducing poverty in Asia and the Pacific. ADB willcontinue to work hard in cooperation with our membercountries as well as with our development partners andstakeholders to realize an Asia and Pacific region free ofpoverty where all people can enjoy economic prosperityand lasting peace.

ASIAN DEVELOPMENTBANK

Manila

12 April 2004

Chairman of the Board of Governors

Asian Development Bank

Dear Mr. Chairman,

In accordance with Article 39 of the Articles of

Agreement of the Asian Development Bank and Section

13 of its By-Laws, I submit to the Board of Governors

Annual Report 2003, including a separate report on the

activities of the Special Funds, which has been

prepared under t he d irection of t he Board o f Directors.The Annual Reportalso includes the financial statements

prescribed in Section 15 of the By-Laws.

Sincerely,

TADAO CHINOPresident and Chairman

Board of Directors

iv ASIAN D EVELOP MENT BANK


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ANNUAL REPORT 2003 v

Note: Figures may not add due to rounding. For other detail s, see tables onpages102 and 103.

a Subscribed capital refers to a member's subscription to shares of the

capital stock of ADB.b The total voting power of each member consists of the sum of its basicvotes and proportional votes. The basic votes of each member consistof such number of votes as results from the equal distribution amongall members of 20%of the aggregate sum of the basic votes and propor-tional votes of all members. The number of proportional votes of eachmember is equal to the number of shares of the capital stock of ADBheld by that member.

Year of Subscribed VotingMembership Capitala Powerb

(%of tota l) (%of tota l)

NONREGIONAL

Austria 1966 0.344 0.593

Belg ium 1966 0.344 0.593

Canada 1966 5.289 4.549

Denmark 1966 0.344 0.593

Finland 1966 0.344 0.593

France 1970 2.354 2.200

Germany 1966 4.374 3.817

Italy 1966 1.828 1.780

Luxembourg 2003 0.344 0.593

The Netherlands 1966 1.037 1.147

Norw ay 1966 0.344 0.593

Portug al 2002 0.344 0.593

Spa in 1986 0.344 0.593

Sweden 1966 0.344 0.593

Sw itzerland 1967 0.590 0.790

Turkey 1991 0.344 0.593

United King dom 1966 2.065 1.970

United States 1966 15.781 12.942

Subtotal Nonregional 36.759 35.122

TOTAL 100.000 100.000

Year of Subscribed VotingMembership Capitala Powerb

(%of tota l) (%of tota l)

REGIONAL

Afg hanistan 1966 0.034 0.345

Australia 1966 5.851 4.998

Azerbaijan 1999 0.450 0.677

Bang ladesh 1973 1.032 1.143

Bhutan 1982 0.006 0.322

Cambodia 1966 0.050 0.357

China, People's Republic of 1986 6.516 5.530

Cook Islands 1976 0.003 0.320

Fiji Islands 1970 0.069 0.372

Hong Kong, China 1969 0.551 0.758

India 1966 6.402 5.439

Indonesia 1966 5.507 4.723

Japan 1966 15.781 12.942

Kazakhstan 1994 0.816 0.970

Kiriba ti 1974 0.004 0.321

Korea, Republic of 1966 5.094 4.393

Kyrgyz Republic 1994 0.302 0.559

Lao People's

Democra tic Republic 1966 0.014 0.329

Malaysia 1966 2.754 2.520

Mald ives 1978 0.004 0.321

Marshall Islands 1990 0.003 0.320

Micronesia,

Federated States of 1990 0.004 0.321

Mongolia 1991 0.015 0.330

Myanmar 1973 0.551 0.758

Nauru 1991 0.004 0.321

Nepal 1966 0.149 0.436

New Zea land 1966 1.553 1.560

Pakistan 1966 2.203 2.080

Palau 2003 0.003 0.320

Papua New Guinea 1971 0.095 0.393

Philippines 1966 2.409 2.245

Samoa 1966 0.003 0.320

Sing apore 1966 0.344 0.593

Solomon Islands 1973 0.007 0.323

Sri Lanka 1966 0.586 0.787

Taipei,China 1966 1.101 1.199

Tajikistan 1998 0.290 0.549Thailand 1966 1.377 1.419

Timor-Leste 2002 0.010 0.325

Tong a 1972 0.004 0.321

Turkmenistan 2000 0.256 0.522

Tuvalu 1993 0.001 0.319

Uzbekistan 1995 0.681 0.862

Vanuatu 1981 0.007 0.323

Viet Nam 1966 0.345 0.594

Subtotal Regional 63.241 64.878

Members, Capital Stock, and Voting Pow er(as of 31 December 2003)


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vi ASIAN D EVELOP MENT BANK

The Record(amount s in $ milli on)

19662003 2000 2001 2002 2003

OPERATIONAL ACTIVITIES

TOTAL LENDING (amount) 105,070a 5,583a 5,339a 5,658 6,105Number of Projectsb 1,818 72 60 70 66

OCR Loans (amount) 76,276a 4,015 3,977 a 4,008 4,726

Number of Loans 1,031 37 30 35 38Disbursements (amount) 50,371 a 2,884 2,850 3,067 2,688

ADF Loans (amount) 28,793a 1,567 1,361 1,650 1,379Number of Loans 1,018 48 46 53 47Disbursements(amount) 19,816 a 1,135 1,024 1,136 1,128

A. Government and Government-Guaranteed Loans(amount) 103,441 5,431a 5,301 5,548 5,918Number of Projectsb 1,735 68 57 67 62

OCR Loans (amount) 74,662 3,863 3,940 3,898 4,539Number of Loans 948 33 26 32 33Disbursements(amount) 49,253 2,823 2,799 3,011 2,575

ADF Loans (amount) 28,779 1,567 1,361 1,650 c 1,379Number of Loans 1,013 48 46 53 47Disbursements(amount) 19,801 1,135 1,024 1,136 1,128

B. Private Sector Loans (amount) 1,629 152 38 110 187Number of Projects b 83 4 3 3 4

OCR Loans (amount) 1,615 152 38 110 d 187Number of Loans 83 4 4 3 d 5

Disbursements(amount) 1,117 61 51 55 113ADF Loans (amount) 14

Number of Loans 5 Disbursements(amount) 14

EQUITY INVESTMENTd(amount) 740a 78 30 36 36Number of Investments 116 6 3 4 3

EQUITY UNDERWRITING (amount) 40 Number of Commitments 6

GUARANTEESPolitical Risk Guarantee (amount) 703 251 382 e 70

Number of Projects 7 3 3 1

Partial Credit Guarantee (amount) 2,384 120 90 500 170Number of Projects 15 1 1 1 2

TECHNICAL ASSISTANCEf, g (amount) 2,394 169 144 179 177Number of Projects 5,357 301 253 323 315

COFINANCINGh(amount) 40,648 2,885 1,310 2,832 2,418Number of Projects 637 40 24 37 28

RESOURCES

Ordinary Capital ResourcesAuthorized Capital (at end of period) 51,997 45,485 43,834 47,288 51,997

Subscribed Capital (at end of period) 51,997 45,271 43,628 47,234 51,997

Borrowings (gross) 53,694 1,693 1,607 6,145 4,141Outstanding Debt (at end of period) 26,359 25,340 24,813 26,324 26,359Ordinary Reserve (at end of period) 8,892 7,166 7,812 8,470 8,892

Special Reserve (at end of period) 186 182 183 184 186Gross Income 31,429 2,301 2,239 2,060 1,740Net Income after Appropriation of Commissions/

Guarantee Fees to Special Reserve 10,946 626 862 978 436

Special Funds ResourcesAsian Development Fund

Tot al Reso urces (at end of period) 26,759 20,999 19,887 22,853 26,759

Technica l Assistan ce Spe cial FundTot al Reso urces (at end of period)i 1,006 899 911 920 1,006

Japan Special FundRegular a nd Supplementa ry Contributions (at end of period)j 853 783 814 836 853

Asian Currency Crisis Support Facility j 241 241 241 241 241

ADB Institute Special Fund j

Tot al Resource s (at end of p eriod) 83 43 61 71 83

Data no t app licable .a Totals may not add due to rounding.b Projects with multiple loans are counted once. Cumulative number of projects excludes supplementary loans.c Adjusted to reflect changes in loan amounts.d Adjusted to exclude terminated loans.e Adjusted to reflect actual commitments.f Comprising technical assistance grants funded by ADB and other sources. Regional technical assistance projects included.g Adjusted to reflect changes in technical assistance amounts and number of projects.h Adjusted to reflect changes in cofinancing arrangements.i Figures revised to include other resources and transfers to the Asian Development Fund.j Figures represent contributions.


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ANNUAL REPORT 2003 vii

1 2003 in Review: Board of Directors Report

12 Special Theme

Law and Institutional Reform: Catalysts for Inclusive Development

in the Asia and Pacific Region

25 PART 1 Maximizing Institutional Effectiveness

26 Streamlining Organizational and Business Processes

26 Mobilizing Human Resources and Budget

28 Assuring Development Impact

32 Strengthening Accountability

33 Managing Knowledge

34 Fostering Partnerships

36 PART 2 Moving the Poverty Reduction Agenda Forward: Priorities and Outcomes

37 Strategic Priorities

41 Crosscutting Strategic Themes

50 Regional Perspectives

50 East and Central Asia

56 Mekong

60 The Pacific

67 South Asia

72 Southeast Asia

75 PART 3 Optimizing Management of ADBs Financial Resources

75 Managements Discussion and Analysis

90 Financial Statements

157 PART 4 Annexes and Appendixes

159 Statistical Annex

204 Appendixes

213 Glossary

215 ADB Contact Addresses

Contents


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viii ASIAN DEVELOP MENT BANKviii ASIAN DEVELOP MENT BANK

Abbreviations and Acronyms

ADB Asian Development Bank

ADBI Asian Development Bank Institute

ADF Asian Development Fund

ASEAN Association of Southeast Asian Nations

CARs Central Asian republics

CFA channel financing arrangement

CSP country strategy and program

CSPU country strategy and program update

DFID Department for International Development (of the United Kingdom)

DMC developing member country

FAS Financial Accounting Standards

GDP gross domestic productHIV/AIDS human immunodeficiency virus/acquired immunodeficiency syndrome

ICR interest coverage ratio

ICT information and communication technology

IOS interim operational strategy

ISO International Organization for Standardization

JSF Japan Special Fund

Lao PDR Lao Peoples Democratic Republic

LBL LIBOR-based loan

LIBOR London interbank offered rate

LTSF Long-Term Strategic Framework

MBL market-based loan

MDB multilateral development bankMDG Millennium Development Goal

NGO nongovernment organization

OAG Office of the Auditor General

OCR ordinary capital resources

OED Operations Evaluation Department

OHSAS Occupational Health and Safety Assessment Series

OPEC Organization of Petroleum Exporting Countries

PCG partial credit guarantee

PMCL pool-based multicurrency loan

PPA poverty partnership agreement

PRC Peoples Republic of China

PRG political risk guaranteePSCL pool-based single currency loan

RLR reserve to loan ratio

SARS severe acute respiratory syndrome

SME small and medium enterprise

SWAP sector-wide approach program

TASF Technical Assistance Special Fund

US United States

WSIS World Summit on the Information Society

WTO World Trade Organization


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With the strongsupport of the AsianDevelopment Bank(ADB), the Asia andPacific region hascontinued its

progress toward achieving theMillennium Development Goals

(MDGs) by 2015 (see page 36).Overall poverty rates in the regionhave fallen, and growth hascontinued. Many of ADBs membershave made investments in healthand nutrition that have reducedmaternal and child mortality ratesand lowered the incidence ofcommunicable diseases.

Yet challenges remain, andenormous efforts are still required.Women and girls do not alwaysbenefit equally with males from

social services. Cross-border publichealth problems continue to take atoll on families and nations.Diseases such as HIV/AIDS,tuberculosis, and malaria are majorcauses and effects of poverty in theregion as is the lack of access to safewater and to sanitation. Althoughemployment is a principal means toescape from poverty, many of thepoorest and most vulnerable people,including the elderly, female heads of

households, and people with specialchallenges, are unable to work.In 2003, global and regional

uncertainties directly and indirectlyinfluenced ADBs daily activities.

The reconstruction of Afghanistancontinued, the war in Iraq createduncertainty around the region, andthe outbreak of the severe acuterespiratory syndrome (SARS) had aheavy impact on the economies ofmany ADB members. Furthermore,growth prospects for industrial

economies during the first half ofthe year were subdued.

While the goal of reducingpoverty continued to guide itsoperations, ADB also respondedquickly to the urgent needs of itsdeveloping member countries1

(DMCs). Emergency lending in 2003included loans to Afghanistan,Kyrgyz Republic, and Sri Lanka.ADB acted swiftly to assist the

Board of DirectorsFirst row(from left ): Rolf Eckerman n, Dant e Canlas, President Tad ao Chino , P. G. Man kad,

Chaiyuth Sudthitanakorn; Second row(from left): Jusuf Anwar, Jeung-Hyun Yoon, Nicola

Jen ns, Pa ul Speltz, Osa mu Tsukaha ra, Sein Tin; Third row(from left ): M. Saiful Islam , Kuilin

Ju, Emile Ga uvrea u, Masaichiro Yama nishi, Miranda Raw linson, Tryggve Gjesdal, M. Akram

Malik; Fourth row(from left): Stephen Sedgwick, Shaolin Yang, Pascal Gregoire, Batir

Mirba ba yev, Michele Miari Fulcis, Troy Wray, Richard Sta nley.

Board of Directors Report


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2 ASIAN DEVELOPMENT BANK

region in responding to the SARSoutbreak by preparing emergencytechnical assistance as well asproviding technical assistance to thePeoples Republic of China (PRC).

ADB also faced internalchallenges and opportunities. ADB

personnel continued to adapt to thenew organizational structure and tonew business processes; extensivereviews of both were completed withrecommendations to furtherimprove the efficiency of operations.A staff engagement survey pointedout specific issues and concerns thatADB began addressing in 2003 withthe preparation of the new humanresource strategy.

Recognizing these complexissues, the Board of Directors

supported ADB Management andstaff in their efforts to improveinstitutional effectiveness andinternal governance and todemonstrate development impact.

Funding

The main instruments for providinghelp to ADBs DMCs are policydialogue, loans, technical assistance,

grants, guarantees, and equityinvestments (see page 7). ADB offersa range of modalities and termsfor loans aimed at improvingperformance.

About 70%of cumulativelending comes from ordinary

capital resources (OCR) from threedistinct sources: private place-ments and capital markets in theform of borrowing, paid-in capitalprovided by shareholders, andaccumulated retained income(reserves) that provides a bufferfor risks.

Loans are also provided fromSpecial Funds. The Asian Develop-ment Fund (ADF) offers loans onconcessional terms to memberswith low per capita gross national

products and weak debt-repaymentcapacities. The ADF is financed byperiodic, voluntary contributionsfrom donors. A major constraint in2003 was the level of availableresources for concessional lendingand technical assistance, asituation that might potentially

jeopardize the institutions abilityto deliver its program. Discussionswere held with donors concerning

the replenishment of ADFresources. Significant milestonesincluded the ADF VIII MidtermReview followed by the ADF IXdonors meetings in Copenhagenand Tokyo. As part of thesemeetings, ADB has agreed withdonors to undertake a wide range

of initiatives and reforms aimed atimproving its efficiency andeffectiveness in providingdevelopment assistance to DMCs.Other Special Funds are the

Technical Assistance Special Fund,the Japan Special Fund, and theADB Institute Special Fund.

ADB also manages andadministers additional funds: the

Japan Scholarship Program, theJapan Fund for Poverty Reduction,and the Japan Fund for Information

and Communication Technology. Italso channels grants provided bybilateral donors to support technicalassistance and soft components ofloans. In recent years, thematic trustfunds focusing on gender anddevelopment, governance, povertyreduction, water, energy, and theenvironment were established tosupport technical assistanceoperations and selected componentsof loan projects.

Technical assistance fundedthrough grants or loans helpsmaximize ADBs developmentimpact. Most technical assistancegrants are used for preparingprojects and supporting advisoryactivities in areas such as law andpolicy reform, strengthening fiscalpolicies and procedures, goodgovernance, capacity building, andnatural resource management.

ADB has a triple-A credit rating2

and actively mobilizes financial

resources through its cofinancingoperations tapping official,commercial, and export creditsources. Assistance to its DMCscreates an enabling environment forprivate sector development. ADBalso directly finances private sectorprojects to assist commercialinvestors and lenders. (For more onADB financial management, see http:/ /

www.adb.org/ About/ fnncemgt.asp.)

Profile

The Asian Deve lopment Ba nk was

established in 1966 through a

multilateral agreement ratified by

31 members. Luxembourg and the

Republic of Palau joined in 2003

bringing the total membership to 63,

of which 45 are in Asia and the

Pacific. ADB has its head q uarters in

the Philippines and offices worldwide

including resident missions in

Afgha nistan, Bangladesh, Cambod ia,

Peoples Republic of China, India,

Indonesia, Kazakhstan, Kyrgyz

Republic, Lao People's Democratic

Republic, Mongolia, Nepal, Pakistan,

Papua New Guinea, Sri Lanka,

Tajikistan , Uzbekistan , and Viet Nam.

ADB also maintains a country office

in the Philippines; a regional mission

for the South Pacific in Vanuatu; aspecia l office in Timor-Leste ; an d a n

extended mission in Gujarat , India. It

has representative offices for Europe

in Frankfurt, Germany; fo r Japa n in

Tokyo; a nd for North America in

Washington, DC, United States. It

recently approved resident missions

for Azerba ijan an d Tha ilan d; a

subregional office for the Pacific in

Suva, Fiji Islands; and a liaison and

coordination office for the Pacific in

Sydney, Australia.

ADB's vision is an Asia and Pacific

region free of poverty with b etter

living conditions and quality of life for

all its inha bitan ts. The st rateg ic

ag enda focuses on pro-poor, sustain-

able economic growth; inclusive social

development; and governance for

effective policies and institutions with

crosscutting themes of environmental

sustainability, gender a nd develop-

ment, private sector development,and regional cooperation and

integration for development. (For

more on ADB, see http ://www.adb.org.)
http://www.adb.org/About/fnncemgt.asphttp://www.adb.org/About/fnncemgt.asphttp://www.adb.org/About/fnncemgt.asphttp://www.adb.org/http://www.adb.org/http://www.adb.org/About/fnncemgt.asphttp://www.adb.org/


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ANNUAL REPORT 2003 3

Policies and Procedures

The Board of Directors approvedseveral policy, financial, andadministrative papers in 2003. Onewas Enhancing ADBs Role inCombating Money Laundering andthe Financing of Terrorism.

Another was the review of theinspection function that resulted inthe establishment of a newaccountability mechanism that isnow in place. It consists of twocomplementary functions: theconsultation phase and thecompliance review phase. Forconsultation, a special projectfacilitator was appointed. Forcompliance, the Board of Directorsappointed a full-time chair and part-time members of a review panel and

the Board Compliance ReviewCommittee to replace the BoardInspection Committee. The newmechanism provides importantstructural and procedural means toaddress the concerns of project-affected people, to improve projectquality, and to enhance developmenteffectiveness. (For more on ADBpolicies and procedures, see http:/ /

www.adb.org/Development/ policies.asp.)

Review of Existing PoliciesA review of the Poverty ReductionStrategy was initiated in 2003 torefine ADBs institutional responseto its overriding goal of povertyreduction. Reviews of policies onfinancial management included theReview of ADBs Lending andBorrowing Limitations, the Reviewof the Resource Position of ADB,and the Review of ADBs Incomeand Policy Framework (ongoing).

The Review of the Managementand Effectiveness of TechnicalAssistance Operations resulted inimportant improvements in themanagement of ADBs limitedresources. The Pilot Study forDelegation of Consultant Recruit-ment and Supervision under

Technical Assistance to ExecutingAgencies and reviews of the 1994Policy on Confidentiality and

Disclosure of Information and theInformation Policy and Strategywere initiated.

Changing Focus

Many of ADBs internal initiativesexplicitly and implicitly focused on

results with a greater emphasis onimpact and outcome. Changes insenior management in 2003reflected this change in focus. Anadditional Vice-President wasappointed to oversee knowledgemanagement and sustainabledevelopment activities, bringing thetotal number of vice-presidents tofour. In addition to that, a newposition of Managing DirectorGeneral was created to coordinatethe work of the vice-presidents.

A change in the reportingstructure for the OperationsEvaluation Department (OED)likewise reflected the shift. Notingthat the credibility of evaluationdepends on the quality and integrityof analysis, the degree of transparen-cy, and the independence of theevaluation unit, ADB examined thereporting structure and accountabili-ty of its evaluation work. In 2004,OED will report directly to the Board

of Directors through the Develop-ment Effectiveness Committee(see http:/ / www.adb.org/ OED/).

Also reflecting the emphasis onresults, the functions and responsi-bilities for representative offices weretransferred from the Strategy andPolicy Department to the Office ofthe President. The change inreporting will allow representativeoffices to better operate under thegeneral direction of the President formatters such as high-level, broad-

range dialogues with externalcounterparts.

Broadening DevelopmentPartnershipsADB continued to provide supportfor partnerships throughout theregion. Indicative of its activeengagement in regional andinternational issues was its support

for and participation in thefollowing:

(i) the High-Level Forum onHarmonization,

(ii) the Third World WaterForum,

(iii) the Brunei Darussalam-Indonesia-Malaysia-Philippines East

Association of Southeast AsianNations (ASEAN) Growth AreaLeaders Meeting,

(iv) Asia-Pacific EconomicCooperation,

(v) Asia-Europe FinanceMinisters Meeting,

(vi) the Twelfth MinisterialConference on SubregionalCooperation in the Greater MekongSubregion, and

(vii) the Second MinisterialConference on Central Asian

Economic Cooperation.In addition, ADB signed

cooperation agreements with thefollowing institutions:

(i) Southeast Asian Ministers ofEducation Organization tocomplement their knowledge baseand to expand the network ofinstitutions active in educationaldevelopment;

(ii) World Health Organizationto fight SARS and other emerging

diseases;(iii) United Nations HumanSettlement Programme to build thecapacity of Asian cities to secure andmanage pro-poor investments andto help the region meet the MDG ofhalving, by 2015, the proportion ofpeople without safe drinking waterand basic sanitation; and

(iv) Gender and Water Allianceto promote gender mainstreaminginto DMC water sector activities.

ADBs resident missions played

an essential role in enhancing theinstitutions country focus enablingstaff to work more closely with allstakeholders to achieve results. ADBand its resident missions workedwith nongovernment organizations(NGOs) and civil society to strengthenpartnerships and interaction in allareas and to build capacity. In May2003, ADB approved the ADB-Government-NGO Cooperation:
http://www.adb.org/Development/policies.asphttp://www.adb.org/Development/policies.asphttp://www.adb.org/Development/policies.asphttp://www.adb.org/OED/http://www.adb.org/OED/http://www.adb.org/OED/http://www.adb.org/OED/http://www.adb.org/Development/policies.asp


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A Framework for Action, 20032005.The Framework put in an operation-al context the directives contained inADBs Long-Term StrategicFramework 20012015 andMedium-Term Strategy 20012005,particularly promoting improvedconditions for wider and more

effective participation in decisionmaking by civil society.

Governing Structure

The highest policy-making body isthe Board of Governors whichcomprises one representative fromeach ADB member. The Governorsmeet annually and elect the12members of the Board ofDirectors who serve 2-year terms.Each Director appoints an Alternate.

The President is elected by theBoard of Governors for a 5-yearterm and serves as Chairperson ofthe Board. The President managesADB assisted by four Vice-Presidentsand a Managing Director General.(For a current li st of Governors andDir ectors, see appendixes 2 and 3.)

The Board of Directors metformally on 48 occasions and held24informal meetings in 2003including briefings, discussion

seminars, and presentations. In theirinformal meetings, the Directorsexamined a range of issues, includingthe Poverty Reduction Strategy,disaster and emergency assistance,Afghanistans development,cooperation with governments andNGOs, and human resource activities.

Board Commi tt ees

The Board of Directors had fourstanding committees and oneworking committee. (For membership,see Appendix 4.)

Audit Committ ee

In accordance with its mandate, theCommittee reviewed the adequacy ofADBs internal controls, particularlyfor financial reporting, and ofinternal and external audits.Monitoring continued of ADBsdecision to provide parallelreporting for derivative instrumentsbefore and after the introduction ofFinancial Accounting Standards(FAS 133) and related amendmentsin 2001. ADBs financial statementsrefer both to pre-FAS 133 reporting

practice and to the new, current-value reporting practice. Parallelreporting and the need for closemonitoring of accounting andreporting practices were Committeepriorities. In this context, theimportance of cooperation amongthe multilateral development banks(MDBs) and of the professionalpartnership of the outside auditorswho provided experience and advicewere emphasized.

The Committee also monitoredthe development of ADBs institu-tional risk management capability,again in close consultation withother MDBs. Using the AuditRecommendations ImplementationReport and the report of theauditors, monitoring of the

effectiveness and efficiency of controlsystems, including access controlprocedures, continued. TheCommittee also reviewed andendorsed the following: (i) the 2003work program of the Office of theAuditor General (OAG); (ii) theAudit Recommendations Implemen-

tation Report with a focus on highlycritical items associated with riskmanagement in both operations andfinancial management; and (iii) theannual report of the AnticorruptionUnit of OAG with close attention toADBs handling of debarment offirms and individuals to ensuresanctions against them wereeffective.

Budget Review Committ ee

The Committee recommended

approval of ADBs proposed 2004budgets for internal administrativeexpenses and annual capitalexpenditures. The proposed internaladministrative budget is higher thanin past years though without theadditional initiatives it included,growth could have been kept belowpast averages. The increase in theprovision for the Board of Directorswas mainly due to the inclusion ofthe costs associated with the new

accountability mechanism. TheBoards budget may increasesignificantly in future years shouldit include the cost of the indepen-dent OED. (For a summary of thebudget for 2004, see Appendix 8.)

The Committee supportedcontinued delegation to residentmissions and stressed the need forcost-effectiveness in their establish-ment and in managing theiroperating costs. The Committee alsoemphasized the importance of

resident missions in portfoliomanagement and the need to ensurethat adequate resources are allocatedto project administration both inresident missions and at headquarters.

The Committee raised severalquestions regarding the adequacy ofstaff resource allocations and wasinformed that staff and budgetresources were extremely tight inpart because work has become

Board and Management Retreat

The Board a nd Mana geme nt met in

October for a 2-day retreat on the

theme Development Effectiveness:Manag ing fo r Results. Discussions

focused on ways of strengthening

results-based management in ADB

including how to measure, moni-

tor, and manage for development

results ; how to handle a ccountabil-

ity and human resource manage-

ment a spects; and lessons to be

learned from other development

institutions an d partne rs. The

retreat followed an earlier Manage-

ment Committee meeting on thesame topic at which the President

called for a positive reorientation in

ADBs management processes.

Retreat inputs were used in finaliz-

ing a paper for the ADF IX donors

meet ing in Tokyo in Decemb er (see

http://www.adb.org/Documents/

Reports/ADF/IX/RBM_ADF_IX_Donors

_Meet ing_Tokyo.pdf).
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increasingly complex in recent yearsas a result of multiple policymandates and compliance require-ments. It recommended developingin-house capability and institutionalmemory and that consultants beused prudently and judiciously. TheCommittee also queried the regional

directors on how they proposed tomotivate staff in a resource-constrained environment; they saidthat changes arising from a newhuman resource strategy andimplementation of managing-for-results would improve staff morale.

A series of meetings was held inNovember to discuss the workprograms of departments andoffices of the ADB Institute (ADBI)and to review the budgets of ADBand ADBI. As part of the delibera-

tions, the Committee met with theDean of the Institute and the headsof departments and offices and theirstaff, resulting in better understand-ing and appreciation of the activitiesof ADB and ADBI. The Committeealso reviewed the progress onimplementing the recommendationsit made during the 2003 budgetdeliberations.

The Committee recommendedapproval of the proposed ADBI 2004

budget. It noted the contributionsand achievements of ADBI andwelcomed the increase in resourcesallocated to capacity building andtraining and the enhanced internalcoordination among ADBI, theEconomics and Research Depart-ment, and the Regional EconomicMonitoring Unit. The need forfurther institutionalized coordina-tion among the three researchbodies to avoid duplication wasstressed.

The Committee noted theprogress made to date on thereorganization of ADB but expressedconcern on the operational support,quality assurance, and complianceroles of the Regional and Sustain-able Development Department andsuggested that necessary changes beimplemented as early as possible.

To make its work moremeaningful and effective, the

Committee proposed periodicmeetings and also requested that theBudget, Personnel and ManagementSystems Department and the Officeof the Secretary schedule theCommittees annual budget meetingbefore the budget document iscirculated. Several changes to

improve the format and presenta-tion of the budget were suggested,and the need for more communica-tion with the Board on budgetmatters was stressed.

The Committee also met todiscuss the Information Systems and

Technology Strategy II paper andraised numerous issues andconcerns. These included assessmentand incorporation of lessons learnedfrom INTEGRA (an integrated web-enabled information system); more

rigorous benefit analysis; improvedaccounting for project components;more detailed definition of projectcomponents; and inclusion ofsystems audits. These issues arebeing studied in detail by staff forincorporation in a revised paper.

Development Effectiveness

Committee

The Committee reviewed a balancedselection of OED evaluation studies

(see box

) and presented its assess-ment to the Board of Directors inthe annual report. The report also

presented overall conclusions andrecommendations from discussionson (i) the status of actions taken byADB on key committee recommen-dations made in 2002; (ii) theAnnual Report on Loan and Technical

Assistance Port folio Performance for the

Period Ending 31 December 2002(see

http:/ / www.adb.org/Documents/ Reports/Portfolio_Performance/ 2002/

2002_12.pdf); and (iii) theAnnualReview of Evaluation Activi ties in 2002

(see http:/ / www.adb.org/Documents/PERs/ RPE_OTH_2003_12.pdf). TheCommittee expressed its satisfactionthat evaluation activities hadgenerally been adequate andefficient but at the same time notedareas for improvement.

Loan portfolio performanceindicators in 2002 had improved

since 2001 for all but 5 of the 18DMCs with at least 5 active loansand a portfolio of more than$100million. Areas that requiredfurther attention included the timetaken for effectiveness of loans afterapproval, the need for extensions toloan closing dates, and theincreasing proportion of loancancellations. In its assessment oftechnical assistance portfolioperformance, the Committee

intended to closely monitor actionstaken by ADB to improve manage-ment and effectiveness.

Project/Program Performance Audit ReportsAgriculture Sector Program (Viet Nam)

Employment Generation Project (Mongolia)

Railway Recovery Program (Bang ladesh)

Theun-Hinb oun Hydropow er Project (Lao Peo ples Democra tic Repub lic)

Technical Assistance Performance Audit ReportSelected Advisory Technica l Assistance for Cap ital Market Developme nt

in Pakistan

Thematic Evaluation StudiesCountry Assistance Program Evaluation in Ban glad esh

Country Assistance Program Evaluation in the Philippines

Impact Evaluation Study: Impact of Rural Roads on Poverty Reduction

Special Evaluation Study of the Asian Development Fund (ADF) VIVII Operations

Special Evaluation Study of Cost Recovery in the Power Sector

Reports Reviewed in 2003
http://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdfhttp://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdfhttp://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdfhttp://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdfhttp://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdfhttp://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdfhttp://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdfhttp://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdfhttp://www.adb.org/Documents/PERs/RPE_OTH_2003_12.pdfhttp://www.adb.org/Documents/PERs/RPE_OTH_2003_12.pdfhttp://www.adb.org/Documents/PERs/RPE_OTH_2003_12.pdfhttp://www.adb.org/Documents/PERs/RPE_OTH_2003_12.pdfhttp://www.adb.org/Documents/PERs/RPE_OTH_2003_12.pdfhttp://www.adb.org/Documents/Reports/Portfolio_Performance/2002/2002_12.pdf


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The Committee noted that thetotal number of evaluation reportsin 2002 increased by almost 50%over the previous year, and that thescope of the program had alsoincreased substantially. In additionto 31 individual project/programand 6 technical assistance perfor-

mance audit reports, 9 thematicevaluation studies were carried out.In particular, three country programevaluations and a special evaluationstudy of ADF VIVII operations werecompleted. The Committee alsocommended the first-time inclusionin OEDs annual report of a chapteron long-term trends in evaluationresults. This new analysis showedthat the downward trend in theproportion of projects and programsrated successful was halted and

reversed in 1989, and that subse-quently a slow improvement in thesocial and agriculture sectors hadbeen reinforced by higher successrates in economic infrastructureprojects and with new borrowers.

The Committee recommended thatfuture reports go beyond statisticalreporting to identify lessons fordevelopment effectiveness.

Inspection Committ ee

In 2003, the Inspection Committeeheld six formal meetings, several

informal meetings, and consideredone request for inspection. In

January, the Committee created amatrix for requests for inspectionwhich provides a tracking system formonitoring the progress of ongoingrequests and a depository of publiclyavailable documents related tospecific requests.

At the beginning of 2003, theCommittee considered the requestfor inspection of the ChashmaRight Bank Irrigation Project

(Stage III) in Pakistan andforwarded it to Management for aresponse. As permitted by theInspection Policy, the Committeedecided to consult a member ofthe roster of experts in deciding

whether to recommend that aninspection be authorized.

In March, the Committeesubmitted its report to the Board; itrecommended that the Boardauthorize an inspection of theProject with a deferred start to allowthe process for grievance redress put

in place by the Government inconsultation with ADB to takeplace. However, the Committeereserved the right to bring forwardthe proposed timetable forcommencement of the inspectionshould it become evident to theCommittee that the grievanceredress process was unlikely to besuccessful. As a basis for makingsuch a determination, the Commit-tee requested Management toprepare two reports on grievance

redress activitiesone in July 2003and one in January 2004.

The Board approved theCommittees recommendation. TheCommittee received the midtermreport on the grievance redressprocess from ADB Management in

July. Comments and additionalinformation were sought from therequesters. The Committeeconsidered the material provided atits meeting in September and

published it on the ADB web site inOctober (see http:/ / www.adb/ org/Inspection/ Projects/ chasma_r ight.asp).

The inspection commenced inDecember 2003 with the selection ofa Panel of four members from theroster of experts and the preparationof a consultation draft of the termsof reference for the Panel.

Working Group on t he

Annual Report for 2003

The Board Working Group set the

general direction for 2003 workingclosely with Management and staffand taking into account theresponses from the Annual ReportReaders Survey. This years reportclearly demonstrates how ADB isoptimizing its institutionaleffectiveness and resources, how it isprogressing toward achieving theMDGs, and how it is moving thepoverty reduction agenda forward.

Review of the Asian Development Banks Lending and Borrowing Limitations

6 FebruaryReview of the Inspection Function: Establishment of a New Accountability

Mechanism 28 Marchand 29 May

Review of the Resource Position of the Asian Development Bank 31 March

Enhancing the Asian Development Banks Role in Combating Money Launder-

ing a nd the Financing of Terrorism 1 April

Review of t he Mana ge ment an d Effectiveness of Technical Assistance Opera -

tions of the Asian Development Bank 6 May

Thirty-Sixth Annua l Meet ing : Allocat ion o f Net Incom e 8 May

Thirty-Sixth Annual Meet ing : Resources of ADB 8 May

Review of the Asian Development Banks Income Outlook and Allocation of

2002 Net Income 8 May

Delivering Better Services in the Pacific: Establishment of Pacific Offices 13 May

Asian Development Bank: Forest Policy 22 July

Review of the Summary Procedure for Loan Proposals 13 August

Work Program and Budget Framework 15 October

Review of the Asian Development Banks Income Planning Framework

2 December

ADB Institu te : Three-Yea r Rolling Work Prog ram for 20032005 and Budg et

for 2004 16 December

Budget of the Asian Development Bank for 2004 16 December

Borrowing Program for 2004 17 December

Enhan cing the Independ ence a nd Effectiveness of t he Operations Evaluation

Department 17 December

Selected Policy/Strategy Papers Discussed in 2003
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FinancingOperations

Financial Resources

Authorized capital stock amountedto $52 billion, and subscribed

capital stood at $52 billion. ADBraised long-term funds totalingabout $4.1 billion, of which$1billion was raised through aglobal public offering. Gross incomeamounted to $1.7 billion,$1.4billion of which was generatedfrom the loan portfolio,$308.7 million from the investmentportfolio, and $48.5 million fromother sources of which $41 millioncame from equity investmentoperations ($15 million from

dividends, $25 million from gainsrealized on the sale of equityinvestments, and $600,000representing the share in netincome of the Asian Finance andInvestment Corporation Ltd).ADBs Special Funds consisted ofthe Asian Development Fund withcommitted resources amounting to$511.1million, the TechnicalAssistance Special Fund of$85.9million, the Japan Special

Fund totaling $19.9 million, andthe ADB Institute Special Fund of$11.8 million.

Loans

Lending for both public and privatesector operations in 2003 amountedto $6.1 billion for 85 loans to66projects. This was ADBs highestlending since 1997. The average loansize in 2003 was $72 million,

compared with $64 million in 2002.Twenty-three DMCs and one regionalproject received loans. A total of$3.8billion was disbursed. Of this,$2.1 billion (55%) were for projectloans. The rest was for program,sector, and private sector loans.

Of the total lending, loans withgovernment guarantees were over$5.9 billion for 62 projectscomprising $4.5 billion for 33 loansfrom ordinary capital resources(OCR) and $1.4 billion for 47loans

from the concessional ADF.Thirteen were policy-based programsamounting to $1.1 billion represent-ing 19%of total public sectorlending. Of program lending,$912million or 80%of the totalcame from OCR and $228million or20%from the ADF. Policy-basedprograms support DMC efforts toimprove policy, institutional, andinvestment environments and tohelp meet short-term adjustment

costs. Lending to the private sectorwithout government guarantees, usingOCR, amounted to $187million.

Of the 62 public sector loans,10were for core poverty interventionprojects and 29 were for povertyintervention projects. These39 projects amounted to about$3billion or 51%of total publicsector lending. Grants from the

Japan Fund for Poverty Reduction

totaling $35.3 million were approvedfor nine projects. (For detai ls, seeTable 32 in the Statisti cal Annex.)Poverty partnership agreements weresigned between ADB and PRC,Kazakhstan, Kiribati, Samoa,Solomon Islands, Timor-Leste,

Tuvalu, and Vanuatu.

ADB Operations

$ Million %

2002a

2003 Change

Lending 5,657.9 6,104.8 7.9

Public 5,547.9 5,917.8 6.7

OCR 3,897.8 4,538.7 16.4

ADF 1,650.2 1,379.2 (16.4)

Private

OCR 110.0 187.0 70.0

Equity

Investments 35.5 35.7 0.3

Techn ical

Assistance 179.0 176.5 (1.4)

TOTALb 5,872.4 6,317.0 7.6

( ) Negative .

a Adjusted to reflect terminated loan and changes in

loan amount.b Total may not add due to rounding.

Per capita gross national product and debt repayment

capacity are the criteria used to determine the classification

of borrowing developing members1 and eligibility to

borrow from the Asian Development Fund (ADF). Group A

(ADF only) countries include Afghanistan, Bhutan,

Cambodia, Kiribati, Kyrgyz Republic, Lao Peoples Demo-

cratic Republic, Maldives, Mongolia, Myanmar, Nepal,

Samo a, Solom on Islan ds, Tajikistan, Tuvalu, a nd Van uat u.

Group B1, ADF with limited amounts of ordinary capital

resources (OCR), includes Azerbaijan, Bangladesh, Cook

Islands,2 Marshall Islands, Federate d State s of Micronesia,

Pakista n, Sri Lan ka, Tong a, a nd Viet Nam. Group B2 (OCR

with limited amounts of ADF) includes Peoples Republic of

China, India, Indon esia,3 Nauru, and Papua New Guinea.

Group C (OCR only) includes Fiji Islands, Kazakhstan, Malaysia,

Philippines, Tha iland , Turkmenistan, an d Uzbekista n.

In 2003, cost-sharing limits for project loans were 80%

for Group A,4 75%for B1, 70%for B2, and 65%for C.

Government contributions to technical assistance should

be at least 15%of total costs for Group A, 20%for B1 and

B2, an d 30%for C. The co ntribution will be subject t o th e

limit of t ota l technical assista nce costs minus foreign

exchange costs and costs of domestic consultants.

Criteria for graduation from regular ADB assistance

have a lso b een esta blished. Hong Kong , China; Republic of

Korea; Singapo re; and Taipei,China have grad uated from

regular ADB assistance. (For details see htt p://www.adb.org/

documents/policies/graduation.)

Classification of ADBs Developing Members

1 Timor-Leste has not been classified.2 Limited eligibility for OCR will be applied only after the external debt situation improves.3 On a watch list for graduation from the ADF.4 As per the Board of Directors paper, Review of Afghanistan s Classification under ADBs Graduation P olicy, 28 June 2002, the cost-sharing limit for loans and technical

assistance operat ions for Afghan istan has been w aived for 20022004.
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As in 2002, the largest DMCborrower in 2003 was India at$1,532million (25%of the total).Other top borrowers included PRC$1,488million (24%), Pakistan$871 million (14%), Bangladesh$532 million (9%), and Sri Lanka$275 million (5%). The transport

and communications sector receivedthe largest share of loans at$2,578 million (42%) followed bysocial infrastructure $1,131 million(19%), energy $757 million (12%),and finance $483 million (8%). Theothers sector received 5%of totallending. This included projects notfalling under the economic sectorclassification that ADB uses, such ascentral government administration,operation and regulation, customsoperations, public sector reform

programs, judicial and legislativeoperations, public finance manage-ment, fiscal reforms, environmentprojects, gender and governance,and tourism (see tables 15 in theStatistical Annex).

Technical Assistance

A total of 315 technical assistancegrants amounting to $176.5 millionwas approved in 2003. Of those,

74 were for project preparation;165 was for advisory and operationalpurposes; and 76 were for regionalactivities such as conferences,research, studies, and training.Of the total amount for technicalassistance, $87million were from

the Technical Assistance SpecialFund using current income fromOCR; $37million were from the

Japan Special Fund; and theremaining $53 million came fromother multilateral and bilateralsources. The largest recipient ofcountry-specific technical assistance

(excluding regional technicalassistance) was India at $14.7mil-lion (12%), followed by the PRC$14.3million (11%), Indonesia$12.5million (10%), Afghanistan$10.5 million (8%), and Pakistan$10.0 million (8%).

Excluding regional technicalassistance, the sector distributionwas as follows: social infrastructure$24.5 million (20%), agriculture andnatural resources $15.3 million(12%), energy $15.1 million (12%),

transport and communications$11.4 million (9%), finance $10.7mil-lion (9%), multisector $5.2million(4%), and industry and nonfuelminerals about $3million (2%).

Other technical assistance received$41 million or 32%of the total (seetables 2125 in the Statistical Annex).

Grants

Total grants amounting to

$483.5million were approved in2003, consisting of grant cofinanc-ing of loan components amountingto $433.2 million from bilateral andmultilateral sources, of which$404million were administered byADB and $29.2 million were on

Loans by Sector, 2003(percent)

Technical Assistanceby Source, 2003(percent)

Top Borrowers, 2003($ milli on)

Top Recipients ofTechnical Assistance, 2003($ milli on)

Technical Assistanceby Sector, 2003(percent)

Note: Excludes regional technical assistance grants.


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parallel financing; $35.3million inprojects financed by the Japan Fundfor Poverty Reduction; and $15mil-lion from the Kuwait Fund for ArabEconomic Development (see tables 6, 32and 34 in the Statistical Annex).

Equity InvestmentsADB approved a total of $35.7mil-lion in equity investments forregional investment funds andfinancial institutions (see tables 912in the Statisti cal Annex).

Cofinancing andGuarantee Operations

To maximize development impact,ADB closely coordinated with otherdevelopment partners on its

assistance programs to all DMCs toincorporate cofinancing andcoordination opportunities. ADBsystematically intensified coordina-tion with official loan and grantcofinanciers to identify opportuni-ties that directly complementedADB projects or produced otherbenefits. In commercial cofinancing,ADB actively supportedcommercially attractive privatesector projects and programs by

using appropriate credit enhance-ment products such as guarantees.ADB continued the dialogue with itsDMCs to identify the best financingsolutions for public and privatesector projects and programs,

specifically the use of its creditenhancement products (see http:/ /www.adb.org/ cofinancing/).

ADB intensified efforts topromote commercial cofinancingand guarantee operations bydeveloping initiatives such as tradefinance and private sector invest-

ment funds like the ASEAN ChinaInvestment Fund and the Asia CleanEnergy Fund. ADB also organizedcofinancing seminars and trainingfor its staff, DMC officials, andcofinancing partners; adopted anactive role in structuring andmobilizing financial resources forpublic-private partnership initiatives;and strengthened partnerships withits cofinanciers and risk-sharingpartners.

In total, cofinancing and

guarantee operations mobilizedabout $2.4 billion, which represent-ed about 40%of ADBs total lendingof $6.1 billion. Twenty-eight projectsin 14 DMCs including two regionalprojects involved cofinancing in2003. The PRC received the largestamount ($1,241 million), primarilyfrom its domestic financialinstitutions, followed by Bangladeshwith $598million and Thailandwith $170 million (see Table 6 in theStatisti cal Annex

).Since 1970, cofinancing andguarantee operations have mobilizeda cumulative total of $40.6 billionproviding additional resources for637 ADB-assisted loan projects and

Cofinancing Arrangements, 2003

Loan Approvals andDisbursements, 19992003($ million)

Cofinancing Arrangements,19992003 ($ million)

Contract Awards andDisbursements, 19992003(cumulative, end of year)($ billion )

Total Cost of Loan Projects andSources of Financing, 2003

a Includes cofinancing from official and commercial

sources, project sponso rs, and pa rticipating local

private companies a nd financial institutions.
http://www.adb.org/cofinancing/http://www.adb.org/cofinancing/http://www.adb.org/cofinancing/http://www.adb.org/cofinancing/http://www.adb.org/cofinancing/


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10 ASIAN D EVELOP MENT BANK

Private Sector Portfolio Distribution,a 2003

Investments Held

No. ofCompanies $ Millionb %

Infra structure 20 744.8 52.3

Investment Funds and 31 289.6 20.3Financia l Institut ions 25 249.2 17.5

Others 12 140.9 9.9

TOTAL 88c 1,424.4 100.0

a At exchange rates as of 31 December 2003.

b Refers to tota l exposure (loans, equity investments, and guarantees).

c Excludes a small and medium enterprise guarantee facility to Pakistan as there was

no a vailment at year-end 2003.

$717.8million in 2002 to$640.8million in 2003. (For detai ls,see tables 26 and 27 in the Stat istical

Annex.)Loan disbursements in 2003

totaled $3.8 billion comprising95.8%of the target for the year. Ofthe total, OCR disbursements were

$2.7 billion or 70%and ADFdisbursements were $1.1 billion or30%. (For detai ls, see tables 7, 8, and 14in the Statisti cal Annex.)

Loan service payments reached$9.1 billion in 2003, compared with$5.6 billion in 2002. The increasewas mainly because of higherprepayments ($5.9 billion in 2003,$2.0 billion in 2002).

In 2003, the four largest netresource transfers from ADB were toViet Nam, Sri Lanka, Cambodia, and

Bangladesh (see tables 26 and 27 in theStatistical Annex).

Private Sector Operations

In 2003, ADB approved $562.7mil-lion of assistance in private sectoroperations, a 174%increase over the2002 level of $205.5 million.Assistance comprised loans of$187.0 million, equity investmentsof $35.7 million, guarantees of

$240.0million, and a complementaryfinancing scheme of $100million.Approved loan and equity invest-ment will mobilize a total of$2,320million of funding,

programs. The cumulative totalcomprises $22.9 billion from officialsources and $17.7 billion fromcommercial sources. The energysector accounted for $17.1 billion(42%) followed by transport andcommunications $9.2 billion (23%),agriculture and natural resources

$4.2 billion (10%), social infrastruc-ture $4.0 billion (10%), and othersectors $6.1 billion (15%).

Commercial Cofinancing andGuarantee Operations. Thesetotaled $1.6 billion for 12 projects,of which guarantee operationsamounted to $240 million.Additional commercial cofinancingwas raised in the form of parallelcofinancing from domestic financialinstitutions mainly in the PRC($1.3billion); from the complemen-

tary financing scheme ($100 mil-lion); and from parallel loans fromfinancial lenders ($30 million).

Official Cofinancing. Cofinanc-ing mobilized from ADBs bilateraldevelopment partners and multilat-eral financial institutions totaled$775 million for 18 projectscomprising $433 million in grantfunds and $342 million in loans. Ofthe grant funds, about $404 millionwere for the Second Primary

Education Development Program inBangladesh which was cofinancedunder a sector-wide approachprogram (SWAP) with ADB takingthe role of lead agency. Apart from

the $150 million loan from theWorld Bank and tied grant fundsfrom Australia and Japan, whichwere contributed to the Program ona parallel basis under the SWAP,ADB will administer untied grantsof $389 million from the EuropeanCommunity ($100 million), Canada

($20 million), the Netherlands($50 million), Norway ($40 million),Sweden ($29 million), and theUnited Kingdom ($150 million).

Parallel loans were provided byFinland ($5 million), France($105million), Japan ($20 million),the International DevelopmentAssociation ($166 million), the IslamicDevelopment Bank ($9.5million), theOPEC Fund for InternationalDevelopment ($6million), and theNordic Development Fund

($30.6million) (see tables 6 and 34 inthe Statistical Annex).

Resource Transfers

The net transfer of resources toADB from its DMCs increased to$5.3 billion in 2003, compared with$1.4 billion in 2002. During theyear, there was a net inflow of$6.0billion ($2.1 billion in 2002) toADB from OCR borrowers/investees,

mainly from prepayments of$5.9billion ($2.0 billion in 2002) ofOCR pool-based loans. However, nettransfers from ADB to ADFborrowers decreased from

Resource Transfers toDeveloping Member Countries($ million)

2002 2003

OCR

Loan Disbursements 3,067 2,688

Principal Repayment sa (3,334) (7,137)

Payments o f Interest/Charg es (1,814) (1,488)Net Eq uity Investment (17) (25)

Net (2,098) (5,962)

ADF

Loan Disbursements 1,136 1,128

Principa l Repayments (262) (312)

Payments o f Interest/Charg es (156) (175)

Net 718 641

TOTAL (1,380) (5,321)

( ) Represents resource inflow from developing member count ries.

a Includes prepayme nts of $5,883.8 million ($1,977.1 million in 2002).


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ANNUAL REPO RT 2003 11

leveraging ADBs own funds byabout 9.4 times. Private sectoroperations focused on responding tochanging market conditions and onpromoting sustainable economicgrowth in DMCs. Pioneeringinitiatives included (i) trade finance,(ii) small and medium enterprise

(SME) development, (iii) resolutionof nonperforming loans to assistcommercial banks in resolvingdrag on their portfolios, (iv) localcurrency financing, (v) projects tofinance the upgrading or expansionof existing infrastructure, and(vi) financial restructuring/refinancing for existing infrastruc-ture projects to eliminate currencyand tenor mismatch.

Since its first private sectorinvestment in 1983, ADB has

approved 160 projects for a total of$3.5 billion, inclusive of equities,loans, guarantees, and complemen-tary financing schemes. ADBscumulative equity and loanapprovals have catalyzed a total of$21 billion in funding for private

See pag e 7 for classification of countries.

Disbursements and Net Transferof ADB Resources to DMCs, 2003($ million)

sector projects, leveraging ADBsinvestments by a ratio of 7.8.

In 2003, the majority of theprojects in the private sectorportfolio were exposures to India(16.7%), Bangladesh (13.0%), PRC(11.0%), Viet Nam (10.5%), andPhilippines (9.3%). Regional projects

accounted for roughly 18.9%of totalexposure.

Infrastructure projects were thelargest at 52.3%, followed byinvestment funds at 20.3%andfinancial institutions at 17.5%withthe balance accounted for by othersectors at 9.9%.

As of 31 December 2003, theoverall private sector portfolio(equity investments, loans, andguarantees) was about $1.4 billion.ADB disbursed a total of $147 mil-

lion while collecting roughly$48.6 million in principal repay-ments and interest of $21.5 million.

To free up capital resources for newinvestments, ADB fully or partiallydivested equity shareholdings in11project companies, resulting in

net returns of 143%over investmentcosts. Six loans totaling $18.9million were fully repaid duringthe year.

To manage risk effectively, ADBsets aside a general provision of 8%of the total outstanding healthyportfolio, excluding projects with

specific provisions and mark-to-market investments. The generalprovision as of 31 December wasestimated at $41.9 million with atotal specific provision of roughly$111.1 million. The loss-reserve ratioas a percentage of the totaloutstanding direct portfolio was19.9%at the end of 2003, comparedwith 18.9%in 2002.

ADB recorded revenues of$40.3 million in capital gains anddividends during the year.

Approximately $25.4 million werecapital gains from the 11 projectssold/ redeemed fully or partially,while cash dividends received fromvarious projects amounted to$14.9 million compared with$8.6million in 2002.

Private Sector Operations,19992003 ($ million )

ENDNOTES

1 The term country, as used in the context of ADB, refers to a member of ADB and does not imply any view on the part of ADB as to the memberssovereignty or independent status.

2 Triple-A credit rating is the highest rating given by credit rating agencies such as Moody's Investors Service and Standard & Poor's and is assignedto entities that offer exceptional financial security and have the smallest degree of risk.

Private Sector OperationsPortfolio Distributionby Country, 19832003($ million)


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The Challenge: UnleashingHuman Capability in Asia

W

ith over 3 billionpeople, Asia is home toa majority of theworlds population. Itincludes the two most

populous nations, thePeoples Republic of China (PRC)and India, as well as several smallisland states with populations ofonly tens of thousands.

The past several decades haveushered in major economic andsocial transformations. The GreenRevolution has largely banished thespecter of recurring famine, andimmunization programs havereduced infant and child mortality.

The phenomenal economic growth

in some East Asian countries hasbeen billed as the East AsianMiracle. For the first time in thehistory of Asia in the span of onegeneration, entire countries havebeen lifted out of poverty and nowrank among the prosperous societiesof the world. The rapid economicgrowth in the PRC since 1980 hassignificantly reduced the number ofpoor people in the world. As thegrowth of the Indian economy

accelerates, and as the prospect forpeace and stability in South Asiabrightens, the potential for furthereconomic and social progress in theregion is indeed impressive.

Despite these successes, Asiaconfronts a sobering array ofchallenges. The region is still hometo more than half of the worldspoor. Malnutrition, disease, violence,lack of education, and prematuredeath haunt the lives of too many ofthose most likely to have been

excluded from the surging economicboom. They may be women;uneducated; landless or unskilled;members of ethnic, religious, orcultural minorities; or simply peopleliving in remote regions who areunable to migrate to settings withbetter economic opportunities. Suchexclusion reinforces, often from onegeneration to the next, theirdisadvantages in society.

Cata lysts for Inclusive Developmentin the Asia and Pacific Reg ion


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Deprivation is often an outcomeof past policies and practices. Toremedy this, the rules of the gamemust be re-examined and modified.At the beginning of the 21st century,the international community took adetermined step in this direction inthe Millennium Declaration.1 The

pursuit of the Millennium Develop-ment Goals outlined therein calls fora comprehensive re-examination ofboth the strategies for economicgrowth and the function andorganization of institutions criticalin meeting them. Consistent withthis, ADB has defined poverty in acomprehensive manner.

Poverty is a deprivation ofessential assets and opportunities towhich every human is entitled.Everyone should have access to basic

education and primary healthservices. Poor households have theright to sustain themselves by theirlabor and be reasonably rewarded, aswell as having some protection fromexternal shocks. Beyond income andbasic services, individuals andsocieties are also poorand tend to

remain soif they are not empow-ered to participate in making thedecisions that shape their lives.2

For wider economic participa-tion, people must be able to controltheir lives and to reshape theopportunities that are open to them.As long as the poor have low

productivity jobs and the exchangeof labor continues at near subsis-tence levels, they will remainextremely vulnerable. Wideningemployment opportunities in higherproductivity jobs will, therefore,continue to be of paramountimportance in economic develop-ment. At the same time, effortsmust be made to ensure that jobsoffer fair wages and provide somemeasure of security against theuncertainties of the marketplace.

Development efforts that bypassvulnerable people can hardlysucceed. The challenge is to pursueeconomic growth through inclusivedevelopment that combinesinitiatives to expand and equalizeopportunities, to combat discrimina-tion, to enable and foster participa-

tion, and to provide all with a stakein managing common resources.Inclusive development uses political,economic, and social policies toreduce vulnerability in a frameworkof pro-poor, sustainable economicgrowth. By its nature, it helps buildconsensus on the vital issues facing

a nation. ADBs Poverty ReductionStrategy and supporting policydocuments3 articulate precisely thischallenge (see box).

The Poverty Reduction Strategyof 1999 was the culmination of along learning process in which ADBtransformed itself from a projectlender in the 1970s to the institu-tion it is today: a supporter ofdevelopment in its totality. Itprovides a comprehensive frameworkfor ADBs approach to inclusive

development and explicitly statesthat poverty reduction is ADBsprimary goal. This goal is pursuedthrough country poverty reductionstrategies.

The Strategy rests on three mainpillars: (i) pro-poor, sustainableeconomic growth, (ii) inclusive socialdevelopment, and (iii) governance foreffective policies and institutions. Italso recognizes the importance ofstrengthening the private sector, of

regional cooperation, of gender, andof promoting environmentalsustainability. The Strategyrecommends that ADB increasepartnerships with civil society, localgovernments, and other stakeholders

Population Living on Less Than$1 per Day(millions)

In addition to the Poverty Reduction

Strategy, ADBs broader developmentagenda is served by many other

associated policies. Some of these are

briefly listed here. Under the Gender

and Development Policy (1998) (http:

//www.adb.org/Documents/Policies/

Gender/Gender_Policy.pdf), gend er

mainstreaming was adopted as the

key strategy with ADB undertaking to

address gender concerns in all

sectors of operations and in lending

and nonlending activities. ADBs

Social Protection Strategy (2001)

(http://www.adb.org/Documents/

Policies/Social_Protection/

social_protection.pdf) focuses on

reducing poverty and vulnerability by

promoting efficient labor markets,

reducing peoples exposure to risks,

and enhancing their capacity to

protect themselves against the risk of

interruption or loss of income. ADBs

Governance Policy (1995) (http://

www.adb.org/Documents/Policies/

Governance/govpolicy.pdf) strad dles

both inclusiveness as well as institu-tional reforms by improving partici-

pation of beneficiaries, by

encouraging more effective interface

betw een the public and private

sectors, by promoting decentraliza-

tion, and through the nongovern-

ment organization (NGO) policy

(http://www.adb.org/Documents/

Policies/Cooperation_with_NGOs/ngo-

policy.asp) by increasing participation

of NGOs and civil society. The

Environment Policy (2002) (http://

www.adb.org/documents/policies/

environment/environment_policy.pdf)also supports inclusive development

and emphasizes intervening both

directly by reducing poverty and

indirectly by promoting sustainable

grow th. The P olicy on Indigenous

Peoples (1998) (http://www.adb.org/

Documents/Policies/Indigenous_

Peoples/IPPP.pdf) aims to ensure that

they ha ve eq ual opportunities.

ADB Policies that Advance Inclusive Development

http://www.adb.org/Documents/Policies/Gender/Gender_Policy.pdfhttp://www.adb.org/Documents/Policies/Gender/Gender_Policy.pdfhttp://www.adb.org/Documents/Policies/Gender/Gender_Policy.pdfhttp://www.adb.org/Documents/Policies/Social_Protection/social_protection.pdfhttp://www.adb.org/Documents/Policies/Social_Protection/social_protection.pdfhttp://www.adb.org/Documents/Policies/Social_Protection/social_protection.pdfhttp://www.adb.org/Documents/Policies/Social_Protection/social_protection.pdfhttp://www.adb.org/Documents/Policies/Social_Protection/social_protection.pdfhttp://www.adb.org/Documents/Policies/Governance/govpolicy.pdfhttp://www.adb.org/Documents/Policies/Governance/govpolicy.pdfhttp://www.adb.org/Documents/Policies/Governance/govpolicy.pdfhttp://www.adb.org/Documents/Policies/Cooperation_with_NGOs/default.asp?p=policieshttp://www.adb.org/Documents/Policies/Cooperation_with_NGOs/default.asp?p=policieshttp://www.adb.org/Documents/Policies/Cooperation_with_NGOs/default.asp?p=policieshttp://www.adb.org/Documents/Policies/Cooperation_with_NGOs/default.asp?p=policieshttp://www.adb.org/Documents/Policies/Cooperation_with_NGOs/default.asp?p=policieshttp://www.adb.org/Documents/Policies/environment/environment_policy.pdfhttp://www.adb.org/Documents/Policies/environment/environment_policy.pdfhttp://www.adb.org/Documents/Policies/environment/environment_policy.pdfhttp://www.adb.org/Documents/Policies/environment/environment_policy.pdfhttp://www.adb.org/Documents/Policies/environment/environment_policy.pdfhttp://www.adb.org/Documents/Policies/Indigenous_Peoples/IPPP.pdfhttp://www.adb.org/Documents/Policies/Indigenous_Peoples/IPPP.pdfhttp://www.adb.org/Documents/Policies/Indigenous_Peoples/IPPP.pdfhttp://www.adb.org/Documents/Policies/Indigenous_Peoples/IPPP.pdfhttp://www.adb.org/Documents/Policies/Indigenous_Peoples/IPPP.pdfhttp://www.adb.org/Documents/Policies/Indigenous_Peoples/IPPP.pdfhttp://www.adb.org/Documents/Policies/environment/environment_policy.pdfhttp://www.adb.org/Documents/Policies/Cooperation_with_NGOs/default.asp?p=policieshttp://www.adb.org/Documents/Policies/Governance/govpolicy.pdfhttp://www.adb.org/Documents/Policies/Social_Protection/social_protection.pdfhttp://www.adb.org/Documents/Policies/Gender/Gender_Policy.pdf


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14 ASIAN D EVELOP MENT BANK

including its bilateral and multilateraldevelopment partners. A majorreview of the Strategy was launchedin 2003 and is still under way.

The Role of Institutions inInclusive Development

Well-functioning social institutions,both formal (legal) and informal(conventions/codes of behavior), can

poverty, and vulnerability from theviewpoint of the poor is vital toinstitutional reform that promotesinclusive development. Equallyimportant are reforms that protectthe poor against the misuse ofpower. ADB has started identifyingapproaches that can enable the poor

to exercise their rights to publicentitlements and to seek protectionfrom such misuse.

Policymakers must resist thetemptation to replicate institutionalarrangements simply because theyhave been successful elsewhere orbecause theoretically they seemoptimal; instead, institutional make-up must be anchored in localknowledge of practices. Theprospects for experimentation arevast, and the intersection of theory

and practice promises to beincredibly dynamic. Regional andcountry analyses and interventionswill yield the greatest insights goingfar beyond the few internationalbest practices. Much remains to bedone to learn from and support thepositive lessons that are emergingfrom the region.

greatly aid in the fulfillment ofhuman aspirations just as malfunc-tioning institutions can impedeprogress. Certain traits have come tobe identified with effectiveperformance: (i) mandates forparticipation and transparency oftransactions, (ii) provisions for

public and professional scrutiny andaccountability, (iii) public voice indetermining outcomes, and(iv) taking local circumstances intoaccount in institutional design.Recognizing the close nexus betweenpoverty reduction and institutionaland legal regimes, ADB supportslegal and institutional reform (seeboxes).

The formal laws, policies, andrules that determine the efficientfunctioning of the state and the

market are crucial for inclusivedevelopment in Asia. Most peoplerecognize that the state hasresponsibilities to provide afford-able, effective, and equitable publicgoods and services, including thosetargeted under the MillenniumDevelopment Goals. Understandingthe relationship among governance,

An ADB-comm issione d stud y

examined how legal empowerment

contributes to good governance,

poverty reduction, and other

development goals. Using seven

country reports, the study

identified the constraints faced bythe poor in accessing the legal

system and in participating in

local or national governance.

These inc luded (i) lack of economic

independe nce; (ii) minimal

understanding of law a nd the

rights it confers; (iii) limited access

to affordable legal services; (iv) lack

of knowledg e, incentives, and

resources among government

officials; (v) limitations in the

outreach and capacity of civil

society organizations to providelegal services to the disadvantag ed;

(vi) inconsistency between formal

law and traditional values;

(vii) poo rly draft ed or contradictory

laws and regulations; (viii) failure

to implement sound laws;

(ix) traditional use of law as a n

instrument of control; and

(x) corruption.

Legal empowerment can be

undertaken through a variety of

act ivities and strategies. The first

step is awareness of the law and the

right s it confers. The second isassistance to poor communities to

assert their rights or to enforce

judgments through formal or

informal decision-making bodies. A

third a nd po tent a rea of activity is

participation in local governance by

the poor or by nongovernment

organizations representing their

interests.

Legal Empowerment

In the past, definitions of legal

systems have been narrow and too

limited to address poverty reduc-

tion and development objectives

as they are now understood.

Because of this, a definition that is

much more robust and emancipat-

ing has b een ad opted by ADB:

A legal system encompasses the

rights a nd ob liga tions of any

individual or private or public

institution that is supported by

formal or informal enforcementmechanisms.1 Among other

things, this functional definition

eschews the traditional and often

artificial line that is drawn between

bureaucracies and judiciaries.2

Evolution in ADB of the Concept of

Legal Systems and Access to JusticeJust as the scope of a legal

system has expanded, so too ha s

ADB's definition of w hat constitutes

access to justice. Earlier definitions

included a narrow and mostly formal

set of institutions and activities.

Research on legal empowerment

supported by ADB demonstrated the

need to expand the bounda ries of

what is meant by access to justice

and the institutions involved in

enhancing it. In this context, legal

empo we rment is defined a s, Theuse of law to increase the control

that disadvantaged populations

exercise over their lives. Thus, t he

law becomes a key instrument in the

empowerment of people.

1 Lawrence M. Friedman. 1969. On Legal Development Rutgers Law Review24:5667.

2 Jensen, Erik G. and Thomas C. Heller, eds. 2003. Beyond Common Knowledge: Empirical Approaches to

the Rule of Law. Stanfo rd University Press. Erik G. Jensen, The Rule of Law a nd Judicia l Reform: The

Political Economy of Diverse Institutional Pa tterns a nd Reformers Responses.


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ANNUAL REPO RT 2003 15

ego

ADBs Experience andLessons Learned

Improved Market Functioning

and Access to Resources for

Pro-Poor Economic Grow th

Central to the efficient operation of

markets is improving the security ofprivate property, the sanctity ofcontracts, and the predictable andconsistent application of rationallaws ensuring access to economicresources by all, particularly thepoor and the vulnerable. ADB hasbeen assisting institutional reformin these areas. In addition, supporthas been provided for promotingcompetition, reducing marketdistortions, and introducing fairterms for labor.

Improving the Security of

Propert y and Exchange

The need for a legal framework for amarket economy is particularlysalient in transition economies, i.e.,the Central Asian republics,Cambodia, PRC, Lao PeoplesDemocratic Republic (Lao PDR ),Mongolia, and Viet Nam. Thedemand for law and legal institu-tions has also accelerated in the

wake of economic growth; forexample, ADB has actively collabo-rated with the PRC in the develop-ment of bankruptcy laws,regulations on antidumping, andsubsidy and countervailing dutiesand safeguards.

The Asian financial crisishighlighted the importance ofstrong insolvency and debtor-creditor regimes for crisisprevention, mitigation, andresolution (see box). The crisis

exposed weaknesses in the properfunctioning of financial andcorporate institutions.5 The rulesunder which the markets func-tioned were also scrutinized.Postcrisis assistance often includeda cluster of loans supportingreforms in the financial andcorporate sectors and in thepolicies governing competitivemarket functioning.

To promote pro-poor, sustain-able growth, developing membercountry (DMC) governments arereconfiguring existing institutions toimprove access by the poor to creditand technology. Supporting smalland medium enterprises (SMEs) is amajor policy thrust as is widening

the reach of markets by buildingtransport networks.

In social development,investments and capacity buildingare essential for any meaningfulimprovement. However, withoutinstitutional and policy reform,many of these interventions willnot bear fruit or be sustained.Areas of reform where ADB hasbeen particularly active include(i) adequate budgetary allocationsfor human capital, (ii) basic social

services for the poor, (iii) removalof gender discrimination,

(iv) formulating effective popula-tion policies, and (v) designingsocial protection.

Better macroeconomicmanagement and improvedgovernance call for majorinstitutional changes. ADBsupport, particularly in recent

years, has been significant in thisarea. Legal and institutionalchanges have focused on improv-ing bureaucratic responsiveness,supporting devolution anddecentralization, strengthening theenforcement of justice, andproviding greater information andtransparency about performanceand spending. Finally, ADB hasworked closely with DMCs toovercome barriers to effectiveparticipation in globalization4 by

initiating national and regionalinstitutional reforms.

The recomm end at ions of a n ADB

study in 11 Asian countries provided

the basis for determining good

practice standards essential to

debtor-creditor relations. Recogniz-

ing the pioneering nature of thiswork, the United Nations Committee

on Trade Law ado pted t hese

standards and incorporated them

into its draft Legislative Guide on

Insolvency Law.

Good insolvency laws should

provide for continued functioning

of debtors, if possible, with

effective rescue processes in which

creditors and shareholders have

confidence so that businesses can

be rehabilitated and employees

can reta in the ir livelihood s. The law s

can