ASIAN DEVELOPMENT BANK IES: 99026

IMPACT EVALUATION STUDY

OF THE

ASIAN DEVELOPMENT BANK'S PROGRAM

OF

SUBREGIONAL ECONOMIC COOPERATION

IN THE

GREATER MEKONG SUBREGION

December 1999

CONTENTS Page

Page EXECUTIVE SUMMARY iii I. BACKGROUND 1 A. Objectives and Approach 1 B. ADB’s Mandate for Subregional Cooperation 2 C. The Greater Mekong Subregion 2 D. ADB Country Programs in GMS Countries and Support to the GMS Program 3 II. PROGRAM STRATEGY, MANAGEMENT, AND COORDINATION 5 A. Program Strategy and Approach 5 B. Institutional Arrangements for Program Management 7 C. Programming ADB Support to GMS and GMS Member Countries 8 D. Resource Mobilization in the Greater Mekong Subregion 9 E. Program Monitoring, Evaluation, and Information Dissemination 12 F. Relationships and Links with Related Initiatives and Institutions 12 III. SUMMARY SECTOR ASSESSMENTS 13 A. Methodology 1 B. Sector Assessments 1 IV. KEY ISSUES FOR THE FUTURE 1 A. Long-term Vision for GMS and ADB’s Role in Regional Cooperation 1 B. Subregional Programming and Links with National Programs 17 C. More Focused and Reduced ADB Involvement in the GMS Program 18 D. Institutional Coordination and Cooperation 19 E. What Constitutes a GMS (i.e., Regional) Project? 20 F. Regional Project Design Issues 21 G. Mobilizing Additional Financing for GMS Initiatives 22 H. Distributional Issues 22 I. Integrating Social and Environmental Concerns in Infrastructure Development 23 J. Monitoring, Evaluation, Information Sharing, and Marketing 24

V. CONCLUSIONS 1 A. Overall Assessment 1 B. Lessons Learned 2 C. Recommendations and Follow-Up Actions 4 APPENDIXES

EXECUTIVE SUMMARY

The Greater Mekong Subregion (GMS) through which the Mekong River passes comprises Cambodia, the Lao People’s Democratic Republic (Lao PDR), Myanmar, Thailand, Viet Nam, and Yunnan Province of the People's Republic of China (PRC). It has a population of approximately 250 million, and a total gross domestic product of $212 billion. The GMS Program was initiated in 1992 with the objective of achieving cooperation and accord among the six countries in planning and promoting subregional economic development. The program is without a formal organization or institution, but is guided by a general set of principles and institutional arrangements and is different from other regional agreements.

Since 1992, the Asian Development Bank (ADB) has approved $39 million in technical assistance (TA) projects for the GMS Program and $465 million in loans (plus $234 million in cofinancing). ADB support covers seven sectors (transport, telecommunications, energy, tourism, environment, human resource development, and trade and investment) together with general technical and institutional support for the program. This special study report includes findings from wide-ranging consultations with key stakeholders on the evolution and processes involved, and findings and lessons from selected interventions. ADB’s performance in supporting the GMS Program is assessed in relation to GMS objectives, and to ADB's mandate and strategy for subregional cooperation.1

The results of the study show the GMS Program has provided member countries with the opportunity to develop a shared vision of the future development of the region, and has been most effective when it focused on activity-based initiatives to secure reforms and agreement. This activity-based approach of the GMS contrasts with the rules-based approach of many regional institutions (e.g., the Association of Southeast Asian Nations [ASEAN] Free Trade Area [AFTA] and World Tourism Organization [WTO]) and is a major distinguishing and most widely appreciated feature of the GMS approach. The sustained high level of GMS member participation in meetings, especially ministerial meetings, is an indicator of strong support for and ownership of the GMS process. Progress has been made in promoting dialogue and reaching agreements on steps to reduce barriers to increased economic cooperation. Agreement has been reached on identifying and prioritizing regional projects, and securing financing for a number of major projects. To date, however, there has been limited progress in implementing these projects. On a broader front, the GMS Program encouraged dialogue among member countries, notably at ministerial level, and contributed to better understanding among members and willingness to work together for mutual benefit.

Most central agencies consider overall progress as satisfactory, given the need for

widespread consultations in reaching agreement and securing political approval from multiple governments for GMS activities. In contrast, some external commentators from the business 1 ADB’s Charter requires it to "foster economic growth and cooperation” in the Asia region and to “give priority to

regional, subregional, and national programs and projects that contribute most effectively to harmonious economic growth of the region.” ADB's Medium-Term Strategic Framework (MTSF) identifies regional cooperation as one of its four operating objectives. A Board policy paper states that regional cooperation should be "viewed as being inherent in Bank operations." It identifies three complementary functions of ADB support: (i) to provide information relevant to regional cooperation to its developing member countries (DMCs), (ii) to act as an "honest broker" among the DMCs, and (iii) to mobilize public and private resources toward regional investments. Contributors to the ADF have also expressed appreciation of ADB’s special role in regional cooperation, and the contribution it makes to regional peace and stability as well as to prosperity and sustainable resource management.

and funding communities see the GMS as an ADB-driven initiative and expressed concern that the program has been slow in generating tangible impacts in terms of socioeconomic development and increased investment opportunities. However, unrealistic expectations were raised initially, given the large pipeline of project initiatives identified as GMS projects, and the perceived delays in delivering tangible results have generated disappointment among some stakeholders. Improved information flows about project development, and more systematic consultations with non-State interests, could have done much to reduce the differences in perceptions. For the present there are doubts whether the process would be sustained across the current range of sectors without continuing ADB involvement.

Two of the key concerns are the lack of focus of the GMS Program as a whole and limitations on ADB resources. Initially the GMS Program focused on the provision of basic infrastructure to link the subregion and allow development of the resource base. It now covers seven sectors, all seemingly accorded the same priority, with the program appearing to focus on the sectors rather than its original purpose of subregional cooperation and development. ADB loan and TA funding and staff resources have proven insufficient to effectively address all sectors. All GMS members indicated that the transport corridors were the most important GMS initiative, and that trade, investment, and tourism would follow once the corridors were completed. The credibility of the GMS Program depends on the completion of the corridors and, given ADB resource constraints, could therefore form the basis for a more focused program. Substantial private sector resources will be needed to finance the bulk of the proposed investments.

Linkages between national programs and priorities and GMS Programs and priorities are weak. Project and TA designs have not always taken into account the substantial subregional differences in institutional capacity. Issues associated with reaching and implementing cross-border agreements are complex and require regular working-level discussions, supported by technical assistance. A major constraint to investment in the GMS is the perceived risks in implementing cross-border and revenue agreements. Successful implementation of cross-border agreements associated with the east-west transport corridor will be critically important in increasing private sector confidence in the GMS Program.

ADB’s rationale for supporting regional cooperation is that such cooperation generates economic growth in the region and enhances peace and stability. This rationale remains valid, with ADB experience over 30 years demonstrating the economic gains to be made from regional cooperation. In the GMS in particular, regional cooperation has enhanced peace and stability. In addition, regional cooperation can generate benefits from economies of scale, reduce transaction costs, and improve resource mobilization and opportunities for investment.

While the GMS initiative is the first major ADB supported subregional initiative across a

range of sectors, questions arise as to whether ADB’s organizational structure, staff resources and incentives, and current funding arrangements for loans and TAs are appropriate for supporting such regional initiatives and programs. This issue is wider than the GMS and is perhaps a key strategic issue that ADB must face. The GMS unit (within a programs division) is the only organizational arrangement established to facilitate subregional cooperation. The only

funding arrangements for subregional initiatives are through department-based regional TA (RETA) allocations, but there is no forward planning on allocations for this. The GMS Program has not become a mainstream priority activity in the projects departments. There are no network arrangements nor joint responsibilities between projects and programs on GMS activities, and there is little evidence of ADB staff promoting subregional cooperation. The most tangible indicator of ADB commitment to the GMS Program has been the high-level ADB presence at GMS ministerial and working group meetings.

Ongoing developments in other regional institutions such as ASEAN, makes it important for the GMS to regularly review its links with such institutions to avoid duplication of effort. Increasingly there are parallels between ASEAN and GMS initiatives and overlap with the Mekong River Commission.

The report’s recommendations cover the following key concerns.

(i) Rationale, framework, and vision for regional cooperation. Regional cooperation generates economic growth and enhances peace and stability. Regional cooperation could be supported generally in ADB under a framework that targets such cooperation so as to provide economies of scale, reduce transaction costs, speed up development through improved sharing of knowledge, and increase opportunities, particularly those which partners on their own are not able to capture—improved resource mobilization, private sector development, and gains from trade. ADB’s role and vision should be one of assisting GMS member countries in developing partnerships with other members to pursue such possibilities, rather than taking the role of directly promoting initiatives and then seeking regional ownership.

(ii) Medium-term strategy for GMS development. Given the major changes in economic conditions, ADB should encourage the review and preparation of a prioritized medium-term GMS development strategy endorsed by a GMS ministerial meeting. ADB needs then to prepare a subregional operational strategy for its own role and areas of support for the GMS Program, along the lines of country operational strategies. An important consideration in formulating such an ADB strategy is the need to achieve a more focused and integrated approach to ADB support to the GMS, including better integration of national and subregional initiatives.

(iii) Improved links between GMS and Country programs. There is a need to review options for a more strategic approach to programming ADB support to the GMS to replace current ad hoc arrangements. Priority GMS elements, including key GMS-related policy and institutional reforms, should be included more effectively in country operational strategy and annual programming exercises. Country strategies and country programs should include both the national program and their respective regional components.

(iv) More focused and reduced ADB involvement in the GMS Program. Given its resource constraints, ADB cannot effectively provide support to all GMS activities. ADB needs to periodically assess its role in all GMS initiatives and assess opportunities to reduce dependence on it for support where appropriate. This is already happening in tourism, with increasing responsibility and leadership in key areas being transferred to the private sector. Steps have also been taken for direct consultations with ASEAN in the trade and investment working groups, and there may be scope for greater ASEAN involvement in these groups in the future. Revision of the medium-term GMS strategy will provide the opportunity for focusing of ADB support. One possible scenario is for ADB to focus its regional GMS support primarily on a limited number of transport and possibly power links, with support to other sectors being focused on ensuring maximum social, economic, and environmental benefits from those investments. Activities pursued as regional GMS Programs, as opposed to national programs, should have the attributes noted in (i).

(v) Resources/instruments for the GMS Program. At present, staff resources, incentives, and organizational structure, and loan and TA funding resources are not aligned with supporting regional cooperation programs. This issue is wider than the GMS—involving ADB’s commitment and support as a whole to regional cooperation and regional initiatives, and its comparative advantage, if any, in promoting regional cooperation—and is perhaps a key strategic issue that ADB must face. Changes can readily be made in the process of allocating RETA resources in the medium term. Improvements can be made in programming loan proposals, but reconsideration may need to be given to establishing a regional cooperation facility and developing other instruments.

(vi) Strengthened coordination of ADB support for GMS activities. Improvements in programming arrangements are the most critical steps toward improving coordination, but there needs to be a better interface between projects and programs on GMS activities, with network arrangements, joint responsibilities, and staff resources aligned accordingly. Sector-level assistance should be better integrated to maximize returns from ADB investments in GMS activities. Greater emphasis, for example, could be given to linking ADB support in the environment and social sectors with high-priority infrastructure developments to increase the impact of the regional initiative. Recent proposals for the east-west economic corridor development are steps in this direction.

(vii) Improved design of GMS RETA and infrastructure projects. ADB should give more rigorous attention to the complexity of subregional projects and plan resources accordingly. Attention is needed to: (a) differences in institutional capacity and needs within the GMS; (b) preparing and incorporating rigorous needs assessments in project designs; (c) explicitly weighing the costs of subregional approaches against potential benefits; and (d) explicitly weighing the potential benefits of broader consultative mechanisms against the potential costs resulting from greater complexity in implementation. Guidelines should be developed for the formulation, design and appraisal of regional projects. Regional projects should demonstrate the positive returns from adopting a regional rather than a national approach, as noted in (i).

(viii) Improved monitoring and information sharing. Institutional mechanisms for effective monitoring, coordination, and information sharing need to be established for subregional infrastructure initiatives. An immediate priority is the establishment of an effective system for monitoring and evaluating the implementation of the east-west corridor development, given the high public visibility of the project and its potential impact on the credibility of the GMS Program. This should include mechanisms for regularly monitoring and enforcing agreements related to cross-border agreements.

(ix) Innovation to ensure efficient and equitable returns on GMS investments. Greater attention is required on the impact of national policies on the returns to GMS investments. ADB will sometimes need to leverage national programs in addressing policy and institutional constraints to efficient subregional investments and more equitable distribution of returns on subregional investments. A better understanding of the impact of national trade and investment policies on returns to subregional investments would appear to be a priority issue for the trade and investment working groups. Enforcement of cross-border agreements is also an immediate priority.

(x) Marketing GMS opportunities. There is a need for better marketing of information about opportunities. These efforts need to recognize that one of the key concerns for investors is the extent to which cross-border agreements will be enforced and the potential for policy and administrative change that will affect the viability of investments.

(xi) The GMS and other regional institutions. There must be a clearer vision of the most appropriate links between the GMS and ASEAN; one possible option is to view at least some aspects of the GMS initiative as a subset of ASEAN initiatives (e.g., some transport links are a subset of more ambitious ASEAN proposals). Coordination mechanisms and overlap between the GMS and the Mekong River Commission (MRC) need to be reviewed, with greater efforts made for consultation with MRC on activities of concern to MRC; this is particularly important given the recent and significant World Bank support to the Commission. Cooperation and work sharing arrangements with Economic and Social Commission for Asia and the Pacific (ESCAP) also need to be reviewed.

I. BACKGROUND

A. Objectives and Approach

1. The Greater Mekong Subregion (GMS), through which the Mekong River passes, comprises Cambodia, the Lao People’s Democratic Republic (Lao PDR), Myanmar, Thailand, Viet Nam, and Yunnan Province of the People's Republic of China (PRC). It has a population of approximately 250 million, and a total gross domestic product of $212 billion. The GMS Program was initiated in 1992 with the objective of achieving cooperation and accord among the six countries in planning and promoting subregional economic development. The program is without a formal organization or institution, but is guided by a general set of principles and institutional arrangements and is different from other regional agreements.

2. Since 1992, the Asian Development Bank (ADB) has approved $39 million in technical assistance (TA) projects and $465 million in loans (plus $234 million in cofinancing) for the GMS Program. ADB support covers seven sectors (transport, telecommunications, energy, tourism, environment, human resource development, and trade and investment) together with general technical and institutional support for the program.

3. The objective of this impact evaluation study is to assess the relevance, sustainability, and efficiency of ADB’s development assistance to the GMS Program and draw lessons from the activity. The goal is to contribute to the overall efficiency and effectiveness of ADB’s development assistance in the GMS.

4. Given the broad nature and complexity of the GMS Program, the evaluation methodology differs from that used for project-level evaluations and is more analogous to reviews of public expenditure and investment programs. The study focuses on key activities, issues, and processes, including how GMS priorities were established, the relationship between priorities and actual resources mobilized, and key implementation issues.

5. The report includes both general findings from wide-ranging consultations with key stakeholders on the evolution and processes involved during the development of the GMS Program, and summary findings and lessons from selected interventions. ADB’s performance in supporting the program is assessed in relation to GMS objectives and ADB's mandate and strategy for subregional cooperation.

6. This introductory chapter provides background information, including an outline of ADB's mandate for subregional cooperation, summary information on the development of the GMS Program, key socioeconomic indicators of GMS members, and ADB programs of GMS members. Section II gives an overview and brief assessment of program-wide issues, including the GMS strategic objectives and approach, institutional arrangements for program management and coordination, resource mobilization, program monitoring and evaluation, information dissemination, and coordination with related institutions. Section III is a brief summary assessment of selected GMS interventions, with details provided in the appendixes.2 The assessments form the basis of the report findings and issues in Section IV. Section V gives

2 Case studies were carried out for the key sectors, but resource constraints prevented detailed evaluation of all

GMS activities.

2

the overall assessment, describes the lessons learned, and lists recommendations and follow-up actions.

B. ADB’s Mandate for Subregional Cooperation

7. ADB’s Charter requires it to "foster economic growth and cooperation” in the Asia region and to “give priority to regional, subregional, and national programs and projects that contribute most effectively to harmonious economic growth of the region.” ADB's Medium-Term Strategic Framework (MTSF 1995-1998) identifies regional cooperation3 as one of its four operating objectives. An ADB Board policy paper4 states that regional cooperation should be "viewed as being inherent in ADB operations." It identifies three complementary functions of ADB support: (i) to provide information relevant to regional cooperation to its developing member countries (DMCs), (ii) to act as an honest broker among the DMCs, and (iii) to mobilize public and private resources toward regional investments. Contributors5 to the Asian Development Fund (ADF) have also expressed appreciation for ADB’s special role in regional cooperation, and the contribution it makes to regional peace and stability as well as to prosperity and sustainable resource management.

8. More recently, ADB’s three-year rolling work program6 states that the “Bank will do as much as it can in 1999-2001 to promote regional and subregional cooperation.” ADB’s lead role in the GMS “will continue, with the goal of mainstreaming the cooperation from an initiative to a core program. Regional Technical Assistance (RETA’s) are the principal vehicle of the Bank’s involvement in regional and subregional cooperation.” Increasing emphasis is to being given to the nonphysical aspects of subregional cooperation. “During 1999-2001, the GMS Program and Bank’s TA for it are expected to show closer integration of (i) infrastructure projects and soft sector initiatives, and (ii) GMS projects and projects in Bank’s national lending and TA programs in each country.”

C. The Greater Mekong Subregion

9. Despite their geographic proximity, countries within the GMS show substantial differences in level of socioeconomic development (Table 1). Cambodia, Lao PDR, and Myanmar remain among the poorest in the world in terms of human development indices (HDI). Viet Nam ranks higher in terms of human development indicators but still has a relatively low per capita income. PRC was ranked 98th in the world in terms of the HDI, while Thailand was ranked 67th. Thailand enjoys a per capita income that is more than twice that of PRC, more than 4 times that of Viet Nam, and 5-6 times higher than that of the other GMS countries. There are also major differences in population and national income between the GMS members.

3 The MTSF, recognizing that at that time relatively large amounts of TA resources were available for regional

cooperation, states that (a) it is important that ADB achieve specific and prioritized regional cooperation objectives established in cooperation with developing member countries (DMCs), (b) ownership of objectives by DMCs is to remain the guiding principle, and (c) financing of interrelated projects in different DMCs to better coordinate natural resource management (water, energy) should also be pursued.

4 Asian Development Bank. 1994. Bank Support for Regional Cooperation, 11 April. 5 Asian Development Bank. 1997. ADF VII: Report of the Donors, January. 6 Asian Development Bank. 1998. Three-year Rolling Work Program and Budget Framework (1999-2001),

September.

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Table 1: Socioeconomic Indicators of GMS Countries

Country

1997 Population HDI Ranking GDP Ranking Per Capita GDP

(Purchasing Power Parity) - 1997

Thailand China, People’s Republic of Viet Nam Myanmar Cambodia Lao PDR

59.7 1,244.2 76.4 43.9 10.5 5.0

67 98 110 128 137 140

60 104 133 151 147 146

6,690 3,130 1,630 1,199 1,290 1,300

GDP = gross domestic product, GMS = Greater Mekong Subregion, HDI = Human Development Index. Source: Human Development Report (1999).

10. Within the subregion are major differences in economic and political systems, but there is now general agreement on the importance of markets in the efficient allocation of resources and on the role for governments in developing the institutions that support market economies. But within this broad consensus are major differences about the extent of State involvement in economic management. Most GMS members are still in the transition from central planning to market-oriented economic systems, and the consultative mechanisms used in developing public policy substantially differ.

11. There are also major differences in and level of dependence on official development assistance (ODA) and foreign direct investment (FDI) in financing development (Table 2). Lao PDR and Cambodia are heavily dependent on ODA, while ODA accounts for a relatively small share of national income in PRC, Myanmar, and Thailand.

Table 2: Financing Development in GMS Countries Country

$/capita

ODA Disbursed % of GDP

$ million

FDI Inflows ($ millions)

Thailand China, People’s Republic of Viet Nam Myanmar Cambodia Lao PDR

11 2 15 1 42 82

0.4 0.2 4.1 — 12.2 19.5

626 2,040 997 45 372 341

3,600 45,300 1,200 80 200 90

FDI = foreign direct investment, GDP = gross domestic product, GMS = Greater Mekong Subregion, ODA = official development assistance. — = not available Source: Human Development Report (1999).

D. ADB Country Programs in GMS Countries and Support to the GMS Program

12. ADB’s financial transfers to GMS member countries through national programs (but including all of PRC, not just Yunnan province) accounted for roughly one third of total loan approvals during the period 1993-1998 (Table 3). PRC and Thailand together accounted for nearly 37 percent of ADB’s ordinary capital resources (OCR) loan approvals in 1998. Cambodia, Lao PDR, and Viet Nam together accounted for nearly 35 percent of ADF resources. Total disbursements to GMS countries accounted for about 24 percent of total ADB disbursements in 1998. Loans and technical assistance to all countries are programmed on a three-year rolling plan basis as a joint exercise with national governments.

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13. For the GMS Program itself, ADB has approved TA projects costing more than $39 million,7 and has been involved in financing investment projects with total investments amounting to almost $2 billion8 (Table 4). ADB has played a leading role in facilitating and financing core GMS activities, and a major role in supporting sector-level activities.

Table 3: GMS Countries’ Share of ADB Lending (as % of lending for the period) ADB Loan Approvals

1993-1997 ADB Loan Approvals

1998 Country/Region OCR ADF OCR ADF

TA Approved

1998

Cambodia 0.0 2.5 0 4.1 0.8 China, People’s Republic of 23.3

0.0 24.1 0.0

14.4

Lao PDR 0.0 5.8 0.0 2.0 2.9

Myanmar 0.0 0.0 0.0 0.0 0.0

Thailand 8.5 0.0 12.6 0.0 1.8

Viet Nam 0.1 18.0 0 28.8 3.6

Total 31.9 26.3 36.7 34.9 23.5 Source: ADB Annual Report 1998.

Table 4: ADB Country Programs in GMS Countries in 1998 ($ Million)

ADB Loan Approvals ADB Country

OCR ADF TA Approved

Disbursements Cambodia 0 0 1.4 29 China, People’s Republic of 1,202

0 23.5 831

Lao PDR 0 20 4.8 66 Myanmar 0 0 0.0 0 Thailand 630 0 2.9 564 Viet Nam 0 184 5.9 128

Total 1,832 204 38.5 1,618 ADF = Asian development fund, GMS = Greater Mekong Subregion, OCR = ordinary capital resources, TA = technical assistance. Source: ADB Annual Report 1998.

7 $2.5 million from ADB’s technical assistance special fund (TASF) resources, $20.3 million from Japan special fund

(JSF) resources, $4.8 million from GMS member governments, and $11.6 million from cofinanciers, including Australia, Economic and Social commission for Asia and the Pacific (ESCAP), Finland, France, International Labour Organization (ILO), Norway, Singapore, Sweden, Switzerland, Thailand, and the United Nations.

8 $372 million of financing from ADB ADF resources (final Board approval still pending for $57 million in loans for the east-west corridor), $400 million from OCR resources, $912 million from GMS member governments, and $234 million in commercial and other cofinancing.

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II. PROGRAM STRATEGY, MANAGEMENT, AND COORDINATION

A. Program Strategy and Approach

14. The core GMS Program has evolved through three phases (Appendix 1). ADB first approved a RETA ($270,000) to promote subregional cooperation among the six cooperating countries in 1992.9 This phase I RETA focused on assessing the viability of the concept, reaching a consensus on the concepts and basic modalities for subregional cooperation, and identifying potential areas for such cooperation.

15. ADB approved a second RETA in June 1993 ($4.0 million).10 This was subsequently increased to $5.26 million with cofinancing from the Swedish International Development Agency (SIDA).11 The aim of this TA was to define more concretely the opportunities, benefits, and mechanisms for enhancing economic cooperation as well as defining priority subregional development projects. The stated long-term objective was to promote, facilitate, and support mutually beneficial economic cooperation among the GMS countries.

16. A third RETA approved in July 1996 ($3.0 million)12 was to provide continuing support, with the same long-term objective as the earlier RETAs. This current phase of the TA is due to be completed in 2000, and preparations are being made for a follow-up phase of assistance. The objectives and main outcomes of the three core RETAs are summarized in Table 5.

17. An additional 23 RETAs have been approved to support the activities of sector working groups, to undertake feasibility studies, and for institution building and other activities. These interventions are discussed in Section III of this report.

18. The effectiveness of the core TA activities is assessed in terms of the effectiveness of overall program management, including resource mobilization, and the socioeconomic impacts of sector-level initiatives on the GMS. Assessments of ADB’s core support, as reported on throughout this report, are shown in Table 5. The key findings and conclusions of the program as a whole are summarized in the final section of this report.

9 TA 5487-REG: Studies in Subregional Cooperation – Initial Possibilities for Cambodia, People’s Republic of China,

Lao PDR, Myanmar, Thailand, and Viet Nam (Phase I), for $100,000, approved on 9 March 1992. The amount was subsequently increased to $190,000 on 19 May 1992 and $270,000 on 16 September 1992.

10 TA 5535-REG: Promoting Subregional Cooperation among Cambodia, People’s Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam (Supplementary), for $1.26 million, approved on 20 June 1993.

11 R160-94: Promoting Subregional Cooperation among Cambodia, People’s Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam dated 9 September 1994.

12 TA 5693-REG: Promoting Subregional Cooperation among Cambodia, People’s Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam (Phase III), for $3.0 million, approved on 23 July 1996. A further $1.5 million of cofinancing was envisaged in the TA mostly for human resource development activities. As of March 1999, an additional $250,000 had been mobilized.

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Table 5: Overview of ADB Core Support to the Greater Mekong Subregion Support Key Stated Objectives Results

Phase I RETA

Formulate detailed terms of reference (TORs) for phase II of the RETA, including TORs for country and subregional studies;

Phase II project and TORs were prepared as discussed below.

Assist with workshop to discuss proposed TORs, work program, and implementation arrangements for phase II. Sectors selected for initial study: (a) trade and investment, (b) transport, (c) energy, and (d) environment.

Draft report on future directions discussed at a ministerial meeting (20-21 October 1992). Consensus reached on priorities and approaches for phase II.1 Report included assessment of priority sectors.

Phase II RETA

Undertake at subregional and country level, substantive research and consultation to identify the scope, opportunities, benefits, costs and mechanisms for enhancing economic cooperation among GMS countries. Stimulate interest of international aid agencies and potential foreign investors in supporting priority subregional projects.

Basic approach to subregional cooperation, and strategies for project selection and design agreed upon at ministerial meetings. Sector-level forums and working groups established and studies adopted for key sectors (see sector assessments). Agreement on 95 projects, and a smaller set of priority projects.2 Broad aid agency and some private sector interest in GMS. See paras. 31-36 for discussion on resource mobilization.

Phase III RETA

Prepare and coordinate implementation of agreed-upon priority subregional projects. Build necessary subregional institutional capacity for effective project implementation and for sustaining subregional cooperation in the long term. Mobilize external resources for subregional development, including the structuring of subregional projects to facilitate public-private partnerships. Build intersectoral linkages among initiatives in individual sectors to help address broader development concerns. Develop effective linkages between subregional cooperation and domestic policies and programs.

Assessment of progress included in relevant sections of this report. Progress in institution building varies by sector (see sector assessments). Limited evidence of strategic thinking on how to reduce dependence of GMS institutions on ADB support. More clearly defined strategic approaches to programming of ADB resources are needed to facilitate mobilization. See para. 36 on resource mobilization. Sector linkages remain weak (see sector assessments). Need more strategic decision making (paras. 69, 123 ) . ADB country strategies and programs rarely address specific subregional concerns (paras. 65, 66, 122 )

GMS Unit Provide logistical and strategic support in achieving above objectives.

Played a key role in facilitating networking within GMS, but inadequate resources and authority have limited its capacity to exercise strong leadership in ADB (paras. 107, 125). Links between RETA activities initiated by different ADB departments remain weak.

1 Findings published by ADB as “Subregional Cooperation – Initial Possibilities for Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, and Yunnan Province of the People’s Republic of China.” The meeting made it clear that the GMS had no ambitions to establish a formal economic grouping or trade bloc. 2 A Technical Assistance Completion Report (IN.41-98) was circulated and submitted to the Board on 18 February

1998.

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B. Institutional Arrangements for Program Management

1. Overview

19. At the country level, a National Interministerial Steering Committee (NISC) was established in each country to coordinate and supervise the GMS Program. Each NISC appointed a national coordinator to serve as the focal point within GMS countries, and between the NISCs and ADB. Regular ministerial-level meetings are held to reach consensus on approaches, priorities, and implementation arrangements. Preparatory meetings of senior officials usually precede these ministerial meetings.

20. Within ADB, responsibility for overall supervision of the ongoing GMS Program is assigned to an interdepartmental steering committee chaired by the Vice-President (West). A project secretariat under the head of the GMS Unit provides advisory, technical, and administrative support to the program. The GMS Unit is located in Programs Department West. Staff and consultants support the work of the secretariat.

21. Project department staff and staff consultants assist in planning and providing technical inputs and guidance to sector-level GMS forums and working groups meetings. Details of these arrangements are included in the sector assessment appendixes.

2. Effectiveness of Greater Mekong Subregion Institutional Arrangements

22. The consistently high level of participation in ministerial meetings is a key indicator of GMS member country commitment to and ownership of the GMS process. Participants have been well briefed and have had the authority to make decisions. These meetings have been effective in reaching agreement on potentially controversial issues and in facilitating subsequent implementation of decisions. Networking between the various GMS secretariat units has been valuable in reaching agreements and resolving potential problems.

23. On the other hand, some of the GMS secretariat units (including ADB's) have suffered from limited full-time staff and other resources, and limited authority to coordinate sector-level activities. ADB's GMS Unit has no authority over allocation of RETA resources for GMS activities. ADB makes no specific allocations for the GMS, and thus there is no scope for strategic programming of resources to support GMS activities. This is a major weakness in the management of the GMS Program.

24. Another concern has been the lack of systematic attempts to develop efficient information, monitoring, and evaluations systems for the GMS. Key GMS information is typically only consolidated on an ad hoc basis to meet specific needs. Limited resources have also been a factor in the limited success in developing a long-term strategic focus for the GMS, and in missed opportunities to ensure that the various sector-level initiatives are complementary.

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25. The sector-level forums and working groups have proved useful in resolving practical constraints to sector-level issues. More detailed analysis of these arrangements are included in the sector assessments.

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C. Programming ADB Support to GMS and GMS Member Countries

1. Overview of Programming Arrangements

26. Priority projects and initiatives for inclusion under the GMS are developed through sector studies and working group meetings, and are endorsed by ministerial-level meetings. The GMS Program is results oriented, and the projects selected for inclusion generally have one or more of the following objectives or results:13

(i) facilitating subregional trade and investment, (ii) facilitating subregional development opportunities, (iii) facilitating the resolution of transborder issues, and (iv) facilitating the fulfillment of common resources or other needs.

27. The programming of ADB’s TA support to the GMS is largely an internal process, without the same formal consultative process that takes place in ADB programming of country assistance. Individual ADB departments are provided with annual allocations of RETA resources; decisions on how much of this will be allocated to GMS activities — and to specific GMS projects — are then made at the department level. Decisions on ADB financing of GMS investment projects are made during ADB's annual country programming exercises with individual governments, and GMS-related projects must compete for resources within the annual country allocations.

2. Assessment of Programming Arrangements

28. Current arrangements for determining GMS priorities appear to be working satisfactorily. Endorsement of priorities at the annual ministerial meetings provides a mechanism for ensuring that agreed-upon GMS initiatives are consistent with national priorities. There will continue to be projects where subregional priorities will not always coincide with national priorities, but these concerns have to be dealt with on a project-specific basis through country-level negotiations.

29. There appear to be fundamental problems, however, with ADB programming arrangements. Current RETA screening arrangements provide little opportunity for coordinated programming of resources to meet agreed-upon GMS strategic objectives, and there are no mechanisms for formal consultations with GMS countries in making allocation decisions. While in general there is a degree of consistency between approved RETAs and established GMS priorities, there are indications that RETA allocations are driven more by supply considerations than by these priorities. The relatively large allocations of RETA resources to the environment sector (more than one third of the total) despite very limited direct links between environment RETAs and the high-priority infrastructure projects, are indicative of supply-driven influences. The weak links between human resource and environment initiatives, and infrastructure developments are indicative of problems in ADB coordination in allocating GMS RETA resources to ensure that initiatives complement each other and generate maximum value- 13 Asian Development Bank. 1999. Economic Cooperation in the Greater Mekong Subregion: An Overview. ADB,

Manila.

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added. Inadequacies in programming have also been a factor in ownership problems identified in the human resource development and environment case studies. The sector assessments also highlight the need to specifically address priority subregional concerns in ADB's country strategies and programs. Improving the mechanisms for programming resources to support GMS activities is an important priority, with greater subregional consultations in RETA programming an immediate priority. There is also a need to consider subregional allocations of loan resources to supplement country allocations.

30. A related concern is the question of what constitutes a subregional initiative. Such decisions appear to have been made on an ad hoc basis, and the current list of ADB-assisted GMS infrastructure projects has notable anomalies. For example, while the Siam Reap Airport project will certainly have subregional impacts, the same could be said for many national transport projects. Development of the Yunnan expressway has the potential to increase subregional transport flows, but at this stage involves road development only in Yunnan with the national Government providing majority financing. While power transmission lines crossing national borders have a strong basis for being classified as subregional, the rationale for classifying power stations constructed in one country as subregional (i.e., as GMS) is weaker. It could reasonably be argued that if one national power station is classified as subregional because power is being exported, all power stations in that country (or at least those connected to the same grid) should be classified as subregional. The classification of some GMS projects as subregional seems contrived. The need for clearer definitions of what constitutes a subregional project will become more important as ADB introduces new subregional modalities and guidelines14 and as it initiates regional programs elsewhere.

D. Resource Mobilization in the Greater Mekong Subregion

1. Overview

31. ADB has played a leading role in mobilizing nearly $2 billion for GMS transport and energy infrastructure developments. The Yunnan expressway development accounts for more than half of this total, with the national Government providing the major share. Almost 50 percent of total GMS investments have been raised from GMS members (most of this from the PRC), ADB financing accounts for 40 percent, and the remainder is from commercial financing sources and Japan Bank for International Cooperation (JBIC). Private sector and commercial finance agencies provided most of the financing for the Theun Hinboun Power project. ADB has been the principal external financier of the remaining GMS infrastructure projects. These figures exclude directly related, but separately financed, investments in the east-west corridor.

32. ADB has approved TA projects totaling $39 million, providing about 58 percent of this amount on a grant basis through TASF and JSF resources. Thirty percent of the costs have been mobilized from bilateral sources, and the remaining 22 percent by GMS member governments. Cofinanciers have financed most of the investments in the telecommunications and energy sectors, and about half the resources in the environment and human resource sectors. Only very limited cofinancing has been mobilized for the core programs, tourism, and transport sector activities (Table 6).

14 Economic Analysis of Sub-regional Projects, EDRC Methodology Series, ADB, March 1999.

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Table 6: ADB-Supported GMS TA Activities Financing ($’000) Project Total ADB Cofinancing Budget TASF JSF Gov’t. Amount Sources (a) Levels of Financing by Source Core GMS Projects 8,780 1,770 6,000 250 760 Sweden Transport 9,877 100 8,280 329 1,168 France/ESCAP Telecommunications 900 — — 50 850 Australia/France Energy 2,578 500 — — 2,078 Norway/France Tourism 939 130 725 55 29 Singapore/TAT Environment 14,140 — 4,400 3.995 5,745 Norway/Finland/Swiss/UNEP Human Resource Development 1,920 — 900 100 920 Australia/ILO/UK Trade and Investment — — — — — Total 39,134 2,500 20,305 4,779 11,550 (b) Share of Financing by Source (% of total) Core GMS Projects 100 20 68 3 9 Sweden Transport 100 1 84 3 12 France/ESCAP Telecommunications 100 — — 6 94 Australia/France Energy 100 19 — — 81 Norway/France Tourism 100 14 77 6 3 Singapore/TAT Environment 100 — 31 28 41 Norway/Finland/Swiss/UNEP Human Resource Development 100 — 47 5 48 Australia/ILO/UK Trade and Investment — — — — — TOTAL 100 6 52 12 30 — = not available ADB = Asian Development Bank, ESCAP = Economic and Social Commission for Asia and the Pacific, GMS = Greater Mekong subregion, ILO = International Labour Organization, JSF = Japan special fund, TASF = technical assistance special fund, TAT =Tourism Authority of Thailand, UK = United Kingdom, UNEP = United Nations Environment Programme. Source: ADB. GMS Unit.

2. Assessment of Resource Mobilization Efforts

33. Considerable resources have been mobilized under the GMS initiative, and there has been some success in mobilizing cofinancing. While there may be doubts as to whether some of the projects are really GMS initiatives, recent transport projects have involved coordinated financing in more than one country (Table 7). ADB’s involvement in the east-west corridor, has facilitated additional investments in core parts of the corridor development (e.g., the bridge at Mukdahan/Savannakhet, Da Nang Port) as well as increased potential returns to other investments in rural roads in central Viet Nam and Lao PDR.

34. Efforts to mobilize private sector resources for GMS initiatives have been largely unsuccessful, with the notable exception of the Theun Hinboun Power project. The approach to financing the Theun Hinboun Power project was widely praised as an innovative model for private financing power sector development.15 ADB and the Lao PDR Government also saw it as a way of ensuring that Lao PDR secured an adequate national return from subregional

15 Financing arrangements attracted considerable favorable attention in the business press and magazines, including

trade and project finance reports.

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projects. However, the growth in demand for power in the subregion has slowed markedly, largely as a result of the Asian financial crisis, and no new comparable subregional power projects have been initiated. Thus, at present, it is not possible to assess the extent to which the approach to financing the Theun Hinboun Power project will be replicated elsewhere in the region.

Table 7: ADB-Supported GMS Infrastructure by Sector ADB Total Project Financing PROJECTS Loan Investment ADB Cofinancing No. $ million ADF OCR Gov’t. Amount Source TRANSPORT EAST-WEST TRANSPORT CORRIDOR

LAO COMPONENT

not yet approved

40.0 32.0 20.0 VIET NAM COMPONENT 36.0 25.0 11.0 Ho Chi Minh City-Phnom Penh Road CAMBODIA COMPONENT 1659 50.7 40.0 10.7 VIET NAM COMPONENT 1660 144.8 100.0 44.8 SIAM REAP AIRPORT 1503 17.0 15.0 2.0 YUNNAN EXPRESSWAY 1325 461.4 150.0 311.4 SOUTHERN YUNNAN ROAD DEVELOPMENT

1691 768.7 250.0 518.7

CHAMPASSAK ROAD IMPROVEMENT

1369 60.1 48.0 12.1

SUBTOTAL 1,578.7 260.0 400.0 930.7 — ENERGY THEUN HINBOUN HYDROPOWER

1329 270.0 60.0 14.5 195.5 commercial

NAM LEUK HYDROPOWER DEVELOPMENT

1456 112.6 52.0 22.1 38.5 JBIC

SUBTOTAL 382.6 112.0 — 36.6 234.0 TOTAL 1,961.3 372.0 400.0 967.3 234.0

— = not available. ADB = Asian Development Bank, ADF = Asian Development fund , OCR = ordinary capital resources , JBIC = Japan Bank for International Cooperation. Source: ADB. GMS Unit. 35. While some of the problems in raising private sector financing can be attributed to the general deterioration in the investment climate following the Asian financial crisis, specific actions can be taken to increase the chances of securing future private sector financing. First, the respective GMS members and ADB must make every effort to implement the east-west corridor development effectively and demonstrate to the private sector that national governments are serious about implementing cross-border agreements. Problems in implementing these agreements will greatly dampen private sector expectations that future subregional agreements will be enforced. Second, ADB needs to more directly address—in country strategies and programs—the national constraints to returns on subregional investments. Reforms in trade policies, foreign investment regulations, and dispute resolution and contract enforcement mechanisms have a potentially major role to play in increasing returns to subregional investments. Third, the GMS Program needs to adopt a more focused and strategic approach to marketing GMS investment opportunities, including direct consultations

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with the business community at all stages of the project cycle. A more strategic approach to prioritizing ADB support is an urgent need.

36. Sectors have shown major differences in success in mobilizing resources from outside ADB. There may be some justification for ADB to continue playing a lead role in financing core GMS programs, but a core element of strategy should be to reduce dependence on ADB financing for sector-level activities. ADB has succeeded in mobilizing bilateral financing for the telecommunications and energy sectors, and a large share of financing for the environment and human resource initiatives. Relatively small amounts of formal cofinancing have been mobilized for transport and tourism, although there have been considerable in-kind contributions from the private sector in the tourism sector. Regular regional programming of TA and investment requirements, within the context of a clearly defined, time-bound strategy for subregional cooperation, could greatly facilitate efforts to increase cofinancing.

E. Program Monitoring, Evaluation, and Information Dissemination

1. Overview

37. Arrangements for GMS Program monitoring, evaluation, and information dissemination could only be described as ad hoc. Formal monitoring systems include only basic project details. More detailed information is generally compiled in preparation for specific meetings and consultations. Most GMS publications have evolved the same way. No formal internal evaluation of overall ADB support to the GMS was ever undertaken.16

38. A GMS web page was established in December 1998, but it has only limited information and has not been updated on a regular basis. During the first six months of 1999, the most visited GMS web page, the telecommunications page, had been visited only 20 times. The web page and all GMS information and publications are ADB outputs. No GMS-"owned" systems have been developed for dissemination of GMS program information.

2. Assessment

39. There is an urgent need to strengthen program monitoring and information dissemination. The urgency increases as substantial investment projects begin to be implemented. The Theun Hinboun Power project has already attracted considerable controversy about alleged adverse social and environment impacts. ADB was not well positioned to quickly provide independently verifiable data on the socioeconomic impacts of this development and should anticipate even stronger regional and international interest in the east-west corridor development and other subregional road projects. ADB needs to be proactive in monitoring performance and identifying and analyzing social, environmental, and economic concerns as they emerge; it needs to be in a position to provide data and information to those interested. Additional resources will be required to effectively monitor key GMS initiatives (see also recommendation in paragraphs 127-128).

16 A suggestion for an internal evaluation was made in an internal note from the Manager of Programs West Division

3 to Programs West Office of the Director, but there was no apparent follow-up.

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F. Relationship and Links with Related Initiatives and Institutions

40. There have been fairly regular communications with related subregional initiatives and institutions, but the extent of consultation and collaboration has varied greatly. The extensive involvement of the Pacific Asia Travel Association (PATA) and the United Nations Economic and Social Commission on Asia and the Pacific (ESCAP) in tourism initiatives are a positive example of strong collaboration. ESCAP has also actively participated in meetings related to cross-border agreements and other transport planning studies.

41. On the other hand, despite the recent involvement of the Association of Southeast Asian Nations (ASEAN) in the trade and investment initiatives, there is still some ambiguity about how the GMS initiatives in trade and investment will complement rather than duplicate ASEAN responsibilities. The greatest concern is with the relationship between the GMS initiative and the Mekong River Commission (MRC). MRC made it clear that it felt that some GMS initiatives, particularly in the environment sector, duplicated responsibilities that had been mandated to MRC. Further, the members were concerned that the GMS Program did not adequately consult with and/or utilize their expertise during program planning and project implementation. The World Bank is now providing substantial assistance to MRC. This will create pressure on ADB and the GMS to develop a more coordinated working relationship with MRC: otherwise, the risks of duplication of efforts or of MRC replacing the GMS in certain activities will increase.

42. While the optimal extent and nature of collaboration will vary greatly between sectors and between projects, a more clearly defined strategic framework for the GMS, including details of anticipated links with other programs, would facilitate more productive collaboration and assist in reducing duplication of effort.

III. SUMMARY SECTOR ASSESSMENTS

A. Methodology

43. Case studies were conducted for selected GMS interventions. The methodology was analogous to that used in reviewing a sector program, with focus on processes, achievements, and policy, institutional, and investment issues. Given the study resource limitations, case studies were limited to five areas. The criteria used to assist in guiding selection of areas for more detailed study were

(i) importance in terms of realizing GMS goals and objectives,

(ii) amount of ADB TA funds allocated,

(iii) potential and/or issues relating to mobilizing investment resources, and

(iv) potential lessons for future GMS and other subregional initiatives.

44. Impact studies were undertaken of (i) GMS transport initiatives, focusing on the east-west corridor; (ii) tourism initiatives; (iii) environment initiatives; (iv) human resource development; and (v) initiatives in trade and investment. The studies entailed limited field visits and consultations with key stakeholders involved in the selected initiatives, in addition to desk studies. Assessments of the energy and telecommunications sectors were conducted as desk studies of ADB documents.

B. Sector Assessments

45. A review of the individual GMS projects and initiatives examined during the study is presented in matrix form in Appendix 2. It should be noted that most of these initiatives are TA operations and activities of working groups; very few loans have been approved and only one project has been completed. The analysis of these project, TA, and other initiatives focused on their role and contribution to the regional program and regional development, and the processes by which they were selected, designed and approved. This process and its effectiveness are then reviewed and assessed, and lessons/recommendations drawn. Summary information on the GMS interventions by sector, drawing on both the individual project/initiative studies and on detailed sector analyses, is presented in a similar matrix format in Appendix 3, while summaries of the detailed sector assessments17 themselves are presented in Appendixes 4 to 8. These studies, and the lessons and recommendations drawn from them are the bases of the main findings of the report (Section IV), and of the main conclusions, lessons learned, and recommendations (Section V). Section IV focuses on the common findings from the sector/project studies and key findings for the GMS Program as a whole, with emphasis on its being a regional program. Section V focuses on lessons and conclusions for ADB and the GMS 17 The complete sector and project studies are available in the separate consultants’ reports.

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in pursuing a regional program. Recommendations for individual projects/initiatives and for the sectors are in the appendixes. A few key concerns for each of the sectors, however, are summarized in paras. 46-59.

1. Transport

46. The main objective of the GMS Program in the transport sector is to develop priority transport corridors to link population centers and tourist destinations, improve access to market for remote areas, and help reduce nonphysical barriers to movement of goods and services. The program gives priority to road transport, especially the east-west corridor between capitals, an initiative overseen by regular subregional transport forums (STFs).

47. Close follow-up is needed to ensure the cross-border agreements are implemented, and to monitor their effectiveness so that any necessary changes can be made. The potential benefits of infrastructure development will not be realized without further trade and investment reforms. Greater emphasis could be given to developing the capacity of the customs, immigration, quarantine, transport, and police officials who will play a key role in facilitating the movement of goods and people. ADB will need to be proactive in mobilizing resources for the transport projects and ensuring equitable distribution of costs and benefits among the GMS members.

2. Telecommunications

48. The objective of the GMS Program is to achieve compatibility between national telecommunications systems, enhance subregional and national networks, and adjust tariffs and regulations to enable GMS telenetworking, but the priorities are unclear. Although an East Loop project is in the pipeline with a complete feasibility study, overall the GMS strategy remains unclear. The value added of a discrete GMS program, rather than extended collaboration with the International Telecommunications Union (ITU) and ASEAN, is not compelling.

49. The key issue is to articulate a clear vision and strategy for GMS involvement. There is no convincing argument that ADB has any comparative advantage in leading planning or financing for essentially commercial telecommunications infrastructure projects. Adopting a more limited enabling role in promoting commercial investment might be a more effective role for ADB and use of resources.

3. Energy

50. The objectives in the energy sector are to provide a link between the GMS power supply and systems development institutions, promote effective development of power by identifying potential power projects and financing sources, provide technical advice and information, provide a forum for software issues and pricing policy, and facilitate subregional training initiatives. ADB has assisted with a GMS power trade policy and subregional master plan, complemented by World Bank support for power regulatory issues.

51. The benefits of subregional projects, as opposed to discrete national ones, remain unclear until integrated power network policies are better defined. Greater attention needs to be paid to raising private financing and formulating a clear GMS power strategy. A key component

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of the future strategy should be institutional and pricing arrangements for power trade and the integrated subregional power grid.

4. Tourism

52. The key objectives are to promote tourism and increase tourist flows through links with the transport corridor and strengthened subregional tourism institutions. The design process, through the working group on tourism (WGT), has involved consultation with private sector tourism associations.

53. The key issue is to define ADB’s comparative advantage, if any, in tourism planning, promotion, and development. A possible ADB priority could be to act as an honest broker in reducing government red tape in the sector, which is a major constraint. Arguments for public sector involvement in tourism development have not always been clearly established. The case for ADB to simply leave the coordination to subregional private sector tourism bodies (e.g., Pacific Asia Travel Association [PATA]) should be considered. The opportunities for linking tourism development with parallel transport and environmental program initiatives is underdeveloped. There is a clear public sector role for developing safeguards and regulations, particularly arising from the social, cultural, and environmental impacts of tourism.

5. Environment

54. The objective of the GMS environment program is to help coordinate subregional environmental conservation, and protection policies and programs. Initially, priority was given to capacity building. The program, though somewhat ad hoc, has been successful in implementing RETAs for institutional development and forward GMS environmental strategies necessitating the significant involvement of external sources, the private sector, and NGOs.

55. The pressing issue is to revisit the GMS strategy, especially to pay greater attention to leveraging environmental policy reform and greater subregional/national policy integration. Greater attention must be given to different capacities in GMS countries, incorporating rigorous needs assessment in project designs. Refocusing the strategy requires the incorporation of greater emphasis on cost-benefit analysis in program selection, minimizing program complexity, and forming better linkage with other subregional initiatives (e.g., the transport corridor). ADB leadership in this sector needs to be carefully tailored to realizable staff and financing resources.

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6. Human Resource Development

56. The objective of the Human Resource Development (HRD) program is to facilitate the formulation of subregional HRD policies, help design subregional HRD interventions with potential economies of scale, build up subregional capacity for HRD service delivery, and facilitate subregional labor development. The HRD working group has been comparatively inactive due to narrow sector work and limited resources, with overreliance on ADB leadership. Only 4 of 10 initial RETAs have been financed and completed.

57. The main issue is to achieve a clearer strategic focus with defined selection criteria for interventions aimed at ensuring maximum returns to limited subregional resources for HRD, rather than continuing with a RETA project pipeline based on common interests. ADB and the HRD working group should consider alternative strategies which represent different levels of intervention (Appendix 7, paras. 22–27). Should the focus be on policy development; a restricted investment program with clear GMS economies of scale; and/or a social development corridors approach (linked directly to the transport corridors)? RETA designs need to pay more attention to initial capacity assessment and strengthening along with much broader stakeholder consultation.

7. Trade and Investment

58. The objective of GMS interventions in trade and investment is to facilitate subregional trade and investment policy development and programming in consultation with the private sector. A subregional investment fund was set up with a planned GMS business forum. Progress has been slow, with the private sector unconvinced of the value added of a discrete GMS program in addition to ASEAN.

59. ADB needs to revisit the original justification for a discrete GMS program. If not compelling, any ADB resources should be reallocated to other GMS programs. There needs to be greater focus on trade/investment opportunities within other GMS programs (e.g., transport) and a greater priority given to overcoming policy constraints within the subregion. Greater private sector partnership in the program, including better marketing, is critical.

IV. Key ISSUES FOR THE FUTURE

A. Long-term Vision for GMS and ADB’s Role in Regional Cooperation

60. The GMS Program was initiated at a time of substantive challenges and uncertainties in the relationships between GMS member countries. Initial RETA designs reflected a need for flexibility in planning the GMS initiatives to maximize benefits as opportunities arose in an improving political environment. There is now greater opportunity and increased need for a long-term strategic vision. A clearer vision would make it easier to analyze the comparative advantages of and potential for greater collaboration between institutions in implementing the wide range of GMS initiatives. A clearly defined vision will also facilitate marketing and the mobilization of resources for GMS investments.18

61. A long-term vision and strategy can only be developed with the strong commitment of the GMS member countries and in consultation with other subregional institutions, especially ASEAN. Past attempts to develop such a vision have achieved only limited success due to lack of consistent commitment and limited resources. At the earliest possible time, GMS and ADB need to make a strong and clear commitment to finalizing a consistent vision and strategy.

62. While ADB has a clear mandate to promote subregional cooperation (para. 7), its limited tangible commitment to supporting and facilitating such a program has constrained the GMS Program. This issue is wider than the GMS, involving ADB’s commitment and support as a whole to regional cooperation and regional initiatives, and is perhaps the key strategic issue that ADB must face. ADB should question whether it is appropriately structured to support regional programs and initiatives and, given this, where it has a comparative advantage over other global organizations in promoting regional cooperation.

63. At present, staff resources, incentives, and organizational structure, and loan and TA funding resources are not aligned with supporting regional cooperation programs. The only funding arrangements for subregional initiatives are through department-based RETA allocations, but there is not always adequate forward planning on allocations for this. The GMS unit (within a programs division) is the only organizational arrangement established to facilitate subregional cooperation. The GMS Program has not always been a mainstream priority activity in some projects departments. There is little evidence of ADB staff performance in promoting subregional cooperation being a significant element in evaluating performance. The most tangible indicator of ADB commitment to the GMS Program has been the high-level ADB presence at GMS ministerial and working group meetings.

64. A more detailed discussion of the strategic options to consider in promoting GMS and broader subregional cooperation is in paras. 65-70.

18 The Sixth GMS Ministerial Conference (August 1996) endorsed a GMS 2020 Project, and an inception meeting for

this project was held on 20-21 March 1997. However, funding limitations and, in some cases, the assignment of low-level researchers to this Project, have meant outcomes below expectations. An internal 1998 ADB review of the initiative (GMS 2020: Taking Stock of the Project) concluded that additional resources would be needed to ensure more substantive outcomes from it.

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B. Subregional Programming and Links with National Programs

65. The key subregional operational issues that ADB needs to address are (i) how to improve programming of ADB resources to best support the priorities established by the GMS, and (ii) how to better integrate GMS priorities into country programs. Identifying indicative allocations of ADB RETA resources for GMS activities at least three years in advance would facilitate effective programming of TA for priority GMS activities. Priorities for RETAs could then be developed through working-level GMS discussions, with agreed-upon priorities endorsed at the annual GMS ministerial meetings. Such an approach would (i) facilitate RETA allocations that better reflect GMS priorities, (ii) increase GMS member countries’ ownership of RETA projects because of their greater involvement in priority setting, and (iii) provide increased opportunities to mobilize cofinancing because of longer term planning and the clear commitment of GMS member countries. As part of improved programming of resources, ADB will sometimes need to give more attention to leveraging policy and institutional change in GMS countries where existing arrangements are major barriers to the level and distribution of returns to agreed investments in subregional initiatives. Reaching agreement on priorities may not always be easy, and a strong commitment will be required from GMS members and ADB staff to make this work, but this is true of all GMS activities.

66. Concerns were expressed in several GMS countries about the weak linkages between national programs and priorities and GMS programs and priorities. It was noted that ADB staff sometimes treated the GMS Program as a separate initiative, even where the national project (loan) concerned is also a GMS project. This appeared to be less a problem in the infrastructure sectors than in other sectors. Some suggested that the GMS Program should be properly integrated into country programs, individual country programs and strategies thus also reflecting the GMS Program and strategy. Others expressed concern that should this be done, the risk would arise that the national program could then draw loan funds from the GMS Program, GMS projects often not being seen as high a priority as national projects and priorities. However, this could be overcome if each country had a strategy and program that had two components, the national strategy and its part of the GMS strategy. The country program could separate the loan and TA program into two parts, the national part and the GMS part. The former would be based on the indicative planning figure (IPF) for the country, while the latter could vary each year, depending on the planned GMS loans and TAs. Funds would not be moved from one to the other.

67. A proposal to establish a regional economic cooperation facility (RECF) was considered in 1998, but ADB management concluded "the option of establishing the RECF as a facility to provide general additionality for subregional projects does not appear to be worth pursuing, at least in the near future."19 A major problem in creating such a fund was the shortage of ADF resources and the fact that many of the GMS members were not eligible to borrow OCR funds. The memorandum left open the possibility of reconsidering the possibility of establishing "a catalyzing facility for joint public/private projects" after the finalization of the Graduation Policy Paper.20 The memorandum noted that regardless of whether such a facility was established, ADB would pursue the option of using OCR funds (outside of country program allocations) for priority, commercially viable GMS investments where this is expected to play a catalytic role in attracting additional financial resources.

19 Draft memorandum from the Director, Programs Department (West), to the President, dated 1 May 1998,

circulated for interdepartmental comment on 6 May 1998. 20 Approved by the Board in November 1998.

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C. More Focused and Reduced ADB Involvement in the GMS Program

68. One of the key concerns arising from the study is the lack of focus of the GMS Program, which has developed in a rather ad hoc fashion. While the program initially focused on the provision of basic infrastructure that would help link the subregion and allow development of the resource base, it broadened over the period 1992-1999 and now covers seven sectors. These are all seemingly accorded the same high priority, but ADB loan and TA funding and staff resources have proved insufficient to address all of them. So far, the GMS Program has provided loans to only the power and transport sectors, although the focus is now on economic corridors rather than transport corridors. Initiatives in environment and HRD have been largely stand-alone RETAs, while working group meetings have largely dominated tourism, trade, and investment. In the present ad hoc approach, the program appears to focus more on the sectors rather than on its original purpose of subregional cooperation and development.

69. Given its resource limitations, ADB needs to periodically assess its role in all GMS initiatives and assess opportunities to reduce dependence on it for support. All GMS members indicated that the transport (economic) corridors were the most important GMS initiative and that trade, investment, and tourism would follow once the corridors were implemented.

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The credibility of the GMS Program depends on these corridors being completed; the corridors could therefore form the basis for a more focused and reduced program for ADB. Environment, poverty and HRD programs could be linked to the corridors.21 The trade and investment groups could focus on implementing cross-border agreements. Tourism could be left to the private sector. This approach could retain the RETAs and other initiatives as stand-alone activities, but each having a strong link to the economic corridor, i.e., an economic corridor approach with cross-cutting strategic focus.

70. An alternative to this might be a more integrated development corridor-type approach, with environment, HRD, and other activities being an integrated part of the development corridor program. Given the restricted resources available for the program, however, consideration could also be given to simply shrinking the GMS Program for the time being to the economic corridors, focusing solely on the provision of infrastructure and providing the necessary support to implement the trade agreements already made under ASEAN to allow for the flow of goods and services.

D. Institutional Coordination and Cooperation

71. GMS member countries made it clear during this study that they accorded high priority to the continuation of the regular ministerial meetings as the main decision- and policy-making mechanism for the GMS, and for continued ADB support in facilitating and coordinating these meetings. Some sector initiatives have reached a stage where some form of more permanent institutional arrangement may be needed.

72. Greater attention needs to be given to project-level institutional arrangements and the requirements for institutional strengthening and technical support to sustain the momentum in addressing bottlenecks to high-priority initiatives. Some high-priority initiatives, such as the economic corridors, will require more regular working-level discussions, possibly supported by medium-term TA to resolve the complex issues associated with reaching and implementing cross-border agreements. These institutional issues are much more critical for subregional projects because of substantial subregional differences in institutional capacity. Project designs should include specific requirements to develop the skills of local experts and to build institutional capacity and thus reduce dependence on ADB support.

73. Ongoing developments in other regional institutions, especially the inclusion of all but one of the GMS members (Yunnan Province) as ASEAN members, makes it important for the GMS to regularly review its links with them to avoid duplication of effort and take advantage of opportunities to reduce GMS involvement and dependence on outside support (e.g., ADB). This is already happening in tourism, with increasing responsibility and leadership in key areas being transferred to the private sector. Steps have also been taken for direct consultations with ASEAN in the trade and investment working groups, and ASEAN involvement in these groups may be greater in the future. This is essential because of the need to ensure that GMS

21 GMS environment RETAs could focus on the environment adjoining the highway; if power is retained in the GMS

Program, then environmental aspects of the watersheds should be included. HRD RETAs could focus on training requirements to help implement the cross-border transport agreements (train customs staff, vehicle inspection staff, quarantine staff) and could also address other concerns such as the acquired immune deficiency syndrome (AIDs) problem among the population along the highways. Poverty programs, including those addressing ethnic minorities, could focus on groups near the highways who will not benefit directly from the highway.

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initiatives are consistent with ASEAN and other regional and international protocols and standards.

74. Parallel initiatives are being pursued under ASEAN and GMS programs in trade and investment reform, facilitation of cross-border agreements, and planning of infrastructure development. For example, there are ongoing consultations within ASEAN on the ASEAN Highway network and the development of a Singapore to Kunming rail link. ESCAP has also been providing support for some ASEAN transport initiatives and for the development of Asia- wide agreements and transport development. The fifth Conference of ASEAN Transport and Communications Ministers held in Hanoi on 15-16 September 1999 passed a program of action for ASEAN transport and communications development to 200422 that included a list of 55 individual regional projects. An ASEAN ministers memorandum of understanding on the development of an ASEAN Highways Network project was signed to pave the way for the phased development of priority road projects. The ministers also signed protocols on the types and quality of road vehicles and technical requirements for vehicles transporting goods across ASEAN boundaries. These initiatives include some of the same project components as in the GMS transport program. Both the ASEAN secretariat and ESCAP have been regular participants in the STF, and the practical results achieved under the GMS initiative have been recognized by the ASEAN secretariat as potentially useful in developing ASEAN-wide protocols for the transport sector.23

75. The results of the meeting suggests increasingly similar parallels between the ASEAN and GMS initiatives and a need for a clearer vision of the most appropriate links between the two forums. One possible option is to view at least some aspects of the GMS initiative as a subset of ASEAN initiatives (e.g., some transport links are a subset of more ambitious ASEAN proposals). Another is to broaden the scope of GMS activities to include ADB support to GMS economies plus the remaining ASEAN countries in subregional transport development. This evaluation study makes no recommendations on the most appropriate alternative, but notes that there are increasing pressures to address this issue.

E. What Constitutes a GMS (i.e., Regional) Project?

76. There continues to be some ambiguity about what constitutes a GMS project. The study found little in the Siam Reap Airport development that had a greater subregional dimension than would be found in any international airport development. Similarly, it was difficult to understand why the Champassak Road Improvement project had been included as a GMS subregional project. There would probably have been much greater justification for including ADB-financed Road Network Improvement Project in Cambodia as a GMS project because some of its funds will be used to upgrade segments of priority GMS routes, as well as feeder roads to this project. It is possible that during the early stages of GMS implementation, there was a perceived need to report success in securing funding for GMS projects.

77. The issue of definition goes beyond semantics. There can be quite high management and coordination cost implications for unnecessarily including projects as GMS projects. The GMS Program is already complex and difficult to coordinate because of the large number of interrelated activities. The issue of definition for GMS projects needs to be resolved through

22 The first ASEAN Environment Forum was held in Hanoi on 20-24 September 1999. 23 GMS. 1998. Summary of Proceedings of the Fourth Meeting of the STF (14-15 May 1998).

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consultation, but points for consideration are noted in para. 78. These principles could form the basis of a framework for ADB involvement in GMS projects and activities, and in regional projects in general.

78. Recognizing that it is not always desirable to be too rigid with definitions, possible guiding principles could be to define a project as a GMS project (i.e., regional) where (i) there is a clear need and benefits from subregional consultations during design and implementation; (ii) there are economies of scale; (iii) transaction costs are reduced; (iv) development is speeded up through sharing of knowledge; and (v) it increases opportunities, particularly those whose partners on their own are not able to capture, such as improved resource mobilization, private sector development, gains from trade. Thus, in the GMS, there may be need for subregional activities to assist in addressing policy constraints to the development of air links and air transport, but there would be no need to include airport developments. Similarly, in the power sector, activities might focus on subregional network development, interlinkages, pricing and purchase agreements, competition, benchmarking, and management but there would be no need to include individual power generation projects. Indeed, as power networks become interlinked and if any power generation project is included, then all new power projects connected to the network might also have to be included as GMS projects. Clearly, the situation would quickly become unwieldy.

F. Regional Project Design Issues

79. More detailed assessments of the needs and capacity of each country are needed in planning all GMS activities. More efforts could be made to involve a broader range of stakeholders in identifying priorities, and in project formulation and implementation. When preparing RETAs, ADB needs to ensure that, in each country, adequate resources are allocated for preparing needs assessments. Given the complexity of subregional projects, it is particularly important to identify and use the expertise of institutions and individuals with GMS field experience.

80. Inadequate national ownership of GMS initiatives is a concern for many of the ADB-financed GMS RETAs in the environment, human resource, and tourism sectors. Inadequate stakeholder participation in project design and identification was identified as a key factor contributing to this lack of ownership.

81. ADB has given inadequate attention to the fact that the costs of needs assessments, stakeholder consultations, implementation, and monitoring can increase rapidly as additional countries are included in project designs. There are both potential benefits and costs in subregional approaches, and there is a need to plan accordingly. The benefits and costs of subregional approaches need to be explicitly assessed and, where decisions are taken to adopt a subregional approach, adequate staff resources for project design and implementation must be allocated. Explicit consideration should always be given to the option of implementing national projects coordinated under GMS umbrella initiatives, rather than focusing solely on implementing GMS identified projects as subregional projects.

82. During GMS implementation few fresh ideas have developed on how to get better “value for money” in RETAs. ADB correctly emphasizes the importance of taking a holistic view of complex problems, but all too frequently this is taken to imply the need for a holistic approach in all project designs. This inevitably leads to considerable duplication of past and ongoing efforts. Projects designs could often be simplified and improved by recognizing that in most areas

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where ADB intervenes, there will already be a considerable body of work done, or being done, on similar subjects by AD