Revised Guidelines for Implementing ADB's Second Governance and Anticorruption Action Plan (GACAP II)-

These Guidelines for Implementing ADB’s Second Governance and Anticorruption Action Plan (referred to as ‘the Guidelines’) are intended to provide guidance to the Asian Development Bank (ADB) staff on the implementation of ADB’s Second Governance and Anticorruption Action Plan (GACAP II). The overall aim of GACAP II is to improve ADB’s performance in helping strengthen national governance systems and in reducing vulnerability to corruption in ADB investments.

The Guidelines are principally addressed to ADB country teams. They describe the process for implementing GACAP II, and the requirement in the Country Partnership Strategy (CPS) Guidelines1 that CPSs are informed by risk assessments (RA) and risk management plans (RMP) for national/subnational government systems in which ADB is engaged, and priority sectors for ADB operations. The procedures and formats in these Guidelines are a model; adaptation to fit the specific circumstances of different DMC’s may be required.

GACAP II was approved in July 2006.2 It reflects the findings and conclusions of the Review of the Implementation of ADB’s Governance and Anticorruption Policies3 (referred to as “the Review”) which examined ADB’s strengths and weaknesses in implementing its 1995 Governance Policy4 and 1998 Anticorruption Policy5. The purpose of GACAP II is “...to improve ADB’s performance in the implementation of the governance and anticorruption policies in the

sectors and sub-sectors where ADB is active...and... to design and deliver better quality projects and programs...” (GACAP II, paragraph 4).

GACAP II has four key result areas (KRA):

(i) KRA 1: Improve identification and management of governance, institutional, and

corruption risks in CPSs and annual country portfolio review missions (CPRM);

(ii) KRA 2: Strengthen governance and anticorruption components in project and

project design;

(iii) KRA 3: Strengthen program and project administration and portfolio management;

and

(iv) KRA 4: Improve organizational structure, human resources, and access to

expertise.

GACAP II identifies three governance themes, viewed as critical to poverty reduction and development effectiveness, as the focus: public financial management (PFM), procurement, and combating corruption. These three themes apply at the national and subnational levels and in ADB priority sectors in DMCs. GACAP II addresses both ADB’s partnerships with DMCs to strengthen country systems, in line with the 1995 Governance Policy, and actions to reduce corruption vulnerability in ADB investments, in line with the 1998 Anticorruption Policy.

Section II outlines the governance risk management framework and the ‘cascading’ RA approach at the country, sector, and project levels. Section III details how to identify governance and corruption risks, and Section IV discusses the management of these risks and criteria for formulating effective RMPs. Section V considers implications of RAs for project design and implementation. Section VI discusses the importance of monitoring the implementation of mitigation measures.

Asian Develoment Bank. Date: December 2011. Type: Guides. ADB administration and governance; Governance and public sector management

Revised Guidelines for Implementing ADB's Second Governance and Anticorruption Action Plan (GACAP II)-

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Philippines: North Luzon Expressway Rehabilitation and Expansion

ADB. On 26 October 2000, the Board of Directors of the Asian Development Bank (ADB) approved a direct loan of $45 million without a government guarantee and a complementary loan of $25 million to the Manila North Tollways Corporation (MNTC). Both loans were from ADB‘s ordinary capital resources and were used to finance the rehabilitation, expansion, and operation of 83.7 kilometers of the North Luzon Expressway (NLEX) between Manila and the Clark Special Economic Zone. The project involved rehabilitating 14 interchanges, 24 bridges, 31 overpasses, and the 8.8 kilometer expressway in the Subic Special Economic Zone.

The total project cost was $384.5 million, slightly above the budget estimate of $377.5 million. Design-change orders, additional land acquisition, and cost adjustments due to delayed right-of-way acquisition contributed to the increase. The project was financed with loans totaling $267.3 million plus equity of $117.2 million from MNTC‘s shareholders. Rehabilitation was completed in February 2005 and commercial operations started on 10 February 2005. The project was structured as a public–private partnership (PPP), and undertaken on a rehabilitate–operate–transfer basis by MNTC. At the end of the concession period in 2037, the expressway will be transferred to the government without cost.

The overall assessment of the project is successful, based upon a qualitative combination of the ratings of criteria set forth in ADB‘s Guidelines for Preparing Performance Evaluation Reports on Nonsovereign Operations. Four main criteria were used: development impact and outcomes, ADB investment profitability, ADB work quality, and ADB additionality. Development impact and outcomes were rated satisfactory according to four subcriteria: private sector development (rated satisfactory); business success (rated satisfactory); economic sustainability (rated satisfactory); and environmental, social, health, and safety performance (rated satisfactory).

The rehabilitated NLEX has contributed to the development of central and northern Luzon. There is evidence of new shopping malls, tourist sites, and entertainment complexes developing near toll junctions, especially in and near the Clark Special Economic Zone and the cities of San Fernando and Angeles. New residential subdivisions have sprung up in Bulacan and Pampanga, and tourism has benefited from faster access to Subic Bay, Baguio, and venues further north. Reduced journey times, too, have facilitated provision of fresher fruit, vegetables, and meat to Metro Manila, thereby reducing waste.

Performance Evaluation Report. Independent Evaluation Department.Reference Number: PPE: PHI 2011-35.Project Number: 33924.Investment/Loan Number: 7162/1769.November 2011

Philippines: North Luzon Expressway Rehabilitation and Expansion

For more information about Projects in Philippines see SOUTHEASTERN ASIA Projects

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Asia Economic Monitor.December 2011

The Asia Economic Monitor is a semiannual review of emerging East Asia’s growth and policy issues. It covers the 10 members of the Association of Southeast Asian Nations; the People’s Republic of China; Hong Kong, China; Republic of Korea; and Taipei,China. This issue includes a special section: Can East Asia Weather Another Global Economic Crisis?.

Economic performance in emerging East Asia remained robust even as moderation continued. Export growth decelerated on weak external demand, while authorities generally maintained tight monetary policies to curb inflation. In the third quarter of 2011, aggregate gross domestic product (GDP) of the 10 largest emerging East Asian1 economies expanded 7.3%,2 down from 7.8% growth in the first half (Figure 1). The People’s Republic of China (PRC) remained the strongest economy in the region, growing 9.1% in the third quarter, slower than its first half 9.6% rate. The four middle-income economies of the Association of Southeast Asian Nations (ASEAN-4) are expected to grow 4.5% in the second half (against 4.9% in the first 6 months).

The four newly industrialized economies (NIEs)4 expanded 3.8% in the third quarter— close to the 3.9% consolidated average annual growth rate between 2001 and 2010, but below its 4.6% first half performance. With leading indicators—exports, industrial production, and retail sales—more or less constant or slightly declining, economic growth in the region is expected to ease further during the remainder of the year 3.8% in the second quarter (Figures 4a, 4b). Growth in inventories in both the NIEs and the ASEAN, though positive, were quite small. In contrast, consumption growth held steady in the NIEs as consumer confidence was mixed (strong in Taipei,China; weak in Hong Kong, China). Consumption growth continued to increase slightly in the ASEAN-4 (except in Thailand). In the PRC, expanding consumption—proxied by retail sales—remained robust, but showed signs of easing gradually

© 2011 Asian Development Bank Date:December 2011. Series: Asia Economic Monitor

Asia Economic Monitor.December 2011

For more information about Projects in Asia see Asia Projects

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Sri Lanka Forest Resources Management Sector Project

At the time of project formulation, Sri Lanka faced the dual challenges of forest loss and degradation plus the consequent impoverishment of communities whose livelihoods depended on forests. Poverty and food insecurity were increasing, especially among people living near traditional forest areas or plantations, and this was leading to mounting encroachment on the forest, forest conversion, and degradation. In the long run, impoverishment and land degradation lead to food deficits that necessitate further extension of agriculture to the adjacent forestlands, thus intensifying land-use conflicts and tension between the Forest Department and local communities. Addressing the food security and livelihood needs of these communities while involving them in developing alternative forest use strategies and practices were considered prerequisites to institutionalizing sustainable forest management.

The project was to increase the value and sustainability of Sri Lanka's forests. The goal was to be achieved by creating a policy and governance framework enabling local communities and the private sector to participate in forest resource development and management. As per the report and recommendation of the President (RRP), the project’s design and monitoring framework identified the following performance targets: (i) natural forest areas stabilized in forest divisions covered by the project; (ii) forest stock inventories, wood availability, and state forest sector revenues increased; and (iii) tree cover increased in project areas. No baseline information and targets were provided in the project framework.

The project intended to (i) establish and implement participatory sustainable forest management of demarcated permanent forests to increase their protection and production; and (ii) enhance access of local communities, and particularly of economically disadvantaged people, in order to acquire gainful employment and human resource development opportunities, consequently leading to poverty reduction. To achieve these objectives, the RRP set targets that (i) policy and legal reforms and institutional restructuring would be implemented by 2003; (ii) national forest areas would be delineated and demarcated by 2002; (iii) beneficiary and private sector leaseholds would double from the pre-project levels; and (iv) about 50,000 household incomes would show substantial (about 40% to 100%) improvement as compared to nonbeneficiaries.

The project has three components: (i) participatory forest planning, management, and awareness; (ii) sustainable forest resource development and management; and (iii) institutional strengthening through improving the technical knowledge base of the Forest Department’s professional and extension staff, participating beneficiaries, as well as nongovernment and community-based organizations. The following table summarizes outputs and achievements as reported by the project completion report (PCR, Appendix 10).

Most targets were met or exceeded, though some activities underachieved due to lack of available land. One significant activity could not be implemented due to the government’s failure to pass the required ordinance for the leasing of state forests and plantations to the private sector.

ADB.Reference Number: PCV: SRI 2011-48.Project Number: 30215.Loan Number: 1744-SRI(SF).December 2011

Forest Resources Management Sector Project

For more information about Projects in Sri Lanka see Southern Asia Projects

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Viet Nam.Rural Infrastructure Development in Central Highlands

Thematic Classification Economic growth.Capacity Development.Impact Sustained socioeconomic development.Outcome Increased rural productivity.Outputs Improved Productive Rural Infrastructure Increased capacity to efficiently develop, manage and use PRI. 
 
Asian Development Bank.Project Number 40238-02

Rural Infrastructure Development in Central Highlands :  Viet Nam,Soc Rep of

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Promoting an Asia Pacific Wastewater Management Revolution

In accordance with the ADB's Water Policy, the TA will support development of wastewater investment projects through knowledge management, examination of technology options, incentives and financing mechanisms, and conduct of knowledge exchange and capacity development activities. The TA proposes to concretize the advocacy into potential business opportunities by undertaking limited pre-feasibility studies to establish financial sustainability and then conducting round tables amongst stakeholders (primarily public sector agencies and private investors) to confirm their interest to invest after full fledged feasibility studies (beyond scope of this proposal). Proven solutions that can be potentially applied to a local situation will be discussed at the roundtable as a sustainable business opportunity for wastewater management. The mutually accepted opportunities will then be further developed as a wastewater investment project with private participation by ADB with other partners.

Asian Development Bank.Project Number. 45119- 01

Promoting an Asia Pacific Wastewater Management Revolution

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Nepal.Gender.Focused Capacity Development in Clean Energy

The project will improve the reliability of energy supply in Nepal and strengthen the transmission infrastructure needed to promote Nepal s capacity for cross-border energy trade. It will provide support in three critical areas in the electricity supply industry, which has experienced severe underinvestment: (i) electricity transmission capacity expansion, (ii) strengthening of distribution systems including those along the Tamakoshi (Khimti) Kathmandu transmission line, and (iii) rehabilitation of selected small hydropower plants.

Asian Development Bank.Project Number 41155- 02

Gender-Focused Capacity Development in Clean Energy :  Nepal

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Aureos South East Asia Fund II Equity Investment

1 December 2011.The Asian Development Bank (ADB) has approved an equity investment for a private fund to finance small- and medium-sized enterprises in Southeast Asia.Description: The fund will invest in high growth businesses in target countries which are focused on servicing domestic demand or regional markets. The investments will help spur new growth and employment opportunities in Southeast Asia.Amount: Up to $15 million equity investment from ADB’s ordinary capital resources.Project ID: 45911

For more information:  http://www.adb.org/Projects/project.asp?id=45911

Support for Thailand's Flood Management Knowledge Forum

In response to the on-going flood disaster in Thailand, The Royal Thai Government and ADB seek to take early steps in support of Government efforts to strengthen the strategy for flood management. Consistent with these efforts, the TA is proposed to (i) assist the Government to organize and hold an international knowledge forum to support Government efforts to strengthen its strategy for flood management, in the context of wider water and disaster risk management as appropriate and (ii) support sub-national workshops to discuss water and flood management issues and strategic alternatives for strengthening future flood management. 

Asian Development Bank.Project Number.45401-01

Support for Thailand's Flood Management Knowledge Forum :  Thailand

Viet Nam.Strengthening Support for SOE Reform and Corporate Governance Facilitation Program

This TA aims to provide support to the MOF and other implementing agencies in this regard through support for the refinement of the institutional and policy framework to allow for an effective generalizable approach to SOE restructuring and reform, drawing on lessons learned from the implementation of the pilot restructurings under the MFF.

Asian Development Bank.Project Number.39538-05

Strengthening Support for SOE Reform and Corporate Governance Facilitation Program: Viet Nam,Soc Rep of

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Lao PDR.Smallholder Development Project (Additional Financing) :

The agriculture and forestry sectors remain Lao PDR's primary source of livelihood and play a key role in reducing national poverty. The Smallholder Development Project (current project) has therefore been promoting sustainable commercial smallholder agriculture and associated agribusiness through strengthening extension services, enhancing access to information and markets, capacity building, and increasing investments in agribusiness. The proposed additional financing, which will consolidate and expand well-performing investments initiated under the current project, covers 13 districts in four provinces. 

Asian Development Bank.Project Number.31351-03

Smallholder Development Project (Additional Financing) :  Lao People's Dem Rep e

Emerging East Asia's Local Currency Bonds Resilient But Face Risks

Asian Development Bank’s. 29 November 2011. MANILA, PHILIPPINES. Emerging East Asia’s local currency bonds are still in demand from domestic and offshore investors, but the region’s markets face increasing challenges, according to the latest Asia Bond Monitor released today.

Emerging East Asia’s local currency markets continue to expand, but at a slower rate than previously. At the end of September, the region had $5.5 trillion in outstanding bonds, 5.5% more than a year earlier in local currency terms.  That compared with a year-on-year growth rate of 7.6% at the end of the second quarter of 2011.

The expansion in the third quarter was largely due to strong growth in the region’s corporate bond market, which expanded by 15.4%, while the government bond market grew by a smaller 1.3%.

“Asia’s low debt levels, strong economic fundamentals and the yield pick-up compared with bonds of developed markets contribute to the attractiveness of local bonds,” said Iwan J. Azis, Head of the Asian Development Bank’s (ADB) Office of Regional Economic Integration.

Still, risks to the outlook include growing uncertainty surrounding the European economies, which is generating volatility in global and regional markets and a flight to safe-haven investments. Furthermore, the slowdown in Asia’s economic growth and the potential for abrupt capital outflows are also challenges.

The report assesses the bond markets of the People’s Republic of China (PRC); Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Viet Nam.

Bonds issued by local governments could become an interesting new asset class in the local markets.  The Thai government now permits issuance by local governments and the companies they own. Meanwhile, the PRC recently approved  issuance of bonds by the  municipal government of Shanghai and the province of Guangdong for CNY7.1 billion and CNY6.9 billion, respectively.

Yield curves in most markets have flattened and in some cases shifted downwards as markets and policymakers focus on supporting growth rather than stemming inflation. Declining yields, particularly for longer-dated bonds, offer governments in the region an opportunity to raise cost-effective debt should they need to finance additional borrowing.

Viet Nam was the fastest-growing local currency bond market in the third quarter, expanding 22.2% on year to $17 billion. The corporate bond market grew by a strong 34.7% with the government bond market increasing 21.1%.

The PRC has the largest local currency bond market in emerging East Asia with $3.2 trillion in bonds outstanding at the end of September. That was 3.5% more than a year earlier and 0.5% more than at the end of June. The 20.0% year-on-year growth in the corporate bond market contrasted with the 0.7% contraction in the government bond market.

Bond issuance in the region totaled $829 billion in the third quarter, up 7.6% versus the second quarter but down 19.9% year-on-year as central banks reduced sales to offset foreign exchange inflows. Corporate issuance was also down 24.4% on a year-on-year basis. This decline, however, was from extraordinarily high levels in 2010.

Asian BondsOnline’s latest liquidity survey of over 100 investors shows that bid-ask spreads have widened compared with last year but turnover ratios have improved. The survey results show that market participants want governments to issue more bonds to improve market liquidity.

As of the end of October, borrowers in emerging East Asia had raised $63 billion in so-called G3 bonds – or bonds denominated in US dollars, euros or yen -- suggesting the region may, after all, fall short of the record $87 billion in issuance witnessed in 2010.v