ADB's Program of Subregional Economic Cooperation in the GMS

8/3/2019 ADB's Program of Subregional Economic Cooperation in the GMS

http://slidepdf.com/reader/full/adbs-program-of-subregional-economic-cooperation-in-the-gms 1/114

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



CONTENTSPage

PageEXECUTIVE SUMMARY iii

I. BACKGROUND 1

A. Objectives and Approach 1B. ADB’s Mandate for Subregional Cooperation 2C. The Greater Mekong Subregion 2D. 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 5B. Institutional Arrangements for Program Management 7

C. Programming ADB Support to GMS and GMS Member Countries 8D. Resource Mobilization in the Greater Mekong Subregion 9E. Program Monitoring, Evaluation, and Information Dissemination 12F. 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 1B. Subregional Programming and Links with National Programs 17C. More Focused and Reduced ADB Involvement in the GMS Program 18D. Institutional Coordination and Cooperation 19E. What Constitutes a GMS (i.e., Regional) Project? 20F. Regional Project Design Issues 21G. Mobilizing Additional Financing for GMS Initiatives 22H. Distributional Issues 22I. Integrating Social and Environmental Concerns in Infrastructure

Development 23J. 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 passescomprises 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 Programwas initiated in 1992 with the objective of achieving cooperation and accord among the sixcountries in planning and promoting subregional economic development. The program iswithout a formal organization or institution, but is guided by a general set of principles andinstitutional arrangements and is different from other regional agreements.

Since 1992, the Asian Development Bank (ADB) has approved $39 million in technicalassistance (TA) projects for the GMS Program and $465 million in loans (plus $234 million incofinancing). ADB support covers seven sectors (transport, telecommunications, energy,tourism, environment, human resource development, and trade and investment) together withgeneral technical and institutional support for the program. This special study report includesfindings from wide-ranging consultations with key stakeholders on the evolution and processes

involved, and findings and lessons from selected interventions. ADB’s performance insupporting the GMS Program is assessed in relation to GMS objectives, and to ADB's mandateand strategy for subregional cooperation.1

The results of the study show the GMS Program has provided member countries withthe opportunity to develop a shared vision of the future development of the region, and hasbeen most effective when it focused on activity-based initiatives to secure reforms andagreement. This activity-based approach of the GMS contrasts with the rules-based approachof many regional institutions (e.g., the Association of Southeast Asian Nations [ASEAN] FreeTrade Area [AFTA] and World Tourism Organization [WTO]) and is a major distinguishing andmost widely appreciated feature of the GMS approach. The sustained high level of GMS

member participation in meetings, especially ministerial meetings, is an indicator of strongsupport for and ownership of the GMS process. Progress has been made in promoting dialogueand reaching agreements on steps to reduce barriers to increased economic cooperation.Agreement has been reached on identifying and prioritizing regional projects, and securingfinancing for a number of major projects. To date, however, there has been limited progress inimplementing these projects. On a broader front, the GMS Program encouraged dialogueamong member countries, notably at ministerial level, and contributed to better understandingamong members and willingness to work together for mutual benefit.

Most central agencies consider overall progress as satisfactory, given the need forwidespread consultations in reaching agreement and securing political approval from multiple

governments for GMS activities. In contrast, some external commentators from the business1

ADB’s Charter requires it to "foster economic growth and cooperation” in the Asia region and to “give priority toregional, subregional, and national programs and projects that contribute most effectively to harmonious economicgrowth of the region.” ADB's Medium-Term Strategic Framework (MTSF) identifies regional cooperation as one ofits four operating objectives. A Board policy paper states that regional cooperation should be "viewed as beinginherent in Bank operations." It identifies three complementary functions of ADB support: (i) to provide informationrelevant 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 theADF have also expressed appreciation of ADB’s special role in regional cooperation, and the contribution it makesto 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 thatthe program has been slow in generating tangible impacts in terms of socioeconomicdevelopment and increased investment opportunities. However, unrealistic expectations wereraised initially, given the large pipeline of project initiatives identified as GMS projects, and theperceived delays in delivering tangible results have generated disappointment among somestakeholders. Improved information flows about project development, and more systematic

consultations with non-State interests, could have done much to reduce the differences inperceptions. For the present there are doubts whether the process would be sustained acrossthe 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 andlimitations on ADB resources. Initially the GMS Program focused on the provision of basicinfrastructure to link the subregion and allow development of the resource base. It now coversseven sectors, all seemingly accorded the same priority, with the program appearing to focus onthe sectors rather than its original purpose of subregional cooperation and development. ADBloan 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 GMSinitiative, and that trade, investment, and tourism would follow once the corridors werecompleted. 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 proposedinvestments.

Linkages between national programs and priorities and GMS Programs and priorities areweak. Project and TA designs have not always taken into account the substantial subregionaldifferences in institutional capacity. Issues associated with reaching and implementing cross-

border agreements are complex and require regular working-level discussions, supported bytechnical assistance. A major constraint to investment in the GMS is the perceived risks inimplementing cross-border and revenue agreements. Successful implementation of cross-border agreements associated with the east-west transport corridor will be critically important inincreasing private sector confidence in the GMS Program.

ADB’s rationale for supporting regional cooperation is that such cooperation generateseconomic 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 regionalcooperation. In the GMS in particular, regional cooperation has enhanced peace and stability. In

addition, regional cooperation can generate benefits from economies of scale, reducetransaction costs, and improve resource mobilization and opportunities for investment.

While the GMS initiative is the first major ADB supported subregional initiative across arange of sectors, questions arise as to whether ADB’s organizational structure, staff resourcesand incentives, and current funding arrangements for loans and TAs are appropriate forsupporting such regional initiatives and programs. This issue is wider than the GMS and isperhaps a key strategic issue that ADB must face. The GMS unit (within a programs division) isthe 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 Programhas not become a mainstream priority activity in the projects departments. There are no networkarrangements nor joint responsibilities between projects and programs on GMS activities, andthere is little evidence of ADB staff promoting subregional cooperation. The most tangibleindicator 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 importantfor 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 theMekong River Commission.

The report’s recommendations cover the following key concerns.

(i) Rationale, framework, and vision for regional cooperation. Regional cooperationgenerates economic growth and enhances peace and stability. Regional cooperationcould be supported generally in ADB under a framework that targets such cooperationso as to provide economies of scale, reduce transaction costs, speed up developmentthrough improved sharing of knowledge, and increase opportunities, particularly thosewhich 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 oneof assisting GMS member countries in developing partnerships with other members topursue 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 economicconditions, ADB should encourage the review and preparation of a prioritized medium-term GMS development strategy endorsed by a GMS ministerial meeting. ADB needsthen to prepare a subregional operational strategy for its own role and areas of supportfor the GMS Program, along the lines of country operational strategies. An importantconsideration in formulating such an ADB strategy is the need to achieve a morefocused and integrated approach to ADB support to the GMS, including betterintegration of national and subregional initiatives.

(iii) Improved links between GMS and Country programs. There is a need to reviewoptions for a more strategic approach to programming ADB support to the GMS toreplace current ad hoc arrangements. Priority GMS elements, including key GMS-relatedpolicy and institutional reforms, should be included more effectively in countryoperational strategy and annual programming exercises. Country strategies and countryprograms should include both the national program and their respective regionalcomponents.



(iv) More focused and reduced ADB involvement in the GMS Program. Given itsresource constraints, ADB cannot effectively provide support to all GMS activities. ADBneeds to periodically assess its role in all GMS initiatives and assess opportunities toreduce dependence on it for support where appropriate. This is already happening in

tourism, with increasing responsibility and leadership in key areas being transferred tothe private sector. Steps have also been taken for direct consultations with ASEAN inthe trade and investment working groups, and there may be scope for greater ASEANinvolvement in these groups in the future. Revision of the medium-term GMS strategywill provide the opportunity for focusing of ADB support. One possible scenario is forADB to focus its regional GMS support primarily on a limited number of transport andpossibly power links, with support to other sectors being focused on ensuring maximumsocial, economic, and environmental benefits from those investments. Activities pursuedas regional GMS Programs, as opposed to national programs, should have the attributesnoted 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 withsupporting regional cooperation programs. This issue is wider than the GMS—involvingADB’s commitment and support as a whole to regional cooperation and regionalinitiatives, 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 madein the process of allocating RETA resources in the medium term. Improvements can bemade in programming loan proposals, but reconsideration may need to be given toestablishing 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 GMSactivities, with network arrangements, joint responsibilities, and staff resources alignedaccordingly. Sector-level assistance should be better integrated to maximize returnsfrom ADB investments in GMS activities. Greater emphasis, for example, could be givento linking ADB support in the environment and social sectors with high-priorityinfrastructure developments to increase the impact of the regional initiative. Recentproposals 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 resourcesaccordingly. Attention is needed to: (a) differences in institutional capacity and needswithin the GMS; (b) preparing and incorporating rigorous needs assessments in projectdesigns; (c) explicitly weighing the costs of subregional approaches against potentialbenefits; and (d) explicitly weighing the potential benefits of broader consultativemechanisms against the potential costs resulting from greater complexity inimplementation. Guidelines should be developed for the formulation, design andappraisal of regional projects. Regional projects should demonstrate the positive returnsfrom adopting a regional rather than a national approach, as noted in (i).



(viii) Improved monitoring and information sharing. Institutional mechanisms for effectivemonitoring, coordination, and information sharing need to be established for subregionalinfrastructure initiatives. An immediate priority is the establishment of an effectivesystem 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 thecredibility of the GMS Program. This should include mechanisms for regularly monitoringand enforcing agreements related to cross-border agreements.

(ix) Innovation to ensure efficient and equitable returns on GMS investments. Greaterattention is required on the impact of national policies on the returns to GMSinvestments. ADB will sometimes need to leverage national programs in addressingpolicy and institutional constraints to efficient subregional investments and moreequitable distribution of returns on subregional investments. A better understanding ofthe impact of national trade and investment policies on returns to subregional

investments would appear to be a priority issue for the trade and investment workinggroups. Enforcement of cross-border agreements is also an immediate priority.



(x) Marketing GMS opportunities. There is a need for better marketing of information aboutopportunities. These efforts need to recognize that one of the key concerns for investorsis the extent to which cross-border agreements will be enforced and the potential forpolicy 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 mostappropriate links between the GMS and ASEAN; one possible option is to view at leastsome aspects of the GMS initiative as a subset of ASEAN initiatives (e.g., sometransport links are a subset of more ambitious ASEAN proposals). Coordinationmechanisms 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 ofconcern to MRC; this is particularly important given the recent and significant WorldBank support to the Commission. Cooperation and work sharing arrangements withEconomic and Social Commission for Asia and the Pacific (ESCAP) also need to bereviewed.



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 ofapproximately 250 million, and a total gross domestic product of $212 billion. The GMS Programwas initiated in 1992 with the objective of achieving cooperation and accord among the sixcountries in planning and promoting subregional economic development. The program iswithout a formal organization or institution, but is guided by a general set of principles andinstitutional arrangements and is different from other regional agreements.

2. Since 1992, the Asian Development Bank (ADB) has approved $39 million in technicalassistance (TA) projects and $465 million in loans (plus $234 million in cofinancing) for the GMSProgram. ADB support covers seven sectors (transport, telecommunications, energy, tourism,

environment, human resource development, and trade and investment) together with generaltechnical 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 fromthe activity. The goal is to contribute to the overall efficiency and effectiveness of ADB’sdevelopment assistance in the GMS.

4. Given the broad nature and complexity of the GMS Program, the evaluationmethodology differs from that used for project-level evaluations and is more analogous toreviews 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 keystakeholders on the evolution and processes involved during the development of the GMSProgram, and summary findings and lessons from selected interventions. ADB’s performance insupporting the program is assessed in relation to GMS objectives and ADB's mandate andstrategy for subregional cooperation.

6. This introductory chapter provides background information, including an outline of ADB'smandate for subregional cooperation, summary information on the development of the GMSProgram, key socioeconomic indicators of GMS members, and ADB programs of GMSmembers. Section II gives an overview and brief assessment of program-wide issues, includingthe GMS strategic objectives and approach, institutional arrangements for programmanagement and coordination, resource mobilization, program monitoring and evaluation,information dissemination, and coordination with related institutions. Section III is a briefsummary 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

2Case studies were carried out for the key sectors, but resource constraints prevented detailed evaluation of allGMS 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 regionand to “give priority to regional, subregional, and national programs and projects that contributemost effectively to harmonious economic growth of the region.” ADB's Medium-Term StrategicFramework (MTSF 1995-1998) identifies regional cooperation3 as one of its four operatingobjectives. An ADB Board policy paper4 states that regional cooperation should be "viewed asbeing 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 privateresources toward regional investments. Contributors5 to the Asian Development Fund (ADF)have also expressed appreciation for ADB’s special role in regional cooperation, and thecontribution it makes to regional peace and stability as well as to prosperity and sustainableresource management.

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

C. The Greater Mekong Subregion

9. Despite their geographic proximity, countries within the GMS show substantialdifferences in level of socioeconomic development (Table 1). Cambodia, Lao PDR, andMyanmar 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 lowper capita income. PRC was ranked 98th in the world in terms of the HDI, while Thailand wasranked 67th. Thailand enjoys a per capita income that is more than twice that of PRC, morethan 4 times that of Viet Nam, and 5-6 times higher than that of the other GMS countries. Thereare also major differences in population and national income between the GMS members.

3The MTSF, recognizing that at that time relatively large amounts of TA resources were available for regionalcooperation, states that (a) it is important that ADB achieve specific and prioritized regional cooperation objectivesestablished in cooperation with developing member countries (DMCs), (b) ownership of objectives by DMCs is toremain the guiding principle, and (c) financing of interrelated projects in different DMCs to better coordinate naturalresource management (water, energy) should also be pursued.

4Asian Development Bank. 1994. Bank Support for Regional Cooperation , 11 April.

5Asian Development Bank. 1997. ADF VII : Report of the Donors, January.

6Asian Development Bank. 1998. Three-year Rolling Work Program and Budget Framework (1999-2001), September.



3

Table 1: Socioeconomic Indicators of GMS Countries

Country 1997 Population HDI Ranking GDP RankingPer Capita GDP

(Purchasing PowerParity) - 1997

Thailand

China, People’s

Republic ofViet Nam

Myanmar

Cambodia

Lao PDR

59.7

1,244.276.4

43.9

10.5

5.0

67

98110

128

137

140

60

104133

151

147

146

6,690

3,1301,630

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 thereis now general agreement on the importance of markets in the efficient allocation of resourcesand 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 tomarket-oriented economic systems, and the consultative mechanisms used in developing publicpolicy substantially differ.

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

Table 2: Financing Development in GMS Countries

Country $/capitaODA Disbursed

% of GDP $ million

FDI Inflows

($ millions)

ThailandChina, People’s Republic of

Viet Nam

Myanmar

Cambodia

Lao PDR

112

15

1

42

82

0.40.2

4.1

—

12.2

19.5

6262,040

997

45

372

341

3,60045,300

1,200

80

200

90

FDI = foreign direct investment, GDP = gross domestic product, GMS = Greater Mekong Subregion,ODA = official development assistance.

— = not availableSource: 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 (butincluding all of PRC, not just Yunnan province) accounted for roughly one third of total loanapprovals during the period 1993-1998 (Table 3). PRC and Thailand together accounted fornearly 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. Totaldisbursements to GMS countries accounted for about 24 percent of total ADB disbursements in1998. Loans and technical assistance to all countries are programmed on a three-year rollingplan basis as a joint exercise with national governments.



4

13. For the GMS Program itself, ADB has approved TA projects costing more than $39million,7 and has been involved in financing investment projects with total investmentsamounting to almost $2 billion8 (Table 4). ADB has played a leading role in facilitating andfinancing 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 Approvals1993-1997

ADB Loan Approvals1998Country/Region

OCR ADF OCR ADF

TA Approved1998

Cambodia 0.0 2.5 0 4.1 0.8

China, People’sRepublic of 23.3

0.024.1 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 ADBCountry

OCR ADFTA Approved

Disbursements

Cambodia 0 0 1.4 29

China, People’sRepublic 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, includingAustralia, Economic and Social commission for Asia and the Pacific (ESCAP), Finland, France, InternationalLabour 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 theeast-west corridor), $400 million from OCR resources, $912 million from GMS member governments, and $234million in commercial and other cofinancing.



5

II. PROGRAM STRATEGY, MANAGEMENT, AND COORDINATION

A. Program Strategy and Approach

14. The core GMS Program has evolved through three phases (Appendix 1). ADB firstapproved a RETA ($270,000) to promote subregional cooperation among the six cooperatingcountries 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, andidentifying potential areas for such cooperation.

15. ADB approved a second RETA in June 1993 ($4.0 million).10 This was subsequentlyincreased 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, andmechanisms for enhancing economic cooperation as well as defining priority subregional

development projects. The stated long-term objective was to promote, facilitate, and supportmutually 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 tobe 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 workinggroups, to undertake feasibility studies, and for institution building and other activities. Theseinterventions are discussed in Section III of this report.

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

9TA 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 wassubsequently increased to $190,000 on 19 May 1992 and $270,000 on 16 September 1992.

10TA 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.

12TA 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 ofcofinancing was envisaged in the TA mostly for human resource development activities. As of March 1999, anadditional $250,000 had been mobilized.



6

Table 5: Overview of ADB Core Support to the Greater Mekong Subregion

Support Key Stated Objectives Results

Phase IRETA

Formulate detailed terms of reference (TORs) forphase II of the RETA, including TORs for countryand subregional studies;

Phase II project and TORs were prepared asdiscussed below.

Assist with workshop to discuss proposed TORs,work program, and implementation arrangementsfor 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 aministerial meeting (20-21 October 1992).Consensus reached on priorities and approaches forphase II.

1Report included assessment of priority

sectors.

Phase IIRETA

Undertake at subregional and country level,substantive research and consultation to identifythe scope, opportunities, benefits, costs andmechanisms for enhancing economic cooperationamong GMS countries.

Stimulate interest of international aid agenciesand potential foreign investors in supportingpriority subregional projects.

Basic approach to subregional cooperation, andstrategies for project selection and design agreedupon at ministerial meetings. Sector-level forums andworking groups established and studies adopted forkey sectors (see sector assessments). Agreement on95 projects, and a smaller set of priority projects.

2

Broad aid agency and some private sector interest inGMS. See paras. 31-36 for discussion on resourcemobilization.

Phase IIIRETA

Prepare and coordinate implementation ofagreed-upon priority subregional projects.

Build necessary subregional institutional capacityfor effective project implementation and forsustaining subregional cooperation in the longterm.

Mobilize external resources for subregionaldevelopment, including the structuring ofsubregional projects to facilitate public-privatepartnerships.

Build intersectoral linkages among initiatives inindividual sectors to help address broaderdevelopment concerns.

Develop effective linkages between subregionalcooperation and domestic policies and programs.

Assessment of progress included in relevant sectionsof this report.

Progress in institution building varies by sector (seesector assessments). Limited evidence of strategicthinking on how to reduce dependence of GMSinstitutions on ADB support.

More clearly defined strategic approaches toprogramming of ADB resources are needed tofacilitate mobilization. See para. 36 on resourcemobilization.

Sector linkages remain weak (see sectorassessments). Need more strategic decision making(paras. 69, 123 ) .

ADB country strategies and programs rarely addressspecific subregional concerns (paras. 65, 66, 122 )

GMS Unit Provide logistical and strategic support inachieving above objectives.

Played a key role in facilitating networking withinGMS, but inadequate resources and authority havelimited its capacity to exercise strong leadership inADB (paras. 107, 125). Links between RETAactivities initiated by different ADB departmentsremain weak.

1Findings 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 theGMS 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.



7

B. Institutional Arrangements for Program Management

1. Overview

19. At the country level, a National Interministerial Steering Committee (NISC) wasestablished in each country to coordinate and supervise the GMS Program. Each NISCappointed a national coordinator to serve as the focal point within GMS countries, and betweenthe NISCs and ADB. Regular ministerial-level meetings are held to reach consensus onapproaches, priorities, and implementation arrangements. Preparatory meetings of seniorofficials usually precede these ministerial meetings.

20. Within ADB, responsibility for overall supervision of the ongoing GMS Program isassigned to an interdepartmental steering committee chaired by the Vice-President (West). Aproject 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 technicalinputs and guidance to sector-level GMS forums and working groups meetings. Details of thesearrangements 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 havebeen well briefed and have had the authority to make decisions. These meetings have beeneffective in reaching agreement on potentially controversial issues and in facilitating subsequentimplementation of decisions. Networking between the various GMS secretariat units has beenvaluable in reaching agreements and resolving potential problems.

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

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



8

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



9

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 sectorstudies and working group meetings, and are endorsed by ministerial-level meetings. The GMSProgram is results oriented, and the projects selected for inclusion generally have one or moreof 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 countryassistance. Individual ADB departments are provided with annual allocations of RETAresources; decisions on how much of this will be allocated to GMS activities — and to specificGMS projects — are then made at the department level. Decisions on ADB financing of GMSinvestment projects are made during ADB's annual country programming exercises withindividual governments, and GMS-related projects must compete for resources within theannual 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 ensuringthat agreed-upon GMS initiatives are consistent with national priorities. There will continue to beprojects where subregional priorities will not always coincide with national priorities, but theseconcerns have to be dealt with on a project-specific basis through country-level negotiations.

29. There appear to be fundamental problems, however, with ADB programmingarrangements. Current RETA screening arrangements provide little opportunity for coordinatedprogramming of resources to meet agreed-upon GMS strategic objectives, and there are nomechanisms for formal consultations with GMS countries in making allocation decisions. Whilein general there is a degree of consistency between approved RETAs and established GMSpriorities, there are indications that RETA allocations are driven more by supply considerationsthan by these priorities. The relatively large allocations of RETA resources to the environmentsector (more than one third of the total) despite very limited direct links between environmentRETAs and the high-priority infrastructure projects, are indicative of supply-driven influences.The weak links between human resource and environment initiatives, and infrastructuredevelopments are indicative of problems in ADB coordination in allocating GMS RETAresources 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.



10

added. Inadequacies in programming have also been a factor in ownership problems identifiedin the human resource development and environment case studies. The sector assessmentsalso highlight the need to specifically address priority subregional concerns in ADB's countrystrategies and programs. Improving the mechanisms for programming resources to supportGMS activities is an important priority, with greater subregional consultations in RETAprogramming 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. Suchdecisions appear to have been made on an ad hoc basis, and the current list of ADB-assistedGMS infrastructure projects has notable anomalies. For example, while the Siam Reap Airportproject will certainly have subregional impacts, the same could be said for many nationaltransport projects. Development of the Yunnan expressway has the potential to increasesubregional transport flows, but at this stage involves road development only in Yunnan with thenational Government providing majority financing. While power transmission lines crossingnational borders have a strong basis for being classified as subregional, the rationale forclassifying power stations constructed in one country as subregional (i.e., as GMS) is weaker. Itcould 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 connectedto the same grid) should be classified as subregional. The classification of some GMS projectsas subregional seems contrived. The need for clearer definitions of what constitutes asubregional project will become more important as ADB introduces new subregional modalitiesand 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 andenergy infrastructure developments. The Yunnan expressway development accounts for morethan half of this total, with the national Government providing the major share. Almost 50percent of total GMS investments have been raised from GMS members (most of this from thePRC), ADB financing accounts for 40 percent, and the remainder is from commercial financingsources and Japan Bank for International Cooperation (JBIC). Private sector and commercialfinance agencies provided most of the financing for the Theun Hinboun Power project. ADB hasbeen the principal external financier of the remaining GMS infrastructure projects. These figuresexclude 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 thisamount 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 membergovernments. Cofinanciers have financed most of the investments in the telecommunicationsand energy sectors, and about half the resources in the environment and human resourcesectors. Only very limited cofinancing has been mobilized for the core programs, tourism, andtransport sector activities (Table 6).

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



11

Table 6: ADB-Supported GMS TA ActivitiesFinancing ($’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 SwedenTransport 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 availableADB = 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 hasbeen some success in mobilizing cofinancing. While there may be doubts as to whether someof the projects are really GMS initiatives, recent transport projects have involved coordinatedfinancing in more than one country (Table 7). ADB’s involvement in the east-west corridor, hasfacilitated additional investments in core parts of the corridor development (e.g., the bridge atMukdahan/Savannakhet, Da Nang Port) as well as increased potential returns to otherinvestments in rural roads in central Viet Nam and Lao PDR.

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

15Financing arrangements attracted considerable favorable attention in the business press and magazines, includingtrade and project finance reports.



12

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 powerprojects have been initiated. Thus, at present, it is not possible to assess the extent to whichthe approach to financing the Theun Hinboun Power project will be replicated elsewhere in theregion.

Table 7: ADB-Supported GMS Infrastructure by SectorADB Total Project Financing

PROJECTS Loan Investment ADB Cofinancing

No. $ million ADF OCR Gov’t. Amount Source

TRANSPORT

EAST-WEST TRANSPORTCORRIDOR

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 44.8SIAM REAP AIRPORT 1503 17.0 15.0 2.0

YUNNAN EXPRESSWAY 1325 461.4 150.0 311.4

SOUTHERN YUNNAN ROADDEVELOPMENT

1691 768.7 250.0 518.7

CHAMPASSAK ROADIMPROVEMENT

1369 60.1 48.0 12.1

SUBTOTAL 1,578.7 260.0 400.0 930.7 —

ENERGY

THEUN HINBOUNHYDROPOWER

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 = JapanBank for International Cooperation.Source: ADB. GMS Unit.

35. While some of the problems in raising private sector financing can be attributed to thegeneral deterioration in the investment climate following the Asian financial crisis, specificactions 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 nationalgovernments are serious about implementing cross-border agreements. Problems inimplementing these agreements will greatly dampen private sector expectations that futuresubregional agreements will be enforced. Second, ADB needs to more directly address—incountry strategies and programs—the national constraints to returns on subregionalinvestments. Reforms in trade policies, foreign investment regulations, and dispute resolutionand contract enforcement mechanisms have a potentially major role to play in increasing returnsto subregional investments. Third, the GMS Program needs to adopt a more focused andstrategic approach to marketing GMS investment opportunities, including direct consultations



13

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

36. Sectors have shown major differences in success in mobilizing resources from outsideADB. There may be some justification for ADB to continue playing a lead role in financing coreGMS 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 thetelecommunications and energy sectors, and a large share of financing for the environment andhuman resource initiatives. Relatively small amounts of formal cofinancing have been mobilizedfor transport and tourism, although there have been considerable in-kind contributions from theprivate sector in the tourism sector. Regular regional programming of TA and investmentrequirements, within the context of a clearly defined, time-bound strategy for subregionalcooperation, 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 disseminationcould only be described as ad hoc. Formal monitoring systems include only basic projectdetails. More detailed information is generally compiled in preparation for specific meetings andconsultations. Most GMS publications have evolved the same way. No formal internalevaluation 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 informationand has not been updated on a regular basis. During the first six months of 1999, the mostvisited GMS web page, the telecommunications page, had been visited only 20 times. The webpage 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 informationdissemination. The urgency increases as substantial investment projects begin to beimplemented. The Theun Hinboun Power project has already attracted considerable controversyabout alleged adverse social and environment impacts. ADB was not well positioned to quicklyprovide independently verifiable data on the socioeconomic impacts of this development andshould anticipate even stronger regional and international interest in the east-west corridordevelopment and other subregional road projects. ADB needs to be proactive in monitoringperformance and identifying and analyzing social, environmental, and economic concerns asthey 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 alsorecommendation in paragraphs 127-128).

16A suggestion for an internal evaluation was made in an internal note from the Manager of Programs West Division3 to Programs West Office of the Director, but there was no apparent follow-up.



14

F. Relationship and Links with Related Initiatives and Institutions

40. There have been fairly regular communications with related subregional initiatives andinstitutions, but the extent of consultation and collaboration has varied greatly. The extensiveinvolvement of the Pacific Asia Travel Association (PATA) and the United Nations Economicand 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 tocross-border agreements and other transport planning studies.

41. On the other hand, despite the recent involvement of the Association of Southeast AsianNations (ASEAN) in the trade and investment initiatives, there is still some ambiguity about howthe GMS initiatives in trade and investment will complement rather than duplicate ASEANresponsibilities. The greatest concern is with the relationship between the GMS initiative and theMekong 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 toMRC. Further, the members were concerned that the GMS Program did not adequately consultwith and/or utilize their expertise during program planning and project implementation. TheWorld 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 risksof 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 sectorsand between projects, a more clearly defined strategic framework for the GMS, including detailsof anticipated links with other programs, would facilitate more productive collaboration andassist in reducing duplication of effort.



III. SUMMARY SECTOR ASSESSMENTS

A. Methodology

43. Case studies were conducted for selected GMS interventions. The methodology wasanalogous to that used in reviewing a sector program, with focus on processes, achievements,and policy, institutional, and investment issues. Given the study resource limitations, casestudies were limited to five areas. The criteria used to assist in guiding selection of areas formore 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 resourcedevelopment; and (v) initiatives in trade and investment. The studies entailed limited field visitsand consultations with key stakeholders involved in the selected initiatives, in addition to deskstudies. Assessments of the energy and telecommunications sectors were conducted as deskstudies of ADB documents.

B. Sector Assessments

45. A review of the individual GMS projects and initiatives examined during the study ispresented in matrix form in Appendix 2. It should be noted that most of these initiatives are TAoperations and activities of working groups; very few loans have been approved and only oneproject has been completed. The analysis of these project, TA, and other initiatives focused ontheir role and contribution to the regional program and regional development, and the processesby which they were selected, designed and approved. This process and its effectiveness arethen reviewed and assessed, and lessons/recommendations drawn. Summary information onthe GMS interventions by sector, drawing on both the individual project/initiative studies and ondetailed sector analyses, is presented in a similar matrix format in Appendix 3, while summariesof the detailed sector assessments17 themselves are presented in Appendixes 4 to 8. Thesestudies, and the lessons and recommendations drawn from them are the bases of the mainfindings of the report (Section IV), and of the main conclusions, lessons learned, andrecommendations (Section V). Section IV focuses on the common findings from thesector/project studies and key findings for the GMS Program as a whole, with emphasis on itsbeing a regional program. Section V focuses on lessons and conclusions for ADB and the GMS

17The complete sector and project studies are available in the separate consultants’ reports.



2

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

1. Transport

46. The main objective of the GMS Program in the transport sector is to develop prioritytransport corridors to link population centers and tourist destinations, improve access to marketfor 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, andto monitor their effectiveness so that any necessary changes can be made. The potentialbenefits of infrastructure development will not be realized without further trade and investmentreforms. 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 thetransport projects and ensuring equitable distribution of costs and benefits among the GMSmembers.

2. Telecommunications

48. The objective of the GMS Program is to achieve compatibility between nationaltelecommunications systems, enhance subregional and national networks, and adjust tariffs andregulations to enable GMS telenetworking, but the priorities are unclear. Although an East Loopproject is in the pipeline with a complete feasibility study, overall the GMS strategy remainsunclear. 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 isno convincing argument that ADB has any comparative advantage in leading planning orfinancing for essentially commercial telecommunications infrastructure projects. Adopting amore limited enabling role in promoting commercial investment might be a more effective rolefor ADB and use of resources.

3. Energy

50. The objectives in the energy sector are to provide a link between the GMS power supplyand systems development institutions, promote effective development of power by identifyingpotential power projects and financing sources, provide technical advice and information,provide a forum for software issues and pricing policy, and facilitate subregional traininginitiatives. 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, remainunclear until integrated power network policies are better defined. Greater attention needs to bepaid to raising private financing and formulating a clear GMS power strategy. A key component



3

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

4. Tourism

52. The key objectives are to promote tourism and increase tourist flows through links withthe transport corridor and strengthened subregional tourism institutions. The design process,through the working group on tourism (WGT), has involved consultation with private sectortourism 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 inreducing government red tape in the sector, which is a major constraint. Arguments for publicsector involvement in tourism development have not always been clearly established. The casefor 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 linkingtourism 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 subregionalenvironmental conservation, and protection policies and programs. Initially, priority was given tocapacity building. The program, though somewhat ad hoc, has been successful in implementingRETAs for institutional development and forward GMS environmental strategies necessitatingthe 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 toleveraging environmental policy reform and greater subregional/national policy integration.Greater attention must be given to different capacities in GMS countries, incorporating rigorousneeds assessment in project designs. Refocusing the strategy requires the incorporation ofgreater emphasis on cost-benefit analysis in program selection, minimizing program complexity,and forming better linkage with other subregional initiatives (e.g., the transport corridor). ADBleadership in this sector needs to be carefully tailored to realizable staff and financingresources.



4

6. Human Resource Development

56. The objective of the Human Resource Development (HRD) program is to facilitate theformulation of subregional HRD policies, help design subregional HRD interventions withpotential economies of scale, build up subregional capacity for HRD service delivery, and

facilitate subregional labor development. The HRD working group has been comparativelyinactive 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 forinterventions 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 theHRD working group should consider alternative strategies which represent different levels ofintervention (Appendix 7, paras. 22–27). Should the focus be on policy development; arestricted investment program with clear GMS economies of scale; and/or a social developmentcorridors approach (linked directly to the transport corridors)? RETA designs need to pay moreattention 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 subregionaltrade and investment policy development and programming in consultation with the privatesector. 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 discreteGMS 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 tobe 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. Greaterprivate 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 inthe relationships between GMS member countries. Initial RETA designs reflected a need forflexibility in planning the GMS initiatives to maximize benefits as opportunities arose in animproving 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 comparativeadvantages of and potential for greater collaboration between institutions in implementing thewide range of GMS initiatives. A clearly defined vision will also facilitate marketing and themobilization 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, especiallyASEAN. Past attempts to develop such a vision have achieved only limited success due to lackof consistent commitment and limited resources. At the earliest possible time, GMS and ADBneed 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 limitedtangible commitment to supporting and facilitating such a program has constrained the GMSProgram. This issue is wider than the GMS, involving ADB’s commitment and support as awhole to regional cooperation and regional initiatives, and is perhaps the key strategic issue thatADB must face. ADB should question whether it is appropriately structured to support regionalprograms and initiatives and, given this, where it has a comparative advantage over other globalorganizations in promoting regional cooperation.

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

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

18The Sixth GMS Ministerial Conference (August 1996) endorsed a GMS 2020 Project, and an inception meeting forthis project was held on 20-21 March 1997. However, funding limitations and, in some cases, the assignment oflow-level researchers to this Project, have meant outcomes below expectations. An internal 1998 ADB review ofthe initiative (GMS 2020: Taking Stock of the Project) concluded that additional resources would be needed toensure more substantive outcomes from it.



2

B. Subregional Programming and Links with National Programs

65. The key subregional operational issues that ADB needs to address are (i) how toimprove 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 wouldfacilitate effective programming of TA for priority GMS activities. Priorities for RETAs could thenbe developed through working-level GMS discussions, with agreed-upon priorities endorsed atthe annual GMS ministerial meetings. Such an approach would (i) facilitate RETA allocationsthat better reflect GMS priorities, (ii) increase GMS member countries’ ownership of RETAprojects because of their greater involvement in priority setting, and (iii) provide increasedopportunities to mobilize cofinancing because of longer term planning and the clear commitmentof GMS member countries. As part of improved programming of resources, ADB will sometimesneed to give more attention to leveraging policy and institutional change in GMS countrieswhere existing arrangements are major barriers to the level and distribution of returns to agreedinvestments in subregional initiatives. Reaching agreement on priorities may not always beeasy, 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 betweennational programs and priorities and GMS programs and priorities. It was noted that ADB staffsometimes 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 infrastructuresectors than in other sectors. Some suggested that the GMS Program should be properlyintegrated into country programs, individual country programs and strategies thus also reflectingthe GMS Program and strategy. Others expressed concern that should this be done, the riskwould arise that the national program could then draw loan funds from the GMS Program, GMSprojects often not being seen as high a priority as national projects and priorities. However, thiscould 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 loanand TA program into two parts, the national part and the GMS part. The former would be basedon 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 theother.

67. A proposal to establish a regional economic cooperation facility (RECF) was consideredin 1998, but ADB management concluded "the option of establishing the RECF as a facility toprovide general additionality for subregional projects does not appear to be worth pursuing, atleast in the near future."19 A major problem in creating such a fund was the shortage of ADFresources 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 PolicyPaper.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) forpriority, commercially viable GMS investments where this is expected to play a catalytic role inattracting additional financial resources.

19Draft memorandum from the Director, Programs Department (West), to the President, dated 1 May 1998,circulated for interdepartmental comment on 6 May 1998.

20Approved by the Board in November 1998.



3

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 theresource base, it broadened over the period 1992-1999 and now covers seven sectors. Theseare all seemingly accorded the same high priority, but ADB loan and TA funding and staffresources have proved insufficient to address all of them. So far, the GMS Program hasprovided loans to only the power and transport sectors, although the focus is now on economiccorridors rather than transport corridors. Initiatives in environment and HRD have been largelystand-alone RETAs, while working group meetings have largely dominated tourism, trade, andinvestment. In the present ad hoc approach, the program appears to focus more on the sectorsrather than on its original purpose of subregional cooperation and development.

69. Given its resource limitations, ADB needs to periodically assess its role in all GMSinitiatives and assess opportunities to reduce dependence on it for support. All GMS members

indicated that the transport (economic) corridors were the most important GMS initiativeand that trade, investment, and tourism would follow once the corridors were implemented.



4

The credibility of the GMS Program depends on these corridors being completed; the corridorscould 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 groupscould focus on implementing cross-border agreements. Tourism could be left to the privatesector. This approach could retain the RETAs and other initiatives as stand-alone activities, buteach 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 corridorprogram. Given the restricted resources available for the program, however, consideration couldalso 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 toimplement the trade agreements already made under ASEAN to allow for the flow of goods andservices.

D. Institutional Coordination and Cooperation

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

72. Greater attention needs to be given to project-level institutional arrangements and therequirements for institutional strengthening and technical support to sustain the momentum inaddressing bottlenecks to high-priority initiatives. Some high-priority initiatives, such as theeconomic corridors, will require more regular working-level discussions, possibly supported bymedium-term TA to resolve the complex issues associated with reaching and implementing

cross-border agreements. These institutional issues are much more critical for subregionalprojects because of substantial subregional differences in institutional capacity. Project designsshould include specific requirements to develop the skills of local experts and to buildinstitutional capacity and thus reduce dependence on ADB support.

73. Ongoing developments in other regional institutions, especially the inclusion of all butone of the GMS members (Yunnan Province) as ASEAN members, makes it important for theGMS to regularly review its links with them to avoid duplication of effort and take advantage ofopportunities to reduce GMS involvement and dependence on outside support (e.g., ADB). Thisis already happening in tourism, with increasing responsibility and leadership in key areas beingtransferred to the private sector. Steps have also been taken for direct consultations withASEAN 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

21GMS environment RETAs could focus on the environment adjoining the highway; if power is retained in the GMSProgram, then environmental aspects of the watersheds should be included. HRD RETAs could focus on trainingrequirements to help implement the cross-border transport agreements (train customs staff, vehicle inspectionstaff, 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 ethnicminorities, could focus on groups near the highways who will not benefit directly from the highway.



5

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

74. Parallel initiatives are being pursued under ASEAN and GMS programs in trade andinvestment reform, facilitation of cross-border agreements, and planning of infrastructuredevelopment. 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 alsobeen providing support for some ASEAN transport initiatives and for the development of Asia-wide agreements and transport development. The fifth Conference of ASEAN Transport andCommunications Ministers held in Hanoi on 15-16 September 1999 passed a program of actionfor ASEAN transport and communications development to 200422 that included a list of 55individual regional projects. An ASEAN ministers memorandum of understanding on thedevelopment of an ASEAN Highways Network project was signed to pave the way for thephased development of priority road projects. The ministers also signed protocols on the typesand quality of road vehicles and technical requirements for vehicles transporting goods acrossASEAN boundaries. These initiatives include some of the same project components as in theGMS transport program. Both the ASEAN secretariat and ESCAP have been regularparticipants 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 protocolsfor the transport sector.23

75. The results of the meeting suggests increasingly similar parallels between the ASEANand GMS initiatives and a need for a clearer vision of the most appropriate links between thetwo forums. One possible option is to view at least some aspects of the GMS initiative as asubset of ASEAN initiatives (e.g., some transport links are a subset of more ambitious ASEANproposals). Another is to broaden the scope of GMS activities to include ADB support to GMSeconomies plus the remaining ASEAN countries in subregional transport development. Thisevaluation study makes no recommendations on the most appropriate alternative, but notes thatthere 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 studyfound little in the Siam Reap Airport development that had a greater subregional dimension thanwould be found in any international airport development. Similarly, it was difficult to understandwhy the Champassak Road Improvement project had been included as a GMS subregionalproject. There would probably have been much greater justification for including ADB-financedRoad Network Improvement Project in Cambodia as a GMS project because some of its fundswill 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 toreport success in securing funding for GMS projects.

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

22The first ASEAN Environment Forum was held in Hanoi on 20-24 September 1999.

23GMS. 1998. Summary of Proceedings of the Fourth Meeting of the STF (14-15 May 1998).



6

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

78. Recognizing that it is not always desirable to be too rigid with definitions, possibleguiding 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 speededup through sharing of knowledge; and (v) it increases opportunities, particularly those whosepartners on their own are not able to capture, such as improved resource mobilization, privatesector development, gains from trade. Thus, in the GMS, there may be need for subregionalactivities to assist in addressing policy constraints to the development of air links and airtransport, but there would be no need to include airport developments. Similarly, in the powersector, activities might focus on subregional network development, interlinkages, pricing andpurchase agreements, competition, benchmarking, and management but there would be noneed to include individual power generation projects. Indeed, as power networks becomeinterlinked and if any power generation project is included, then all new power projectsconnected 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 inplanning all GMS activities. More efforts could be made to involve a broader range ofstakeholders in identifying priorities, and in project formulation and implementation. Whenpreparing RETAs, ADB needs to ensure that, in each country, adequate resources are allocatedfor preparing needs assessments. Given the complexity of subregional projects, it is particularlyimportant to identify and use the expertise of institutions and individuals with GMS fieldexperience.

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. Inadequatestakeholder participation in project design and identification was identified as a key factorcontributing 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 additionalcountries are included in project designs. There are both potential benefits and costs insubregional approaches, and there is a need to plan accordingly. The benefits and costs ofsubregional approaches need to be explicitly assessed and, where decisions are taken to adopta subregional approach, adequate staff resources for project design and implementation must

be allocated. Explicit consideration should always be given to the option of implementingnational projects coordinated under GMS umbrella initiatives, rather than focusing solely onimplementing GMS identified projects as subregional projects.

82. During GMS implementation few fresh ideas have developed on how to get better “valuefor money” in RETAs. ADB correctly emphasizes the importance of taking a holistic view ofcomplex problems, but all too frequently this is taken to imply the need for a holistic approach inall 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



7

where ADB intervenes, there will already be a considerable body of work done, or being done,on similar subjects by ADB and others. This appears to be a particular problem in subregionalprojects, where ADB staff responsible for designing projects may have limited experience in therelevant countries. Few new ideas have emerged on how best to build on, rather than duplicate,previous work. Given that consultants will sometimes have more detailed knowledge of whathas been (or is being) done in project-related areas, ADB should consider changes in the

system of consultant proposal evaluations and provide greater incentives for consultants tocritically review and suggest alternatives to ADB-proposed terms of reference (TORs). Thepresent arrangements conspire against any innovation at this stage.

G. Mobilizing Additional Financing for GMS Initiatives

83. Mobilization of substantial additional investments in infrastructure, especially from theprivate sector, will be critical to realizing the ambitious objectives of the GMS Program. Neitherthe GMS governments nor ADB is in a position to finance more than a small portion of identifiedneeds. Substantive private sector resources will be needed to finance the bulk of the proposedinvestments. Substantial private sector investment was secured for the Theun Hinboun Power

project, and there was initial strong private interest in transport infrastructure developments,including the Ho Chi Minh City-Vung Tau segment of the Bangkok to Vung Tau RoadImprovement, and the Lao PDR section of the Kunming to Chiang Rai Road Improvementproject. However, the Asian economic crisis has greatly dampened private sector interest inmaking the long-term investment commitments needed for infrastructure developments, andthere are no immediate prospects for finalizing any new private sector investments in GMSprojects.

84. In addition to the Asian financial crisis, another major constraint to increased privatesector investment is the perceived risk in implementing cross-border and revenue agreements.Successful implementation of cross-border agreements associated with the east-west transportcorridor will be critically important in increasing private sector confidence in the GMS initiative.

ADB and the governments of Lao PDR, Thailand, and Viet Nam must give the highest possiblepriority to effective implementation of the east-west corridor project. Successful completion andoperation of the Theun Hinboun project may also assist in increasing private sector confidencein investing in power projects.

85. Provided that ongoing projects are completed and implemented successfully, andrecent improvements in Asian economic performance are sustained, private sector interest inGMS investment opportunities should increase. However, a more focused approach toinformation dissemination and marketing of potential investment opportunities will be required tomaximize this potential. ADB should actively use its leverage in the subregion to improve theeconomic environment for private sector investment.

86. ADB has had some success in attracting cofinancing from official multilateral andbilateral agencies, but additional cofinancing resources will be required in the future. Strategicprogramming of RETA resources for GMS activities could greatly assist in mobilizing increasedTA resources. A more focused approach to aid agency consultations and distributinginformation about the GMS Program could also assist in mobilizing increased external financingof GMS initiatives.



8

H. Distributional Issues

87. Project costs and benefits are not equally distributed among member countries. ADBhas played a role in negotiating arrangements for implementing GMS initiatives that benefit allGMS members. A positive example of ADB’s success in developing innovative financingarrangements is the Theun Hinboun Power project. The issue of a more equitable distribution of

costs, benefits, and risks will be of varying concern to most transport and power projects. Apronounced example is the Kunming to Chiang Rai road improvements where most of thebenefits are expected to accrue to Yunnan Province and Thailand, but major investments will berequired in environmentally and socially sensitive areas of the Lao PDR. Careful financialplanning (e.g., reasonable user charges, private cofinancing, cost sharing, and/or efforts tomobilize grant financing of the Lao PDR sections of this road) will be required to ensure a moreequitable distribution of the costs and risks associated with this development. Initial hopes ofattracting private investment in the Lao PDR portion of this development recently diminished,partly because of the impact of the Asian economic crisis, and partly because of transparency,and social and environmental concerns. ADB needs to ensure that adequate resources aremade available so that these proposed developments not only are more equitably implemented,but also provide models for future subregional cooperation.

88. In some cases, distortions in national policies exacerbate distributional concerns aboutsubregional initiatives. The current national policies in Lao PDR, Thailand, and Viet Nam have astrong bias against agricultural trade and investment. These policies will result in suboptimallevels of returns from investments in transport infrastructure, will exacerbate distributionalconcerns, and can be expected to have a particularly adverse impact on the Lao PDR, whichhas a strong comparative advantage in agriculture production but very limited opportunities forexport of manufactured goods. More generally, potential benefits to the poor in the ruralcommunities will remain substantially underrealized if there is no progress in liberalizingagricultural trade.

89. National trade and investment policies have a major impact on the potential returns from

and the distributional impact of all ADB investments in subregional transport infrastructure. Thepotential from investments in proposed infrastructure developments will not be fully realizedwithout further reforms of trade and investment policies. Studies on the major trade andinvestment policy and institutional constraints on returns to subregional infrastructure projectswould appear to be a logical priority for action under the trade and investment working groups.Policy dialogue on major constraints could be addressed in ADB country strategies andprograms for GMS member countries.

90. To ensure equitable distribution of costs and benefits, ADB and its staff need to beinnovative in considering financing options for subregional projects (including the use of usercharges), and in analyzing national-level policy issues affecting subregional project returns.

I. Integrating Social and Environmental Concerns in Infrastructure Development

91. More effectively linking support to the social and environment sectors to infrastructuredevelopment activities could increase returns on GMS investments.24 For example, RETAs

24This need was recognized in relation to recent debates about the need to shift the GMS focus from transportcorridors to economic corridors, but is yet to be reflected in RETA allocations. Moreover, the draft RETA oneconomic corridors focuses more on trade and investment promotion, with less emphasis on integrating socialand environmental concerns.



9

could be designed to promote better water use planning, watershed management, and forestprotection in tandem with efforts to increase economic opportunities from infrastructuredevelopment along the east-west corridor. Road development increases logging opportunities,but also provides opportunities for increased incentives to control deforestation.

92. In terms of human resource development, effective implementation of cross-border

agreements will require the training of customs, immigration, quarantine, transport, and policeofficials. Specific skills and capacity need to be developed to enforce environmental, drugcontrol, and quarantine regulations under the new border arrangements.

93. There will also be opportunities for longer term development of the supportinginstitutions needed to encourage private sector investment including improved schooling, skillstraining, health services, and market institutions.

J. Monitoring, Evaluation, Information Sharing, and Marketing

94. Despite the prominence given to subregional cooperation in ADB's charter, the GMS

initiative is the first major ADB-supported subregional initiative that has been sustained across arange of sectors. Thus, monitoring and evaluation of this initiative to learn from such experiencewill be particularly valuable. ADB should be in a position to seize opportunities arising from thisinitiative so as to develop subregional cooperation elsewhere.

95. More systematic efforts are required to consolidate and disseminate study findings,issues, and potential constraints. Special efforts should be made to disseminate information onkey issues and promote consultations with key stakeholders, including community groups andthe private sector in affected areas.

96. Private sector discussants complained about the lack of information on specificinvestment opportunities arising from GMS initiatives. They said most of the information they

saw was either very general information about the GMS concept, or a wish list of projects withno clear indications of priorities or likely timing of implementation.

97. The GMS should make much more effective use of modern information technology,including the internet, to assist in GMS coordination and in sharing project information, studyfindings and training, and other material developed in GMS projects. Even with "inside"knowledge, the evaluation study team found it at times difficult to locate basic program data,and very difficult to gain a comprehensive overview of GMS resource material and studies.



V. CONCLUSIONS

A. Overall Assessment

98. Given the challenging political circumstances at the time the GMS Program waslaunched — including a very recent history of political tensions between a number of GMSmembers — progress toward collaborative approaches to subregional development has beenimpressive. There has been tangible progress in promoting substantive dialogue on practicalbarriers to increased economic cooperation, and in reaching agreement on measures to reducethese barriers. Progress has been made in agreeing on priority projects and details on theirpreparation, and in securing financing for a number of major projects. However, progress inimplementing investment projects has been more limited. The GMS initiative is the first majorADB-supported subregional initiative that has been sustained across a range of sectors.

Questions arise, however, as to whether ADB’s organizational structure and current fundingarrangements for loans and TAs are appropriate for supporting regional initiatives andprograms.

99. Officials from GMS member countries noted that a major positive feature of the GMSwas that it has provided an opportunity for GMS countries together to develop a shared visionabout the future development of the GMS region. They argued that this was important insecuring ownership of efforts to improve economic cooperation, and in ensuring that interestsfrom outside the GMS region do not drive efforts at regional cooperation. In contrast, a numberof external commentators, from the business and financing communities, see the GMS as anADB-driven initiative. While ADB has played an active role in initiating dialogue, the sustainedhigh level of GMS member participation in GMS meetings, and especially the ministerial

meetings, is an indicator of strong support for the GMS process. Despite this strong support,however, there is no tangible evidence that the process would be sustained across the currentrange of sectors without the continuing involvement of ADB.

100. There are concerns within segments of the business community and within localcommunities that the GMS has been slow in generating tangible socioeconomic developmentimpact and increased investment opportunities. This contrasts with the assessment of mostcentral agencies that progress has been satisfactory, given the need for widespreadconsultations in reaching agreements and securing political approval from multiple governmentsfor all GMS activities. Regardless of these perceptions, it is widely recognized that unrealisticexpectations were raised initially and that the perceived delays in delivering tangible resultshave generated disappointment among some stakeholders. Improved information flows and

more systematic consultations with non-State interests could have done much to reduce thedifferences in perception.

101. The GMS has been most effective (or at least provided the most value added) when itfocused on activity-based initiatives to secure reforms and agreement. This activity-basedapproach of the GMS contrasts with the rules-based approach of many regional institutions(e.g., ASEAN Free Trade Area [AFTA] and World Tourism Organization [WTO]) and is a majordistinguishing and most widely appreciated feature of the GMS approach.



2

102. The GMS members consistently praised the commitment and perseverance of ADB staffduring the initial difficult years and cited those efforts as an important factor contributing toincreased economic cooperation between GMS members. However, as discussed in paras. 60-70, there have been major organizational and resource constraints to implementing theprogram, and they raise doubts about the real commitment and ability of ADB to supportregional initiatives.

B. Lessons Learned

103. The GMS subregional program has accelerated economic cooperation between GMSmember countries. By focusing on practical changes needed to successfully implement specificprojects, it has helped break down administrative and institutional barriers to developingsubregional infrastructure and trade and tourism. The GMS has shown that subregionalapproaches to development cooperation and planning can work and generate benefits thatotherwise would not have been achievable.

104. This supports ADB’s charter rationale for supporting regional cooperation, for such

cooperation generates economic growth in the region and enhances peace and stability. It isfurther supported by ADB’s experience over 30 years that has demonstrated the economicgains from regional cooperation. Regional cooperation can generate benefits from economies ofscale, reduce transaction costs, and improve resource mobilization and opportunities forinvestment. In the GMS in particular, regional cooperation has also enhanced peace andstability.

105. The key to effective implementation of subregional initiatives is sustained commitmentand leadership from within the subregion and ADB. The process of reaching agreements andcommitment to key priorities requires major commitments of time by senior subregional leaders.Such commitments will only be forthcoming if officials are convinced of potential benefits andthere is a real sense of ownership of the initiative.

106. Ministerial meetings and sector forums have been important in gaining support for keyreforms, for reaching consensus on priorities, and for sustaining momentum. The commitmentof all members to the GMS process is reflected in the unprecedented and sustained level ofministerial participation in key meetings.

107. Evidence of ADB commitment to the GMS process has been more mixed. On the onehand, feedback from the GMS national coordinators was unanimous on the critically importantrole played by ADB staff in reaching difficult agreements. On the other hand, ADB provided verylimited additional staff resources and has not made institutional changes to reflect the differentneeds and issues that arise with subregional initiatives. Failure to develop mechanisms for thestrategic programming of RETA resources contributed to a lack of focus in the GMS RETA

activities. While a GMS subunit was established within programs to coordinate GMS activities,commitment to the GMS Program as a mainstream ADB activity is not really evident in mostprojects departments. There is little evidence of systematic efforts to link subregional activitiesand national programs and lending activities. No formal networks or areas of joint responsibilitybetween projects and programs departments have been established for GMS activities.

108. The lack of formal institutional arrangements and the explicit recognition of a flexible,pragmatic, and results-oriented approach to cooperation have provided the GMS with a majorcomparative advantage in generating tangible results. There are advantages in designing



3

subregional initiatives that avoid the need for diplomatic niceties by focusing on flexible,pragmatic objectives.

109. An important factor in the GMS success is that participation in the individual activities isvoluntary. There is no requirement that all countries agree with and/or participate in eachinitiative.

110. An important role for ADB in subregional cooperation is to act as facilitator in providingneutral technical and economic advice and secretariat support. The commitment of individualADB staff to increasing economic cooperation has been seen as an important factor in bringingmember countries together and in building trust. Continuity in committed national officials andADB staff has also assisted in building trust and confidence that has facilitated decision makingand implementation.

111. An important area of comparative advantage for ADB is its capacity to provide acomprehensive package of support including assistance to reach agreement on priorities; inproject preparation; to resolve software issues (e.g., cross-border agreements); and in securingfinancing for projects.

112. ADB involvement in subregional initiatives can be useful in ensuring more equitablenegotiating positions for the smaller, less developed countries. This has been important inaccelerating agreements on key infrastructure projects.

113. Reaching agreement on policy, institutional, and administrative change can be expectedto be a time-consuming process, requiring major commitments of staff and/or consultantresources. Planning for subregional projects needs to recognize this reality, with resourcesallocated accordingly.

114. Effective subregional cooperation requires attitudinal changes at all levels. The GMSfocused primarily on changing the attitudes of central officials, and not enough on building

community awareness and in addressing the concerns of other stakeholders, including thosewith a vested interest in the status quo.

115. Subregional initiatives generate widespread interest, and there are real dangers that thelack of systematic approaches to information dissemination can result in a considerable degreeof misinformation. Strategies for the regular dissemination of information should be included insubregional initiatives.

116. It is easier to secure subregional ownership of the more tangible initiatives (e.g.,infrastructure projects) than it is to secure ownership of subregion-wide institutionalstrengthening projects. The cost of undertaking the consultation needed to build ownershipgreatly increases the broader the focus and the greater the number of countries involved. In thelonger term, however, ADB should focus more on helping develop partnerships rather thanbeing the promoter of initiatives and ownership.

117. There are sometimes major differences in the distribution of the costs and benefits ofsubregional infrastructure developments. There is need for considerable innovation in thefinancing of subregional projects to ensure more equitable distribution of costs and benefits.

118. Subregional initiatives can provide economically viable opportunities to develop some ofthe poorest areas of member countries. The viability of national-level investments in poverty



4

reduction can be substantially enhanced through subregional cooperation, as evidenced by theeast-west corridor development.

C. Recommendations and Follow-Up Actions

1. Rationale, Framework, and Vision for Regional Cooperation

119. Regional cooperation generates economic growth and enhances peace and stability.Regional cooperation could be supported generally in ADB under a framework that targets suchcooperation, provides economies of scale, reduces transaction costs, speeds up developmentthrough improved sharing of knowledge, and increases opportunities, particularly those whichpartners on their own are not able to capture—improved resource mobilization, private sectordevelopment, and gains from trade. ADB’s role and vision should be one of assisting indeveloping such partnerships rather than one of promoting initiatives with regional ownership.

2. Medium-Term Strategy for GMS Development

120. ADB needs to prepare a subregional operational strategy for its GMS program along thesame lines as its country operational strategies. Given the major changes in economicconditions since the original round of priority setting, ADB should also actively encourage thefinalization of a prioritized medium-term GMS development strategy endorsed by a GMSministerial meeting.

121. In formulating such a strategy, an important consideration is the need to achieve a morefocused and integrated approach to ADB support to the GMS. This implies better integratednational and subregional initiatives.

3. Improved Links Between GMS and Country Programming

122. The most immediate recommendation for consideration and action is to review optionsfor a more strategic approach to programming ADB support to GMS to replace the current adhoc arrangements. There is a need to more effectively include priority GMS elements, includingkey GMS-related policy and institutional reforms, in the country operational strategy and annualprogramming exercises. Country strategies and country programs should include both thenational program and their respective regional components, perhaps as two separate but linkedparts (para. 60).

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

123. ADB needs to periodically assess its role in all GMS initiatives and, in the light ofresource constraints, assess opportunities to reduce dependence on its support. This is alreadyhappening in tourism, with increasing responsibility and leadership in key areas beingtransferred to the private sector. Steps have also been taken for direct consultations withASEAN in the trade and investment working groups, and there may be scope for greaterASEAN involvement in these groups in the future. One possible strategic scenario is for ADB tofocus primarily on a limited number of transport and power links, with support to other sectors



5

being focused on ensuring maximum social, economic, and environmental benefits from theinvestments.

5. Resources/Instruments for GMS Program

124. At present, staff resources, incentives, and organizational structure, and loan and TAfunding resources are not aligned with supporting regional cooperation programs. This isperhaps a key strategic issue that ADB must face. It is wider than the GMS, and involves ADB’scommitment and support as a whole to regional cooperation and regional initiatives, and itscomparative advantage, if any, in promoting regional cooperation. Changes can readily bemade in the process of allocating RETA resources in the medium term. Improvements can bemade in programming loan proposals, but reconsideration may need to be given to establishinga regional cooperation facility (para. 67) and developing other instruments.

6. Strengthened Coordination of ADB Support for GMS Activities

125. Improvements in programming arrangements are the most critical steps towardimproving coordination, but there needs to be a better interface between projects and programson GMS activities, with network arrangements, joint responsibilities, and staff resources alignedaccordingly. Sector-level assistance should be better integrated to maximize returns from ADBinvestments in GMS activities. An immediate priority is to give greater emphasis to linking ADBsupport in the environment and social sectors with high-priority infrastructure developments.Recent proposals for the east-west economic corridor development are steps in the rightdirection.



6

7. Improved Design of GMS RETA and Infrastructure Projects

126. ADB should give more rigorous attention to the additional complexity of subregionalprojects and plan resources accordingly. Attention needs to be given to (i) differences ininstitutional capacity and needs within the GMS; (ii) preparing and incorporating rigorous needs

assessments in project designs; (iii) explicitly weighing the costs of subregional approachesagainst potential benefits; and (iv) explicitly weighing the potential benefits of broaderconsultative mechanisms against the potential costs resulting from greater complexity inimplementation.

8. Improved Monitoring and Information Sharing

127. The GMS should make more effective use of modern information technology, includingthe internet, to assist in GMS coordination and in sharing project information, study findings andtraining and other material developed under GMS projects. Institutional mechanisms foreffective monitoring, coordination, and information sharing need to be established for

subregional infrastructure initiatives. The need for effective program monitoring and informationsystems is especially important for subregional transport (and/or economic) corridordevelopments, because:

• success depends as much on the timely implementation of policy, regulatory, and otherinstitutional reforms as on the physical infrastructure;

• these developments will often involve a large number of subprojects, national governments,and funding agencies involved in program implementation;

• there is a high probability that previously unanticipated social, distributional, environmental,trade, and investment issues will arise during program implementation;

• there are potentially important lessons to be drawn for the implementation of other transport

and economic corridor projects in the region;• strong domestic, regional and international interest in the social, environmental and

economic impacts of the development can be anticipated, especially in the east westtransport and related corridor developments. This implies a strong demand for reliableinformation on a systematic basis; and

• improved information flows will be critical to improving marketing of GMS opportunities.

128. The development of an effective program monitoring and information system for theeast-west corridor development should be an immediate priority. Apart from the factors notedabove, it is a priority because of the high public visibility of the project, the substantive progressalready made in project preparation and resolving trade facilitation issues, and the fact that

construction of key transport infrastructure for the corridor is expected to commence soon.

9. Innovation to Ensure Efficient and More Equitable Returns on GMSInvestments

129. This requires both careful financial planning (including the use of appropriate usercharges) and greater attention to the impact of national policies on returns to GMS investments.ADB will sometimes need to leverage national programs in addressing policy and institutionalconstraints to efficient subregional investments and more equitable distribution of returns on



7

subregional investments. As construction of transport infrastructure is commencing, animmediate issue is the impact that national agriculture trade policies in Thailand and Viet Namwill have on the level and distribution of returns on investment in the east-west corridordevelopment (especially on investments in the transport corridor). A better understanding of theimpact of national trade and investment policies on returns to subregional investments wouldappear to be a priority issue for the trade and investment working groups. Enforcement of

cross-border agreements is also an immediate priority.

10. Marketing GMS Opportunities

130. There is a need for better marketing of information about opportunities. These effortsneed to recognize that one of the key concerns for investors is the extent to which cross-borderagreements will be enforced and the potential for policy and administrative change that willaffect the viability of investments. The development of effective monitoring and information anddissemination systems is an important first step in better marketing GMS opportunities. ADBshould also review the need to recruit specialist expertise to assess the effectiveness of pastapproaches and to develop information and marketing strategy.

11. GMS and Other Regional Institutions

131. There is a need for a clearer vision of the most appropriate links between the GMS andASEAN; one possible option is to view at least some aspects of the GMS initiative as a subsetof ASEAN initiatives (e.g., some transport links are a subset of more ambitious ASEANproposals). Coordination mechanisms and the overlap between the GMS and the Mekong RiverCommission need reviewing; this is particularly important, given the recent and significant WorldBank support to the Commission. Cooperation and work sharing arrangements with ESCAPalso need reviewing.

12. Follow-Up Impact Evaluation Study

132. This impact evaluation study was timely for the reasons discussed earlier. However,implementation of GMS initiatives involving coordinated financing of projects in more than onecountry has only recently started. In another three to five years, greater experience will havebeen gained in implementing subregional projects, and valuable lessons could be gained fromundertaking a follow-up impact evaluation.



8

APPENDIXES

Number Title Page Cited on(page, para.)

1 Chronology of Major Steps in theGreater Mekong Subregion Process 32 5, 14

2 Review of Individual GMS Projects/Initiatives 37 13, 45

3 Summary Sector Assessments 54 14, 45

4 Transport, Telecommunications, and Energy 61 14, 15

5 Environment 77 14, 45

6 Tourism 82 14, 45

7 Human Resource Development 90 14, 45

8 Trade and Investment 96 14, 45

http://ie63-app1.pdf/


http://ie63app2.pdf/



















Appendix 1, page 1

CHRONOLOGY OF MAJOR STEPS IN THEGREATER MEKONG SUBREGION PROCESS

1991

Initial informal discussions between GMS countries about the possibility and options for AsianDevelopment Bank (ADB) support to the Greater Mekong Subregion (GMS).

1992

March: First GMS RETA (5487) approved. Studies in Subregional Cooperation – InitialPossibilities for Cambodia, the People’s Republic of China, Lao PDR, Myanmar, Thailand,and Viet Nam (Phase I), for $100,000, approved on 9 March 1992. (Later increased to$190,000 on 19 May 1992 and $270,000 on 16 September 1992).

October: First GMS Ministerial Conference held in Manila 20-21 October 1992.

1993

June: Second Core GMS RETA (5535) approved. Promoting Subregional Cooperation amongCambodia, the People’s Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam,for $4.0 million, approved on 10 June 1993.

August: Second GMS Ministerial Conference held in Manila 30-31 August 1993.

1994

April: Third GMS Ministerial Conference held in Hanoi 20-23 April 1994.

July: First study of Lao-Thailand-Viet Nam East-West Transport Corridor (RETA 5586), for$100,000, approved on 18 July 1994.

September: Fourth GMS Ministerial Conference held in Chiang Mai 15-16 September 1994.

September: Approval of first ADB loan (Loan 1325, 29 September 1994) for GMS Project. ADBfinancing of $150 million provided for the Yunnan Expressway Development.

November: Approval of second ADB loan (Loan 1329, 8 November 1994) for GMS Project. ADBfinancing of $60 million provided for the Theun Hinboun Hydropower Development.

November: Conference on GMS: Investment Opportunities through Economic Cooperation held

in Bangkok on 24 November 1994.

December: Subregional Workshop on Tourism Development Along the Mekong River, held inKunming 13-17 December 1994.



Appendix 1, page 2

1995

February: Conference on GMS Investment Opportunities Through Economic Cooperation heldin Tokyo on 9 February 1995.

April: Inception Meeting of the Subregional Working Group on Tourism held in Bangkok 3-5 April

1995.

April: Inception meeting for the Subregional Transport Forum and Subregional Electric PowerForum, held in Yangon 24-25 April 1995. General agreement was reached on working-level institutional arrangements for sector-level activities.

August: Second meeting of the Subregional Transport Forum, held in Phnom Penh 9-10 August1995.

August: ADB financing of Champassak Road Improvement (Lao PDR), for $48 million, approvedon 31 August 1995 (Loan 1369-LAO).

September: ADB financing of Nam Leuk Hydropower development (Lao PDR), for 52 million,approved on 10 September 1995 (Loan 1456-LAO).

October: RETA 5645, for $30,000, approved 2 October 1995 for Meeting ofTelecommunications officials.

October: Inception Meeting for the Subregional Working Group on the Environment held inManila on 4 October 1995.

November: First Meeting on Subregional Telecommunications Forum held in Manila on 6-7November 1995.

November: Fifth GMS Ministerial Conference held in Manila 9-10 on November 1995.

November: Approval of project preparatory RETA 5649 for the Phnom Penh to Ho Chi Minh CityRoad Improvement Project, for $3,100,000, approved on 9 November 1995.

December: Second meeting of the Subregional Electric Power Forum was held in Vientiane on12-13 December 1995.

December: Inception Meeting of the Subregional Investment Working Group held in Bangkok on18-19 December 1995.

December: Second Meeting of the Subregional Working Group on Tourism held in Vientiane on

18-21 December 1995.

1996

March: Conference on GMS Investment Opportunities Through Economic Cooperation held inSeoul on 14 March 1996.

April: Third Meeting of the Subregional Working Group on Tourism held in Pattaya 15-16 April1996, followed by First Mekong Tourism Forum on 16 April 1996.



Appendix 1, page 3

May: Approval of first RETA (5686) dealing with cross-border issues: Mitigation of NonphysicalBarriers to Cross-Border Movement of Goods and People, for $232,000, approved on 29May 1996. This was later supplemented with RETA 5749, Facilitating Cross-borderMovement of Goods and People in the GMS, for $730,000, approved on 26 August 1996,and RETA 5850, Facilitating the Cross-Border Movement of Goods and People in theGMS (Phase II), for $990,000, approved on 26 July 1999.

May: Conference on GMS Investment Opportunities Through Economic Cooperation held inFrankfurt on 31 May 1996.

June: Conference on GMS Investment Opportunities Through Economic Cooperation held inBrussels on 4 June 1996.

July: Second Meeting of the Subregional Telecommunications Forum held in Phnom Penh on 4July 1996.

July: Third Core GMS RETA (5693) Promoting Subregional Cooperation among Cambodia, thePeople’s Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam (Phase III) for

$3.0 million, approved on 23 July 1996.

July: Second Meeting of the Subregional Working Group on the Environment held in Bangkokon 31 July-1 August 1996.

August: First Senior Officials Meeting on Air Linkages held in Pattaya on 4-8 August 1996.

August: Sixth GMS Ministerial Conference held in Kunming on 28-30 August 1996.

November: Seminar on GMS Activities in Tokyo on 8 November 1996.

November: Fourth Meeting of the Subregional Working Group on Tourism held in Ho Chi Minh

City on 22-23 November 1996.

December: Inception Meeting of the Working Group on Human Resource Development inManila on 5-6 December 1996.

December: Third meeting of the Subregional Transport Forum held in Kunming on 12-13December 1996.

December: Third meeting of the Subregional Electric Power Forum held in Kunming on 12-13December 1996.

December: ADB financing for Siam Reap Airport, for $15 million, approved on 12 December

1996 (Loan 1503-CAM).

1997

March: Third Meeting for the Subregional Working Group on the Environment held in SiamReap on 11-13 March 1997.

March: Inception Meeting of the GMS 2020 Study held in Manila on 20-21 March 1997.



Appendix 1, page 4

April: Seventh GMS Ministerial Conference held in Manila on 7-11 April 1997.

April: Private Sector Forums held in Paris, London, and the Hague on 7-11 April 1997.

May: RETA 5738 for feasibility study of East Loop Telecommunications Project, for $820,000,approved on 28 May 1997.

May: Fifth Meeting of the Subregional Working Group on Tourism held in Chiang Rai on 29-30May 1997.

June: RETA 5741 for Subregional Telecommunications Forum, for $50,000, approved on 18June 1997.

July: Third Meeting of the Subregional Telecommunications Forum held in Pattaya on 2-4 July1997.

July: GMS Ministerial Retreat in Pattaya on 4-6 July 1997.

October: Symposium on the GMS held in Berlin on 8 October 1997.

October: GMS Meeting on the Control and Prevention of HIV/AIDS held in Manila on 26 and 30October 1997.

October: Fourth Meeting of the Subregional Electric Power Forum held in Hanoi on 29-31October 1997.

October: Sixth Meeting of the Subregional Working Group on Tourism in Ho Chi Minh City on30-31 October followed by Second Mekong Tourism Forum on 31 October 1997.

December: GMS seminars in Tokyo and Osaka on 4 and 5 December 1997.

1998

March: Fourth Meeting of the Subregional Working Group on the Environment held in Hanoi on5-6 March 1998.

March/April: GMS Seminars in Milan, Turin, and the Hague on 30 March-2 April 1998.

April: Seventh Meeting of the Subregional Working Group on Tourism in Phnom Penh on 6-7April 1998.

May: Fourth meeting of the Subregional Transport Forum held in Vientiane on 14-15 May 1998,

together with a Workshop on Nonphysical Barriers to the Movement of Goods and People.

June: Inception Meeting of the Experts Group on Power Interconnection and Trade held inNakorn Pathom, Thailand on 20 June 1998.

September: GMS Senior Officials Meeting in Manila on 30 September 1998.



Appendix 1, page 5

October: Eighth GMS Ministerial Meeting held in Manila on 2 October endorsed the economiccorridor approach and asked that the concept be further developed and applied on a pilotbasis.

November: Third Mekong Tourism Forum held in Kunming 25-26 November 1998, followed byEighth Meeting of the Subregional Working Group on Tourism in Kunming on 27

November 1998.

December: Inception Meeting of the Experts Group on Power Interconnection and Trade held inBangkok, Thailand on 9-10 December 1998.

December: Fifth Meeting of the Subregional Electric Power Forum held in Bangkok on 11-12December 1998.

December: ADB financing for the Phnom Penh to Ho Chi Minh City segment of the Bangkok toVung Tau Road Improvement Project — the first ADB-financed GMS transport projectinvolving coordinated financing to two governments (Loans 1659 and 1660), for $ 40million and $100 million, approved on 15 December 1998.

1999

March: Preparatory Workshop for the Inception Meeting of the Trade Facilitation Working Groupheld in Manila on 17-18 March 1999.

March: Preparatory Workshop for the Second Meeting of the Subregional Investment WorkingGroup held in Manila on 18-19 March 1999.

May: Ninth Meeting of the Subregional Working Group on Tourism held in Yangon on 4-5 May1999.

May: Fifth Meeting for the Subregional Working Group on the Environment held in Kunming on11-12 May 1998.

May: International Meeting to Discuss the East-West Corridor Development held in Mukdahanand Savannakhet on 27-28 May 1999.

June: Second Meeting of the Working Group on Human Resource Development in Phnom Penhon 1-2 June 1999.

June: ADB Financing of Southern Yunnan Road Development (PRC), for $250.0 million,approved 31 June 1999 (Loan 1691-PRC).

September: Second Meeting of the Subregional Working Group on Investment in Kunming on23-24 September 1999.

December: Ninth GMS Ministerial Meeting, scheduled to be held in Manila in early December1999.

























Project Objectives/Outcomes RETA Process Status

PPTA for the Mekong RiverTourism InfrastructureDevelopment Project ($660,000)was developed and endorsed bythe RSC in December 1998. Theinvestment projects beingconsidered consist of ariver/landing wharf, roads andairport upgrading.

The revbe donGMS s(see be

Fact-finding for the projectpreparatory TA is scheduled inOctober 1999; target Boardapproval in Nov 1999.

North South Tourism Flows Study The stuaviation

Training of Trainers Objective is to train a cadreof tourism professionals todesign and deliver tourismand hotel managementprograms in GMScountries.

Training of trainers’ programdesigned and delivered byprivate sector organization inSingapore and Governmentinstitute in Thailand.Institutions selected on thebasis of proven record andcofinancing. Programdesign built on previousRETA needs analysis.Fifteen trainers will deliverprograms in country onreturn.

ComparegionainternaduplicaPCR (1satisfacand imincorpo

Tourism SkillsDevelopment in the GMSPhase II

The Project was implementedthrough a small-scale TA for$125,000 financed by ADB andcofinanced by TAT for $10,000.

The TA activities have beencompleted.

The WGsupportourism

Mekong River TourismInfrastructureDevelopment

RETA is being formulated.











Project Objectives/Outcomes RETA Process Status

Vaccine Production andProcurement

Assessment of vaccinerequirements, productioncapacities, quality control,financing projections andany associatedpolicy/strategy reforms.Feasibility study ofestablishing selectivesubregional vaccineproduction capacity.

Significant consultation withwide range of stakeholders,including pharmaceuticalcompanies, distributionagents, and governments.Study to be circulated toWGHRD members in late1999.

ADB-financed ImmunizationFinancing Study in Cambodia, LaoPDR, and Viet Nam wascompleted in November 1998.ADB approved a PPTA for theAsian Vaccine Initiative on 27August 1999. This TA will supportadditional financing studies toprepare a multi-country loan forprocurement of vaccines, such asHemophilius Influenza B andHepatitis B vaccines.

Study hconsultexaminsubregproducissues,associaDocumwith Unsituatiowhen th

and coat coun

Trade and Investment

Promotion of SubregionalCooperation inDeveloping Trade and

Investment in theSubregion

The inception report for the tradefacilitation working group was heldon 18-19 December 1995.

Preparatory activities have takenplace for a follow-up meeting inlate 1999.

There have been no meetings ofthe investment working group.Preparatory activities have takenplace for an inception meeting inlate 1999.





29/03/00

Page 19















GMS Objectives Overview of Processes Status/Assessment Key Issues and Rec

(iii) a way to improvetrade information,and to use it fortrade facilitation.

1999. attracting private sector funds. The role of gtheir comparative advantages require cleare

Mobilizing financial resources. ADB is in mitigate against the cumulative country risk

depend on subsequent policy actions of a nConsideration should be given to developinparticular ways it could assist in financing Gdevelopments. This should clearly spell out trade/investment risk, providing loan qualityarticulating success stories elsewhere in the



Appendix 4, page 1

TRANSPORT, TELECOMMUNICATIONS, AND ENERGY

A. Transport

1. Overview

1. The development of trade, tourism, and investment through improvements in transportinfrastructure and reduction in nonphysical constraints to the cross-border movement of goods,services, and people forms the core rationale for the Greater Mekong Subregion (GMS)Program. Transport sector activities have received the second largest level of technicalassistance, have required substantial staff resources from the Asian Development Bank (ADB),and account for the largest level of investments in ADB-supported GMS infrastructure projects.

2. An ADB-financed GMS Subregional Transport Sector Study, commissioned in 1992,identified 34 priority transport projects: 10 road projects, 8 railways projects, 10 waterwaysprojects, and 6 air transport projects. During the second GMS ministerial meeting (30-31 August1993) country delegations agreed on the priority transport projects where further feasibilitystudies would be undertaken. Highest priority was accorded to road projects, the dominant

mode for freight and passenger transport in the subregion. In particular, priority was given tothree first-tier road projects that are at advanced stages of preparation and/or underimplementation, namely, the Phnom Penh to Ho Chi Minh City (HCMC) Road Project, the East-West Transport Corridor, and the Chiang Rai to Kunming Road Improvement Project. A fourthroad project, the Kunming-Hanoi-Hai Phong Corridor was included as a priority second-tierproject at the most recent subregional transport forum.1

3. The third and fourth GMS ministerial meetings agreed on the need to "establish a morehands-on involvement by the six countries in subregional development."2 The result was theestablishment of a two-tier coordinating structure with ministerial level meetings providingoverall strategic guidance and making policy decisions as required, with the SubregionalTransport Forum (STF) responsible for operational issues related to overseeing the

implementation of projects and initiatives. The STF is empowered to establish working groups todeal with projects and/or specific issues. Four STF meetings have been held since the inceptionmeeting on 24-25 April 1995, the most recent in May 1998. The broad objectives of the STF3 are to

(i) provide a vehicle for the coordination of transport project planning at the macrolevel;

(ii) provide a mechanism for facilitating the implementation of priority subregionalprojects;

(iii) provide a venue for addressing software issues (e.g., issues related to driver andvehicle registration, route licensing, axle load regulations, design standards);

(iv) promote the financing of subregional projects by the governments concerned, the

various funding agencies, and the private sector;

1Greater Mekong Subregion (GMS) subregional transport forum (STF). 1998. Summary of Proceedings of theFourth Meeting of the STF, 14-15 May 1998.

2Asian Development Bank (ADB).1995. Inception Report of the Subregional Transport Forum and the SubregionalElectric Power Forum, Preface. ADB, Manila.

3Ibid., p. 34.



Appendix 4, page 2

(v) facilitate training projects and other human development initiatives in thetransport sector; and

(vi) provide a vehicle for disseminating information on transport matters.

4. ADB financing for the Phnom Penh to HCMC segment of the Bangkok to Vung TauRoad Improvement Project—the first ADB-financed GMS transport project involving coordinated

financing to two governments—was approved in late 1998. ADB financing for the East-WestCorridor is scheduled for approval in late 1999. ADB has also approved financing for theYunnan segments of the Kunming to Chiang Rai Road Improvement. Two ADB-financedtransport projects—the Siam Reap Airport Improvement and the Champassak RoadImprovement projects—have been classified as GMS transport projects, but project processingand implementation have not depended on coordinated financing in more than one GMScountry.

5. Recent ADB documents4 on GMS transport sector activities identify the following specificpriorities for subregional cooperation in transport development: (i) developing priority transportcorridors; (ii) linking the capitals, other population centers, and major tourist destinations in thesubregion; (iii) helping develop remote and low-income areas by improving access to markets,

and social and economic services; and (iv) reducing if not eliminating nonphysical barriers to themovement of people and goods in the subregion.

a. From Transport to Economic Corridors

6. GMS members endorsed a shift in focus to a broader economic corridor approach at theeighth ministerial meeting in October 1998. The decision was taken partly in response to initialimplementation experiences, and partly as a "strategic response to help the GMS countries inthe process of recovery from the economic crisis."5 At the same meeting, five possible economiccorridors6 were noted, namely:

(i) Kunming-Mandalay-Yangon

(ii) Kunming-Lao PDR-Bangkok(iii) Kunming-Hanoi-Hai Phong(iv) Mawlamyine-Phitsanulok-Savannaket-Da Nang (East-West Corridor)(v) Yangon-Bangkok-Phnom Penh-Ho Chi Minh City (rail corridor)

7. Delegates cautioned on the scale and complexity of resources that would be required toimplement the concept. They agreed on the need to refine the concept, including acomprehensive review of best "economic zone" practices; assess potential transport corridorprojects to be developed as economic corridors; review links with national projects; assessprivate and public sector investor interest; and implement pre-investment studies on a pilotbasis. The East-West Corridor is the first GMS project that includes the elements of a broadereconomic corridor approach.

4Draft RRP for East-West Corridor Project dated 10 August 1999, para. 10.

5ADB GMS Unit, Programs Department (West) 1999. Background Paper for the GMS InterdepartmentalCoordinating Committee Meeting. 2 July.

6ADB GMS Unit, Programs Department (West). 1998. Summary of Proceedings of the Eighth Ministerial Conferenceon Subregional Economic Cooperation held in Manila on 2 October, p. 5.



Appendix 4, page 3

b. The East-West Corridor Project

8. The East-West Corridor links the Pacific Ocean in central Viet Nam, through the LaoPDR and Thailand, to the Indian Ocean near Moulmein in Myanmar. The initial focus was on theroad transport link from Da Nang through the Lao PDR to Savannakhet, to Mukdahan innortheast Thailand. Project planning was assisted by a series of studies, including two ADB-

financed regional technical assistance (RETA).7 Project documents report that the project iseconomically viable, subject to trade growth projections. Governments concerned stated thateven if the project had been only marginally viable, they would have been prepared to make atrade-off between the economic efficiency objectives and the need to develop infrastructure andreduce poverty in some of the poorest areas within the GMS.

9. In addition to the ADB-financed segments the East-West Corridor development, relatedprojects have been formulated and will be implemented, with financing from nationalgovernments and a range of bilateral and multilateral agencies. These include (i) a bridgecrossing the Mekong River at Mukdahan and Savannakhet (loan signing was scheduled forAugust 1999); (ii) Da Nang Port (loan agreements signed on 30 March 1999); (iii) new bridgesfor a road in northeast Thailand (Thai government financing committed); (iv) rehabilitation of

sections of Route 9 in the Lao PDR (Japan International Cooperation Agency [JICA] financing);(v) upgrading of segments of Highway I in Viet Nam (World Bank [WB] financing); and (vi) theproposed Chan May and Dung Quat Ports Development (private sector financing envisaged).

10. The ADB requirements for environmental and social impact assessment appear to havebeen met. However, the development is in environmentally and socially sensitive areas and willresult in increasing economic and social integration between communities in three countries atvery different levels of development. These differences are clearly visible at the border crossingbetween the Lao PDR and Thailand, where the bulk of road transport cargo from the Lao PDRis logs, while the bulk of the goods from Thailand consist of containerized cargo, mostly for re-export.

c. Cross-Border Agreements

11. The initial transport study identified nonphysical barriers to cross-border movement ofgoods and people as a priority concern, but the first RETA addressing these issues wasapproved only in 1996. Another two of three RETAs have since been approved. 8 The ADB'sapproach to facilitating cross-border agreements has been consultative, focusing on practicalissues needed to maximize returns from investments in the East-West Corridor. Strong linksdeveloped between the transport planning and development officials from GMS countries havefacilitated this approach. The results to date are impressive, given the major political, cultural,and institutional obstacles to reaching tripartite agreement on politically sensitive issues.However, much remains to be done to ensure that these agreements are implemented inpractice.

7TA 5586-REG: Study of Lao-Thailand-Viet Nam East-West Transport Corridor , for $1 million, approved on 18 July1994; and TA 5710-REG: Greater Mekong Subregion-East-West Transport Corridor , for $3 million, approved on11 December 1996.

8TA 5686-REG: Mitigation of Nonphysical Barriers to Cross-Border Movement of Goods and People , for $232,000,approved on 29 May 1996. TA 5749-REG: Facilitating Cross-Border Movement of Goods and People in the GMS ,for $730,000, approved on 26 August 1996. TA 5850-REG: Facilitating the Cross-Border Movement of Goods and People in the GMS (Phase II), for $990,000, approved on 26 July 1999.



Appendix 4, page 4

12. The agreements reached have implications and provide models for other cooperativetransport developments within the GMS and elsewhere in the region. The most recentlyapproved ADB technical assistance in this area aims to extend the agreements to include otherborder crossings and countries in the GMS.

13. In contrast to the progress with cross-border issues, little attention has been given to the

trade policy constraints to increased trade. These issues need more study, and considerationshould be given to the scope for including such reforms as important elements when ADB isformulating the country operational strategies and programs.

d. Bangkok-Phnom Penh-HCMC-Vung Tau Road Improvement Project

14. The Project will link Bangkok, Phnom Penh, HCMC, and Vung Tau. The Project was anestablished priority before the establishment of the GMS. ADB loan financing was approved inDecember 1998,9 with separate loans being made to the Cambodian and Vietnamesegovernments. Plans for private financing of the HCMC to Vung Tau segment have notmaterialized.

15. Project preparation was facilitated by an ADB-financed technical assistance in detailedengineering design, procurement, environment and social impact assessment in accordancewith ADB guidelines, and initial work on reaching cross-border agreements.10 Cross-borderagreements were not finalized prior to loan approval. Technical assistance was approved underthe country programs to help draft subsidiary agreements and protocols. Delays in reachingcross-border agreements were partly attributed to political difficulties and the resultinginstitutional weaknesses, and the fact that this was the first subregional transport project wheresuch agreements were needed. Efforts should be made to ensure that agreements are in placeprior to loan approval of future subregional projects.

16. Unlike in the East-West Corridor, no additional resources were mobilized for this project.Early hopes of attracting private sector financing for the HCMC-Vung Tau segment of this

development did not materialize. The potential investors faced difficulties in mobilizingresources because of the impact of the Asian financial crisis. Other national road improvementprojects (including ADB-financed projects) in both Viet Nam11 and Cambodia can be expected tohave a positive impact on the viability of this road development through increased traffic flows.

e. Chiang Rai to Kunming Road Project

17. The Project aims to improve north-south road connections between Lao PDR, Myanmar,Thailand, and Yunnan Province. Compared with that in the East-West Corridor Project,coordination between the respective implementing agencies for this Project has been limited.This may result in different standards, including differences in environmental and socialsafeguards in a very sensitive area.

9Loan 1659-CAM: Phnom Penh to Ho Chi Minh City Highway , for $40 million, approved in 15 December 1998; andLoan 1660-VIE: Phnom Penh to Ho Chi Minh City Highway , for $100 million, approved in 15 December 1998.

10TA 5649-REG: Greater Mekong Subregion-Infrastructure Improvement: Ho Chi Minh to Phnom Penh Highway, for$3 million, approved on 9 November 1995.

11For example, ADB support for the upgrading of National Highway No. 1 from HCMC to Nah Trans.



Appendix 4, page 5

18. The most substantive progress has been made in Yunnan. Local authorities expect thatupgrading of sections from Kunming to Yuanjiang (200 km) to expressway standards will becompleted by the end of 1999, while the section from Xiaomengyann to Jinghon (24 km) willhave been upgraded to a Class II highway using national investment resources. Upgrading ofthe section from Mohei to Simao (71 km) was completed in 1996. An ADB loan for the Yunnansegment from Yuangiang to Mohei was approved on 24 June 1999.12

19. The Thai Government completed the upgrading of a four-lane highway from Chiang Raito Mae Sai in early 1998, using national resources. Rehabilitation of the route from Chiang Raito Chiang Kong is scheduled for completion by 2001. Two potential sites have been identifiedfor a bridge across the Mekong River to Houei Sai. The Lao Government has signed a privateconcession agreement to develop a toll road for the Lao segment, but no substantialdevelopment work has been undertaken, and changes to the concession agreement are beingdiscussed. In Myanmar, the initial upgrading of the road from Tachileik (border with Thailandnear Mai Sai) to Kengtung has been completed, and repairs undertaken on the Kengt-tung toMongla section, using national budget resources.

2. Assessment

20. There has been tangible progress in promoting substantive dialogue on reducingtransport administration barriers to increased trade and tourism. Progress has been made inagreeing on priority projects, detailed preparation of these projects, and in securing financing fora number of major projects. Progress in implementing investment projects has been morelimited.

21. Officials from the GMS economies noted that a major positive feature of the GMS is thatit has provided an opportunity for the GMS economies to develop a shared vision on transportdevelopment in the GMS region. This was seen as important in ensuring that interests fromoutside the GMS region do not drive efforts at regional cooperation. The sustained high level ofGMS member participation in GMS meetings, especially the ministerial meetings, is an

indication of strong support for the GMS process. In contrast, a number of externalcommentators from the business and funding communities see the GMS as an ADB-driveninitiative.

22. There are concerns within segments of the business community and within the localcommunities that the GMS has been slow in generating tangible impacts in improving transportfacilities and reducing transport costs and time. This contrasts with the assessment of mostcentral agencies that progress has been satisfactory, given the need for widespreadconsultations in reaching agreements and securing political approval from multiple governmentsfor all GMS activities. Regardless of perceptions, there was general agreement that unrealisticexpectations were raised initially and that the perceived delays in delivering tangible results hasgenerated disappointment among some stakeholders. Improved information flows and more

systematic consultations with non-State interests may have done much to reduce thedifferences in perceptions.

23. There is general agreement that the East-West Corridor is one of the highest prioritysubregional projects. While officials from central-level planning agencies concede thatalternative public investments might realize higher returns, they argue that lower returns are

12Loan 1691-PRC: Southern Yunnan Road Development , for $250 million, approved on 24 June 1999.



Appendix 4, page 6

acceptable because the route will provide increased economic opportunities to some of thepoorest areas in Lao PDR, Thailand, and Viet Nam.

24. Substantive progress has been made with the design of the East-West Corridor and inarranging project financing, but implementation has not started and no ADB loan financing hadas yet been approved at the time of the evaluation study. The technical aspects of project

preparation, design, and appraisal appear to have proceeded satisfactorily, but there were somequestions about whether ADB had given adequate attention to broader issues that will affect thesocial and economic returns from the Project.

25. There was some disagreement at the local level about the final route chosen among thealternative options. While disagreement is inevitable because of the local interests involved,local concerns could have been partially ameliorated by more public discussion andtransparency about the rationale for route selection. Even senior local planning officials notedthat they found it very difficult to remain on top of the information arising from the numerousstudies and activities undertaken in relation to this project. Local officials argued that more effortwas needed to better coordinate, synthesize, and disseminate information about the variousinitiatives.

26. ADB requirements for environmental and social impact assessment appear to have beenmet. However, the development is in environmentally and socially sensitive areas and will resultin increasing economic and social integration of communities in three countries at very differentlevels of development. Differences are clearly visible at the border crossing between the LaoPDR and Thailand, where the bulk of road transport cargo from the Lao PDR consists of logs,while the bulk of the goods from Thailand comprises containerized cargo mostly for re-export.The proposed development provides both opportunities and constraints in addressingenvironmental and social issues.

27. Officials from a number of countries suggested that ADB should be more proactive inidentifying options to maximize these opportunities and to mitigate potential constraints. They

suggested that subregional resources allocated to the human resource and environment sectorsmight have generated greater returns by focusing on the constraints and opportunities resultingfrom specific subregional infrastructure developments.

28. The most innovative feature arising from the subregional nature of the project has beenthe efforts to reach agreements on policy and institutional changes and in coordinating financingof a number of subprojects in two countries. The policy and institutional reforms agreed uponunder the cross-border agreements related to the East-West Corridor development will generatemore immediate tangible results in increasing trade and tourism than what has been achievedunder the trade and investment working groups. The process has been, and still will be, aprotracted one, but the results to date are impressive, given the major political, cultural, andinstitutional obstacles to reaching tripartite agreement on issues that impinge directly on issues

of national sovereignty. The achievements are more impressive, given that there were nodirectly comparable models to be followed in resolving key cross-border issues. The cross-border agreements—and the processes leading to them—can serve as models for subsequentsubregional transport developments in Asia. However, much remains to be done to ensure thatthese agreements are implemented in practice.

29. In contrast, little attention has been given to the trade policy constraints to increasedtrade. This is a particularly important issue for the Lao PDR because of concerns that it will beara major share of the project costs, but receive a potentially minor share of the benefits.



Appendix 4, page 7

Agriculture offers the greatest alternative to log exports from the Lao PDR, but the potential todevelop agricultural exports is constrained by high and ad hoc tariffs and nontariff barriers inThailand and Viet Nam, as well as in the Lao PDR itself. These problems are compounded bylegal constraints to enforcing contractual arrangements between Thai business people and Laofarmers. Trade restrictions on manufactured goods are generally much lower. Agriculture tradereforms can greatly assist in achieving a more equitable distribution of benefits from the

proposed development. This issue and related ones require more study and should beaddressed when ADB formulates the country operational strategies and programs.

30. The development of the economic corridor concept is still at an early stage and nolessons can yet be drawn. There are potential advantages from better integration of economicpolicy issues as well as social and environmental concerns in GMS infrastructure developments,but the key challenge is how to develop manageable implementation and coordinationmechanisms. It will be important to draw on positive lessons from experience in implementingGMS activities, including the benefits from informal, flexible, and pragmatic institutionalarrangements. It will also be important to clearly identify what economic corridor activities canbe undertaken at a national level, and what needs to be implemented at a subregional level.The usual management and coordination challenges associated with integrated approaches to

development will be magnified with the involvement of multiple governments.

3. Key Issues for GMS Activities in the Transport Sector

a. GMS Processes

31. Ministerial meetings and transport sector forums have been important in gaining supportfor key reforms, for reaching consensus on priorities, and for sustaining momentum. The lack offormal institutional arrangements and the explicit adoption of a flexible, pragmatic, and results-oriented approach to cooperation have been an important feature. Administrative andinstitutional barriers to developing the subregional transport infrastructure were addressed byfocusing on the practical changes needed to successfully implement specific projects.13

32. The GMS processes reflected the recognition that effective subregional cooperationrequires attitudinal changes. ADB facilitated such changes by providing neutral technical andeconomic advice and secretariat support, but focused primarily on changing the attitudes ofcentral officials. Only limited efforts were made to build community awareness and to addressthe concerns of other stakeholders such as customs officers and groups with monopoly tradeand transport arrangements.

b. Institutional Issues

33. Attention was given to the capacity of an institution to implement infrastructuredevelopment satisfactorily; however, developing the capacity of the institutions responsible for

implementing cross-border agreements received less emphasis. There is need to train customs,immigration, quarantine, transport, and police officials and develop proper relationships betweenthem. There is also need for new skills and capacity to enforce environmental, drug control, andquarantine regulations; and for longer term development of the institutions needed to encourageprivate sector investment. Government representatives also noted a need for greater emphasis

13A representative of the Association of Southeast Asian Nations (ASEAN) at the Fouth Subregional TransportForum noted the potential for ASEAN to "draw on the GMS activities in the formulation of the implementingprotocols under the ASEAN Framework Agreement on Facilitation of Goods in Transit."



Appendix 4, page 8

on project-level institutional arrangements and on the institutional strengthening and technicalsupport needed to sustain the momentum in addressing bottlenecks to high priority initiatives.They argued that selected high-priority initiatives will require more regular working-leveldiscussions, possibly supported by medium-term technical assistance to resolve the complexissues associated with reaching and implementing cross-border agreements.

c. Distribution of Costs and Benefits

34. Project costs and benefits are not equally distributed among the member countries. Apronounced example is the Kunming to Chiang Rai Road Improvements where most of thebenefits are expected to accrue to Yunnan Province and Thailand, but major investments will berequired in environmentally and socially sensitive areas of the Lao PDR. Careful financialplanning (e.g., private cofinancing, cost sharing and/or efforts to mobilize grant financing for theLao PDR sections of this road) will be required to ensure equitable distribution of the costs andrisks associated with this development. ADB needs to ensure that adequate resources aremade available so that these proposed developments are not only equitably implemented, butalso provide models for future subregional cooperation.

d. Impacts of Policy Distortions

35. In some cases distortions in national policies exacerbate the distributional concernsabout the subregional initiatives. Current national policies in Lao PDR, Thailand, and Viet Namhave a strong bias against agricultural trade and investment. These policies will result insuboptimal levels of returns from investments in transport infrastructure and exacerbatedistributional concerns. These policies can be expected to have particularly adverse impact onthe Lao PDR, which has a strong comparative advantage in agricultural production, but verylimited opportunities for export of manufactured goods. More generally, the potential benefits tothe poor in rural communities will remain substantially underrealized where progress inliberalizing agricultural trade is lacking.

36. Studies on the impact of trade and investment policies on returns to subregionalinfrastructure projects should be a high priority for action in the trade and investment workinggroups. Policy dialogue on these issues should be addressed in the country strategies andprograms for GMS member countries.

e. Broadening the Corridor Approach

37. GMS RETA activities in the social and environment sectors have not been effectivelylinked to infrastructure developments. Development of the East-West Corridor will provide neweconomic opportunities, should facilitate improvements in social conditions, and could reduceenvironmental pressures. On the other hand, social inequities will become more visible asgoods and people move more freely; economic incentives to exploit natural resources may

increase with reduced transport costs, and drug control may become more complicated withtrade liberalization (footnote 4). Road development both increases logging opportunities andprovides opportunities for increased incentives to control deforestation. Environment and socialRETAs could be better directed to recognize these realities, for example, by supportingimproved water use planning, watershed management, and forest protection along the East-West Corridor, in tandem with efforts to increase economic opportunities from infrastructuredevelopment.



Appendix 4, page 9

38. Effective implementation of cross-border agreements will require human resourcedevelopment in terms of training of customs, immigration, quarantine, transport, and policeofficials. Specific skills and capacity need to be developed to enforce the environmental, drugcontrol, and quarantine regulations under the new border arrangements. There will also beopportunities for longer term development of the supporting institutions needed to encourageprivate sector investment, including improved schooling, skills training, health services, and

market institutions.

f. Mobilizing Additional Financing for GMS Initiatives

39. Mobilization of substantial additional investments in infrastructure, especially from theprivate sector, will be critical to realizing the ambitious objectives of the GMS Program. Therewas initial private interest in transport developments, including the HCMC-Vung Tau segment ofthe Bangkok to Vung Tau Road Improvement, and the Lao PDR section of the Kunming toChiang Rai Road Improvement project. However, the Asian economic crisis has dampenedprivate sector interest, and there are no immediate prospects for finalizing any new privatesector investments in GMS projects.

40. Another constraint to private sector investment is the perceived risks in implementingcross-border and revenue agreements. Successful implementation of cross-border agreementsassociated with the East-West transport corridor will be critically important in increasing privatesector confidence in the GMS initiative. The highest possible priority should be given to effectiveimplementation of the East-West Corridor Project. ADB should actively use its leverage in thesubregion to improve the economic environment for private sector investment. A more focusedapproach to information dissemination and marketing of potential investment opportunities couldalso assist in attracting private sector investment.

g. Monitoring, Evaluation, Information Sharing and Marketing

41. Despite the prominence given to subregional cooperation in the ADB's charter, the GMS

initiative is the first major ADB-supported subregional initiative that has been sustained across arange of sectors. Thus, monitoring and evaluation of this initiative to learn from the experiencedeserve a particularly high priority. More systematic efforts are required to consolidate anddisseminate study findings, issues, and potential constraints. Special efforts should be made topromote consultations with key stakeholders and to disseminate information to them on keyissues in the affected areas. Many local officials argued that more effort was needed to bettercoordinate, synthesize, and disseminate information about the various initiatives. They arguedfor greater efforts to provide consolidated status reports and summary findings in a clearconcise format that could be easily understood by those not directly involved in the Project on aday-to-day basis. Private sector discussants complained about the lack of information onspecific investment opportunities arising from the GMS initiatives. They said most of theinformation they saw was either very general information about the GMS concept, or a wish list

of projects with no clear indication of priorities or likely timing of implementation.

42. The GMS should make much more effective use of modern information technology,including the Internet, to assist in GMS coordination and in sharing project information, findingsfrom studies, and training and other materials developed under GMS projects. Even with"inside" knowledge, the evaluation team at times found it difficult to locate basic program data,and very difficult to gain a comprehensive overview of GMS resource material and studies. Theneed for such mechanisms is especially important for subregional corridor developments, forthese reasons.



Appendix 4, page 10

(i) Success depends as much on the timely implementation of policy, regulatory,

and other institutional reforms as on the physical infrastructure.(ii) Program implementation typically involves a large number of subprojects,

national governments, and funding agencies.(iii) There is a high probability that previously unanticipated social, distributional,

environmental, trade, and investment issues will arise during programimplementation.

(iv) Potentially important lessons can be drawn for the implementation of othertransport and economic corridor projects in the region.

(v) Strong domestic, regional, and international interest in the socioeconomicimpacts of the development can be anticipated, and this implies a strong demandfor reliable information on a systematic basis.

h. Cooperation in Transport with ASEAN

43. Parallel initiatives are being pursued under the ASEAN and GMS programs, both infacilitation of cross-border movements of goods and people and in transport infrastructure

development. ASEAN framework agreements on the facilitation of goods in transit and onmultimodal transport were approved in 1998, and work is ongoing on the harmonization of roadtransport laws, rules and regulations within ASEAN. Consultations are also ongoing withinASEAN on the ASEAN Highway network and the development of a Singapore to Kunming raillink. The fifth Conference of ASEAN Transport and Communications Ministers held in Hanoion15-16 September 1999 passed a program of action for ASEAN transport and communicationsdevelopment to the year 2004 that included a list of 55 individual regional projects. An ASEANministerial memorandum of understanding on the development of an ASEAN highways networkproject paved the way for the phased development of priority road projects. The ministers alsosigned protocols on types and quality of road vehicles and technical requirements for vehiclestransporting goods across ASEAN boundaries.

44. The abovementioned development suggests the need for a clearer vision of the mostappropriate links between the two forums. One possible option is to view the GMS initiative as asubset of the ASEAN initiative. Another is to broaden the scope of GMS activities to includeADB support to GMS economies plus the remaining ASEAN countries in subregional transportdevelopment.

i. What Constitutes a GMS Project?

45. There continues to be some ambiguity about what constitutes a GMS project. TheEvaluation Mission (EM) found little in the Siem Reap airport development that had a greatersubregional dimension than what 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 aGMS project because some of its funds will be used to upgrade segments of priority GMSroutes as well as feeder roads to this project. It may well have been that during the early stagesof GMS implementation there was a perceived need to report success in securing funding forGMS projects.

46. The issue of definition goes beyond semantics. There can be high management andcoordination cost implications for unnecessarily calling projects as GMS projects. The GMS



Appendix 4, page 11

Program is already complex and difficult to coordinate (and evaluate) because of the largenumber of inter-related activities. Clearly, the issue of definition needs to be resolved throughGMS consultation, but points for consideration are worth noting.

47. One guiding principle that might be considered is to exclude all projects from beingclassified as a GMS project unless there is a clear need for and benefits from subregional

consultations during implementation. Thus, there may be need for subregional activities toassist in addressing policy constraints to the development of air links and air transport, but therewould be no need to include airport developments. In the power sector, activities might focus onsubregional network development, interlinkages, pricing and purchase agreements competition,benchmarking and management, but there would be no need to include individual powergeneration projects. Indeed, as power networks become interlinked, if any power generationproject is included, then all new power projects connected to the network would also have to beincluded as GMS projects. Clearly, this would quickly become unwieldy.

j. Subregional Programming and Links with National Programs

48. The key 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 the country programs. There are strong argumentsfor identifying indicative allocations of ADB RETA resources for GMS activities at least threeyears in advance to facilitate effective programming of technical assistance for priority GMSactivities. Priorities for RETA could then be developed through working-level GMS discussions,with agreed-upon priorities endorsed at the annual GMS ministerial meeting. Such an approachwould (i) facilitate RETA allocations that better reflect GMS priorities, (ii) increase GMS memberownership of all RETA projects because of their greater involvement in priority setting, and(iii) provide increased opportunities to mobilize cofinancing because of longer term planning andthe clear commitment of GMS member countries. As part of the improved programming ofresources, ADB should also give more attention to leveraging policy and institutional change inGMS countries. Reaching agreement on priorities may not always be easy—a strong

commitment will be required from GMS members and ADB staff to make this work—but this istrue of all GMS activities.

B. Telecommunications

1. Background

49. No separate case study was conducted on this sector. This analysis and the followingrecommendations are based on a brief desk study of ADB documents.

50. The initial GMS studies recognized that the transformation of GMS economies to a moreopen and market-oriented system implied a need for efficient telecommunications systems. A

GMS Subregional Telecommunications Study,14

completed in February 1996, called for acoordinated subregional approach to expanding and improving the telecommunications sector,so that disparities in price and quality of telecommunications services are reduced over time andbecome more in line with international standards.

14Cofinancing was provided by the Australian Agency for International Development (AusAID).



Appendix 4, page 12

51. Study recommendations were presented to a Senior Officials Meeting onTelecommunications in November 1995. The sector study recommended activities to (i) improvefacilities that connect or are shared among GMS economies; (ii) modernize national networks tomake them more compatible and ensure they grow together in a coordinated fashion; and(iii) adjust regulations, policies, and tariffs to accelerate the development of telecommunicationswithin the GMS.

52. The fifth ministerial meeting endorsed the recommendation to establish a GMStelecommunications forum (STCF) to facilitate cooperation. The STCFs terms of referencerequire it to (i) provide a vehicle for coordinating subregional project planning, (ii) provide amechanism for implementing priority subregional projects, (iii) provide a venue for addressingregulatory and policy issues, (iv) promote private and public sector financing of subregionalprojects; (v) facilitate training projects and other human resource initiatives, and (vi) provide avehicle for disseminating and exchanging information.

2. Assessment

53. The GMS objectives for the telecommunications sector are very broad. Statements

about intended outcomes refer to either general comments about a need to improve subregionalcooperation or project-specific outcomes. The objective noted by study consultants was "that,over a period of time, the availability of telecommunication service, their quality and their pricethroughout the subregion would tend towards being essentially uniform." There was noevidence of clear vision or strategy for future GMS involvement in the sector. The formulation ofa clear strategy could help ensure that GMS activities do not result in interventionist measuresthat might discourage private investment.

54. Follow-up ADB support to GMS telecommunications initiatives has been minimal, theonly support having been for the study of the East Loop Telecommunications Project. The studyhas been completed, but there continues to be a degree of ambiguity about the potential role ofADB and the GMS in the telecommunications network. There is little evidence of any

substantive outcomes from this study, beyond the production of studies.

55. The EM found little justification for ADB and/or public sector involvement in a sectorwhere technology is changing rapidly and most new infrastructure is privately financed.Arguments that Cambodia, Lao PDR, and Viet Nam lack the policy environment to fully promotecommercialization and private sector15 participation in the sector appears to be at odds with thefact that there has been considerable foreign private investment in telecommunicationsdevelopment in Viet Nam.

56. The economic rationale for any substantive public sector financing involvement ininvestments in international telecommunications needs to be clearly justified, given theincreasingly dominant position of the private sector in financing telecommunications

developments elsewhere. ADB studies need to explicitly address the question of why publicfinancing is required, and whether the public sector decision-making process is likely to arrive atoptimal investment decisions given the rapidly changing technologies in telecommunications.Clear reasons should be given to justify GMS and public sector involvement in identifyingtraining needs for the sector and mobile telecommunications needs. Any justification should

15Back-to-Office Report from a Transport and Communications Division West Review Mission on TA 5738-REG:East Loop Telecommunication Project in the GMS, dated 7 September 1998.



Appendix 4, page 13

include specific examples of where such public sector involvement has acceleratedtelecommunications development at a national or subregional level.

57. Where there may be justification for public sector involvement—setting regionalstandards and regulatory principles—there is also need to ask what advantages a GMSapproach would have over an ASEAN, or International Telecommunications Union (ITU), or

Asia-Pacific Telecommunity (APT) approaches to these issues.

3. Key Issues and Recommendations

a. GMS Involvement in Telecommunications

58. The EM found little compelling evidence of substantive impact from GMS involvement inthe telecommunications sector. The EM did not find the evidence for using a subregionalgrouping—defined by geographic proximity of countries through which the Mekong Riverflows—for telecommunications planning as compelling as that for using this subregionalapproach for transport, energy, tourism, and the environment. The EM recommends that theimmediate priority be to clearly define what value added can be provided by a GMS approach to

telecommunications that could not be achieved through collaboration under the ITU andASEAN.

b. Strategic Focus on Facilitating Commercial Investment

59. If the GMS wishes to continue supporting telecommunications development, then a moreclearly focused strategy is needed. Facilitating commercial investment in subregionaltelecommunications might be the most appropriate single guiding principle. There is unlikely tobe any need for ADB lending to public institutions for the development of telecommunicationsinfrastructure. There may be scope for ADB involvement in using private sector modalities—andits leverage to reduce contractual risks—in mobilizing private sector resources. Given therapidly changing technological developments and limited ADB involvement in the sector

elsewhere, the EM was not convinced that ADB has any comparative advantage in planning,financing, or implementing feasibility studies for investments in commercial telecommunicationsinfrastructure projects.

C. Energy Sector

1. Background

60. The GMS is well endowed with energy resources, but their geographic distribution isuneven. Yunnan Province accounts for the largest share of the hydropower potential, followedby Myanmar, Lao PDR, and Viet Nam. Hydrocarbon resources, both oil and natural gas, andcoal are located in Yuanan Province, Myanmar, Thailand, and Viet Nam. Utilization of energy

resources remains relatively low, with per capita power consumption ranging from only about100 kilowatt-hours (kWh) in Cambodia, Lao PDR, and Myanmar to more than 1,500 kWh inThailand (Table 1). Almost one half of Thailand’s energy needs have to be imported, while VietNam is a net exporter of energy. Detailed data on the Lao PDR and Cambodian energy tradeare not available, but hydropower is a major source of export earnings for the Lao PDR.



Appendix 4, page 14

Table 1: Energy Indicators in GMS Countries

Country

ElectricityConsumption

(kilowatthours/person)

Oil Consumption(kilograms/

person)

Share of Net EnergyConsumed that is

Imported (%)

ThailandChina, People’s Rep. ofViet NamMyanmarCambodiaLao PDR

1,5708912179371

103

1,333902448294 — —

450

(14)7

— —

— = data not available.Source: Human Development Report (1999).

61. The rationale for GMS cooperation in energy development is that a shift to a moreintegrated approach—in the electric power subsector through transmission grid interconnection

and hydropower development, and in the gas subsector through cross-border gas trade—willbring important benefits. Potential benefits in the power subsector were estimated at $4 billionfor 1995-2020, resulting from the complementarity of energy resources, load diversity,hydrological diversity, exchanges of base energy for peak energy, increased supply reliability,reduced reserve capacity requirements, and reduced system losses.

62. The inception meeting of the electric power forum (EPF) was held on 24-25 April 1995. Atotal of five EPF meetings have been held to date, with an additional expert groups meetings onpower interconnection and trade in December 1998. The main objectives of the EPF are to

(i) provide a link between GMS power supply and system development institutions;(ii) promote and advise on efficient development of power systems;

(iii) identify potential GMS power projects that could be developed on a cooperativebasis;(iv) promote financing of priority projects to potential private and public financing

sources;(v) provide a venue for addressing software issues, such as planning tools and

pricing principles;(vi) assemble and disseminate information to participating institutions, and cooperate

with other regional and international agencies involved in the power sector; and(vii) facilitate training and other human resource development initiatives.

63. ADB’s TA support to the energy sector includes limited assistance for the GMS EPF andsubstantial assistance for the Se Kong-Se San and Nam Theun River Basins Hydropower

Development Study. ADB has also had a major involvement as cofinancier of the TheunHinboun Hydropower Project and the Nam Leuk Hydropower Development Project.

64. ADB provided staff consultant support in drafting a policy statement for presentation tothe sixth EPF meeting in October 1999. A proposed RETA (estimated cost $800,000) to assistin developing a regional indicative master plan is scheduled to be presented to the EPF meetingin 2000.



Appendix 4, page 15

2. Assessment

65. No separate case study was conducted on this sector. This analysis and the followingrecommendations are based on a brief desk study of ADB documents.

66. The GMS processes have proceeded in a practical and pragmatic manner, and have

generated tangible results, the most tangible of which have been achieved in the powergeneration projects. There has also been an increasing focus on power trade issues. Moresubstantive progress would almost certainly have materialized if not for the Asian crisis. Thedecision to draw on past experience in implementing GMS activities and to prepare a clearpolicy statement for the EPF is timely.

67. ADB has provided cofinancing for two GMS power generation projects, the TheunHinboun and Nam Leuk Hydropower Development Projects. Theun Hinboun has beenoperational since April 1998, and the Nam Leuk hydropower station is expected to beoperational by the end of 1999. Both projects have been implemented relatively quickly. TheNam Leuk hydropower project is very similar in basic structure to earlier (pre-GMS) ADB-financed hydropower development projects in the Lao PDR that were also aimed at exporting

power for Thailand. The Theun Hinboun project differs somewhat from earlier ADB-financedhydropower development projects in Lao PDR in terms of the innovative financingarrangements, but is not clear to the EM that these financing arrangements can be directlyattributed to the GMS process.

68. There may be clear benefits in addressing planning, regulatory, technical andinstitutional issues (e.g., power purchase agreements), and the integration of national networksand grids at the subregional level. The EM saw less evidence of benefits from developing andmonitoring individual power supply projects as “GMS projects.” Once power networks areintegrated, then including any one power generation project linked to the network as a GMSpower project implies that all other power generation projects linked to the network should alsobe classified as GMS projects. While individual power projects are obviously important in

planning, it is important that nationally implemented initiatives do not take the attention of seniorGMS officials away from priority policy and institutional issues.

69. External observers have raised concerns about the possible adverse social andenvironmental impacts of the Theun Hinboun Hyropower Project. ADB has followed up on theseconcerns (see the back-to-office-report of the Infrastructure, Energy and Financial SectorsDepartment [West] Consultation Mission dated 7 December 1998). The EM did not have theresources or mandate to study this issue, but this issue clearly needs close attention inpreparing the project completion report and project performance audit report.

3. Key Issues and Recommendations

a. Defining a Subregional Power Project

70. A major cost of undertaking projects at a subregional level is the opportunity cost ofbringing together senior officials from the respective countries. It is critical that subregionalmeetings focus on resolving the highest priority subregional issues. Some projects implementedas GMS projects (e.g., Nam Leuk) may have been implemented more efficiently as a nationalproject.



Appendix 4, page 16

b. Resource Mobilization and the Asian Crisis

70. The Asian crisis has both dampened the demand for new power-generating capacity andreduced the supply of private sector financing for GMS power supply projects. This situationcould change rapidly, and the GMS needs to be prepared to attempt to mobilize substantiallyhigher levels of private sector financing for power development than has ever been achieved in

the past. It is important to have a clear strategy and action plan developed, and financingoptions prepared to mobilize the necessary resources as demand for power increases.

c. Longer Term Institutional Arrangements for GMS Power Trade

71. There is now need to study appropriate longer term institutional arrangements to assistin the management of an integrated subregional power grid. Recently initiated assistanceshould provide inputs to this process.

d. Monitoring and Information Dissemination for GMS Projects

72. There is and will continue to be strong regional and international interest in GMS

projects, particularly in any projects that have direct impacts on natural resources. ADB canexpect a particularly strong demand for information on the social and environmental impacts ofGMS power projects. Assurances from findings of environmental impact assessments prior toimplementation will not be enough. There is need for effective ongoing systems for monitoring,studying, and disseminating information about impacts, and to ensure that early and proactivecorrective action is taken as appropriate. Special efforts should be made to directly involve andpromote consultations with key stakeholders, including community groups, nongovernmentorganizations, and the private sector, and to disseminate information on project impacts andopportunities. ADB also needs to recognize that there are well-organized lobby groups that areopposed to all hydropower projects, regardless of any assessment of social, environmental, andeconomic impacts.



Appendix 5, page1

ENVIRONMENT

A. Evolution of the Environmental Program

1. The Greater Mekong Subregion (GMS) environmental strategy and activities wereformulated on the basis of an extensive—if somewhat indiscriminate, in a strategic sense—

review of subregional environmental issues and opportunities. These were translated intopriorities through the GMS consultative process (based on ministerial conferences and, later,the Working Group on the Environment [WGE]). The consultation itself was extensive andgenuine, but in the early years of the program specially, it suffered from a narrow range ofviews that largely excluded nongovernment organizations (NGOs) and independent voices.Also, the functioning of WGE has been sporadic and “by invitation,” rather than sustained andspontaneous. Its work remains wholly dependent on outside funding.

2. The environmental strategic focus has correctly given priority to a substantial capacity-building effort. It was recognized that institutional strengthening is needed before GMScountries can contemplate a move from monitoring and analysis toward active management oftheir many interdependent resources and environmental assets. This direction matched the

GMS governments’ own preference for capacity building rather than resource use orenvironmental-management activities.

3. The choice and design of technical assistance (TA) activities was based, to a sufficientdegree, on ADB’s country experience and (with some qualifications) its comparative advantage.Regional TA (RETA) 5684 (Subregional Environmental Training and Institutional Strengtheningin the GMS)1 was a logical extension of ADB’s extensive involvement in building the capacity ofthe environmental agencies of the DMCs, including those in GMS countries (Thailand, VietNam). The formulation of RETA 5622

2was prompted by ADB’s growing financing of

environmental and resource data management activities in DMCs (especially Indonesia, butalso the People’s Republic of China and the Mekong Basin). RETA 57713 was designed againstthe background of a major (though “undigested”) portfolio of ADB watershed management

projects. There was also a reasonable degree of coherence within the GMS environmentalcomponent, several RETAs in principle (though less so in practice) being complementary.

4. The design of individual RETAs was driven mainly by technical objectives. Institutional,especially implementation, arrangements have tended to be the less successful aspect of theTA design. There have been few fresh ideas as to how to get better “value for money” inRETAs, ADB’s own system of consultant proposal evaluation conspiring against such ideas.Demands for holistic approaches to complex environmental problems tend to be met by morecomplex RETA implementation arrangements. There have also been few new ideas about howbest to shortcut certain stages of RETAs and build on the considerable body of work done onthe same and similar subjects by Asian Development Bank (ADB) and others.

B. Overall Assessment

1TA 5684-REG: Subregional Environmental Training and Institutional Strengthening in the GMS, for $1,665,000,approved on 9 May 1996.

2TA 5622-REG: Subregional Environmental Monitoring and Information System, for $1,000,000, approved on9 February 1995.

3TA No. 5771-REG: Poverty Reduction and Environmental Management in Remote GMS Watersheds, for$1,000,000, approved on 31 December 1997.



Appendix 5, page 2

5. The goal of developing subregional environmental standards and a mechanism for datasharing based on such subregional standards was too ambitious. The technical and institutionalcapacity for sharing of data continues to be weak in each of the GMS countries. Thusimplementation took place on weak foundations. This was particularly evident during theimplementation of the Subregional Environmental Monitoring and Information System program.Even at the RETA’s conclusion, the national authorities and the subregion remained largely

unable to exchange data according to a subregional protocol. The substantial differences in thelevel of technical skills between Thailand, Viet Nam, and Yunnan on the one hand, andCambodia, Lao PDR, and Myanmar on the other, have reduced the effectiveness ofsubregional training. A two-tiered approach recognizing these differences might have producedbetter results. ADB’s technical knowledge of the subject addressed under the RETA hasalways been very narrow. This placed an unreasonable burden of technical supervision on asmall number of individuals.

6. Variation in GMS country capacity needs to be recognized during RETA design. Apositive example of a flexible approach is in RETA 5684 (footnote 1). For example, the flexibleformat of training modules, providing for a mix of national and subregional activities, was aconsiderable strength of the design and a source of satisfaction among the GMS countries’

participants.

7. RETA designs need to secure consensus on objectives and avoid tendencies tooverambition. For example, in merging the original forestry-only design with the goal of povertyreduction, the objectives of RETA 5771 (footnote 3) became better balanced, but the RETAturned far too ambitious when the subregional dimension was added. ADB’s experience withwatershed development projects, suggesting that such projects are among the most complex ofany to implement, was largely ignored. In the absence of internal consensus and policy onwatershed development, ADB’s guidance and technical supervision were either absent or overlydependent on individual views. The RETA’s central objective of searching for models capableof wider, subregional applications remains questionable. Watershed development is highly site-specific and attempts to generalize results across watersheds, let alone across the GMS, may

well be counterproductive.

8. This RETA design embodies a questionable assumption that shared environmentalproblems require shared solutions. Despite the important element of physicalinterconnectedness, poverty reduction in watersheds requires first and foremost more effectivenational, not subregional, policies. In the circumstances where the status of NGOs varies fromcountry to country, a blanket bias in favor of NGO involvement in RETA implementation begetsreduced governments’ support for the RETA and the subsequent investment program.

9. Particularly for policy/strategy-oriented TAs, it is critical that consensus on objectivesand outcomes be achieved at the design stage. For example, the design of RETA 5783

4 isuniformly regarded as extremely complex. Approval by the WGE did not signify that the

participating institutions had full or common understanding of the RETA’s objectives at theoutset. That is emerging only now, five months into the TA’s implementation.

4TA 5783-REG: Strategic Environmental Framework for the Greater Mekong Subregion , for $1,600,000, approvedon 20 March 1998.



Appendix 5, page 3

10. RETA 58225 also highlights some key design lessons. Following the removal of the VietNam subcomponent, the RETA’s subregional credentials have come to rest largely on thehydrological dependence of the Great Lake on developments outside Cambodia. In all otherrespects (and leaving out the small Lao subcomponent), however, the RETA promises tobecome one of several national projects focusing on Tonle Sap. This has increased theimportance of the effective integration of proposed activities into other existing or planned

projects in the Siam Reap and other riparian provinces. The design has exposed thecomplexities of source coordination, especially between the GMS program and the activities ofthe Mekong River Commission.

11. No major conflict has been found between the GMS environmental RETAs and thecountry environmental priorities. This is mainly because three of five GMS environmentalRETAs are of a capacity-strengthening nature, an accepted priority throughout the GMS. The fitremains uncertain in the case of RETA 5822 (footnote 5) where the country environmentstrategy for the two countries concerned is yet to be finalized. However, if, overall, no majorcontradictions between the direction of the GMS environmental intervention and those pursuedunder country programs are found, this is more a tribute to ADB staff initiative than the result ofan effective integration of the country and GMS planning processes, which continue to be

largely separate. The ADB RETA Screening Committee reacts to individual RETA proposalsrather than to a subregional strategy within which the RETAs are to be placed.

12. Without sufficient integration into country environmental priorities, the GMS Program,including its environmental component, has made a wide use of the (de facto) “PP RETA” or“mixed RETA” modality under which all or some of the RETA funds are used to formulateinvestment projects. This has further increased the importance of GMS governments’“ownership” of RETAs. In those cases where GMS RETAs are only tenuously integrated intothe country programs, the degree of the participating governments’ commitment to borrow forinvestment projects identified under the RETAs remains doubtful. The problem is potentiallyserious in the smaller GMS economies (Cambodia, the Lao PDR) where a single GMS RETAmay come to dominate the country’s environmental or natural resource management pipeline

without necessarily being an outcome of Country Operational Strategy deliberations.

13. The value-added impacts of the GMS environmental component lie in part in havingestablished an interlinking of professional networks of government officials, ADB staff, fundingagencies, and, increasingly, NGOs. The benefits of these networks have been complex andhard to quantify, but their existence is not in dispute.

14. The GMS environmental activities have contributed significantly to building of technicalskills within the GMS countries’ environmental and other agencies. They have not been usedenough, and in combination with other GMS components, as a vehicle for policy andinstitutional change. The leveraging potential of the GMS Program has been reduced by theinsufficient integration of some GMS activities into ADB’s country programming and, possibly

also, by fragmentation of aid assistance and its directions that the GMS program could notovercome. As a result, some of potentially the most exciting opportunities for creating valueadded, i.e., GMS projects as engines of policy reform, have not materialized.

15. The concern with possible duplication of efforts between the GMS and other regionalenvironmental programs (by Mekong River Commission, United Nations Development

5TA 5822-REG: Protection and Management of Critical Wetlands in the Lower Mekong Basin, for $1,650,000,approved on 22 December 1998.



Appendix 5, page 4

Programme, or bilateral sources) is greater among the sources or lenders themselves than it isamong the domestic environmental institutions. This is hardly surprising, but is clearlyinsufficient to allay duplication concerns. Until now, this topic has been played down by theGMS Program.

16. Overall, the major transboundary investment potential of the GMS has propelled the

program’s environmental component to a position of considerable importance. Although notcentral to the GMS Program, the environmental component has become its essential supportingelement. It succeeded best in facilitating professional contacts and creating a commonenvironmental language across the subregion. The financial cost of this achievement may havebeen high, but the benefits of institutional goodwill and a more efficient debate across thesubregional boundaries have been commensurate with the cost.

17. Outside funding will continue to be indispensable to the environmental component as awhole. The in-kind contributions of GMS governments to the GMS RETA budgets have fallenshort of the original amounts pledged. The short-term prospects of greater financialsustainability of subregional environmental activities are limited.

C. Key Issues and Recommendations

1. Ensuring Integration with Country Programs

18. With GMS RETAs increasingly used to formulate investment projects, there is an evengreater need to ensure a close fit between the RETAs and ADB’s country programs. This maybe easy in some cases (i.e., the Protection and Management of Critical Wetlands RETA), butnot in others since the sharing of costs and benefits of subregional investments, and with it theassignment of project ownership to individual countries, may be much more complex. The GMSinfrastructure investments provide some ideas of how to reconcile country-level and regionalprogramming. The appropriateness of these procedures to anticipated GMS environmental andnatural resource investments should be confirmed.

2. Increased Emphasis on Policy Dialogue

19. The GMS Program as a whole and most of its components have insufficiently leveragedpolicy and institutional change in GMS countries. One reason is that they have not beenintegrated enough into country programming and policy dialogue. There may be other reasons,and ADB needs to gain a better understanding of these reasons. A special assessment of thepotential of the GMS Program to affect policy may be valuable.

3. Need for Strategic Review

20. The strategic direction of the GMS environmental program, with continued emphasis oncapacity building but gradual extension of activities to address transboundary environmentalimpacts, is sound. Its effectiveness might increase if it becomes more closely aligned with themain GMS transboundary investment components, especially in transport infrastructure andenergy. For this to happen, ADB needs to make this requirement more explicit in the strategiclook recently formulated.6

6Programs Department (West), Division 3. 1999. The GMS Program: A Retrospective Look , and Strategy for the GMS Program in the Context of the Regional Economic Crisis. Papers presented at the Eighth Conference onSubregional Cooperation, Manila, 30 September–2 October 1999. The second mentioned document advocates



Appendix 5, page 5

4. Improved Consultant Selection

21. The consultant selection and secondary recruitment of local NGO and othercollaborators for the GMS environmental RETAs have been a source of dissatisfaction amongthe GMS governments and might justify consideration of a protocol for NGO recruitment under

ADB RETA projects.

5. Securing Reliable Environmental Data Management.

22. As the GMS environmental component moves in the direction of environmentalmanagement, it will be handicapped by the absence of reliable data. The component needs tofind ways of becoming party to the process of collecting, assembling, and exchanging criticaloriginal data rather than dealing mainly with the manipulation of secondary data. For a programaiming to address transboundary impacts, a source of concern is that neither the GMSgovernments nor the funding agencies have a good idea of the magnitude of the transboundaryflows of goods, people, wildlife, etc. The gap between the sophisticated aims of the GMSenvironmental component and field reality must not get any bigger and, ideally, should startgetting smaller.

6. Designing Subregional Cost-Benefit Analytical Tools

23. There is little need at present to formulate guidelines for evaluating the social andenvironmental impacts of subregional projects. There are many more pressing environmentaltasks. In contrast, guidelines may be needed to establish equitable formulas for sharing thecost of subregional projects on the basis of the distribution of environmental and other benefitsaccruing to each participating country.

that greater emphasis be henceforth given to the “soft” aspects of subregional cooperation (e.g., addressing cross-border nonphysical barriers to movements of goods and people), a shift from “transport corridors” to “economiccorridors,” and to project-based proactive funding agency coordination.



Appendix 6, page 1

TOURISM

A. Agencies in Tourism Development in the Greater Mekong Subregion (GMS)

1. Several agencies are involved in tourism development in the GMS. These include:

1. The Economic and Social Commission for Asia and the Pacific (ESCAP)

2. ESCAP is one of five regional commissions of the United Nation. Its primary function isto promote economic and social development through regional and subregional cooperation. Intourism, ESCAP has made particular efforts in the following areas, often in collaboration withother agencies, including the Asian Development Bank (ADB): (i) promoting regional andsubregional cooperation, (ii) strengthening national capabilities in human resourcesdevelopment, (iii) improving tourism policy formulation through economic impact assessment,(iv) strengthening national capabilities in the environmental management of tourism,(v) strengthening national capabilities to create a favorable investment climate for tourism,(vi) facilitating travel, and (vii) strengthening national capabilities in integrated tourism planning.

3. Inputs have been largely through studies, workshops, seminars, and technical advisorymissions. Recent activities include (i) formation of the network of Asia-Pacific Education andTraining Institutes in Tourism (APETIT) to provide a mechanism to facilitate contacts betweeninstitutions involved in human resource development in tourism in the Asia-Pacific; (ii) promotionof tourism along the Asian Highway, including studies in the GMS countries of Lao PDR,Thailand, and Viet Nam; (iii) promotion of technical cooperation among developing countries(TCDC) in the early stages of tourism development largely through the organization of seminarssuch as the one held in Ho Chi Minh City (HCMC) in 1996 and the one held in July 1999 in theLao PDR; and (iv) organization of workshops such as the Seminar on Expansion of Tourism inthe GMS through Improved Air Transportation held in Vientiane in July 1999, which wasattended by officials from National Tourism Organizations (NTOs), civil aviation authorities, andrepresentatives of airlines. A more extensive listing of relevant ESCAP meetings and

publications is attached to the consultant’s report, including ESCAP’s “Plan of Action forSustainable Tourism Development in the Asian and Pacific Region."

2. The United Nations Development Programme (UNDP)

4. UNDP has no specific mandate for involvement in regional tourism initiatives but it isinvolved nationally through individual projects such as funding a new master plan for tourism forViet Nam.

3. The United Nations Education and Scientific Commission (UNESCO)

5. UNESCO is mainly concerned with the designation and appropriate management of

World Heritage sites. Five of the six GMS countries have World Heritage sites and are thereforeeligible for training support from the World Heritage Fund. UNESCO has also undertaken a pilotstudy in village-based tourism at Luang Namtha in the Lao PDR.

4. Pacific Asia Travel Association (PATA)

6. PATA’s mission is to contribute to the growth, value, and quality of travel to and withinthe Asia Pacific region. Founded in 1951, PATA is an international organization whosemembership comprises 38 national governments, over 50 state and local tourism bodies, 65



Appendix 6, page 2

airlines and cruise lines, and more than 2,000 travel industry companies. In addition there is aninternational network of chapters in 78 locations comprising more than 17,000 travel industryprofessionals worldwide that operate projects and programs relevant to their local communities.PATA is the main representative of the private sector in the Working Group on Tourism (WGT).It publishes a newsletter on various developments in the travel industry and produces annualstatistics on tourism and various research reports such as market segmentation studies. It is

the organizer of the Mekong Forum and publishes its Proceedings. PATA runs basic courses intourism marketing.

5. World Tourism Organization (WTO)

7. WTO is an intergovernmental organization based in Madrid. Its mission is to developtourism as a significant means to foster international peace and understanding, economicdevelopment, and international trade. It is open to nongovernment organizations and provides aforum for governments and industry to meet and address issues of common interest andconcern. Its activities include cooperation for development, education and training, environmentand development planning, quality of tourism services, statistics and market research andcommunications and documentation. WTO has not been involved in the GMS in any significant

way yet, but it has attended GMS working group meetings on occasion and is currently assistingViet Nam in locating funding for a new tourism master plan for the country.

6. Mekong River Commission

8. The mandate of the Mekong River Commission extends to fostering cooperation inseveral areas including tourism in GMS countries.

B. ADB's Involvement in GMS Tourism Development

9. ADB support for the tourism sector in the GMS has been concentrated in two areas:(i) promotion of cooperative activities, and (ii) technical assistance (TA) projects focusing on

planning and training. Two regional TA (RETA) projects focused on training (RETAs 5647,1

58072) totaling $284,000, of which $29,000 had been cofinanced; and one focused on planning(RETA 57433).

1. Working Group Meetings

10. The main vehicle for the promotion of cooperative activities has been the WGT. Thegroup is composed of representatives of the six National Tourism Organizations, PATArepresenting the private sector, and members of the funding community (e.g., United NationsEducational, Scientific and Cultural Organization). The WGT held its first meeting in April 1995in Bangkok. It now meets twice a year and is the strongest element of the subregional tourismprogram. It establishes priorities for projects and seeks means to implement them. The WGT is

supported financially by ADB and ESCAP, and technically by the Agency for CoordinatingMekong Tourism Activities (AMTA), which coordinates its activities. AMTA was establishedwithin the Tourism Authority of Thailand (TAT) in 1997. AMTA also coordinates marketing

1TA 5647-REG: Regional Program to Train Trainers in Tourism in the Greater Mekong Subregion , for $130,000,approved on 23 October 1995.

2TA 5807-REG: Tourism Skills Development in the Greater Mekong Subregion , for $125,000, approved on 29September 1998.

3TA5743-REG: Mekong/Lancang River Tourism Planning Study , for $600,000, approved on 24 June 1997.



Appendix 6, page 3

activities for the WGT—sales promotions at travel trade fairs, media trips to the subregion—agent familiarization trips to the subregion, and facilitates related human resource development.

11. PATA represents the private sector in the WGT and counts in its membership hotels,airlines, cruise companies, conference centers, travel companies, media, and umbrellaorganizations that themselves represent many members, such as the Thai Hotels Association

and Association of Thai Travel Agents. Private sector representation has generally beensatisfactory, but it is hoped that direct private sector involvement in the WGT will increase.

12. The WGT has a list of eight priority projects, and progress on these is tracked at eachmeeting. The projects are (i) promoting the subregion as a tourist destination,(ii) subregionaltourism forum, (iii) training the trainers in the basic skills of tourism, (iv) training resourcemanagers in conservation and tourism, (v) Mekong/Lancang tourism planning study, (vi) village-based tourism, (vii) study of facilitation of travel to and within the GMS, and (viii) GMS north-south tourism flows.

13. ADB also provides support to the Mekong Tourism Forum (MTF) that was established bythe WGT as a private sector forum to provide inputs to the WGT and help market the region.

The MTF is organized and run by PATA. While the WGT and MTF have had a positive influenceon regional tourism, the sustainability of the initiatives is a major question. Estimates suggestthat TAT has invested at least Baht 8 million in regional initiatives via AMTA. PATA has alsofunded one position in AMTA for an initial two-year period.

14. The WGT and MTF provide a critical means for discussing regional tourismdevelopment. A positive atmosphere of cooperation has developed among the groups. Informalcontacts now take place among participants between WGT meetings, which did not happenpreviously. The Seminar on Facilitating Regional Air Travel held in the Lao People's DemocraticRepublic (PDR), July 1999, resulted from a WGT suggestion. Present moves to ease visarestrictions in the Lao PDR, Myanmar, and Viet Nam and the opening of new overlandcheckpoints also resulted from WGT and MTF discussions. ADB, together with ESCAP, played

a major role in initiating the WGT and MTF, but should now plan for a phased withdrawal, withthe NTOs and private sector beginning to develop more ownership. However, the timing isdifficult, with economies and tourist receipts only just beginning to recover and with little moneyavailable in NTO budgets. The MTF, however, should be able to develop a plan to become self-sustaining over the next three years.

2. Technical Assistance - Training

15. The Subregional Tourism Sector Study undertaken as part of RETA 55354 identified thelow levels of skills in the tourism industry as a main constraint. The study proposed a trainingprogram to upgrade the teaching skills of tourism trainers in the subregion and enable them toidentify more effectively the needs for trainers in their home countries. This proposed program

was assigned the highest priority at the ministerial-level meeting of the Third Conference onSubregional Economic Cooperation held in Hanoi in April 1994.

16. ADB has provided support for two training programs. The first was executed inNovember/December 1996 under RETA 5647 (footnote 1). The four-week course was run in

4TA 5535-REG: Promoting Subregional Cooperation Among Cambodia, the People’s Republic of China, Lao PDR,Myanmar, Thailand and Viet Nam, for $4 million, approved on 10 June 1993; and (Supplementary TA), for $1.260million, approved on 30 September 1994.



Appendix 6, page 4

Singapore and Thailand for 18 participants from the six countries. Of the $130,000 approved byADB, $34,290 was not disbursed. The Government of Singapore contributed $16,000 and theTAT $3,000. The objective was to “foster the development of tourism in the subregion byupgrading the teaching skills in the basic skills of the tourism industry of the subregion’strainers.”

17. While recognizing that basic training in tourism skills is appropriate at the national level,the training of trainers was thought to be appropriate at the subregional level so as to stimulatein-country training capabilities and encourage a common approach to tourism training within theregion. Half the course was dedicated to how to design tourism courses and the other half toteaching practical aspects of the various elements of the hotel industry. The program wastargeted at middle-management personnel from the subregion’s NTOs and other appropriateauthorities. The NTOs nominated the participants. A review of the institutional affiliations of theparticipants suggests that perhaps half were directly involved with training. The TA completionreport draws attention to some of the difficulties experienced in coordinating a regional courseundertaken by two different institutes in two different countries. Whereas interviewees for thisstudy were unanimous in supporting the need for more training in the tourism sector, it is notreadily apparent that this course benefited from a regional as opposed to national focus. It might

be noted that the European Union (EU) is hoping to finalize agreement for a regional andnational training for trainers by the end of August 1999.

18. The second initiative (RETA 5807, footnote 2) involved two courses and was cofinancedby ADB ($120,000) and TAT ($10,000). One course, Training Trainers in the Basic Skills ofTourism was held at the Dusit Thani College in Bangkok in November 1998. Three tourismtrainers from five GMS countries attended the course. Last-minute problems prevented theparticipation of two of the Chinese candidates. The three-week course focused mainly on basicskills similar to those in the first course. The second course, Training Experienced TourismTrainers in Tourism Management, was held at the Mekong Institute in Khon Kaen, Thailand, 22March-9 April 1999. The participants were the same as those who had attended the first coursein Singapore and Bangkok.

19. Evaluation of the course outline and training materials indicates that the focus of thiscourse was more on institutional strengthening, including tourism planning, site management,marketing, public participation, ecotourism, and analysis of future trends. No participantfeedback is available, however. The contents of the course seem to have been moreappropriate for a regional course aimed at strengthening regional tourism institutions than forthe earlier hospitality-oriented course. This was also the consensus of the WGT who felt thatfuture basic skills courses should be undertaken by the private sector and should be at a moreadvanced level. PATA was given the opportunity to review the design of both RETAs beforeimplementation and was satisfied with this opportunity for input and the resulting courses.Further private sector input was also gained in that the private sector International Hotel andTourism Industry Management School in Bangkok was involved in course design and delivery.

20. It may be premature to assess the impact and success of subregional training ininstitutional strengthening. The first training course may have influenced teachers in tourismtraining institutes to improve their courses. However, there has been no rigorous follow-up toassess whether (i) courses have changed, (ii) the change was a result of attendance at thetraining course, and (iii) the courses have improved in terms of setting and meeting appropriatelearning objectives. Such impacts are very difficult to assess, but both NTOs interviewed (TATand Viet Nam National Administration of Tourism [VNAT]) spoke positively of the Khon Kaencourse. Another innovative means to develop ownership has been proposed through



Appendix 6, page 5

development of an NTO/AMTA Training Program in which personnel from NTOs would spendan internship period of one year with AMTA in Bangkok. The costs of such an initiative shouldbe borne at least partly by NTOs, but aid agency funds may be needed.

21. Training remains a need throughout the region. However, there must be much closeranalysis of the appropriate contents, level, and point of delivery. There is little evidence that

GMS training initiatives have in any way been included in thinking about national tourismtraining programs. Basic hospitality courses should be self-sustaining and based at nationaltraining institutes. More advanced planning courses at a regional level may still be appropriateas they are able to draw on the best resources and share regional experiences as part of thelearning process. Such a course (or courses) should focus on aspects of planning andmanagement of tourism that fall clearly within public sector responsibility.

3. Technical Assistance - Planning

22. The major expenditure in the GMS tourism sector has been the Mekong/Lancang RiverPlanning Study. The first phase was undertaken by ESCAP. The second phase, funded byADB, provided technical assistance to assess the feasibility of investment in the region and the

direction for tourism development. The study will help NTOs to jointly plan the development ofmajor tourism segments and also develop appropriate and linked infrastructure. A third phasethat aims to prepare specific development opportunities, mainly for the private sector, has beenlisted by ADB for possible funding.

23. The study paid explicit attention to the relative roles of government and the privatesector. Of the $420 million possible investment packages identified by the study, some $124million is for private investment and $195 million for joint public-private. The benefits are notdistributed evenly. The study suggests that Viet Nam would receive between 56 and 60 percentof the total benefits of implementing the investments. However, it would have to investapproximately 50 percent of the total capital required.

24. The Mekong/Lancang Planning Study has generated a lot of interest in national planningcircles, but its sustainability will depend mainly on the support provided by NTOs and theabilities of the private sector to successfully capture the potential profits. The projectedeconomic internal rate of return (EIRRs) for each segment of the river range from over 17percent to over 30 percent, thus showing an acceptable rate of return on all segments, with aparticularly good return on segment six (the Delta). The average EIRR of all segments isestimated to be some 24 percent. The new RETA proposed by ADB will play a critical role indetermining the private sector sustainability of this initiative, and is an important final step in

jump-starting greater private sector investment in tourism infrastructure. ADB will have acontinuing role in helping to develop basic transportation infrastructure that has a majorinfluence on tourism flows.

C. Options for Strengthening Subregional Cooperation

25. The report discusses several options for strengthening subregional cooperation includinginstitutional and activity-based initiatives:

1. Institutional-Based Initiatives

26. A strategic vision needs to be created for the next 5- and 10-year periods; a frameworkand timetable need to be developed for the WGT's self-sustainability. The WGT seems to be



Appendix 6, page 6

effective in assisting regional tourism cooperation; however, a thorough review of its activities isrequired to find possible options to make it more effective. The MTF was designed as a meansfor providing private sector input to the WGT. The MTF has evolved into a very interactiveformat involving regional NTOs and the private sector. It could be strengthened by subsidizingstakeholder attendance (for those who might otherwise be excluded due to costs) and having abroader base of NGOs in attendance. It is suggested that the MTF should become self-

sustaining.

27. AMTA acts as a secretariat in implementing the regional activities of the WGT. It hasreceived considerable subsidy from TAT. While very laudable in terms of undertaking initiativesthat the other NTOs cannot afford, it raises concerns as it is seen as a Thai rather than a GMSinitiative. This dilemma has been explored at WGT meetings, and several options suggested:(i) direct funding by NTOs to a special joint marketing fund for implementing WGT projects;(ii) personnel seconded from NTOs to AMTA, with expenses paid by NTOs for a certain period,during which they would also receive training; (iii) personnel stationed within NTOs but allowedto devote considerable amounts of time acting for AMTA on joint marketing project as part of theMarketing Task Force; and (iv) individual NTOs taking on the implementation of specificprojects under AMTA’s guidance.

28. AMTA was created as a centralized coordinating unit to help implement regional tourismprojects. It has limited resources and should be assessed to determine whether strengthening itwould be contribute to overall strengthening of regional tourism cooperation. A reorganized andfinanced AMTA may include direct representation from NTO and private sector representativesin decision making, a dedicated professional staff that includes nationals from other GMScountries, and consideration of the training/research role of AMTA. A feasibility study wouldneed to be undertaken to assess the costs and benefits of such a proposal, and provide detailedrecommendations on funding (e.g., NTO funding formula), projected budgets, plan for financialindependence (initial input from the funding community is anticipated), organization, strategicand action plans, legal status, staff, and relationship to NTOs and other stakeholders.

2. Activity-Based Initiatives

29. Joint marketing campaigns strengthen regional cooperation. The WGT has formed aMekong Marketing Task Force (MMTF) that will be self-funding, meet at the same time as theWGT and MTF and be actively involved in designing joint marketing campaigns. Interviewees inboth Viet Nam and Thailand were in favor of regional marketing, although one private sectorinterviewee in Viet Nam did express a preference for strong national marketing campaigns. Theseriousness with which the TAT is taking regional marketing is illustrated by the production ofthe very high quality, 66 page brochure entitled Thailand: Amazing Gateway to MekongCountries. After an introduction to the region, each country is given an equal number of pageswith engaging and informative text and superb photography. The final section is devoted toregional itineraries. In addition, TAT has funded other promotional materials for the GMS–map,

poster and video– and provides space and personnel for AMTA besides producing thenewsletter. The various contributions of TAT to GMS activities over the last few years total someBaht 8 million ($210,000). Each of the six NTOs has also contributed toward the production ofthe initial print run of the new Mekong Tourist Map produced by AMTA.

30. There seems to be strong agreement that joint and regional marketing makes sense andthat NTOs are willing to also invest resources in joint marketing. In theory, Thailand, with themost developed tourism industry, has the most to lose from such a campaign, that will introducethe larger number of visitors to Thailand to its potential competitors. However, TAT has taken



Appendix 6, page 7

the view that Thailand will gain more than it loses as Bangkok will, in all reality, remain as themajor hub, and few tourists will visit the region and not visit Thailand. The smaller countriesshould all benefit in being associated with Thailand’s very strong name in international tourismand the ability to use Thai outlets to distribute regional materials.

D. Main Recommendations

31. Four main areas are identified as priority areas for ADB interventions. Appropriateactivities are discussed for each one.

1. Maintaining and Enhancing Regional Cooperation

32. There are synergies to be gained through a coordinated regional approach to tourismdevelopment. Several options are identified in the consultant’s report. Two of them are for ADBto facilitate regional cooperation, including continued support to the WGT over the next two orthree years, and an evaluation of AMTA with a view to its playing a more significant role in thelong term.

2. Facilitation of Development of the Private Sector

33. In addition to stimulating regional cooperation, there is a need to continue to stimulatetourist business development by creating a favorable environment for investment. ADB can playa catalytic role here. A major challenge is how to encourage investment at a minimum cost tothe public purse.

3. Encouraging a Sustainable Tourism Industry

34. Tourism is a resource-based industry. Like forestry and fisheries, it is dependent on thehealth of its resource base if it is to be sustainable over the long term. The private sector is veryweak in realizing and managing this dependence, and national governments often lack the

capability. ADB can have a major influence in encouraging a more sustainable approach by(i) continuing to require environmental impact assessments (EIAs) for all developments fromADB investments, including cumulative impact assessments; (ii) facilitating basin-wideagreements on sewage and solid waste management regulations; (iii) facilitating basin-wideagreements on the use of water craft in terms of their emissions, waste management, noise,safety, and other factors; (iv) facilitating basin-wide agreements on the operation andmanagement of all ports and landing facilities; (v) assisting in the development ofimplementation procedures for environmental regulations; (vi) encouraging public consultationand local involvement requirements for culturally sensitive proposed tourism developments;(vii) promoting regional training in the management of exceptional regional heritage resources(national and cultural) where national capabilities are limited; (viii) encouraging national andlocal governments to develop and disseminate educational materials; and (ix) ensuring that

sustainability is a main factor in WGT and other regional forums.

4. Optimizing Benefits

35. Tourism is a sector-crossing activity with the potential for synergistic relationships withmany other elements of development. There is great potential to derive value-added returns, butmore attention must be devoted to relationships to optimize the comprehensive benefit flows.The consultant’s report cites specific recommendations regarding the role ADB can take inseeking such synergies, such as links to the hard infrastructure sector, links to other RETAs,



Appendix 6, page 8

and the need to invest in areas where economic returns may not be maximized but wheresignificant nonmarket added value, such as environmental conservation and poverty reductionmay result.

E. Specific Recommendations

36. The following topics need special consideration.

(i) Completion of Phase III of the Mekong/Lancang River Planning Study. Overall,this project has been ambitious but well undertaken. If phase 3 is completed, theresult will be the coordinated development of a globally important tourist resourcethrough significant private investment.

(ii) Review of the pending needs assessment report on training for the NTOs beforeimplementing any further training initiatives. Basic hospitality training is best leftto the private sector and delivered nationally. There is still a role, however, forhigher level, planning-oriented courses at the regional scale. These shouldbecome self-sustaining with funding from NTOs.

(iii) Financial support for the WGT and MTF. There should be a phased withdrawal offinancial support for these two tourism bodies.

(iv) Value-added returns from tourism. More attention should be given to value-added returns from tourism links with other sectors such as transport,environment, and poverty reduction; and also to synergies to be obtained fromlinking the planning and training programs.

F. Conclusion

37. During the past five years, the GMS tourism program has played a critical catalytic role

in several areas: initiating a coordinating subregional working group on tourism, providingsupport for the private sector MTF, and directly funding technical assistance projects. However,interventions overall have lacked a clear strategic focus. It is now time to plan for the next 5-10years and clearly define the future role of ADB. This should take account of the roles,responsibilities, organization, activities, budgets, and work plans of the working group andAMTA, PATA, ESCAP, and others. The report suggests that a regional center of excellence isneeded. A review of that proposal and of the pending training needs assessment study willprovide a firm platform on which to build a GMS tourism strategy paper for consideration at aGMS ministerial meeting. This paper should give a focus to the role of ADB in GMS Tourism.

38. The consultant’s report notes, however, that (i) there is no strategic policy to guide theactivities of ADB in the tourism sector generally, nor in the GMS specifically; (ii) no unit of ADB

is devoted to tourism; and (iii) there does not appear to be any personnel within ADB withspecialized training in tourism. This, and given the current structure and expertise in ESCAP,suggests that ADB might significantly reduce its role in this sector. The report notes that tourismis a significant engine of economic growth in the region and a sector in which the GMS has a lotof potential. There is excellent opportunity for stimulating private sector involvement and futuresustainability. There are also considerable value-added benefits to be gained when tourism iseffectively linked with other areas such as transportation, environment, and poverty reduction.



Appendix 7, page 1

HUMAN RESOURCE DEVELOPMENT

A. Evolution of the Human Resource Development (HRD) Program

1. The human resources in the Greater Mekong Subregion (GMS) represent one of itsmajor assets. The population is projected to grow from around 230 million in 1995 to around

350 million by 2020. Over the same period, the labor force is projected to grow by around 60percent, from 120 million to 200 million. The challenge to policy makers will be to (i) enable thiswork force to acquire effective skills; and (ii) establish an environment that allows the work forceto respond quickly to income-generating opportunities, including those across country borders.

2. The GMS human resource strategy faces a number of constraints. The groupingrepresents a disparate cluster with significant variations in per capita income (e.g., Thailand,$3,200; Cambodia, $295) and human development index ranking (Thailand, 59

th, Cambodia,

140th). Other potential constraints include language diversity, cross-border tensions, and atradition of competition rather than cooperation. Overcoming these constraints will be critical iffuture potential economic benefits are to be increasingly shared equitably.

3. The initial sector work took place in 1993/94 under Phase I of the GMS regionaltechnical assistance (RETA).1 The initial scope of the terms of reference (TORs) focusedlargely on labor market trends and skills training, rather than broader aspects of humandevelopment. ADB’s rationale was that improving skills, technology transfer in technicaltraining, networking of vocational training institutions and effective labor managementinformation systems were pivotal to the efficient and equitable functioning of labor markets inthe GMS, and that ADB does not have a comparative advantage in all aspects of HRD. Thisfocus contributed in part to a limited definition of potential stakeholders, and limitedconsultations with civil society on broader human resource development issues and priorities.

4. The broad outcome of this initial HRD sector work (in part due to the scope of theTORs) was a focus on common interests and themes rather than development of a GMS/HRD

policy and strategy. Consequently, the initial focus was on agreeing common HRD activities,with less attention to policy and strategic considerations, including human developmentfinancing. The absence of strategic project selection criteria reinforced an activity-basedapproach. The limited focus of the initial work meant that most follow-up TAs had to begin byassessing GMS regional needs, opportunities, and constraints.

5. The outcome of the first HRD working group meeting partly reflected the narrow focus ofthe initial HRD sector work. The third ministerial conference endorsed seven priority concerns:(i) inadequate managerial and technical work force, (ii) lack of trained environmental personnel,(iii) lack of financial and human resources for the development of higher education, (iv) accessto education and training by minority and hill area groups, (v) low level of communication andlanguage skills, (vi) rapid spread of HIV/AIDS,2 and (vii) prevalence of malaria. To some extent,

this framework of priorities helped to broaden the range of GMS/HRD priorities beyond thenarrow skills training focus.

1TA 5487-REG: Studies in Sub-regional 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. Theamount was subsequently increased to $190,000 on 19 May 1992 and $270,000 on 16 September 1992.

2Human immune deficiency virus/acquired immune deficiency syndrome.



Appendix 7, page 2

6. The Working Group on Human Resource Development (WGHRD) was not conveneduntil December 1996, almost two years after the initial HRD sector work and much later thanmost other sector initiatives. The first WGHRD meeting achieved consensus on an agreed listof priority projects, but did not reach a strategic view on HRD in the GMS. Many countryposition papers focused on elaborating country policies and priorities rather than presenting abroader GMS perspective. A focus on sector considerations (e.g., health/education) was

evidenced in the decision to invite presentation of separate health and education positionpapers.

7. The initial HRD project profiles prepared were as follows: HRD1-employmentpromotion/training (approved for funding); HRD2-centers of excellence network; HRD3-healthsurveillance information sharing; HRD4-HIV/AIDS prevention and control (approved forfunding); HRD5-health and education: ethnic minorities (approved for funding); HRD6- technicalskills training. HRD7-vaccine production/procurement (approved for funding); HRD8- healthsector financing; HRD9-primary health care leadership; and HRD10-annual workshops:employment promotion.

8. After a gap of two and a half years, the second meeting of the WGHRD was convened

in Cambodia in June 1999. The meeting was an exercise in substantive review and stocktakingof the GMS/HRD program. The cochairperson acknowledged that the approach had essentiallybeen a supply-driven wish list of proposed interventions. ADB also acknowledged that givenBank staff and RETA budget constraints, it was becoming obvious that ADB would not be ableto meet the expectations of WGHRD regarding this pipeline of projects. The meetingrecognized that greater funding agency cooperation was required to secure financing for theprogram. The funding agency representation was significantly broader than in 1996, andincluded participation from the International Labor Organization (ILO), United NationsDevelopment Programme, United Nations Educational, Scientific and Cultural Organization,United Nations Population Fund, World Health Organization, Mekong Institute, Mekong RiverCommission, and German Agency for Technical Cooperation (GTZ).

9. The meeting agreed on the need for (i) adoption of principles for a GMS/HRD strategicframework; (ii) closer examination of the RETA screening and selection criteria, including areview of priorities; (iii) recognition of the need to take account of broader poverty reductionstrategies, including the impact of the regional economic crisis; and (iv) greater linkage betweenHRD projects and the road/energy economic corridor, including spatial considerations in projecttargeting and selection. The second WGHRD meeting also recommended (i) a study of thesocial impact of the economic corridor, including potential opportunities, constraints, andstrategies for social optimization and mitigation; and (ii) initial agreement on a revised work planfor the period 1999/2000 to be presented at the ninth ministerial meeting and reviewed at thenext WGHRD meeting in June 2000.

10. Discussants noted that the programs proposed by the WGHRD were largely country-

based programs, although there were dimensions that could be used as the basis for sub-regional programs (such as economies of scale, greater linkage with the East-West transportcorridor). ADB staff highlighted staffing and RETA financing constraints, and noted that thiswould necessitate a prioritization and rationalization of the WGHRD program.11. The country presentations and priorities made to the second WGHRD meeting to someextent reflected the varying states of development ranging from Thailand (with a high HDI)through to Cambodia. The impact of the Asian financial crisis was acknowledged to bevariable, although pressures on social sector financing, including aid were tightening. The



Appendix 7, page 3

tendency to focus on country-specific and sector issues, although less pronounced than at thefirst WGHRD meeting, remained evident in presentations and discussions.

B. Overall Assessment

12. The focus of the initial sector work, constrained resources, and the limited areas in HRD

where the Bank has a strong comparative advantage have all contributed to a limited GMSwork program in HRD. Limited attention was paid to crosscutting social and economicdevelopment perspectives, including: (i) little emphasis on crosscutting legislative andregulatory issues associated with social service provision; (ii) no regular attempt to assesswhether activities would be more cost effectively implemented as (several) country or a singlesubregional project; and (iii) limited attention to GMS/country capacity-building objectives andrequirements during TA design (partly because limited project design resources have to bespread over multiple countries). The net result has been: (i) a limited focus on the potentialbenefits/costs of social sector investments within the economic corridor, including social impactassessment and possible social opportunities and mitigation strategies; and (ii) inadequate useof previous needs assessments in TA design, meaning that there are potential overlaps withprevious studies and intrinsic repetition costs.

13. Stakeholder ownership of the HRD program appears limited, evidenced by the lack ofNGO or private sector representation on the WGHRD and national steering committees. TheBank has committed only modest resources to HRD activities ($0.9 million) and only $0.95million in cofinancing has been secured. On a positive note, aid agency interest (especiallyUnited Nation agencies) appears to be increasing.

14. HRD RETA project documentation show significant fragmentation of the projectrationales. Clear criteria for prioritization and for resolving differences in priorities were notestablished. The identification and design process does not appear to have given adequateattention to the costs and benefits of subregional versus national approaches. There is a widecontinuum of health, education, and labor market planning capability across the member states,

but this was rarely analyzed as an opportunity or a constraint, although well documentedelsewhere in ADB country operational strategy papers and project appraisal/design documents.In particular, there was little evidence in RETA designs of attention being given to differencesbetween GMS members in policies, strategies and planning and implementation capabilities.

15. Many of the HRD project profiles and completed RETAs have resulted in extensiveneeds assessments and the formulation of indicative project interventions for tabling at a seriesof regional meetings. The designs rely heavily on the use of international consultants (onaverage representing more than half of total costs). Project documents included few specificreferences to the costs/benefits of alternative approaches, such as drawing more heavily onprevious ADB or other funding agency country assessments (e.g., in skills training,health/education for ethnic minorities by ADB, HIV/AIDS by United Nations Children’s Fund

/UNAIDS3). On a positive note, the use of government departments and domestic consultantsto undertake selected fieldwork has brought some capacity-building benefits.

16. The medium-and long-term impact of the HRD RETA is difficult to assess. In immediateterms, study field discussions with government planning and social sector ministries indicatedthe value of sharing experiences, discussing comparative country policies and strategies,alongside a growing recognition and awareness of the potential benefits of regional

3United Nations agency for combating HIV/AIDS.



Appendix 7, page 4

cooperation. As recent international studies highlight (e.g., Emerging Asia 19974), the potentiallong-term impact of this kind of policy dialogue and information exchange cannot be estimated.

17. The program has had a significant positive impact for ADB in forging strongerprofessional networks with government policy makers and planners as well as within thefunding community, especially UN agencies. A potential long-term impact for ADB will be

greater access to those agencies’ political and policy influencing networks within Government.Nurturing these relationships will allow ADB to effectively tap into UN agencies informationnetworks and international/regional performance monitoring systems. Another potential benefitis opportunities to build awareness of broader HRD governance issues. The benefits andimpact of these growing ADB and aid agency professional networks should not be undervalued.

C. Key Issues and Recommendations

1. Greater Strategic Focus

18. ADB presentations at the second WGHRD meeting showed there is widespreadrecognition within the Working Group of the need for a clearer strategic focus and rationale for

the GMS HRD program. However, the approved principles and work program still reflect atendency for fragmentation. The study recommends that ADB (i) conducts a detailedevaluation of its support for the GMS HRD program, and prepare a draft position paper onpossible alternative strategies for the GMS HRD program, to be circulated for review andfeedback from Governments, funding agencies, NGOs and the private sector, and (ii) convenesa meeting of the WGHRD, possibly with broader representation, to finalize the revised strategyand amend the project priorities and work program. Some alternatives for different levels ofintervention are discussed below.

a. Alternative 1: Enabling HRD Policy Dialogue and InformationExchange

19. The objective would be to undertake analysis, policy dialogue, and informationexchange aimed at harmonizing policies, legislation, and regulation for human developmentservices, both across the region and in the global context as World Trade Organization (WTO)rules for services begin to be implemented. Activities consistent with this strategic focus mayinclude subregional policy conferences on social sector financing, decentralization, andcapacity-building; and steps to set and implement subregional standards for education, andhealth supplies and training. Other activities are building capacities to regulate cross-border

labor flows, controlling drug flows, and implementing UN human and child rights policies withinthe subregion.

20. One opportunity under this alternative is to help unlock many of the policy and strategyconstraints facing ADB/other funding agency health/education country programs and optimizethe benefits from this investment. A second opportunity is to broaden the scope and range ofHRD networks (e.g., a greater focus on governance) particularly by tapping into UN and otherfunding agency networks. A third advantage is that this alternative may take pressure off ADBas the dominant financier of the program. The potential limitations of this alternative includesome danger of fragmentation without careful management and difficulties in managing the

4Emerging Asia: Changes and Challenges. ADB. 1997.



Appendix 7, page 5

policy dialogue process to have the necessary program impact.

b. Alternative 2: Selective HRD Programs with GMSEconomies of Scale

21. The objective of this alternative would be to select, design, and deliver cost-efficient and

cost-effective health, education, and training services through selective subregionalagreements, institutions, and financing arrangements. The primary activity initially would be toundertake a small number of feasibility studies for agreed upon services, followed bymobilization of resources to build institutions for service delivery. Possible areas of cooperationinclude the procurement/distribution of vaccines and other pharmaceutical products, specialisthealth/education services (e.g., higher education, tourism/hotel management training), cross-border health services, specialist research centers, and English language trainer training andprogram accreditation.

22. The main opportunity under this alternative is that feasible interventions could result indirect investment by government/funding agencies and the private sector. Another opportunityis to assist in retaining revenues in the region, which otherwise would go offshore, especially for

special services. Potential disadvantages are resistance from current offshore providers, anddifficulties in focusing on a small number of deliverable projects and reaching agreements oncosts and revenue sharing. Another potential disadvantage is perceptions from the smallerGMS countries that these initiatives would be located in and dominated by the more advancedGMS members with consequent skewing of benefits.

c. Alternative 3: Social Development Corridors Approach

23. The objective of this alternative will be to respond to the HRD needs associated with theeconomic/energy corridors, optimize the social impact of these corridors, and where necessary,mitigate the potential negative social impact. If this alternative is adopted, the first step wouldbe to undertake a social impact assessment of the five possible economic corridors, startingwith the East-West Corridor. Subsequent project activities could include cross-border healthand education facilities, and skills training initiatives, taking into account any projected growth insocial service demand and resettlement. These initiatives could be linked to several of thecross-border initiatives under alternative 1.

24. A particular advantage of this alternative is the provision of a clear spatial/geographicalfocus to assist the targeting of interventions. A second opportunity is the likelihood ofimmediate value added to the massive planned investments. A third opportunity is strongsynergy with ADB and other funding agency country programs, many of which are located inmore remote areas. A fourth advantage may be the greater likelihood of government/ fundingagency support for social infrastructure investment, integrated into planned roads/energyinfrastructure development. A potential disadvantage is the concentration of investment inselected areas, at cost to other parts of the GMS, along with the limited focus on broader GMSpolicy issues and common services. In effect, this alternative would constitute a small numberof Greater Mekong area development programs in which ADB has extensive planning andmanagement experience. On balance, this study suggests that greater potential for impact andsynergy with ongoing ADB/other funding agency country investments may be found throughcloser integration of the social and economic corridors.

2. Review the RETA Design Process



Appendix 7, page 6

25. There is scope for improving Project design by paying more attention to (i) examiningthe costs and benefits of alternative approaches to achieving TA objectives, in particular,maximizing the use of existing ADB or other funding agency documentation, and needs andinstitutional assessments wherever possible; and (ii) where it appears cost-effective, maximizethe use of regional and country expertise, including regional/national consulting firms and

NGOs who have proven records and experience. Other design considerations are as follows:(i) wherever possible, incorporate consultations with NGOs and the private sector into RETAconceptualization, design, and implementation; (ii) give greater emphasis to opportunities forsystematic capacity building in the RETA design; (iii) where needs assessment appearsadequate, give greater emphasis to feasibility studies and costed interventions in RETAs; and(iv) undertake a careful assessment of ADB’s comparative advantage in terms of experienceand expertise when deciding in which RETAs the ADB should play a lead financing role



Appendix 8, page 1

TRADE AND INVESTMENT

A. Background

1. The initial sector work for formulating the trade and investment strategy under the

Greater Mekong Subregion (GMS) program recognized the need to take account of the variablecontexts and development features. The key strategic considerations included the variableimportance of intra-GMS trade, the different volumes and shares of aggregate foreign directinvestment (FDI), and the size and makeup of the private sector within the GMS countries. Acritical concern was how the more advanced trade and investment strategy and program inThailand could be harnessed to the mutual benefit of the GMS members.

2. With the notable exception of Thailand, the importance of intrasubregional trade flowsfor each of the GMS countries, as a proportion of their aggregate external trade, is fairlysubstantial. Thailand is the odd man out. Only about 5 percent of its exports and 3 percent ofimports are conducted with fellow GMS countries; there appears to be a large potential forincreased trade volume between Thailand and the other GMS countries; however, this will be

very much dependent on the future economic growth in these countries. The GMS (excludingYunnan Province) saw its FDI inflows grow from $2.7 billion in 1992 to $5.2 billion in 1997, analmost twofold increase in aggregate foreign investment. Most of this FDI activity has taken theform of inflows from investors located beyond the subregion, with only Thailand providing anyconsistent track record as a source of intra-GMS investment activity.

3. In terms of sector composition, initial FDI inflows into the GMS countries had a fairlypredictable profile that one might expect to see when countries open up to foreign capital aftera long period of closure. Natural resource-oriented investors (e.g., oil and gas, mining, marine,forestry-related, etc.) were some of the first to enter the GMS markets. Various types ofbusiness support services (e.g., hotels, banks, law firms, etc.) were also quick to enter the GMScountries and establish permanent operations. Tourism-related FDI was apparent in most parts

of the GMS as investors sought to harness the business potential stemming from exotic newleisure travel destinations. The more established members of the ASEAN (the ASEAN 6, whichincludes only Thailand of the five GMS members) have played a very important role in FDIflows, both vigorously trading with the GMS countries and heavily investing also. Singapore isthe largest single investor in both Myanmar and Vietnam, while Malaysia is the largest singleinvestor in Cambodia. Thailand dominates FDI in the Lao People's Democratic Republic.

4. The Trade and Investment strategy also needs to take account of the varied nature ofthe private sector in the GMS region. There are, in effect, two private sectors in the GMS:indigenous non-State firms in member countries of the subregion, and internationalinvestors/venture capitalists active in the subregion. With the exception of Thailand, thedomestic private sector is a relatively new actor in each of the GMS economies and remains

quite small. In terms of the trade and investment element of the GMS Program, as it currentlystands, the input that can be expected from the indigenous private sector in GMS initiatives isprobably going to be fairly marginal, given its relatively small scale.



Appendix 8, page 2

B. GMS Initiatives

5. The subregional investment working group (SIWG) was established in April 1994, but itsfirst inception meeting was not held until December 1995, shortly after the fifth ministerialmeeting. Three broad themes were identified: investment promotion, investment facilitation,and regulatory frameworks for investment. The stated aim of the SIWG was to (i) provide an

avenue for cooperation on regulatory frameworks; (ii) provide a vehicle for cooperation ininvestment promotion; and (iii) support cooperation between countries on investmentfacilitation, notably with regard to complementary investment and transborder projects. At theseventh ministerial conference of April 1997, a proposal for the ASEAN Secretariat toparticipate in and support the SIWG was endorsed.

6. The trade facilitation working group (TFWG) was established, at the third ministerialmeeting in April 1994, as an advisory body on issues relating to the facilitation of trade withinthe GMS. The TFWG’s objectives—endorsed by the seventh ministerial conference—are toprovide (i) a venue for identifying trade constraints; (ii) a venue for institutional cooperationamong member countries in trade facilitation; (iii) a vehicle for cooperation in improving andcoordinating relevant procedures; and (iv) a vehicle for improving the availability and

consistency of trade-related information, and the application of information in trade facilitation.

7. The fifth ministerial meeting also recognized the importance of the early involvement ofthe private sector. The United Nation Economic and Social Commission for Asia and thePacific hosted a meeting of the GMS Chamber of Commerce in 1996, leading to proposals forthe formation of a GMS Business Forum. Very little progress has been made in this directiondue to limited consultation and follow-up with private sector groups with strong interests in thesubregion. In part, this reflects a policy environment that is not conducive to trade andinvestment in the subregion (apart from Thailand) and uncertainties at the time regarding theneed for a discrete GMS trade and investment strategy.

8. Working group meetings for trade and investment elements, scheduled for the second

half of 1999, will be the first formal gathering for the TFWG (although a preparatory workshophas already taken place), and the second meeting of the SIWG. These meetings will takeplace in an external environment that has changed greatly since the inception meetings as aresult of the recent regional financial crisis, ASEAN expansion, and changes in the internationalbusiness environment.

C. Assessment

9. Progress with the GMS trade and investment initiative has been slow. From the outset,the strategic rationale for a discrete GMS trade/investment strategy was unclear. Despite thechanged environment, there is still no clear strategic focus, and tangible outputs are minimal.The recent integration of all the GMS countries (with the exception of Yunnan Province of the

PRC) into the ASEAN as full members raises the question of the GMS’s future value added,particularly with regard to GMS trade and investment activities in relation to the AFTA (ASEANFree Trade Area) and the AIA (ASEAN Investment Area). There are concerns about defining arole for the GMS in trade and investment that does not duplicate the work of ASEAN/AFTA/AIA,World Trade Organization (WTO) and various UN agencies with established mandates toaddress these issues. These concerns remain largely unresolved.



Appendix 8, page 3

10. There are legitimate questions about what the GMS can do in terms of ensuringconsistency in trade procedures and information reporting that is likely to add value to whatAFTA is already doing in this area. While financial resources allocated to the trade andinvestment initiatives have been minimal, the activities of these groups have consumedconsiderable time in ministerial and other discussions attended by some of the highest levelpolicy makers in the region. The opportunity cost of this time needs to be recognized in setting

priorities.

11. The work program, though arguably pragmatic, appears to lack strategic direction. Thevarious activities planned are largely ad hoc, with uncertain intended outcomes. This is due inpart to the inadequate processes for early consultation with the private sector who remainunconvinced and uncommitted to the merits of a GMS trade/investment program. The lack ofownership and clear structures and processes for private sector involvement has been asignificant limitation of program design and implementation.

12. The absence of a clear public/private partnership strategy for trade and investment ismost evident in the development of the economic corridors. The most substantive GMS impactson reducing policy and institutional barriers to trade and investment (and tourism) to date have

been the reforms approved under cross-border agreements negotiated during the preparationsfor the East-West Corridor Project. Yet the trade and investment working groups were notutilized in these negotiations. It is evident that this activity-based approach can be effective,and does not duplicate the work of other regional and international institutions.

13. The marketing of the GMS initiative and GMS components to both domestic and privateinvestors, and to the broader community has been ad hoc and weak. The general ideals andlong lists of projects raised expectations, but there was no systematic approach to regularlydisseminating information on progress and emerging opportunities. Specific marketinginitiatives, namely the private sector forums in Europe and East Asia, were successful in raisingbroad awareness of the GMS initiative. In contrast, there has been very limited and ad hocfollow-up in promoting specific projects.

14. More recently, the interest of GMS members in the trade and investment working groupsinitiative gained some momentum, due partly to changes in priorities following the regionalfinancial crisis. Prior to this crisis, overall trade and investment flows in the subregion hadgrown strongly since the GMS initiative started, but for reasons not attributable to the GMS.Within GMS members, there were little internal pressures and no sense of urgency forsubstantive change. The crisis affected all GMS economies to some extent, and the impact onsome economies, notably Thailand, has been very severe. Since 1997, subregional growth intrade and FDI inflows have slowed markedly.

15. Largely because of this nonconducive environment, ADB's investment in the GreaterMekong Capital Investment Fund (GMCIF) has so far been disappointing. Only $30 million has

been pledged, compared with plans to raise $75 million. Now in the fourth year of a five-yearinvestment cycle, the fund has committed investments of only $8.9 million. Countrydiversification has been limited, with loans being only to Thai firms that do yet have anysignificant exposure in other GMS countries. One of the investments is facing substantialdifficulties, and the other is now being divested. There is little evidence that the fund hasprovided any value added to the GMS Program. Similarly the fund has made little, if any,contribution to subregional trade/investment integration or cooperation. The fund impact ondeveloping the local private sector in the subregion and transferring technology and



Appendix 8, page 4

management skills has been limited. A similar assessment can be made of the performance ofother listed funds targeting the GMS area. Most GMS funds (including the GMCIF) will notinvest in deals of less than $1 million, given the time and resources necessary, yet in much ofthe GMS, equity deals of at least $1 million are too large for local firms. This is exacerbated bythe fact that most funds are not permitted to hold more than a minority equity stake in a singlecompany/project. As a cumulative result of all the difficulties, all GMS-listed investment funds

now have shares that trade at quite substantial discounts to their net asset value.

D. Key Issues and Recommendations

1. Clearer Strategic Rationale and Focus

16. The lack of a clear strategic rationale and focus has been the major constraint oneffective action for trade and investment in the GMS. Working groups urgently need to reachagreement on a role that is clearly differentiated from that of existing regional institutions. Theworking groups need to prioritize trade and investment opportunities that can be implementedrelatively quickly. Key selection and screening criteria need to ensure nonduplication andcomplementarity with parallel initiatives being conducted by other bodies, such as ASEAN. If a

cost-effective role in realizing subregional trade/investment objectives cannot be identified,even limited resources should be reallocated to higher priority areas with more likelihood ofvalue added.

2. Enabling Optimum Returns on Planned Infrastructure Investments

17. The work program should be reoriented to incorporate a clear focus on practical policy,financing, and administrative constraints; and opportunities directly related to specificsubregional infrastructure developments. The tasks of both the SIWG and TFWG should bereprioritized to meet this revised focus. An immediate priority is to build on the progressachieved in negotiating on administrative issues (e.g., mutual recognition of licenses [vehicleand drivers], quarantine and customs regulations and procedures, visa arrangements, etc.)

involved in the cross-border agreements for the East-West Corridor. The forward workprogram should also attempt to identify the priority trade and other policy constraints tomaximizing returns on subregional infrastructure developments. One example is the potentialnegative impact of agricultural protection policies on potential benefits from the East-Westcorridor development. Broader rules-based concerns should be left to AFTA/WTO.

3. Sharply Focused Marketing and Information Strategy

18. A more systematic approach is needed to disseminate information on GMS plans,progress, and results. Improvements in information flow are essential in building awareness ofand confidence in the GMS program. Confidence, in turn, is essential to better marketing ofGMS investment opportunities to potential private sector investors. As progress is made toward

implementation, more focused marketing of the opportunities presented by the proposeddevelopment may be required. In the end, however, it will be results that will have the greatestimpact in generating private sector confidence. Successful development of the East-WestCorridor infrastructure and effective implementation of the associated cross-border agreementshave a potentially pivotal role to play in mobilizing private sector resources for futuredevelopment. Thus, ADB needs to give the highest possible priority to ensuring effectiveimplementation of this project.

4. Greater Emphasis on Public/Private Partnerships



Appendix 8, page 5

19. Early measures are needed to encourage greater private sector commitment as apartner in the trade and investment program. Any revised strategy and program shouldincorporate private sector ideas and concerns. The private sector should also be more activelyengaged in the execution of trade and investment activities, possibly through a moresubstantive role for the GMS Business Forum. The respective roles of the forum and the SIWG

should be rationalized. Mechanisms are also needed for private sector participation at the earlystages in the decision-making process. The private sector should not be regarded just as anend user of segments of the GMS Program, but should be actively engaged as a codesigner.Encouraging greater private sector ownership of the GMS Program is also potentially importantin attracting private sector funds. In essence, the role of the governments and the privatesector, and their comparative advantages require a clearer definition.

5. Mobilizing Financial Resources

20. ADB needs to more actively mobilize financial sector resources from all possiblesources. ADB is in a unique position to use its leverage to mitigate the cumulative country riskassociated with investments dependent on the subsequent policy actions of a number of

sovereign nation. ADB should consider developing a marketing package describing theparticular ways it could assist in financing GMS-related infrastructure developments. Thismarketing strategy needs to clearly spell out ADB’s potential in minimizing trade/investmentrisk, providing loan quality assurance and control, and articulating success stories elsewhere inthe region.

Documents

ADB's Program of Subregional Economic Cooperation in the GMS