ASIAN DEVELOPMENT BANK

IES: 99026

IMPACT EVALUATION STUDY OF THE ASIAN DEVELOPMENT BANK'S PROGRAM OF SUBREGIONAL ECONOMIC COOPERATION IN THE GREATER MEKONG SUBREGION

December 1999

CONTENTS Page Page iii 1 1 2 2 3 5 5 7 8 9 12 12 13 1 1 1 1 17 18 19 20 21 22 22 23 24 1 1 2 4

EXECUTIVE SUMMARY I. BACKGROUND A. B. C. D. II. Objectives and Approach ADBs Mandate for Subregional Cooperation The Greater Mekong Subregion ADB Country Programs in GMS Countries and Support to the GMS Program

PROGRAM STRATEGY, MANAGEMENT, AND COORDINATION A. B. C. D. E. F. Program Strategy and Approach Institutional Arrangements for Program Management Programming ADB Support to GMS and GMS Member Countries Resource Mobilization in the Greater Mekong Subregion Program Monitoring, Evaluation, and Information Dissemination Relationships and Links with Related Initiatives and Institutions

III.

SUMMARY SECTOR ASSESSMENTS A. B. Methodology Sector Assessments

IV.

KEY ISSUES FOR THE FUTURE A. B. C. D. E. F. G. H. I. J. Long-term Vision for GMS and ADBs Role in Regional Cooperation Subregional Programming and Links with National Programs More Focused and Reduced ADB Involvement in the GMS Program Institutional Coordination and Cooperation What Constitutes a GMS (i.e., Regional) Project? Regional Project Design Issues Mobilizing Additional Financing for GMS Initiatives Distributional Issues Integrating Social and Environmental Concerns in Infrastructure Development Monitoring, Evaluation, Information Sharing, and Marketing

V.

CONCLUSIONS A. B. C. Overall Assessment Lessons Learned Recommendations and Follow-Up Actions

APPENDIXES

EXECUTIVE SUMMARY The Greater Mekong Subregion (GMS) through which the Mekong River passes comprises Cambodia, the Lao Peoples Democratic Republic (Lao PDR), Myanmar, Thailand, Viet Nam, and Yunnan Province of the People's Republic of China (PRC). It has a population of approximately 250 million, and a total gross domestic product of $212 billion. The GMS Program was initiated in 1992 with the objective of achieving cooperation and accord among the six countries in planning and promoting subregional economic development. The program is without a formal organization or institution, but is guided by a general set of principles and institutional arrangements and is different from other regional agreements. Since 1992, the Asian Development Bank (ADB) has approved $39 million in technical assistance (TA) projects for the GMS Program and $465 million in loans (plus $234 million in cofinancing). ADB support covers seven sectors (transport, telecommunications, energy, tourism, environment, human resource development, and trade and investment) together with general technical and institutional support for the program. This special study report includes findings from wide-ranging consultations with key stakeholders on the evolution and processes involved, and findings and lessons from selected interventions. ADBs performance in supporting the GMS Program is assessed in relation to GMS objectives, and to ADB's mandate and strategy for subregional cooperation.1 The results of the study show the GMS Program has provided member countries with the opportunity to develop a shared vision of the future development of the region, and has been most effective when it focused on activity-based initiatives to secure reforms and agreement. This activity-based approach of the GMS contrasts with the rules-based approach of many regional institutions (e.g., the Association of Southeast Asian Nations [ASEAN] Free Trade Area [AFTA] and World Tourism Organization [WTO]) and is a major distinguishing and most widely appreciated feature of the GMS approach. The sustained high level of GMS member participation in meetings, especially ministerial meetings, is an indicator of strong support for and ownership of the GMS process. Progress has been made in promoting dialogue and reaching agreements on steps to reduce barriers to increased economic cooperation. Agreement has been reached on identifying and prioritizing regional projects, and securing financing for a number of major projects. To date, however, there has been limited progress in implementing these projects. On a broader front, the GMS Program encouraged dialogue among member countries, notably at ministerial level, and contributed to better understanding among members and willingness to work together for mutual benefit. Most central agencies consider overall progress as satisfactory, given the need for widespread consultations in reaching agreement and securing political approval from multiple governments for GMS activities. In contrast, some external commentators from the business
1

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

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

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

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

ADBs rationale for supporting regional cooperation is that such cooperation generates economic growth in the region and enhances peace and stability. This rationale remains valid, with ADB experience over 30 years demonstrating the economic gains to be made from regional cooperation. In the GMS in particular, regional cooperation has enhanced peace and stability. In addition, regional cooperation can generate benefits from economies of scale, reduce transaction costs, and improve resource mobilization and opportunities for investment. While the GMS initiative is the first major ADB supported subregional initiative across a range of sectors, questions arise as to whether ADBs organizational structure, staff resources and incentives, and current funding arrangements for loans and TAs are appropriate for supporting such regional initiatives and programs. This issue is wider than the GMS and is perhaps a key strategic issue that ADB must face. The GMS unit (within a programs division) is the only organizational arrangement established to facilitate subregional cooperation. The only

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

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

The reports recommendations cover the following key concerns.

(i)

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

(ii)

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

(iii)

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

(iv)

More focused and reduced ADB involvement in the GMS Program. Given its resource constraints, ADB cannot effectively provide support to all GMS activities. ADB needs to periodically assess its role in all GMS initiatives and assess opportunities to reduce dependence on it for support where appropriate. This is already happening in tourism, with increasing responsibility and leadership in key areas being transferred to the private sector. Steps have also been taken for direct consultations with ASEAN in the trade and investment working groups, and there may be scope for greater ASEAN involvement in these groups in the future. Revision of the medium-term GMS strategy will provide the opportunity for focusing of ADB support. One possible scenario is for ADB to focus its regional GMS support primarily on a limited number of transport and possibly power links, with support to other sectors being focused on ensuring maximum social, economic, and environmental benefits from those investments. Activities pursued as regional GMS Programs, as opposed to national programs, should have the attributes noted in (i). Resources/instruments for the GMS Program. At present, staff resources, incentives, and organizational structure, and loan and TA funding resources are not aligned with supporting regional cooperation programs. This issue is wider than the GMSinvolving ADBs commitment and support as a whole to regional cooperation and regional initiatives, and its comparative advantage, if any, in promoting regional cooperation and is perhaps a key strategic issue that ADB must face. Changes can readily be made in the process of allocating RETA resources in the medium term. Improvements can be made in programming loan proposals, but reconsideration may need to be given to establishing a regional cooperation facility and developing other instruments.

(v)

(vi)

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

(vii)

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

(viii)

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

(ix)

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

(x)

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

(xi)

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

I. A. Objectives and Approach

BACKGROUND

1. The Greater Mekong Subregion (GMS), through which the Mekong River passes, comprises Cambodia, the Lao Peoples Democratic Republic (Lao PDR), Myanmar, Thailand, Viet Nam, and Yunnan Province of the People's Republic of China (PRC). It has a population of approximately 250 million, and a total gross domestic product of $212 billion. The GMS Program was initiated in 1992 with the objective of achieving cooperation and accord among the six countries in planning and promoting subregional economic development. The program is without a formal organization or institution, but is guided by a general set of principles and institutional arrangements and is different from other regional agreements. 2. Since 1992, the Asian Development Bank (ADB) has approved $39 million in technical assistance (TA) projects and $465 million in loans (plus $234 million in cofinancing) for the GMS Program. ADB support covers seven sectors (transport, telecommunications, energy, tourism, environment, human resource development, and trade and investment) together with general technical and institutional support for the program. 3. The objective of this impact evaluation study is to assess the relevance, sustainability, and efficiency of ADBs development assistance to the GMS Program and draw lessons from the activity. The goal is to contribute to the overall efficiency and effectiveness of ADBs development assistance in the GMS. 4. Given the broad nature and complexity of the GMS Program, the evaluation methodology differs from that used for project-level evaluations and is more analogous to reviews of public expenditure and investment programs. The study focuses on key activities, issues, and processes, including how GMS priorities were established, the relationship between priorities and actual resources mobilized, and key implementation issues. 5. The report includes both general findings from wide-ranging consultations with key stakeholders on the evolution and processes involved during the development of the GMS Program, and summary findings and lessons from selected interventions. ADBs performance in supporting the program is assessed in relation to GMS objectives and ADB's mandate and strategy for subregional cooperation. 6. This introductory chapter provides background information, including an outline of ADB's mandate for subregional cooperation, summary information on the development of the GMS Program, key socioeconomic indicators of GMS members, and ADB programs of GMS members. Section II gives an overview and brief assessment of program-wide issues, including the GMS strategic objectives and approach, institutional arrangements for program management and coordination, resource mobilization, program monitoring and evaluation, information dissemination, and coordination with related institutions. Section III is a brief summary assessment of selected GMS interventions, with details provided in the appendixes.2 The assessments form the basis of the report findings and issues in Section IV. Section V gives
2

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

2 the overall assessment, describes the lessons learned, and lists recommendations and followup actions. B. ADBs Mandate for Subregional Cooperation

7. ADBs Charter requires it to "foster economic growth and cooperation in the Asia region and to give priority to regional, subregional, and national programs and projects that contribute most effectively to harmonious economic growth of the region. ADB's Medium-Term Strategic Framework (MTSF 1995-1998) identifies regional cooperation3 as one of its four operating objectives. An ADB Board policy paper4 states that regional cooperation should be "viewed as being inherent in ADB operations." It identifies three complementary functions of ADB support: (i) to provide information relevant to regional cooperation to its developing member countries (DMCs), (ii) to act as an honest broker among the DMCs, and (iii) to mobilize public and private resources toward regional investments. Contributors5 to the Asian Development Fund (ADF) have also expressed appreciation for ADBs special role in regional cooperation, and the contribution it makes to regional peace and stability as well as to prosperity and sustainable resource management. 8. More recently, ADBs three-year rolling work program6 states that the Bank will do as much as it can in 1999-2001 to promote regional and subregional cooperation. ADBs lead role in the GMS will continue, with the goal of mainstreaming the cooperation from an initiative to a core program. Regional Technical Assistance (RETAs) are the principal vehicle of the Banks involvement in regional and subregional cooperation. Increasing emphasis is to being given to the nonphysical aspects of subregional cooperation. During 1999-2001, the GMS Program and Banks TA for it are expected to show closer integration of (i) infrastructure projects and soft sector initiatives, and (ii) GMS projects and projects in Banks national lending and TA programs in each country. C. The Greater Mekong Subregion

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

4 5 6

The MTSF, recognizing that at that time relatively large amounts of TA resources were available for regional cooperation, states that (a) it is important that ADB achieve specific and prioritized regional cooperation objectives established in cooperation with developing member countries (DMCs), (b) ownership of objectives by DMCs is to remain the guiding principle, and (c) financing of interrelated projects in different DMCs to better coordinate natural resource management (water, energy) should also be pursued. Asian Development Bank. 1994. Bank Support for Regional Cooperation, 11 April. Asian Development Bank. 1997. ADF VII: Report of the Donors, January. Asian Development Bank. 1998. Three-year Rolling Work Program and Budget Framework (1999-2001), September.

3 Table 1: Socioeconomic Indicators of GMS Countries

Country Thailand China, Peoples Republic of Viet Nam Myanmar Cambodia Lao PDR 1997 Population 59.7 1,244.2 76.4 43.9 10.5 5.0 HDI Ranking 67 98 110 128 137 140 GDP Ranking 60 104 133 151 147 146 Per Capita GDP (Purchasing Power Parity) - 1997 6,690 3,130 1,630 1,199 1,290 1,300

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

10. Within the subregion are major differences in economic and political systems, but there is now general agreement on the importance of markets in the efficient allocation of resources and on the role for governments in developing the institutions that support market economies. But within this broad consensus are major differences about the extent of State involvement in economic management. Most GMS members are still in the transition from central planning to market-oriented economic systems, and the consultative mechanisms used in developing public policy substantially differ. 11. There are also major differences in and level of dependence on official development assistance (ODA) and foreign direct investment (FDI) in financing development (Table 2). Lao PDR and Cambodia are heavily dependent on ODA, while ODA accounts for a relatively small share of national income in PRC, Myanmar, and Thailand. Table 2: Financing Development in GMS Countries
Country Thailand China, Peoples Republic of Viet Nam Myanmar Cambodia Lao PDR $/capita 11 2 15 1 42 82 ODA Disbursed % of GDP 0.4 0.2 4.1 12.2 19.5 $ million 626 2,040 997 45 372 341 FDI Inflows ($ millions) 3,600 45,300 1,200 80 200 90

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

D.

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

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

4 13. For the GMS Program itself, ADB has approved TA projects costing more than $39 million,7 and has been involved in financing investment projects with total investments amounting to almost $2 billion8 (Table 4). ADB has played a leading role in facilitating and financing core GMS activities, and a major role in supporting sector-level activities. Table 3: GMS Countries Share of ADB Lending (as % of lending for the period)
Country/Region Cambodia China, Peoples Republic of Lao PDR Myanmar Thailand Viet Nam Total ADB Loan Approvals 1993-1997 ADF OCR 0.0 23.3 0.0 0.0 8.5 0.1 31.9 5.8 0.0 0.0 18.0 26.3 2.5 0.0 24.1 0.0 0.0 12.6 0 36.7 0.0 2.0 0.0 0.0 28.8 34.9 2.9 0.0 1.8 3.6 23.5 ADB Loan Approvals 1998 OCR 0 ADF 4.1 TA Approved 1998 0.8 14.4

Source: ADB Annual Report 1998.

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

Country Cambodia China, Peoples Republic of Lao PDR Myanmar Thailand Viet Nam Total ADB Loan Approvals OCR 0 1,202 0 0 630 0 1,832 ADF 0 0 20 0 0 184 204 TA Approved 1.4 23.5 4.8 0.0 2.9 5.9 38.5 ADB Disbursements 29 831 66 0 564 128 1,618

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

$2.5 million from ADBs technical assistance special fund (TASF) resources, $20.3 million from Japan special fund (JSF) resources, $4.8 million from GMS member governments, and $11.6 million from cofinanciers, including Australia, Economic and Social commission for Asia and the Pacific (ESCAP), Finland, France, International Labour Organization (ILO), Norway, Singapore, Sweden, Switzerland, Thailand, and the United Nations. $372 million of financing from ADB ADF resources (final Board approval still pending for $57 million in loans for the east-west corridor), $400 million from OCR resources, $912 million from GMS member governments, and $234 million in commercial and other cofinancing.

II.

PROGRAM STRATEGY, MANAGEMENT, AND COORDINATION

A.

Program Strategy and Approach

14. The core GMS Program has evolved through three phases (Appendix 1). ADB first approved a RETA ($270,000) to promote subregional cooperation among the six cooperating countries in 1992.9 This phase I RETA focused on assessing the viability of the concept, reaching a consensus on the concepts and basic modalities for subregional cooperation, and identifying potential areas for such cooperation. 15. ADB approved a second RETA in June 1993 ($4.0 million).10 This was subsequently increased to $5.26 million with cofinancing from the Swedish International Development Agency (SIDA).11 The aim of this TA was to define more concretely the opportunities, benefits, and mechanisms for enhancing economic cooperation as well as defining priority subregional development projects. The stated long-term objective was to promote, facilitate, and support mutually beneficial economic cooperation among the GMS countries. 16. A third RETA approved in July 1996 ($3.0 million)12 was to provide continuing support, with the same long-term objective as the earlier RETAs. This current phase of the TA is due to be completed in 2000, and preparations are being made for a follow-up phase of assistance. The objectives and main outcomes of the three core RETAs are summarized in Table 5. 17. An additional 23 RETAs have been approved to support the activities of sector working groups, to undertake feasibility studies, and for institution building and other activities. These interventions are discussed in Section III of this report. 18. The effectiveness of the core TA activities is assessed in terms of the effectiveness of overall program management, including resource mobilization, and the socioeconomic impacts of sector-level initiatives on the GMS. Assessments of ADBs core support, as reported on throughout this report, are shown in Table 5. The key findings and conclusions of the program as a whole are summarized in the final section of this report.

TA 5487-REG: Studies in Subregional Cooperation Initial Possibilities for Cambodia, Peoples Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam (Phase I), for $100,000, approved on 9 March 1992. The amount was subsequently increased to $190,000 on 19 May 1992 and $270,000 on 16 September 1992. 10 TA 5535-REG: Promoting Subregional Cooperation among Cambodia, Peoples 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, Peoples Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam dated 9 September 1994. 12 TA 5693-REG: Promoting Subregional Cooperation among Cambodia, Peoples Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam (Phase III), for $3.0 million, approved on 23 July 1996. A further $1.5 million of cofinancing was envisaged in the TA mostly for human resource development activities. As of March 1999, an additional $250,000 had been mobilized.

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

Support
Phase RETA I

Key Stated Objectives

Formulate detailed terms of reference (TORs) for phase II of the RETA, including TORs for country and subregional studies; Assist with workshop to discuss proposed TORs, work program, and implementation arrangements for phase II. Sectors selected for initial study: (a) trade and investment, (b) transport, (c) energy, and (d) environment.

Results
Phase II project and TORs were prepared as discussed below. Draft report on future directions discussed at a ministerial meeting (20-21 October 1992). Consensus reached on priorities and approaches for 1 phase II. Report included assessment of priority sectors. Basic approach to subregional cooperation, and strategies for project selection and design agreed upon at ministerial meetings. Sector-level forums and working groups established and studies adopted for key sectors (see sector assessments). Agreement on 2 95 projects, and a smaller set of priority projects. Broad aid agency and some private sector interest in GMS. See paras. 31-36 for discussion on resource mobilization. Assessment of progress included in relevant sections of this report. Progress in institution building varies by sector (see sector assessments). Limited evidence of strategic thinking on how to reduce dependence of GMS institutions on ADB support. More clearly defined strategic approaches to programming of ADB resources are needed to facilitate mobilization. See para. 36 on resource mobilization. Sector linkages remain weak (see sector assessments). Need more strategic decision making (paras. 69, 123 ) . ADB country strategies and programs rarely address specific subregional concerns (paras. 65, 66, 122 )

Phase II RETA

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

Phase III RETA

Prepare and coordinate implementation agreed-upon priority subregional projects.

of

Build necessary subregional institutional capacity for effective project implementation and for sustaining subregional cooperation in the long term. Mobilize external resources for subregional development, including the structuring of subregional projects to facilitate public-private partnerships. Build intersectoral linkages among initiatives in individual sectors to help address broader development concerns. Develop effective linkages between subregional cooperation and domestic policies and programs. GMS Unit Provide logistical and strategic achieving above objectives. support in

Played a key role in facilitating networking within GMS, but inadequate resources and authority have limited its capacity to exercise strong leadership in ADB (paras. 107, 125). Links between RETA activities initiated by different ADB departments remain weak. 1 Findings published by ADB as Subregional Cooperation Initial Possibilities for Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, and Yunnan Province of the Peoples Republic of China. The meeting made it clear that the GMS had no ambitions to establish a formal economic grouping or trade bloc. 2 A Technical Assistance Completion Report (IN.41-98) was circulated and submitted to the Board on 18 February 1998.

B.

Institutional Arrangements for Program Management

1.

Overview

19. At the country level, a National Interministerial Steering Committee (NISC) was established in each country to coordinate and supervise the GMS Program. Each NISC appointed a national coordinator to serve as the focal point within GMS countries, and between the NISCs and ADB. Regular ministerial-level meetings are held to reach consensus on approaches, priorities, and implementation arrangements. Preparatory meetings of senior officials usually precede these ministerial meetings. 20. Within ADB, responsibility for overall supervision of the ongoing GMS Program is assigned to an interdepartmental steering committee chaired by the Vice-President (West). A project secretariat under the head of the GMS Unit provides advisory, technical, and administrative support to the program. The GMS Unit is located in Programs Department West. Staff and consultants support the work of the secretariat. 21. Project department staff and staff consultants assist in planning and providing technical inputs and guidance to sector-level GMS forums and working groups meetings. Details of these arrangements are included in the sector assessment appendixes. 2. Effectiveness of Greater Mekong Subregion Institutional Arrangements

22. The consistently high level of participation in ministerial meetings is a key indicator of GMS member country commitment to and ownership of the GMS process. Participants have been well briefed and have had the authority to make decisions. These meetings have been effective in reaching agreement on potentially controversial issues and in facilitating subsequent implementation of decisions. Networking between the various GMS secretariat units has been valuable in reaching agreements and resolving potential problems. 23. On the other hand, some of the GMS secretariat units (including ADB's) have suffered from limited full-time staff and other resources, and limited authority to coordinate sector-level activities. ADB's GMS Unit has no authority over allocation of RETA resources for GMS activities. ADB makes no specific allocations for the GMS, and thus there is no scope for strategic programming of resources to support GMS activities. This is a major weakness in the management of the GMS Program. 24. Another concern has been the lack of systematic attempts to develop efficient information, monitoring, and evaluations systems for the GMS. Key GMS information is typically only consolidated on an ad hoc basis to meet specific needs. Limited resources have also been a factor in the limited success in developing a long-term strategic focus for the GMS, and in missed opportunities to ensure that the various sector-level initiatives are complementary.

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

C.

Programming ADB Support to GMS and GMS Member Countries 1. Overview of Programming Arrangements

26. Priority projects and initiatives for inclusion under the GMS are developed through sector studies and working group meetings, and are endorsed by ministerial-level meetings. The GMS Program is results oriented, and the projects selected for inclusion generally have one or more of the following objectives or results:13 (i) (ii) (iii) (iv) facilitating subregional trade and investment, facilitating subregional development opportunities, facilitating the resolution of transborder issues, and facilitating the fulfillment of common resources or other needs.

27. The programming of ADBs TA support to the GMS is largely an internal process, without the same formal consultative process that takes place in ADB programming of country assistance. Individual ADB departments are provided with annual allocations of RETA resources; decisions on how much of this will be allocated to GMS activities and to specific GMS projects are then made at the department level. Decisions on ADB financing of GMS investment projects are made during ADB's annual country programming exercises with individual governments, and GMS-related projects must compete for resources within the annual country allocations. 2. Assessment of Programming Arrangements

28. Current arrangements for determining GMS priorities appear to be working satisfactorily. Endorsement of priorities at the annual ministerial meetings provides a mechanism for ensuring that agreed-upon GMS initiatives are consistent with national priorities. There will continue to be projects where subregional priorities will not always coincide with national priorities, but these concerns have to be dealt with on a project-specific basis through country-level negotiations. 29. There appear to be fundamental problems, however, with ADB programming arrangements. Current RETA screening arrangements provide little opportunity for coordinated programming of resources to meet agreed-upon GMS strategic objectives, and there are no mechanisms for formal consultations with GMS countries in making allocation decisions. While in general there is a degree of consistency between approved RETAs and established GMS priorities, there are indications that RETA allocations are driven more by supply considerations than by these priorities. The relatively large allocations of RETA resources to the environment sector (more than one third of the total) despite very limited direct links between environment RETAs and the high-priority infrastructure projects, are indicative of supply-driven influences. The weak links between human resource and environment initiatives, and infrastructure developments are indicative of problems in ADB coordination in allocating GMS RETA resources to ensure that initiatives complement each other and generate maximum value13

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 identified in the human resource development and environment case studies. The sector assessments also highlight the need to specifically address priority subregional concerns in ADB's country strategies and programs. Improving the mechanisms for programming resources to support GMS activities is an important priority, with greater subregional consultations in RETA programming an immediate priority. There is also a need to consider subregional allocations of loan resources to supplement country allocations. 30. A related concern is the question of what constitutes a subregional initiative. Such decisions appear to have been made on an ad hoc basis, and the current list of ADB-assisted GMS infrastructure projects has notable anomalies. For example, while the Siam Reap Airport project will certainly have subregional impacts, the same could be said for many national transport projects. Development of the Yunnan expressway has the potential to increase subregional transport flows, but at this stage involves road development only in Yunnan with the national Government providing majority financing. While power transmission lines crossing national borders have a strong basis for being classified as subregional, the rationale for classifying power stations constructed in one country as subregional (i.e., as GMS) is weaker. It could reasonably be argued that if one national power station is classified as subregional because power is being exported, all power stations in that country (or at least those connected to the same grid) should be classified as subregional. The classification of some GMS projects as subregional seems contrived. The need for clearer definitions of what constitutes a subregional project will become more important as ADB introduces new subregional modalities and guidelines14 and as it initiates regional programs elsewhere. D. Resource Mobilization in the Greater Mekong Subregion 1. Overview

31. ADB has played a leading role in mobilizing nearly $2 billion for GMS transport and energy infrastructure developments. The Yunnan expressway development accounts for more than half of this total, with the national Government providing the major share. Almost 50 percent of total GMS investments have been raised from GMS members (most of this from the PRC), ADB financing accounts for 40 percent, and the remainder is from commercial financing sources and Japan Bank for International Cooperation (JBIC). Private sector and commercial finance agencies provided most of the financing for the Theun Hinboun Power project. ADB has been the principal external financier of the remaining GMS infrastructure projects. These figures exclude directly related, but separately financed, investments in the east-west corridor. 32. ADB has approved TA projects totaling $39 million, providing about 58 percent of this amount on a grant basis through TASF and JSF resources. Thirty percent of the costs have been mobilized from bilateral sources, and the remaining 22 percent by GMS member governments. Cofinanciers have financed most of the investments in the telecommunications and energy sectors, and about half the resources in the environment and human resource sectors. Only very limited cofinancing has been mobilized for the core programs, tourism, and transport sector activities (Table 6).

14

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

11 Table 6: ADB-Supported GMS TA Activities

Financing ($000) Project Total Budget (a) Levels of Financing by Source Core GMS Projects 8,780 Transport 9,877 Telecommunications 900 Energy 2,578 Tourism 939 Environment 14,140 Human Resource Development 1,920 Trade and Investment Total 39,134 (b) Share of Financing by Source (% of total) Core GMS Projects 100 Transport 100 Telecommunications 100 Energy 100 Tourism 100 Environment 100 Human Resource Development 100 Trade and Investment TOTAL 100 TASF 1,770 100 500 130 2,500 20 1 19 14 6 ADB JSF 6,000 8,280 725 4,400 900 20,305 68 84 77 31 47 52 Govt. 250 329 50 55 3.995 100 4,779 3 3 6 6 28 5 12 Amount 760 1,168 850 2,078 29 5,745 920 11,550 9 12 94 81 3 41 48 30 Cofinancing Sources Sweden France/ESCAP Australia/France Norway/France Singapore/TAT Norway/Finland/Swiss/UNEP Australia/ILO/UK

Sweden France/ESCAP Australia/France Norway/France Singapore/TAT Norway/Finland/Swiss/UNEP Australia/ILO/UK

= not available ADB = Asian Development Bank, ESCAP = Economic and Social Commission for Asia and the Pacific, GMS = Greater Mekong subregion, ILO = International Labour Organization, JSF = Japan special fund, TASF = technical assistance special fund, TAT =Tourism Authority of Thailand, UK = United Kingdom, UNEP = United Nations Environment Programme. Source: ADB. GMS Unit.

2.

Assessment of Resource Mobilization Efforts

33. Considerable resources have been mobilized under the GMS initiative, and there has been some success in mobilizing cofinancing. While there may be doubts as to whether some of the projects are really GMS initiatives, recent transport projects have involved coordinated financing in more than one country (Table 7). ADBs involvement in the east-west corridor, has facilitated additional investments in core parts of the corridor development (e.g., the bridge at Mukdahan/Savannakhet, Da Nang Port) as well as increased potential returns to other investments in rural roads in central Viet Nam and Lao PDR. 34. Efforts to mobilize private sector resources for GMS initiatives have been largely unsuccessful, with the notable exception of the Theun Hinboun Power project. The approach to financing the Theun Hinboun Power project was widely praised as an innovative model for private financing power sector development.15 ADB and the Lao PDR Government also saw it as a way of ensuring that Lao PDR secured an adequate national return from subregional
15

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

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 power projects have been initiated. Thus, at present, it is not possible to assess the extent to which the approach to financing the Theun Hinboun Power project will be replicated elsewhere in the region. Table 7: ADB-Supported GMS Infrastructure by Sector
PROJECTS TRANSPORT EAST-WEST TRANSPORT CORRIDOR LAO COMPONENT VIET NAM COMPONENT Ho Chi Minh City-Phnom Penh Road CAMBODIA COMPONENT VIET NAM COMPONENT SIAM REAP AIRPORT YUNNAN EXPRESSWAY SOUTHERN YUNNAN ROAD DEVELOPMENT CHAMPASSAK ROAD IMPROVEMENT SUBTOTAL ENERGY THEUN HINBOUN HYDROPOWER NAM LEUK HYDROPOWER DEVELOPMENT SUBTOTAL TOTAL 1329 1456 270.0 112.6 382.6 1,961.3 60.0 52.0 112.0 372.0 400.0 14.5 22.1 36.6 967.3 195.5 38.5 234.0 234.0 commercial JBIC 1659 1660 1503 1325 1691 1369 50.7 144.8 17.0 461.4 768.7 60.1 1,578.7 48.0 260.0 400.0 40.0 100.0 15.0 150.0 250.0 10.7 44.8 2.0 311.4 518.7 12.1 930.7 not yet approved 40.0 36.0 32.0 25.0 20.0 11.0 ADB Loan No. Total Project Investment $ million Financing ADB ADF OCR Govt. Cofinancing Amount Source

= not available. ADB = Asian Development Bank, ADF = Asian Development fund , OCR = ordinary capital resources , JBIC = Japan Bank for International Cooperation. Source: ADB. GMS Unit.

35. While some of the problems in raising private sector financing can be attributed to the general deterioration in the investment climate following the Asian financial crisis, specific actions can be taken to increase the chances of securing future private sector financing. First, the respective GMS members and ADB must make every effort to implement the east-west corridor development effectively and demonstrate to the private sector that national governments are serious about implementing cross-border agreements. Problems in implementing these agreements will greatly dampen private sector expectations that future subregional agreements will be enforced. Second, ADB needs to more directly addressin country strategies and programsthe national constraints to returns on subregional investments. Reforms in trade policies, foreign investment regulations, and dispute resolution and contract enforcement mechanisms have a potentially major role to play in increasing returns to subregional investments. Third, the GMS Program needs to adopt a more focused and strategic approach to marketing GMS investment opportunities, including direct consultations

13 with the business community at all stages of the project cycle. A more strategic approach to prioritizing ADB support is an urgent need. 36. Sectors have shown major differences in success in mobilizing resources from outside ADB. There may be some justification for ADB to continue playing a lead role in financing core GMS programs, but a core element of strategy should be to reduce dependence on ADB financing for sector-level activities. ADB has succeeded in mobilizing bilateral financing for the telecommunications and energy sectors, and a large share of financing for the environment and human resource initiatives. Relatively small amounts of formal cofinancing have been mobilized for transport and tourism, although there have been considerable in-kind contributions from the private sector in the tourism sector. Regular regional programming of TA and investment requirements, within the context of a clearly defined, time-bound strategy for subregional cooperation, could greatly facilitate efforts to increase cofinancing. E. Program Monitoring, Evaluation, and Information Dissemination 1. Overview

37. Arrangements for GMS Program monitoring, evaluation, and information dissemination could only be described as ad hoc. Formal monitoring systems include only basic project details. More detailed information is generally compiled in preparation for specific meetings and consultations. Most GMS publications have evolved the same way. No formal internal evaluation of overall ADB support to the GMS was ever undertaken.16 38. A GMS web page was established in December 1998, but it has only limited information and has not been updated on a regular basis. During the first six months of 1999, the most visited GMS web page, the telecommunications page, had been visited only 20 times. The web page and all GMS information and publications are ADB outputs. No GMS-"owned" systems have been developed for dissemination of GMS program information. 2. Assessment

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

16

A suggestion for an internal evaluation was made in an internal note from the Manager of Programs West Division 3 to Programs West Office of the Director, but there was no apparent follow-up.

14 F. Relationship and Links with Related Initiatives and Institutions

40. There have been fairly regular communications with related subregional initiatives and institutions, but the extent of consultation and collaboration has varied greatly. The extensive involvement of the Pacific Asia Travel Association (PATA) and the United Nations Economic and Social Commission on Asia and the Pacific (ESCAP) in tourism initiatives are a positive example of strong collaboration. ESCAP has also actively participated in meetings related to cross-border agreements and other transport planning studies. 41. On the other hand, despite the recent involvement of the Association of Southeast Asian Nations (ASEAN) in the trade and investment initiatives, there is still some ambiguity about how the GMS initiatives in trade and investment will complement rather than duplicate ASEAN responsibilities. The greatest concern is with the relationship between the GMS initiative and the Mekong River Commission (MRC). MRC made it clear that it felt that some GMS initiatives, particularly in the environment sector, duplicated responsibilities that had been mandated to MRC. Further, the members were concerned that the GMS Program did not adequately consult with and/or utilize their expertise during program planning and project implementation. The World Bank is now providing substantial assistance to MRC. This will create pressure on ADB and the GMS to develop a more coordinated working relationship with MRC: otherwise, the risks of duplication of efforts or of MRC replacing the GMS in certain activities will increase. 42. While the optimal extent and nature of collaboration will vary greatly between sectors and between projects, a more clearly defined strategic framework for the GMS, including details of anticipated links with other programs, would facilitate more productive collaboration and assist in reducing duplication of effort.

III.

SUMMARY SECTOR ASSESSMENTS

A.

Methodology

43. Case studies were conducted for selected GMS interventions. The methodology was analogous to that used in reviewing a sector program, with focus on processes, achievements, and policy, institutional, and investment issues. Given the study resource limitations, case studies were limited to five areas. The criteria used to assist in guiding selection of areas for more detailed study were (i) (ii) (iii) (iv) importance in terms of realizing GMS goals and objectives, amount of ADB TA funds allocated, potential and/or issues relating to mobilizing investment resources, and potential lessons for future GMS and other subregional initiatives.

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

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

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

2 in pursuing a regional program. Recommendations for individual projects/initiatives and for the sectors are in the appendixes. A few key concerns for each of the sectors, however, are summarized in paras. 46-59. 1. Transport

46. The main objective of the GMS Program in the transport sector is to develop priority transport corridors to link population centers and tourist destinations, improve access to market for remote areas, and help reduce nonphysical barriers to movement of goods and services. The program gives priority to road transport, especially the east-west corridor between capitals, an initiative overseen by regular subregional transport forums (STFs). 47. Close follow-up is needed to ensure the cross-border agreements are implemented, and to monitor their effectiveness so that any necessary changes can be made. The potential benefits of infrastructure development will not be realized without further trade and investment reforms. Greater emphasis could be given to developing the capacity of the customs, immigration, quarantine, transport, and police officials who will play a key role in facilitating the movement of goods and people. ADB will need to be proactive in mobilizing resources for the transport projects and ensuring equitable distribution of costs and benefits among the GMS members. 2. Telecommunications

48. The objective of the GMS Program is to achieve compatibility between national telecommunications systems, enhance subregional and national networks, and adjust tariffs and regulations to enable GMS telenetworking, but the priorities are unclear. Although an East Loop project is in the pipeline with a complete feasibility study, overall the GMS strategy remains unclear. The value added of a discrete GMS program, rather than extended collaboration with the International Telecommunications Union (ITU) and ASEAN, is not compelling. 49. The key issue is to articulate a clear vision and strategy for GMS involvement. There is no convincing argument that ADB has any comparative advantage in leading planning or financing for essentially commercial telecommunications infrastructure projects. Adopting a more limited enabling role in promoting commercial investment might be a more effective role for ADB and use of resources. 3. Energy

50. The objectives in the energy sector are to provide a link between the GMS power supply and systems development institutions, promote effective development of power by identifying potential power projects and financing sources, provide technical advice and information, provide a forum for software issues and pricing policy, and facilitate subregional training initiatives. ADB has assisted with a GMS power trade policy and subregional master plan, complemented by World Bank support for power regulatory issues. 51. The benefits of subregional projects, as opposed to discrete national ones, remain unclear until integrated power network policies are better defined. Greater attention needs to be paid to raising private financing and formulating a clear GMS power strategy. A key component

3 of the future strategy should be institutional and pricing arrangements for power trade and the integrated subregional power grid. 4. Tourism

52. The key objectives are to promote tourism and increase tourist flows through links with the transport corridor and strengthened subregional tourism institutions. The design process, through the working group on tourism (WGT), has involved consultation with private sector tourism associations. 53. The key issue is to define ADBs comparative advantage, if any, in tourism planning, promotion, and development. A possible ADB priority could be to act as an honest broker in reducing government red tape in the sector, which is a major constraint. Arguments for public sector involvement in tourism development have not always been clearly established. The case for ADB to simply leave the coordination to subregional private sector tourism bodies (e.g., Pacific Asia Travel Association [PATA]) should be considered. The opportunities for linking tourism development with parallel transport and environmental program initiatives is underdeveloped. There is a clear public sector role for developing safeguards and regulations, particularly arising from the social, cultural, and environmental impacts of tourism. 5. Environment

54. The objective of the GMS environment program is to help coordinate subregional environmental conservation, and protection policies and programs. Initially, priority was given to capacity building. The program, though somewhat ad hoc, has been successful in implementing RETAs for institutional development and forward GMS environmental strategies necessitating the significant involvement of external sources, the private sector, and NGOs. 55. The pressing issue is to revisit the GMS strategy, especially to pay greater attention to leveraging environmental policy reform and greater subregional/national policy integration. Greater attention must be given to different capacities in GMS countries, incorporating rigorous needs assessment in project designs. Refocusing the strategy requires the incorporation of greater emphasis on cost-benefit analysis in program selection, minimizing program complexity, and forming better linkage with other subregional initiatives (e.g., the transport corridor). ADB leadership in this sector needs to be carefully tailored to realizable staff and financing resources.

6.

Human Resource Development

56. The objective of the Human Resource Development (HRD) program is to facilitate the formulation of subregional HRD policies, help design subregional HRD interventions with potential economies of scale, build up subregional capacity for HRD service delivery, and facilitate subregional labor development. The HRD working group has been comparatively inactive due to narrow sector work and limited resources, with overreliance on ADB leadership. Only 4 of 10 initial RETAs have been financed and completed. 57. The main issue is to achieve a clearer strategic focus with defined selection criteria for interventions aimed at ensuring maximum returns to limited subregional resources for HRD, rather than continuing with a RETA project pipeline based on common interests. ADB and the HRD working group should consider alternative strategies which represent different levels of intervention (Appendix 7, paras. 2227). Should the focus be on policy development; a restricted investment program with clear GMS economies of scale; and/or a social development corridors approach (linked directly to the transport corridors)? RETA designs need to pay more attention to initial capacity assessment and strengthening along with much broader stakeholder consultation. 7. Trade and Investment

58. The objective of GMS interventions in trade and investment is to facilitate subregional trade and investment policy development and programming in consultation with the private sector. A subregional investment fund was set up with a planned GMS business forum. Progress has been slow, with the private sector unconvinced of the value added of a discrete GMS program in addition to ASEAN. 59. ADB needs to revisit the original justification for a discrete GMS program. If not compelling, any ADB resources should be reallocated to other GMS programs. There needs to be greater focus on trade/investment opportunities within other GMS programs (e.g., transport) and a greater priority given to overcoming policy constraints within the subregion. Greater private sector partnership in the program, including better marketing, is critical.

IV.

Key ISSUES FOR THE FUTURE

A.

Long-term Vision for GMS and ADBs Role in Regional Cooperation

60. The GMS Program was initiated at a time of substantive challenges and uncertainties in the relationships between GMS member countries. Initial RETA designs reflected a need for flexibility in planning the GMS initiatives to maximize benefits as opportunities arose in an improving political environment. There is now greater opportunity and increased need for a longterm strategic vision. A clearer vision would make it easier to analyze the comparative advantages of and potential for greater collaboration between institutions in implementing the wide range of GMS initiatives. A clearly defined vision will also facilitate marketing and the mobilization of resources for GMS investments.18 61. A long-term vision and strategy can only be developed with the strong commitment of the GMS member countries and in consultation with other subregional institutions, especially ASEAN. Past attempts to develop such a vision have achieved only limited success due to lack of consistent commitment and limited resources. At the earliest possible time, GMS and ADB need to make a strong and clear commitment to finalizing a consistent vision and strategy. 62. While ADB has a clear mandate to promote subregional cooperation (para. 7), its limited tangible commitment to supporting and facilitating such a program has constrained the GMS Program. This issue is wider than the GMS, involving ADBs commitment and support as a whole to regional cooperation and regional initiatives, and is perhaps the key strategic issue that ADB must face. ADB should question whether it is appropriately structured to support regional programs and initiatives and, given this, where it has a comparative advantage over other global organizations in promoting regional cooperation. 63. At present, staff resources, incentives, and organizational structure, and loan and TA funding resources are not aligned with supporting regional cooperation programs. The only funding arrangements for subregional initiatives are through department-based RETA allocations, but there is not always adequate forward planning on allocations for this. The GMS unit (within a programs division) is the only organizational arrangement established to facilitate subregional cooperation. The GMS Program has not always been a mainstream priority activity in some projects departments. There is little evidence of ADB staff performance in promoting subregional cooperation being a significant element in evaluating performance. The most tangible indicator of ADB commitment to the GMS Program has been the high-level ADB presence at GMS ministerial and working group meetings. 64. A more detailed discussion of the strategic options to consider in promoting GMS and broader subregional cooperation is in paras. 65-70.

18

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

2 B. Subregional Programming and Links with National Programs

65. The key subregional operational issues that ADB needs to address are (i) how to improve programming of ADB resources to best support the priorities established by the GMS, and (ii) how to better integrate GMS priorities into country programs. Identifying indicative allocations of ADB RETA resources for GMS activities at least three years in advance would facilitate effective programming of TA for priority GMS activities. Priorities for RETAs could then be developed through working-level GMS discussions, with agreed-upon priorities endorsed at the annual GMS ministerial meetings. Such an approach would (i) facilitate RETA allocations that better reflect GMS priorities, (ii) increase GMS member countries ownership of RETA projects because of their greater involvement in priority setting, and (iii) provide increased opportunities to mobilize cofinancing because of longer term planning and the clear commitment of GMS member countries. As part of improved programming of resources, ADB will sometimes need to give more attention to leveraging policy and institutional change in GMS countries where existing arrangements are major barriers to the level and distribution of returns to agreed investments in subregional initiatives. Reaching agreement on priorities may not always be easy, and a strong commitment will be required from GMS members and ADB staff to make this work, but this is true of all GMS activities. 66. Concerns were expressed in several GMS countries about the weak linkages between national programs and priorities and GMS programs and priorities. It was noted that ADB staff sometimes treated the GMS Program as a separate initiative, even where the national project (loan) concerned is also a GMS project. This appeared to be less a problem in the infrastructure sectors than in other sectors. Some suggested that the GMS Program should be properly integrated into country programs, individual country programs and strategies thus also reflecting the GMS Program and strategy. Others expressed concern that should this be done, the risk would arise that the national program could then draw loan funds from the GMS Program, GMS projects often not being seen as high a priority as national projects and priorities. However, this could be overcome if each country had a strategy and program that had two components, the national strategy and its part of the GMS strategy. The country program could separate the loan and TA program into two parts, the national part and the GMS part. The former would be based on the indicative planning figure (IPF) for the country, while the latter could vary each year, depending on the planned GMS loans and TAs. Funds would not be moved from one to the other. 67. A proposal to establish a regional economic cooperation facility (RECF) was considered in 1998, but ADB management concluded "the option of establishing the RECF as a facility to provide general additionality for subregional projects does not appear to be worth pursuing, at least in the near future."19 A major problem in creating such a fund was the shortage of ADF resources and the fact that many of the GMS members were not eligible to borrow OCR funds. The memorandum left open the possibility of reconsidering the possibility of establishing "a catalyzing facility for joint public/private projects" after the finalization of the Graduation Policy Paper.20 The memorandum noted that regardless of whether such a facility was established, ADB would pursue the option of using OCR funds (outside of country program allocations) for priority, commercially viable GMS investments where this is expected to play a catalytic role in attracting additional financial resources.
19

20

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

C.

More Focused and Reduced ADB Involvement in the GMS Program

68. One of the key concerns arising from the study is the lack of focus of the GMS Program, which has developed in a rather ad hoc fashion. While the program initially focused on the provision of basic infrastructure that would help link the subregion and allow development of the resource base, it broadened over the period 1992-1999 and now covers seven sectors. These are all seemingly accorded the same high priority, but ADB loan and TA funding and staff resources have proved insufficient to address all of them. So far, the GMS Program has provided loans to only the power and transport sectors, although the focus is now on economic corridors rather than transport corridors. Initiatives in environment and HRD have been largely stand-alone RETAs, while working group meetings have largely dominated tourism, trade, and investment. In the present ad hoc approach, the program appears to focus more on the sectors rather than on its original purpose of subregional cooperation and development. 69. Given its resource limitations, ADB needs to periodically assess its role in all GMS initiatives and assess opportunities to reduce dependence on it for support. All GMS members indicated that the transport (economic) corridors were the most important GMS initiative and that trade, investment, and tourism would follow once the corridors were implemented.

4 The credibility of the GMS Program depends on these corridors being completed; the corridors could therefore form the basis for a more focused and reduced program for ADB. Environment, poverty and HRD programs could be linked to the corridors.21 The trade and investment groups could focus on implementing cross-border agreements. Tourism could be left to the private sector. This approach could retain the RETAs and other initiatives as stand-alone activities, but each having a strong link to the economic corridor, i.e., an economic corridor approach with cross-cutting strategic focus. 70. An alternative to this might be a more integrated development corridor-type approach, with environment, HRD, and other activities being an integrated part of the development corridor program. Given the restricted resources available for the program, however, consideration could also be given to simply shrinking the GMS Program for the time being to the economic corridors, focusing solely on the provision of infrastructure and providing the necessary support to implement the trade agreements already made under ASEAN to allow for the flow of goods and services. D. Institutional Coordination and Cooperation

71. GMS member countries made it clear during this study that they accorded high priority to the continuation of the regular ministerial meetings as the main decision- and policy-making mechanism for the GMS, and for continued ADB support in facilitating and coordinating these meetings. Some sector initiatives have reached a stage where some form of more permanent institutional arrangement may be needed. 72. Greater attention needs to be given to project-level institutional arrangements and the requirements for institutional strengthening and technical support to sustain the momentum in addressing bottlenecks to high-priority initiatives. Some high-priority initiatives, such as the economic corridors, will require more regular working-level discussions, possibly supported by medium-term TA to resolve the complex issues associated with reaching and implementing cross-border agreements. These institutional issues are much more critical for subregional projects because of substantial subregional differences in institutional capacity. Project designs should include specific requirements to develop the skills of local experts and to build institutional capacity and thus reduce dependence on ADB support. 73. Ongoing developments in other regional institutions, especially the inclusion of all but one of the GMS members (Yunnan Province) as ASEAN members, makes it important for the GMS to regularly review its links with them to avoid duplication of effort and take advantage of opportunities to reduce GMS involvement and dependence on outside support (e.g., ADB). This is already happening in tourism, with increasing responsibility and leadership in key areas being transferred to the private sector. Steps have also been taken for direct consultations with ASEAN in the trade and investment working groups, and ASEAN involvement in these groups may be greater in the future. This is essential because of the need to ensure that GMS

21

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

5 initiatives are consistent with ASEAN and other regional and international protocols and standards. 74. Parallel initiatives are being pursued under ASEAN and GMS programs in trade and investment reform, facilitation of cross-border agreements, and planning of infrastructure development. For example, there are ongoing consultations within ASEAN on the ASEAN Highway network and the development of a Singapore to Kunming rail link. ESCAP has also been providing support for some ASEAN transport initiatives and for the development of Asiawide agreements and transport development. The fifth Conference of ASEAN Transport and Communications Ministers held in Hanoi on 15-16 September 1999 passed a program of action for ASEAN transport and communications development to 200422 that included a list of 55 individual regional projects. An ASEAN ministers memorandum of understanding on the development of an ASEAN Highways Network project was signed to pave the way for the phased development of priority road projects. The ministers also signed protocols on the types and quality of road vehicles and technical requirements for vehicles transporting goods across ASEAN boundaries. These initiatives include some of the same project components as in the GMS transport program. Both the ASEAN secretariat and ESCAP have been regular participants in the STF, and the practical results achieved under the GMS initiative have been recognized by the ASEAN secretariat as potentially useful in developing ASEAN-wide protocols for the transport sector.23 75. The results of the meeting suggests increasingly similar parallels between the ASEAN and GMS initiatives and a need for a clearer vision of the most appropriate links between the two forums. One possible option is to view at least some aspects of the GMS initiative as a subset of ASEAN initiatives (e.g., some transport links are a subset of more ambitious ASEAN proposals). Another is to broaden the scope of GMS activities to include ADB support to GMS economies plus the remaining ASEAN countries in subregional transport development. This evaluation study makes no recommendations on the most appropriate alternative, but notes that there are increasing pressures to address this issue. E. What Constitutes a GMS (i.e., Regional) Project?

76. There continues to be some ambiguity about what constitutes a GMS project. The study found little in the Siam Reap Airport development that had a greater subregional dimension than would be found in any international airport development. Similarly, it was difficult to understand why the Champassak Road Improvement project had been included as a GMS subregional project. There would probably have been much greater justification for including ADB-financed Road Network Improvement Project in Cambodia as a GMS project because some of its funds will be used to upgrade segments of priority GMS routes, as well as feeder roads to this project. It is possible that during the early stages of GMS implementation, there was a perceived need to report success in securing funding for GMS projects. 77. The issue of definition goes beyond semantics. There can be quite high management and coordination cost implications for unnecessarily including projects as GMS projects. The GMS Program is already complex and difficult to coordinate because of the large number of interrelated activities. The issue of definition for GMS projects needs to be resolved through
22 23

The first ASEAN Environment Forum was held in Hanoi on 20-24 September 1999. GMS. 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 the basis of a framework for ADB involvement in GMS projects and activities, and in regional projects in general. 78. Recognizing that it is not always desirable to be too rigid with definitions, possible guiding principles could be to define a project as a GMS project (i.e., regional) where (i) there is a clear need and benefits from subregional consultations during design and implementation; (ii) there are economies of scale; (iii) transaction costs are reduced; (iv) development is speeded up through sharing of knowledge; and (v) it increases opportunities, particularly those whose partners on their own are not able to capture, such as improved resource mobilization, private sector development, gains from trade. Thus, in the GMS, there may be need for subregional activities to assist in addressing policy constraints to the development of air links and air transport, but there would be no need to include airport developments. Similarly, in the power sector, activities might focus on subregional network development, interlinkages, pricing and purchase agreements, competition, benchmarking, and management but there would be no need to include individual power generation projects. Indeed, as power networks become interlinked and if any power generation project is included, then all new power projects connected to the network might also have to be included as GMS projects. Clearly, the situation would quickly become unwieldy. F. Regional Project Design Issues

79. More detailed assessments of the needs and capacity of each country are needed in planning all GMS activities. More efforts could be made to involve a broader range of stakeholders in identifying priorities, and in project formulation and implementation. When preparing RETAs, ADB needs to ensure that, in each country, adequate resources are allocated for preparing needs assessments. Given the complexity of subregional projects, it is particularly important to identify and use the expertise of institutions and individuals with GMS field experience. 80. Inadequate national ownership of GMS initiatives is a concern for many of the ADBfinanced GMS RETAs in the environment, human resource, and tourism sectors. Inadequate stakeholder participation in project design and identification was identified as a key factor contributing to this lack of ownership. 81. ADB has given inadequate attention to the fact that the costs of needs assessments, stakeholder consultations, implementation, and monitoring can increase rapidly as additional countries are included in project designs. There are both potential benefits and costs in subregional approaches, and there is a need to plan accordingly. The benefits and costs of subregional approaches need to be explicitly assessed and, where decisions are taken to adopt a subregional approach, adequate staff resources for project design and implementation must be allocated. Explicit consideration should always be given to the option of implementing national projects coordinated under GMS umbrella initiatives, rather than focusing solely on implementing GMS identified projects as subregional projects. 82. During GMS implementation few fresh ideas have developed on how to get better value for money in RETAs. ADB correctly emphasizes the importance of taking a holistic view of complex problems, but all too frequently this is taken to imply the need for a holistic approach in all project designs. This inevitably leads to considerable duplication of past and ongoing efforts. Projects designs could often be simplified and improved by recognizing that in most areas

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 subregional projects, where ADB staff responsible for designing projects may have limited experience in the relevant 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 what has 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 to critically review and suggest alternatives to ADB-proposed terms of reference (TORs). The present 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 the private sector, will be critical to realizing the ambitious objectives of the GMS Program. Neither the GMS governments nor ADB is in a position to finance more than a small portion of identified needs. Substantive private sector resources will be needed to finance the bulk of the proposed investments. 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 Road Improvement, and the Lao PDR section of the Kunming to Chiang Rai Road Improvement project. However, the Asian economic crisis has greatly dampened private sector interest in making the long-term investment commitments needed for infrastructure developments, and there are no immediate prospects for finalizing any new private sector investments in GMS projects. 84. In addition to the Asian financial crisis, another major constraint to increased private sector investment is the perceived risk in implementing cross-border and revenue agreements. Successful implementation of cross-border agreements associated with the east-west transport corridor will be critically important in increasing private sector confidence in the GMS initiative. ADB and the governments of Lao PDR, Thailand, and Viet Nam must give the highest possible priority to effective implementation of the east-west corridor project. Successful completion and operation of the Theun Hinboun project may also assist in increasing private sector confidence in investing in power projects. 85. Provided that ongoing projects are completed and implemented successfully, and recent improvements in Asian economic performance are sustained, private sector interest in GMS investment opportunities should increase. However, a more focused approach to information dissemination and marketing of potential investment opportunities will be required to maximize this potential. ADB should actively use its leverage in the subregion to improve the economic environment for private sector investment. 86. ADB has had some success in attracting cofinancing from official multilateral and bilateral agencies, but additional cofinancing resources will be required in the future. Strategic programming of RETA resources for GMS activities could greatly assist in mobilizing increased TA resources. A more focused approach to aid agency consultations and distributing information about the GMS Program could also assist in mobilizing increased external financing of GMS initiatives.

8 H. Distributional Issues

87. Project costs and benefits are not equally distributed among member countries. ADB has played a role in negotiating arrangements for implementing GMS initiatives that benefit all GMS members. A positive example of ADBs success in developing innovative financing arrangements 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. A pronounced example is the Kunming to Chiang Rai road improvements where most of the benefits are expected to accrue to Yunnan Province and Thailand, but major investments will be required in environmentally and socially sensitive areas of the Lao PDR. Careful financial planning (e.g., reasonable user charges, private cofinancing, cost sharing, and/or efforts to mobilize grant financing of the Lao PDR sections of this road) will be required to ensure a more equitable distribution of the costs and risks associated with this development. Initial hopes of attracting 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 are made 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 about subregional initiatives. The current national policies in Lao PDR, Thailand, and Viet Nam have a strong bias against agricultural trade and investment. These policies will result in suboptimal levels of returns from investments in transport infrastructure, will exacerbate distributional concerns, and can be expected to have a particularly adverse impact on the Lao PDR, which has a strong comparative advantage in agriculture production but very limited opportunities for export of manufactured goods. More generally, potential benefits to the poor in the rural communities will remain substantially underrealized if there is no progress in liberalizing agricultural 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. The potential from investments in proposed infrastructure developments will not be fully realized without further reforms of trade and investment policies. Studies on the major trade and investment policy and institutional constraints on returns to subregional infrastructure projects would 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 and programs for GMS member countries. 90. To ensure equitable distribution of costs and benefits, ADB and its staff need to be innovative in considering financing options for subregional projects (including the use of user charges), 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 infrastructure development activities could increase returns on GMS investments.24 For example, RETAs
24

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

9 could be designed to promote better water use planning, watershed management, and forest protection in tandem with efforts to increase economic opportunities from infrastructure development 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 police officials. Specific skills and capacity need to be developed to enforce environmental, drug control, and quarantine regulations under the new border arrangements. 93. There will also be opportunities for longer term development of the supporting institutions needed to encourage private sector investment including improved schooling, skills training, 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 a range of sectors. Thus, monitoring and evaluation of this initiative to learn from such experience will be particularly valuable. ADB should be in a position to seize opportunities arising from this initiative 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 on key issues and promote consultations with key stakeholders, including community groups and the private sector in affected areas. 96. Private sector discussants complained about the lack of information on specific investment 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 with no 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, study findings 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 was launched including a very recent history of political tensions between a number of GMS members progress toward collaborative approaches to subregional development has been impressive. There has been tangible progress in promoting substantive dialogue on practical barriers to increased economic cooperation, and in reaching agreement on measures to reduce these barriers. Progress has been made in agreeing on priority projects and details on their preparation, and in securing financing for a number of major projects. However, progress in implementing investment projects has been more limited. The GMS initiative is the first major ADB-supported subregional initiative that has been sustained across a range of sectors. Questions arise, however, as to whether ADBs organizational structure and current funding arrangements for loans and TAs are appropriate for supporting regional initiatives and programs. 99. Officials from GMS member countries noted that a major positive feature of the GMS was that it has provided an opportunity for GMS countries together to develop a shared vision about the future development of the GMS region. They argued that this was important in securing ownership of efforts to improve economic cooperation, and in ensuring that interests from outside the GMS region do not drive efforts at regional cooperation. In contrast, a number of external commentators, from the business and financing communities, see the GMS as an ADB-driven initiative. While ADB has played an active role in initiating dialogue, the sustained high 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 current range of sectors without the continuing involvement of ADB. 100. There are concerns within segments of the business community and within local communities that the GMS has been slow in generating tangible socioeconomic development impact and increased investment opportunities. This contrasts with the assessment of most central agencies that progress has been satisfactory, given the need for widespread consultations in reaching agreements and securing political approval from multiple governments for all GMS activities. Regardless of these perceptions, it is widely recognized that unrealistic expectations were raised initially and that the perceived delays in delivering tangible results have generated disappointment among some stakeholders. Improved information flows and more systematic consultations with non-State interests could have done much to reduce the differences in perception. 101. The GMS has been most effective (or at least provided the most value added) when it focused on activity-based initiatives to secure reforms and agreement. This activity-based approach of the GMS contrasts with the rules-based approach of many regional institutions (e.g., ASEAN Free Trade Area [AFTA] and World Tourism Organization [WTO]) and is a major distinguishing and most widely appreciated feature of the GMS approach.

2 102. The GMS members consistently praised the commitment and perseverance of ADB staff during the initial difficult years and cited those efforts as an important factor contributing to increased economic cooperation between GMS members. However, as discussed in paras. 6070, there have been major organizational and resource constraints to implementing the program, and they raise doubts about the real commitment and ability of ADB to support regional initiatives. B. Lessons Learned

103. The GMS subregional program has accelerated economic cooperation between GMS member countries. By focusing on practical changes needed to successfully implement specific projects, it has helped break down administrative and institutional barriers to developing subregional infrastructure and trade and tourism. The GMS has shown that subregional approaches to development cooperation and planning can work and generate benefits that otherwise would not have been achievable. 104. This supports ADBs charter rationale for supporting regional cooperation, for such cooperation generates economic growth in the region and enhances peace and stability. It is further supported by ADBs experience over 30 years that has demonstrated the economic gains from regional cooperation. Regional cooperation can generate benefits from economies of scale, reduce transaction costs, and improve resource mobilization and opportunities for investment. In the GMS in particular, regional cooperation has also enhanced peace and stability. 105. The key to effective implementation of subregional initiatives is sustained commitment and leadership from within the subregion and ADB. The process of reaching agreements and commitment 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 and there is a real sense of ownership of the initiative. 106. Ministerial meetings and sector forums have been important in gaining support for key reforms, for reaching consensus on priorities, and for sustaining momentum. The commitment of all members to the GMS process is reflected in the unprecedented and sustained level of ministerial participation in key meetings. 107. Evidence of ADB commitment to the GMS process has been more mixed. On the one hand, feedback from the GMS national coordinators was unanimous on the critically important role played by ADB staff in reaching difficult agreements. On the other hand, ADB provided very limited additional staff resources and has not made institutional changes to reflect the different needs and issues that arise with subregional initiatives. Failure to develop mechanisms for the strategic 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 most projects departments. There is little evidence of systematic efforts to link subregional activities and national programs and lending activities. No formal networks or areas of joint responsibility between 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 major comparative 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 is voluntary. There is no requirement that all countries agree with and/or participate in each initiative. 110. An important role for ADB in subregional cooperation is to act as facilitator in providing neutral technical and economic advice and secretariat support. The commitment of individual ADB staff to increasing economic cooperation has been seen as an important factor in bringing member countries together and in building trust. Continuity in committed national officials and ADB staff has also assisted in building trust and confidence that has facilitated decision making and implementation. 111. An important area of comparative advantage for ADB is its capacity to provide a comprehensive package of support including assistance to reach agreement on priorities; in project preparation; to resolve software issues (e.g., cross-border agreements); and in securing financing for projects. 112. ADB involvement in subregional initiatives can be useful in ensuring more equitable negotiating positions for the smaller, less developed countries. This has been important in accelerating agreements on key infrastructure projects. 113. Reaching agreement on policy, institutional, and administrative change can be expected to be a time-consuming process, requiring major commitments of staff and/or consultant resources. Planning for subregional projects needs to recognize this reality, with resources allocated accordingly. 114. Effective subregional cooperation requires attitudinal changes at all levels. The GMS focused primarily on changing the attitudes of central officials, and not enough on building community awareness and in addressing the concerns of other stakeholders, including those with a vested interest in the status quo. 115. Subregional initiatives generate widespread interest, and there are real dangers that the lack of systematic approaches to information dissemination can result in a considerable degree of misinformation. Strategies for the regular dissemination of information should be included in subregional 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 institutional strengthening projects. The cost of undertaking the consultation needed to build ownership greatly increases the broader the focus and the greater the number of countries involved. In the longer term, however, ADB should focus more on helping develop partnerships rather than being the promoter of initiatives and ownership. 117. There are sometimes major differences in the distribution of the costs and benefits of subregional infrastructure developments. There is need for considerable innovation in the financing of subregional projects to ensure more equitable distribution of costs and benefits. 118. Subregional initiatives can provide economically viable opportunities to develop some of the 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 the east-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 such cooperation, provides economies of scale, reduces transaction costs, speeds up development through improved sharing of knowledge, and increases opportunities, particularly those which partners on their own are not able to captureimproved resource mobilization, private sector development, and gains from trade. ADBs role and vision should be one of assisting in developing 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 the same lines as its country operational strategies. Given the major changes in economic conditions since the original round of priority setting, ADB should also actively encourage the finalization of a prioritized medium-term GMS development strategy endorsed by a GMS ministerial meeting. 121. In formulating such a strategy, an important consideration is the need to achieve a more focused and integrated approach to ADB support to the GMS. This implies better integrated national and subregional initiatives. 3. Improved Links Between GMS and Country Programming

122. The most immediate recommendation for consideration and action is to review options for a more strategic approach to programming ADB support to GMS to replace the current ad hoc arrangements. There is a need to more effectively include priority GMS elements, including key GMS-related policy and institutional reforms, in the country operational strategy and annual programming exercises. Country strategies and country programs should include both the national program and their respective regional components, perhaps as two separate but linked parts (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 of resource constraints, assess opportunities to reduce dependence on its support. This is already happening in tourism, with increasing responsibility and leadership in key areas being transferred to the private sector. Steps have also been taken for direct consultations with ASEAN in the trade and investment working groups, and there may be scope for greater ASEAN involvement in these groups in the future. One possible strategic scenario is for ADB to focus 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 the investments. 5. Resources/Instruments for GMS Program

124. At present, staff resources, incentives, and organizational structure, and loan and TA funding resources are not aligned with supporting regional cooperation programs. This is perhaps a key strategic issue that ADB must face. It is wider than the GMS, and involves ADBs commitment and support as a whole to regional cooperation and regional initiatives, and its comparative advantage, if any, in promoting regional cooperation. Changes can readily be made in the process of allocating RETA resources in the medium term. Improvements can be made in programming loan proposals, but reconsideration may need to be given to establishing a regional cooperation facility (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 toward improving coordination, but there needs to be a better interface between projects and programs on GMS activities, with network arrangements, joint responsibilities, and staff resources aligned accordingly. Sector-level assistance should be better integrated to maximize returns from ADB investments in GMS activities. An immediate priority is to give greater emphasis to linking ADB support in the environment and social sectors with high-priority infrastructure developments. Recent proposals for the east-west economic corridor development are steps in the right direction.

7.

Improved Design of GMS RETA and Infrastructure Projects

126. ADB should give more rigorous attention to the additional complexity of subregional projects and plan resources accordingly. Attention needs to be given to (i) differences in institutional capacity and needs within the GMS; (ii) preparing and incorporating rigorous needs assessments in project designs; (iii) explicitly weighing the costs of subregional approaches against potential benefits; and (iv) explicitly weighing the potential benefits of broader consultative mechanisms against the potential costs resulting from greater complexity in implementation. 8. Improved Monitoring and Information Sharing

127. The GMS should make more effective use of modern information technology, including the internet, to assist in GMS coordination and in sharing project information, study findings and training and other material developed under GMS projects. Institutional mechanisms for effective monitoring, coordination, and information sharing need to be established for subregional infrastructure initiatives. The need for effective program monitoring and information systems is especially important for subregional transport (and/or economic) corridor developments, because: success depends as much on the timely implementation of policy, regulatory, and other institutional 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 west transport and related corridor developments. This implies a strong demand for reliable information 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 the east-west corridor development should be an immediate priority. Apart from the factors noted above, it is a priority because of the high public visibility of the project, the substantive progress already 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 GMS Investments 129. This requires both careful financial planning (including the use of appropriate user charges) 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 institutional constraints to efficient subregional investments and more equitable distribution of returns on

7 subregional investments. As construction of transport infrastructure is commencing, an immediate issue is the impact that national agriculture trade policies in Thailand and Viet Nam will have on the level and distribution of returns on investment in the east-west corridor development (especially on investments in the transport corridor). A better understanding of the impact of national trade and investment policies on returns to subregional investments would appear to be a priority issue for the trade and investment working groups. Enforcement of cross-border agreements is also an immediate priority. 10. Marketing GMS Opportunities

130. There is a need for better marketing of information about opportunities. These efforts need to recognize that one of the key concerns for investors is the extent to which cross-border agreements will be enforced and the potential for policy and administrative change that will affect the viability of investments. The development of effective monitoring and information and dissemination systems is an important first step in better marketing GMS opportunities. ADB should also review the need to recruit specialist expertise to assess the effectiveness of past approaches 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 and ASEAN; one possible option is to view at least some aspects of the GMS initiative as a subset of ASEAN initiatives (e.g., some transport links are a subset of more ambitious ASEAN proposals). Coordination mechanisms and the overlap between the GMS and the Mekong River Commission need reviewing; this is particularly important, given the recent and significant World Bank support to the Commission. Cooperation and work sharing arrangements with ESCAP also 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 one country has only recently started. In another three to five years, greater experience will have been gained in implementing subregional projects, and valuable lessons could be gained from undertaking a follow-up impact evaluation.

APPENDIXES

Number

Title

Page

Cited on (page, para.)

Chronology of Major Steps in the Greater Mekong Subregion Process Review of Individual GMS Projects/Initiatives Summary Sector Assessments Transport, Telecommunications, and Energy Environment Tourism Human Resource Development Trade and Investment

32 37 54 61 77 82 90 96

5, 14 13, 45 14, 45 14, 15 14, 45 14, 45 14, 45 14, 45

2 3 4 5 6 7 8

Appendix 1, page 1 CHRONOLOGY OF MAJOR STEPS IN THE GREATER MEKONG SUBREGION PROCESS

1991 Initial informal discussions between GMS countries about the possibility and options for Asian Development Bank (ADB) support to the Greater Mekong Subregion (GMS). 1992 March: First GMS RETA (5487) approved. Studies in Subregional Cooperation Initial Possibilities for Cambodia, the Peoples 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 among Cambodia, the Peoples 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. ADB financing of $150 million provided for the Yunnan Expressway Development. November: Approval of second ADB loan (Loan 1329, 8 November 1994) for GMS Project. ADB financing 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 in Kunming 13-17 December 1994.

Appendix 1, page 2 1995 February: Conference on GMS Investment Opportunities Through Economic Cooperation held in 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 Power Forum, held in Yangon 24-25 April 1995. General agreement was reached on workinglevel institutional arrangements for sector-level activities. August: Second meeting of the Subregional Transport Forum, held in Phnom Penh 9-10 August 1995. August: ADB financing of Champassak Road Improvement (Lao PDR), for $48 million, approved on 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, Telecommunications officials. approved 2 October 1995 for Meeting of

October: Inception Meeting for the Subregional Working Group on the Environment held in Manila on 4 October 1995. November: First Meeting on Subregional Telecommunications Forum held in Manila on 6-7 November 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 City Road Improvement Project, for $3,100,000, approved on 9 November 1995. December: Second meeting of the Subregional Electric Power Forum was held in Vientiane on 12-13 December 1995. December: Inception Meeting of the Subregional Investment Working Group held in Bangkok on 18-19 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 in Seoul on 14 March 1996. April: Third Meeting of the Subregional Working Group on Tourism held in Pattaya 15-16 April 1996, 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 Nonphysical Barriers to Cross-Border Movement of Goods and People, for $232,000, approved on 29 May 1996. This was later supplemented with RETA 5749, Facilitating Cross-border Movement 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 the GMS (Phase II), for $990,000, approved on 26 July 1999. May: Conference on GMS Investment Opportunities Through Economic Cooperation held in Frankfurt on 31 May 1996. June: Conference on GMS Investment Opportunities Through Economic Cooperation held in Brussels on 4 June 1996. July: Second Meeting of the Subregional Telecommunications Forum held in Phnom Penh on 4 July 1996. July: Third Core GMS RETA (5693) Promoting Subregional Cooperation among Cambodia, the Peoples 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 Bangkok on 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 in Manila on 5-6 December 1996. December: Third meeting of the Subregional Transport Forum held in Kunming on 12-13 December 1996. December: Third meeting of the Subregional Electric Power Forum held in Kunming on 12-13 December 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 Siam Reap 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 29-30 May 1997. June: RETA 5741 for Subregional Telecommunications Forum, for $50,000, approved on 18 June 1997. July: Third Meeting of the Subregional Telecommunications Forum held in Pattaya on 2-4 July 1997. 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 30 October 1997. October: Fourth Meeting of the Subregional Electric Power Forum held in Hanoi on 29-31 October 1997. October: Sixth Meeting of the Subregional Working Group on Tourism in Ho Chi Minh City on 30-31 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 on 5-6 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 6-7 April 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 in Nakorn 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 economic corridor approach and asked that the concept be further developed and applied on a pilot basis. November: Third Mekong Tourism Forum held in Kunming 25-26 November 1998, followed by Eighth 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 in Bangkok, Thailand on 9-10 December 1998. December: Fifth Meeting of the Subregional Electric Power Forum held in Bangkok on 11-12 December 1998. December: ADB financing for the Phnom Penh to Ho Chi Minh City segment of the Bangkok to Vung Tau Road Improvement Project the first ADB-financed GMS transport project involving coordinated financing to two governments (Loans 1659 and 1660), for $ 40 million and $100 million, approved on 15 December 1998. 1999 March: Preparatory Workshop for the Inception Meeting of the Trade Facilitation Working Group held in Manila on 17-18 March 1999. March: Preparatory Workshop for the Second Meeting of the Subregional Investment Working Group held in Manila on 18-19 March 1999. May: Ninth Meeting of the Subregional Working Group on Tourism held in Yangon on 4-5 May 1999. May: Fifth Meeting for the Subregional Working Group on the Environment held in Kunming on 11-12 May 1998. May: International Meeting to Discuss the East-West Corridor Development held in Mukdahan and Savannakhet on 27-28 May 1999. June: Second Meeting of the Working Group on Human Resource Development in Phnom Penh on 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 on 23-24 September 1999. December: Ninth GMS Ministerial Meeting, scheduled to be held in Manila in early December 1999.

REVIEW OF INDIVIDUAL GREATER MEKONG SUBREGION PROJECTS/INITIATIVES

Project Objectives/Outcomes RETA Process Status Assessment

Umbrella Regional Technical Assistance (RETA) TA 5487-REG: Studies on Subregional Cooperation Among the Countries in Indochina, Myanmar, the Peoples Republic of China, and ThailandPhase I, for $270,000, approved on 9 March 1992. (including two subsequent budget revisions). TA 5535-REG: Promoting Subregional Cooperation Among Cambodia, Peoples Republic of China, Lao PDR, Myanmar, Thailand, and Viet NamPhase II (supplementary) , for $4 million, approved on 10 June 1993. Subsequently increased to $5.26 million (Board Paper R160-94, 9 September 1994) with cofinancing from the Swedish International Development Agency. Formulate detailed terms of reference (TORs) for Phase II of the RETA, including TORs for country and subregional studies. Facilitate consultations and agreements on TORs, work program and Phase II implementation arrangements. Initial emphasis was to be given to (i) trade and investment, (ii) transport, (iii) energy, and (iv) environment. Completed. Phase II project and TORs prepared. Draft report on future directions and assessment of priority sectors discussed at a ministerial meeting (20-21 October 1992). Consensus reached on priorities and 1 approaches for Phase II. Program preparation objectives achieved. Inadequate resources initially allocated for consultations involving six countries. The high cost of consultations among six countries was not adequately recognized in a number of subsequent GMS RETAs.

Undertake substantive research and consultations at subregional and country levels to identify scope, opportunities, benefits, costs and mechanisms for enhancing economic cooperation among GMS countries. Stimulate international aid agency and foreign investor interest in supporting priority subregional projects.

External consultants in collaboration with relevant central agencies undertook initial studies. Various stakeholders were consulted during preparation of studies, but there was limited use of formal arrangements for involving nongovernment stakeholders in the priority setting process. Study findings shared with major aid agencies. Attempts made to raise private sector Awareness through private sector forums held in East Asia and Europe.

Completed. Sector studies completed for transport, energy, telecommunications, environment, human resource development, trade and investment, and tourism. Agreements reached on GMS operating principles and arrangements, strategies for project selection and design were adopted, sector-level planning and coordination mechanisms were established. Agreement reached on 95 projects, and a smaller set 2 of priority projects. Substantial cofinancing was obtained for a number of projects.

Immediate objectives were substantially achieved. Research completed and collaborative mechanisms established. Studies emphasized need for links between sector initiatives. Little evidence of substantive analysis or discussion (e.g., at the ministerial meetings) on the costs and benefits of alternative approaches, including greater use of established subregional cooperation arrangements. The main report includes assessment of broader GMS objectives, including resource mobilization.

1
2

Findings published by ADB: Subregional Cooperation Initial Possibilities for Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, and Yunnan Province of the Peoples Republic of China. The meeting made it clear that the GMS had no ambitions to establish a formal economic grouping or trade bloc. TA Completion Report on TA5535-REG: Promoting Subregional Cooperation Among Cambodia, Peoples Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam, circulated to the Board on 18 February 1998 (IN.41-98).

Project TA 5693-REG: Promoting Subregional Cooperation Among Cambodia, Peoples Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam (Phase III), for $3 million, approved on 23 July 1996. A further $1.5 million of cofinancing was envisaged in the RETA paper mostly for human resource development activities but only $250,000 was mobilized.

Objectives/Outcomes (i) Prepare and coordinate implementation of priority subregional projects. (ii) Build necessary subregional institutional capacity for effective project implementation and to sustain long-term subregional cooperation. (iii) Mobilize external resources for GMS development, including the structuring of GMS projects to facilitate public-private partnerships. (iv) Build intersector linkages among initiatives to help address broader development concerns. (v) Develop effective linkages between subregional cooperation and domestic policies and programs.

RETA Process The intention was to extend the process initiated under Phase I, into a stage of more detailed design and implementation of GMS projects. The ministerial meetings have continued on an annual basis (two such meetings were held in 1994) and they have been important in sustaining dialogue and the momentum for action. This process, and informal nature of institutional arrangements for coordinating GMS activities, have been important factors in explaining GMS success in delivering tangible results that have eluded other subregional initiatives.

Status Detailed assessment of progress included in relevant sections of this report. Project resources have been largely expended, and the Project is expected to be closed in 2000 without fully realizing the stated objectives. RETA resources have been used mainly to sustain the consultative process started under Phase II, with only limited progress in developing or extending these processes to ensure sustainability. Attempts to develop a vision for GMS development to the year 2020 had limited impact because of limited country commitment and Asian Development Bank (ADB) financial support. Formal mechanisms for overall GMS monitoring, co-ordination, and information dissemination remain weak. A follow-up project is under preparation.

Assessment Process started under the phase project has been sustained. Progress made in implementing a number of project design studies and investment projects. However, more specific (and ambitious) objectives have not been fully realized. Capacity to implement subregional initiatives has been strengthened, but varies greatly between sectors and could not be sustained without continued ADB support. Attempts to develop a strategic vision for the GMS has suffered from limited country commitment and ADB financial support. Substantial external resources have been mobilized, but only the Theun Himboun project has attracted substantial private sector financing. Intersector links between GMS initiatives remain weak, as do links between subregional cooperation and the ADB's country-level operations.

Transport TA 5649-REG: BangkokPhnom Penh-Ho Chi Minh City (HCMC)-Vung Tau Road Improvement Project, for $3.1 million, approved on 9 November 1995. The Project is eventually intended to improve the international road connection linking Bangkok, Phnom Penh, HCMC, and Vung Tau. Proposed improvement options for various segments of the road range from a simple overlay, to widening and reconstruction, to the construction of new segments. Stated Project objectives of the Phnom Penh to HCMC segment are (i) increased Project was already identified as priority by respective governments. ADB supported design studies and initial work on reaching cross-border agreements. External consultants working with local government agencies implemented studies. Social and environmental impact assessments were implemented to meet ADB guidelines. Complementary GMS assistance was not provided to build on these infrastructure investments. ADB loan financing approved December 1998. Loan signed in March 1999. Deadline for loan effectiveness extended by three months to 17 September because of delays in completing the Compensation and Resettlement Action Plan for the Cambodia section. Loan to Viet Nam can only become effective when the loan to Cambodia is declared effective. Cambodian and Vietnamese governments have initialed agreements to facilitate movement of goods and people across the border. Specific protocols and Road development a high priority for both Viet Nam and Cambodia for both national and subregional objectives. Cross-border agreements were not finalized prior to loan approval. Two small scale TAs projects were approved for Cambodia and Viet Nam under country programs in January 1999 to help draft subsidiary agreements and protocols. Delays in reaching cross-border agreements arose because of political difficulties during project preparation and because this was the first GMS transport project where such agreements were needed. Efforts should be made to ensure that agreements are in place prior to loan approval of future subregional projects.

Loan 1659-CAM: Phnom Penh to Ho Chi Mimh City Highway, for $40 million, approved on 15 December 1998.

Project Loan 1660-VIE: Phnom Penh to Ho Chi Minh City Highway, for $100 million, approved on 5 December 1998.

Objectives/Outcomes economic integration; (ii) increased movement of goods and people across the Cambodia-Viet Nam land border; and (iii) reductions in time and cost of such movements.

RETA Process

Status subsidiary agreements needed to implement this agreement should be finalized within three years. The road from Bangkok to the Cambodian border is in good condition. The road from the Thai border to Sisophon is expected to be upgraded with bilateral external assistance, and the Sisophon to Phnom Penh segment will be partly improved under a Road Network Improvement Project financed by the ADB under its country program.

Assessment subregional projects. Other GMS resources could have been more effectively linked to maximize value added from this infrastructure development. Proposed private sector financing for the Vung Tau to HCMC segment of this development did not materialize, partly because of the impact of the Asian financial crisis on the capacity of the potential investor to mobilize Project financing. Consequently, the Vietnamese Government has committed to financing immediate priority sections of this route. Study could have included more systematic examination of costs and benefits of alternative strategies and phasing of developments. Central and local officials concurred with study findings, but local officials complained that they were not regularly updated on developments. The private sector complained about slow progress, and foresaw problems in implementing cross-border agreements. Close follow-up needed to (i) implement agreements, (ii) monitor implementation and effectiveness of arrangements, and (iii) make any changes that may be required to maximize benefits from investments. Mechanisms needed to coordinate corridor activities and to identify and address emerging issues. This implies a need to regularly consult with, learn from, and share information with all stakeholders. Studies on trade and investment policy impacts on level and distribution of returns should be a high priority. Key trade policy issues should be addressed in ADB country strategies and programs.

TA 5586-REG: Study of Lao-Thailand-Viet Nam East-West Transport Corridor, for $ 1 million, approved on 18 July 1994; and TA 5710-REG: Greater Mekong SubregionEast-West Transport Corridor, for $3.1 million, approved on 11 Dec 1996.

Project objectives are broad ranging: (i) facilitate economic cooperation and development between Lao PDR, Thailand, and Viet Nam; (ii) reduce transport costs and improve the efficiency of movement of goods and passengers; (iii) support rural development; (iv) increase employment opportunities and reduce poverty; (v) promote tourism; and (vi) promote "environmental and social governance."

Regular consultations between governments and aid agencies have resulted in coordinated financing of related projects. These include (i) bridge crossing the Mekong River at Mukdahan and Savannakhet (loan financing pledged by Overseas Economic Cooperation Fund (OECF) in December 1998 and loan signing scheduled for August 1999) to be followed by detailed design; (ii) Da Nang Port with loan agreements signed on 30 March 1999; (iii) new bridges for 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 segments of Highway I in Viet Nam (World Bank

Technical assistance (TA) for Project design completed and financing secured for priority infrastructure developments. ADB fact-finding and appraisal completed for infrastructure to be ADB financed. Loan negotiations are scheduled for first week October 1999. Agreement for Facilitation of Goods and People may be required as a condition for loan negotiations. A pre-investment RETA, under preparation, is intended to develop the concept and identification of potential economic corridors in the GMS. The Workshop on the Development of the Greater Mekong Area held in Tokyo in November 1998 agreed on the need to establish an international working group on the East-West Corridor. The first meeting of the Working Group on the East-West Corridor was held in Mukdahan in late May 1999.

Project

Objectives/Outcomes

RETA Process financing); and (vi) proposed Chan May and Dung Quat ports development (proposed private sector financing). Decision has been taken to create an international Working Group on the EastWest Corridor.

Status Resources mobilized indicates strong national commitment and aid agency interest. No private sector financing has been finalized for any subprojects.

Assessment Investments in human development and the environment could be better linked to such projects to address concerns and opportunities arising from subregional infrastructure initiatives.

Cross-Border Agreements a. TA5686-REG: Mitigation of Nonphysical Barriers to Cross-Border Movement of Goods and People, for $232,000, approved on 29 May 1996.

Address cross-border issues, including gaps in existing conventions, and propose policy, regulatory, and institutional reforms aimed at facilitating crossborder movement of goods and people. Most recent RETA aims to (i) assist Cambodia and Viet Nam prepare annexes and protocols for bilateral agreement for the PhnomPenh to HCMC Road; (ii) assist the PRC, Lao PDR, Myanmar, and Thailand prepare a quadrilateral agreement for the Chiang Rai-Kunming Transport Corridor; (iii) assist PRC, Lao PDR, Myanmar, and Thailand finalize annexes and protocols to quadrilateral agreements; (iv) assist Lao PDR, Thailand, and Viet Nam finalize annexes and protocols to trilateral agreement; and (v) prepare annexes to cover all GMS countries .

Consultations were held with public and private transport agencies. Presentation of findings/recommendations to subregional transport forum (STF) for high-level policy review. Substantial coordination with Economic and Social Commission for Asia and the Pacific as collaborating agency.

First Tripartite Meeting on the Draft Model Agreement held on 21-23 December 1998; and agreement reached on 40 out of 44 articles in May 1999. Viet Nam's concerns on remaining articles are expected to be resolved soon. Agreement is expected to be signed during the Ninth Ministerial Conference on 79 December 1999. No assistance has been provided, or is planned, to monitor and address concerns arising during implementation.

Ideally, the RETA on cross-border issues should have started earlier so that major agreements could have been reached before loan financing was approved. Approach has been low cost and pragmatic, focussing on practical issues needed to maximize returns from investments in the transport corridor. Agreements have implications that go well beyond the eastwest corridor and will provide models for other cooperative transport developments within the GMS and elsewhere in the region. The ADB's role in facilitating the consultative approach to reaching agreements, including consultations with private sector stakeholders, has been innovative. The attention given to analyzing and resolving institutional and administrative constraints to trade and tourism development provide lessons for many other ADB initiatives. The latest RETA will also help the GMS countries reach agreement on an official GMS framework agreement.

b. TA5749-REG: Facilitating Cross-Border Movement of Goods and People in the GMS, for $730,000, approved on 26 August 1997.

c. TA5850-REG: Facilitating the CrossBorder Movement of Goods and People in the GMS (Phase II), for $990,000, approved on 26 July 1999.

Project Loan 1691-PRC: Chiang Rai-Kunming Road Project, for $250 million, approved on 24 June 1999.

Objectives/Outcomes Improve the international north-south road links between Yunnan Province, Myanmar, Lao PDR, and Thailand. Project components include (i) in Yunnan, reconstruct and upgrade unimproved sections of the highway between Kunming and the borders of the Lao PDR and Myanmar; (ii) in Myanmar, widen and reconstruct the route from Maila/Daluo on the Yunnan border to Tachilek/Mae Sai at the Thai border; (iii) in the Lao PDR, improve the road from Boten on the Yunnan border, through Luang Namtha to Houei Sai, and; (iv) in Thailand, upgrade road links from Chiang Khong to Chiang Rai.

RETA Process ADB has used the GMS Program to facilitate negotiations between the four governments. ADB provided technical assistance of $625,000 to update a feasibility study for upgrading the Yuanjiang to Mohei section in preparation for ADB loan financing for the Southern Yunnan Road Development Project under the country program for China. ADB provided advisory support in reviewing the concession agreement, and has been active in analyzing and commenting on social, environmental, and equity issues related to project development.

Status Yunnan expects upgrading of Kunming to Yuanjiang (200 km) to expressway standards to be completed by end-1999, while Xiaomengyang to Jinghon (24 km) will have been upgraded to a Class II highway. Upgrading of the section from Mohei to Simao (71 km) was completed in 1996. An ADB loan for theYuangiang to Mohei segment was approved in 1999. The Thai Government completed upgrading of Chiang Rai to Mae Sai highway in early 1998. Rehabilitation of Chiang Rai to Chiang Kong scheduled for completion by 2001. Two potential sites have been identified for a Mekong crossing near Houei Sai/Chiang Kong. The Lao Government signed a private concession agreement to develop a toll road for the Lao PDR segment, but the concessionaire has not yet undertaken any substantial work. Possible changes to agreement, including public financing of road construction, are being considered. In Myanmar, the Government has financed upgrading of the road from Tachileik (Thai border) to Kengtung. Proposal that this Project be the next priority for implementation was endorsed by the Fourth Meeting of the STF, and it has been included in the GMS Work Program for 1998-2000.

Assessment Evaluation Mission (EM) found little evidence of general public or business community awareness of this Project, or of a strategic vision as to the economic opportunities that might arise from the development. Most development along this route has been locally funded, with supplementary ADB financing for segments in Yunnan Province. Implementation of the Lao segment continues to be delayed. Key issues related to the private concessionaire still need to be resolved. Doubts remain about whether private sector financing can be raised in the current economic environment. ADB needs to give particular attention to the distribution of costs and benefits to ensure that any public investment by the Lao Government is in the national interest. This is particularly important given the limited availability of concessional financing for infrastructure in the Lao PDR. Compared with the East-West Corridor Project, there has been more limited and less effective coordination between the respective implementing agencies. This may lead to inconsistent standards, including differences in environmental and social safeguards. Given time limitations, the EM could not examine this issue in depth, but lessons should be studied from alternative approaches to formulate future subregional transport projects.

Kunming-HanoiHaiphong Transport Corridor Project

The Project is expected to initially focus on improvements in the Viet Nam portion of the road from Lao Cai/Hekou (Yunnan border) to Hanoi. The Project will include a

Substantial segments have been upgraded outside the GMS process, but the viability of the remaining segments depends on resolving cross-border agreements. The viability of

The EM did not visit project site or consult with the persons involved in implementation. GMS involvement in project planning still at earlier stage. The subregional dimension has assisted in accelerating investment in transport infrastructure in one of the most impoverished areas of Viet Nam.

Project

Objectives/Outcomes new bridge crossing across the Nanxi River at the border. Feasibility studies will include analysis of the Yunnan-Hanoi Rail Project, and the Red River Navigation Improvement Project.

RETA Process the proposed segment from Hanoi to the Yunnan border will be influenced by crossborder transport flows. The subregional dimension increases the viability of investing in transport infrastructure in one of the most impoverished areas of Viet Nam.

Status The project preparatory TA is being prepared for approval in fourth quarter 1999. Road improvement project included in the ADBs lending pipeline for Viet Nam in 2001. The Yunnan segment has been completed and has been operational since 1996. The Hanoi-Hai Phong segment was recently substantially upgraded with bilateral aid agency assistance. ADB financing for the Yunnan Expressway was approved in 1994, before the inception of the GMS STF, and has been completed. A private company has upgraded the road from Muse to Lashio (163 km) as a toll road under a buildtransport-operate scheme. The upgrading estimated to cost $27 million is open to traffic.

Assessment Project preparatory activities should include a detailed analysis of lessons and implications from implementation of the East-West Corridor and other transport developments. Efforts to reach cross-border agreements should be more straightforward, because of existing agreements, past experience, and because only two countries are involved.

Loan 1325-PRC: Kunming-Laisho Road System Improvement Yunnan Expressway, for $461.4 million, approved on September 1994.

The Project aims to improve the historic link from Kunming to Lashio in northern Myanmar, the Burma Road.

Very little of the preparations for this route development could be said to have originated from the GMS process.

The EM did not visit the project site or consult with the persons involved in implementation. A review of documents suggests that little of this development has resulted from GMS processes. This Project appears to have been classified as a GMS project simply because it was along part of a route originally identified as a GMS priority in the original GMS transport sector study. The EM did visit project site or consult with the persons involved in implementation. It is not clear that this project has a subregional dimension beyond that of most national projects. This Project appears to have been classified as a GMS project simply because it was along part of a route originally identified as a GMS priority in the original GMS transport sector study.

Northeast ThailandSouthern Lao PDRNortheast CambodiaCentral Viet Nam Corridor Project Loan 1369-LAO: Champassak Road Improvement, for $60 million, approved on 31 August 1995.

The Project as originally conceived was to provide links with deep sea ports at Quy Nhon and Da Nang. At this stage the only action has been in low-cost improvements to the road from Pakse to the Cambodian border, with eventual links to Sihanoukville.

Project included as a component of a GMS endorsed project, but project activities to date have not had any particular subregional dimension. Project preparatory activities did not originate from GMS processes.

Project design completed for Champassak Road Improvement and for a JICA- funded study of Mekong bridge crossing at Pakse. Lao authorities advised that civil construction of the road improvement should be completed by the turn of the century. (Proceedings of Fourth STF).

Project Loan 1503-CAM: Cambodian Airports Improvement Project Siam Reap Airport, for $17 million, approved on 12 Dec 1996.

Objectives/Outcomes Project is aimed at upgrading and rehabilitating the Siam Reap to facilitate increased tourism and other economic activities.

RETA Process Project included as a component of the Cambodian Airports Improvement Project endorsed as a GMS priority project. ADB preparatory assistance was completed in July 1995, well before the first meeting of the STF. Project included in original GMS transport sector study. Following Cambodian request to the second STF, the fifth ministerial meeting endorsed this as a priority project and ADB approved a small RETA.

Status Project design completed and major contracts awarded. Implementation has commenced.

Assessment The EM did not review this project. It is not clear that this Project has a subregional dimension beyond that of most international airport projects.

TA 5691-REG: ThailandCambodia-Viet Nam Southern Coastal Road Corridor, for $100,000, approved on 18 July 1996.

Proposed development to link Trat Province in Thailand with Ha Tien in southern Viet Nam, via Koh Kong in Kampot, Cambodia.

RETA approved and consultants fielded in 1997. Viet Nam's position on the priority it attaches to this project is yet to be finalized.

The EM did not review this project.

Telecommunications Promotion of Subregional Cooperation in Telecommunications Development TA 5645-REG: Meeting of Telecommunication Officials-GMS (Australia), for $30,000, approved on 2 October 1995. TA 5741-REG: Third Meeting of Subregional Telecommunications Forum, for $50,000, approved on 18 June 1997. Statements about intended outcomes refer to either general comments about a need to improve subregional cooperation, 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 price throughout the subregion would tend towards being essentially uniform." November 1995 senior officials meeting. Sector study recommended activities to (i) improve facilities that connect, or are shared, among GMS economies; (ii) modernize national networks to make Initial telecommunications sector study findings presented to senior officials meeting 6-7 November 1995. The Fifth Ministerial Meeting endorsed a recommendation to establish a subregional telecommunications forum (STCF) to facilitate cooperation. TOR for the STCF require it to (i) provide a vehicle for coordinating subregional project planning, (ii) provide a mechanism for implementing priority subregional projects, (iii) provide a venue for addressing regulatory and policy issues, (iv) promote private and public sector financing of subregional The fifth Ministerial Meeting agreed to establish a STCF to facilitate cooperation. Follow-up meetings held in 1996 and 1997 (first time with private sector participation), with the next meeting scheduled for late 1999. The sixth ministerial meeting (1996) endorsed the East Loop Project as priority, together with studies on training needs and mobile communications. Feasibility study for East Loop Project has been completed, but there are outstanding issues that need to be resolved prior to implementation. There have been little other tangible progress. There was no evidence of clear vision or strategy for future GMS involvement in the sector.

No detailed studies prepared for this sector. The EM did not have the resources to conduct a case study in this sector: the decision to exclude this sector was partly due to an ongoing internal review of ADB support for the telecommunications sector. The EM endorses the need for such a review. GMS objectives for the telecommunications sector are broad. There is no evidence of any substantive outcomes from this study, beyond the production of studies. The EM found little justification for ADB and/or public sector involvement in a sector where technology is changing rapidly and most new infrastructure is privately financed. A conclusion (back-to-office report of Transport and Communications Division, West dated 7 September 1998) that Cambodia, the Lao PDR and Viet Nam lack the policy environment to fully promote commercialization and private sector participation in the sector appears to be

Project

Objectives/Outcomes them more compatible and ensure they grow together in a coordinated fashion; (iii) adjust regulations, policies, and tariffs to accelerate development of telecommunications within the GMS.

RETA Process projects, (v) facilitate training projects and other human resource initiatives, and (vi) provide a vehicle for dissemination and exchange of information

Status

Assessment somewhat at odds with the substantive foreign investment in telecommunications development in Viet Nam. Where there may be justification for public sector involvement setting regional standards and regulatory principles there is also need to ask what advantages a GMS approach would have over an Association of Southeast Asian Nations (or International Telecommunications Union or Asia Pacific Telecommunity) approach to these issues.

TA 5738-REG: East Loop Project, for $820,000, approved on 28 May 1997, for project feasibility study.

The East Loop project would link systems in Cambodia, Lao PDR, Thailand, and Viet Nam, with possible expansion to Myanmar and Yunnan Province to meet projected traffic forecast by 2010.

Feasibility study completed in early 1999 in consultation with telecommunications officials from relevant countries.

Study recommended that project be implemented as part of a complete intraregional network, and proposed a comprehensive approach involving the integrated development of three optic fiber cable loops (North, East, and West), including interconnection measures, institutional strengthening, implementation assistance, and policy development. Next meeting of the STCF (November 1999) will discuss recommendations. Proposed RETA was submitted to the RETA Screening Committee in 1997, but consideration was deferred: the responsible ADB telecommunications specialist was transferred.

EM did not examine this Project. The economic rationale for any substantive public sector financing involvement in investments in international telecommunications needs to be clarified. ADB studies need to explicitly address the question of why public financing is required, and whether the public sector decisionmaking process is likely to arrive at optimal investment decisions, given the rapidly changing technologies in the telecommunications sector.

Institutional Strengthening for Telecommunications

A RETA proposal was developed to assist with (i) a training needs study, (ii) a mobile telecommunications needs study, and (iii) the creation of a working group on tariffs policy.

Participation of STCF and GMS member contributions to studies and proposals. Meeting summaries suggest substantive differences in views about priorities.

The EM did not examine this Project. Need to justify a public sector role in identifying training needs for the telecommunications sector, and in identifying mobile telecommunications needs. Justification should include specific examples of where such public sector involvement has accelerated telecommunications development at a national or subregional level. What is the comparative advantage of the ADB over ITU or ASEAN in addressing these issues?

Project Energy TA 5643-REG: Promotion of Subregional Cooperation in Energy Development, for $78,000, approved on 20 September 1995, for subregional electric power forum.

Objectives/Outcomes

RETA Process

Status

Assessment No detailed studies prepared for this sector.

Rationale for cooperation is potential benefits from an integrated approach, particularly in electric power through grid interconnection and hydropower development, and in gas through crossborder gas trade. Main Energy Power Forum (EPF) objectives 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; (iv) promote financing of priority projects; (v) provide a venue for addressing software issues, such as planning tools and pricing principles; (vi) assemble and provide information to participating institutions, and cooperate with other regional and international agencies involved in the power sector; and (vii) facilitate training and other HRD initiatives.

Experts Group on Power Interconnection and Trade has met twice. The GMS countries have begun updating their generation and transmission plans. The World Bank (WB) is active in this activity following an earlier study on power trade in the GMS. ADB has been assigned to assist in (i) preparing a draft policy statement on GMS power trade, and (ii) a regional indicative master plan. WB has been assigned to assist in (i) formulating a regulatory and institutional framework, and (ii) organizing three regional workshops on aspects of regional power trade.

Inception meeting of EPF was held on 24-25 April 1995. Five EPF meetings have been held, and two expert groups meetings on power interconnection and trade were held in December 1998. ADB is providing staff consultant support to prepare draft policy statement for presentation at the Sixth EPF Meeting in October 1999. A proposal for RETA (estimated cost $0.8 million) to assist in developing a regional indicative master plan is scheduled to be presented to the EPF meeting in 2000. Progress has been made with power generation projects, and there has been an increasing focus on power trade issues. More substantive progress would almost certainly have materialized but for the impact of the Asian crisis.

GMS discussions have proceeded in a practical and pragmatic manner, and have generated some tangible results. There has been substantive collaboration between ADB and WB that has avoided any major duplication of effort. Decision to draw on past experience in implementing GMS activities, to prepare a clear policy statement is timely. The policy review should review what constitutes a GMS energy project. There may be clear benefits in addressing planning, regulatory, technical, and institutional issues (e.g., power purchase agreements), and the integration of national networks and grids at the subregional level. The EM saw less evidence of benefits from developing and monitoring individual power supply projects as GMS projects. Once power networks are integrated, then including any one power generation project linked to the network as a GMS power project implies that all other power generation projects linked to the network should also be 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 senior GMS officials away from priority policy and institutional issues.

Loan 1329-LAO: Theun Hinboun Hydropower, for $60 million, approved on 8 November 1994.

Construction of a 210 MW hydropower plant and related power transmission line to Thailand. Most (95 percent) of the electricity is

Project was identified under the original GMS power project, and GMS meetings were used to facilitate a bilateral power purchase

Power purchase agreement, license agreement, and financial closure completed in June 1996 (just more than one year after the first EPF meeting), and

The EM did not examine this Project. ADB has financed hydropower developments in the Lao PDR to export power to Thailand prior to the GMS initiative. This project differed from earlier projects in terms of the

Project

Objectives/Outcomes intended for sale to Thailand.

RETA Process agreement between Thailand and the Lao PDR. No ADB TA project was provided for feasibility studies.

Status commercial operations started in April 1998. Project monitoring continues to assess socioenvironmental impacts. Project completion report (PCR) is to be prepared by end-1999.

Assessment innovative financing arrangements, but is not clear to the EM that these arrangements can be attributed to the GMS process. External observers have raised concerns about possible adverse social and environmental project impacts. ADB has followed up on these concerns (see BTOR of Energy Division, West , Consultation Mission dated 7 December 1999). The EM did not have the resources or mandate to study this issue, but this issue needs close attention in preparing the PCR and project performance audit report. The EM did not examine this Project. ADB had been involved in financing hydropower developments in the Lao PDR to export power to Thailand prior to the GMS initiative. In this case, only limited surplus power generated will be sold to Thailand. It is not clear to the EM that this project has attributes that differ greatly from a national power supply project. Unnecessary inclusion of project within the umbrella adds to the complexity of monitoring and can use up valuable time of senior officials at GMS meetings.

Loan 1456-LAO: Nam Leuk Hydropower, for $52.0 million, approved on 10 September 1996, for the Nam Leuk Hydropower development.

Construction of Nam Leuk hydropower plant to produce 215 gigawatt-hour, mostly for local consumption. Initial surplus power will be supplied to Thailand.

Project was identified under the original GMS power project. No ADB TA project was provided for feasibility studies.

Physical completion delayed from September 1999 to December 1999. Cost overruns estimated at $18 million-20 million. ADB has proposed that the Government should seek to raise funds from independent power producers. The Lao PDR Government accepted this proposal and eight IPPs have so far responded to calls for expressions of interest. A small-scale TA (TA3225) for $140,000 (from country allocations), was approved on 16 July 1999 to assist Electricite du Lao (EdL) in calling, tendering, and evaluating proposals.

TA 5697-REG: Se KongSe San and Nam Theun River Basins Hydropower Development Study, for $2.5 million, approved on 22 August 1996.

Complete a technical and economic study of the river basins to determine their optimum hydropower development potential and the related transmission interconnections between Cambodia, Lao PDR, Thailand, and Viet Nam.

Project has been formulated and feasibility studies completed with ADB RETA funds, and the process has involved regular consultations under the EPF, and has received support from GMS ministerial meetings.

The RETA has been completed. Six hydropower schemes were selected for more detailed studies under a second phase. The plan is to proceed with the feasibility studies for these candidate hydropower projects so that these could be ready for implementation by the time the power demand situation in the region improves.

The EM did not examine this Project.

Project

Objectives/Outcomes Develop a least- cost master plan for the three subregional river basins, taking into account the total regional power demands and attempting to address regional imbalances between power demand and potential supply.

RETA Process

Status A project preparatory TA, for $998,000 for Se San III Hydropower Project was approved in July 1999. Consultants will be fielded in September 1999. A loan for Se San 3 is included in the pipeline of firm loans for Viet Nam in 2000.

Assessment

Tourism Promotion of Subregional Cooperation in Tourism Development Key objectives are to (i) promote tourism and increased tourism flows with the GMS, (ii) facilitate travel within the GMS, and (iii) undertake a review of institutional issues affecting tourism development. Study on North South Tourism Flows was completed by the Tourism Authority of Thailand (TAT) and presented at the working group on tourism (WGT- 8). The study examined implications of tourism flows on air links and aviation policy. ESCAP is organizing related seminars on expanding GMS tourism through improved air transport. ESCAP is considering undertaking a study on air linkages in the GMS. AMTA is closely monitoring developments on travel facilitation measures in the GMS. It has also initiated the idea of facilitating overland tours on a trial basis for selected routes. Mekong/Lancang River Tourism Planning Study First WGT was held 3-5 Apr 1995. The ninth meeting (WGT-9) was held in May 1999. There has been growing private sector participation in these meetings, and the private sector has organized a series of tourism forums to actively promote the GMS as a tourist destination. Preparations being made for the Fourth Mekong Tourism Forum in Vientiane on 18-20 Nov 1999. At WGT-9, ADB proposed a review of GMS subregional cooperation in tourism. The question of ownership and sustainability would be comprehensively addressed in the review. The review will involve close collaboration with AMTA, and is scheduled to be ready for discussion at WGT-10 in Nov 1999. ADB-funded Phase II project was completed in September 1998. At th the 8 Ministerial Conference in October 1998, ADB was requested to conduct detailed feasibility studies on potential investment sites. Subsequently, a At the Interdepartmental Coordinating Committee Meeting in July 1999, Agriculture Department, West suggested that there is a need to re- examine ADBs strategy for the tourism sector to include income-generating activities that could contribute to poverty reduction.

Project

Objectives/Outcomes

RETA Process

Status PPTA for the Mekong River Tourism Infrastructure Development Project ($660,000) was developed and endorsed by the RSC in December 1998. The investment projects being considered consist of a river/landing wharf, roads and airport upgrading. Fact-finding for the project preparatory TA is scheduled in October 1999; target Board approval in Nov 1999.

Assessment The review of ADB's tourism strategy could be done in conjunction with the review of the GMS subregional cooperation in tourism (see below).

North South Tourism Flows Study Training of Trainers Objective is to train a cadre of tourism professionals to design and deliver tourism and hotel management programs in GMS countries. Training of trainers program designed and delivered by private sector organization in Singapore and Government institute in Thailand. Institutions selected on the basis of proven record and cofinancing. Program design built on previous RETA needs analysis. Fifteen trainers will deliver programs in country on return. The Project was implemented through a small-scale TA for $125,000 financed by ADB and cofinanced by TAT for $10,000. The TA activities have been completed.

The study has implications for air links and aviation policy in the GMS. Comparative low-cost initiatives drawing on regional training capacity rather than international. Previous RETA avoided duplication of training needs assessments. PCR (1996) indicated high level of trainee satisfaction. Long-term impact uncertain and impact monitoring could have been incorporated into TA design.

Tourism Skills Development in the GMS Phase II

The WGT continues to explore funding support for a long-term training program for tourism.

Mekong River Tourism Infrastructure Development

RETA is being formulated.

Project Environment Promotion of Subregional Cooperation in Environment

Objectives/Outcomes

RETA Process

Status

Assessment

The first meeting of the working group on the environment (WGE) was held on 4 October 1995. The fifth, and most recent meeting, was held in Kunming on 11-12 May 1999. Consolidate national systems of environmental monitoring and create a framework for sharing environment-related data within GMS. Another objective is to link national databases on water quality and hydrology and enhance compatibility of databases. Initial needs assessment of key national/regional agencies for capacity building. Building on technical resources of a cofinancing agency, United Nations Environment Program. Development of common standards and metadata standards. Training of selected staff incountry, at a GMS institution (Asian Institute of Technology) and study tours abroad. Multidisciplinary team formulated country studies in conjunction with key national environmental agencies. Developing case studies provided initial capacity building, alongside follow-up training for around 300 environmental planners. Training modules in various areas now available for future training programs. Wide-funding agency ownership forged through Norway/Finland cofinancing. RETA completed in 1997 and evaluated in 1998. Evaluation largely positive. GMS-wide support for a follow-up project to consolidate the work and provide practical guidance on subregional data sharing. Proposals for phase II RETA endorsed by the RETA Screening Committee with ADB allocation of $200,000. But a need for and additional $600,000 has not been mobilized.

Observers from Mekong Commission were invited to attend GMS forums.

TA 5622-REG: Subregional Environmental Monitoring and Information Systems (SEMIS), for $1 million, approved on 9 February 1995.

Strong project rationale built on previous needs assessment. Assessment of technical capacity incomplete. Major differences in the level of technical skills in the GMS diminished the RETAs impact. Technical difficulties in actually sharing environmental data were underestimated. Revisions in the structure of RETA implementation needed, increasing the foreign technical inputs. Wide support for the RETA by all GMS agencies involved.

TA5684-REG: Subregional Environmental Training and Institutional Strengthening in the GMS (SETIS), for $1.665 million, approved in 9 May 1999.

Objectives included assisting GMS environmental policy formulation/legislation, creation of a forum for information sharing on environmental management, and moving forward on environmental standards formulation. Initial capacity building for policy makers and planners.

Project completed and considered a success by all GMS agencies involved.

Case study approach built effectively on previous country work. Cost-effective approach to information exchange and training through regional/country workshops. Structure of training workshop adequately accounted for differences in the degree of individual countries technical preparedness. Impact on influencing environmental policy reform remains uncertain.

Project TA5771-REG: Poverty Reduction and Environmental Management in Remote GMS Watersheds, for $1 million, approved on 31 December 1997.

Objectives/Outcomes Cataloguing of watershed characteristics, especially trans-boundary ones, including cross-border issues and impacts of GMS infrastructure projects. Reviewing existing management experience and scope for developing approaches with wider subregional applicability. Identifying up to five watersheds for formulation (during Phase 2) of investment projects aimed at watersheds sustainable management. Strengthen management policies and capacity to formulate protected area strategies. Objective is to develop a long-term framework that would integrate environmental considerations into development planning and counter cumulated environmental impacts of development projects in GMS, especially in transport and energy. Another objective is to promote multi-disciplinary and calibrated approach to formulating environmental responses. A further aim is to strengthen environmental performance monitoring through design of indicators and associated capacity building.

RETA Process Two-phase process. Delineating needs assessment/policy/ strategy and investments. Process built on previous SEMIS program using collected data. Review of each GMS countrys management experience and establishment of national and subregional priorities. Wide involvement of nongovernment organizations (NGOs) to more fully document the conditions and participate in prioritization. Provide inputs in dialogue with other watershed projects and programs. The TA draws on previous and other RETAs, work of other agencies and international NGOs, and on foreign simulation experience. Geographic information system layered data to be used to support development of studies of selected GMS and other activities. Multi-tier fora to be created to capture input from governments, NGOs, and aid agencies. Provisions made for review and endorsement by a high-level ministerial group. Study incorporated previous work of various environmental organizations (e.g., World Wide Fund for Nature [WWFN], formerly World Wildlife Fund).

Status Phase 1 completed. The number of priority watersheds expanded from three to five to more evenly share RETA activities across GMS. Ratification of the preliminary choice still awaited in the case of Viet Nam and Thailand.

Assessment Design driven by ADB, in haste. Decision to combine an older (forestry) proposal with a new emphasis on poverty reduction right in principle but too ambitious. Insufficient learning from ADBs own implementation experience in watershed development. Costinefficient process of review of existing situation. Strong emphasis on NGOs alienating some governments. Some use of the capacity created by SEMIS and valuable contacts.

TA 5872-REG: Strategic Environmental Framework for the GMS, for $1.6 million, approved on 20 March 1998.

Continuing internal ADB discussion on the need to address the measurement of cumulative environmental impacts. Phase I completed in June 1999, and inception report has been completed and circulated for interdepartmental review.

Solid dialogue and stakeholders participation in the design of the RETA. Extensive review process at various levels, its weight reflecting the complexity of the design and the subject matter. Serious attempt to be cost-effective in data acquisition and use. Case study development a valuable pedagogical and organizational tool. Attempt to link implementation to the results of another GMS RETA (SEMIS). RETAs complexity risks diluting the acceptance of results and procedures.

Project TA 5822-REG: Protection and Management of Critical Wetlands in the Lower Mekong Basin, for $1.650 million, approved on 22 December 1998.

Objectives/Outcomes The aims were to (i) improve institutional capacity to manage wetland resources and master planning; (ii) develop and support community-based integrated management systems for the fisheries, forestry, and agricultural resources of the inundation zone of Tonle Sap and Siphandon; and (iii) prepare an investment project for improvement of selected items of infrastructure in the Tonle Sap area.

RETA Process Two-phase approach: Wetland ecology studies and surveys, and hydrological and sedimentation studies to support planning and make local resource management better informed; Coordination with existing projects in the Tonle Sap area and support of initiatives at coordinated or unified management of the Tonle Sap; and In phase 2, design and appraisal of suitable items of physical infrastructure in the ports of Chong Kneas, Kompong Luang, and Snoc Trou.

Status Negotiations with consulting firm scheduled for October 1999. Concurrence of Cambodia and Lao PDR governments with the TA Agreement is being secured as a precondition for consultant recruitment. Memorandum of Understanding detailing coordination arrangements between ADB and the MRCS for activities in the Tonle Sap and Siphandon areas will be discussed and is expected to be finalized in October 1999.

Assessment Design affected by deletion of Vietnamese component that gave the Tonle Sap component a prominent position and created a potential for a problem of coordination with several other projects in the same area. Lack of integration with Cambodia country program is a drawback. Design combines reinforcing and duplicating components. Welcome attention to fisheries management and frank recognition of need for infrastructure improvements.

Human Resource Development (HRD) Promotion of Subregional Cooperation in Human Resource Development Collation and analysis of country HRD profiles, including public/private partnerships. Identification and projection of long-term HRD priorities, linked to formulation of screening and selection criteria. Later phases to examine institutional constraints and capacity-building needs, including aid coordination, servicing HRD working groups. Extensive country visits by international consultants linked to preparation of country position papers by Government for presentation/discussion at regional HRD working group meetings. Facilitate discussion on HRD project/TA selection process. Facilitate involvement of NGOs and private sector in HRD strategy formulation, selection, and potential financing. Extensive use of international consultants, alongside appointment of local counterpart staff and First meeting of working group on human resource development (WGHRD) was held on 5-6 December 1996. A follow-up meeting on 1-2 June 1999 included discussion of the social consequences of the regional crisis, and endorsed efforts to improve networking of universities and centers of academic excellence as a priority activity. A new RETA is being processed to assist GMS economies in curriculum development; to foster networking and collaboration among universities; and to assist in capacity building. Project completed. Extensive use of consultants potentially reduced by limited use of extensive existing sector work. Scope for improving consultation on NGO/private sector role and strategy, especially for employment training. Limited institutional assessment of potential country and regional support agencies. Slow start-up of WGHRD added to limited early progress on project identification and sourcing of financing. Limited dialogue with other aid agencies (e.g., UN agencies) overcome only later, which limited early cofinancing.

Employment Promotion and Training

Objectives include establishment of subregional information network based on country

Apparent duplication of previous country studies, including ADB-financed ones (e.g., Cambodia, Viet Nam, Lao PDR, and Thailand). Limited emphasis on private

Project

Objectives/Outcomes LMIS, identification of potential centers of excellence and strategies for common GMS training standards and certification.

RETA Process preparation of country studies. Findings discussed at regional seminars with cofinancing from International Labor Organization (ILO).

Status

Assessment sector and demand-side and limited linkage with economic corridor, especially labor migration. Positive features include ILO, United Nations Development Programme/ Korea Cofinancing and follow-up. Apparent focus on public supply side. Limited consideration of GMS regional institutional arrangements. Progress in aid agency and GMS country dialogue can be built on. Rationale for GMS approach needs greater justification, given extensive ADB support within GMS country programs.

Human Immunodeficiency Virus /Acquired Immune Deficiency Syndrome (HIV/AIDS) Prevention and Control

Objective to undertake status assessments, development of standardized surveillance, methods of strategies, information, education, and communication (IEC) strategies and training needs. Possible use for cross-border health problems.

Extensive country visits and discussions with concerned agencies (e.g., UNICEF). Final report to be circulated in late 1999. Ongoing discussions on potential support for 18 subprojects, including HRD issues and private sector participation. Follow-up RETA more clearly focused on links with economic corridor and labor migration. Preparation of country profiles using extensive international consultants input. Substantial consultation with country NGOs and governments followed up by broad-based country seminars on common policies/strategies and possible replication of good practice. National capacity building for survey work through small subcontracted studies. Positive dialogue established with DFID as cofinancier with potential future benefits.

A RETA on Communications Plan for Preventing HIV/AIDS was targeted for management approval on 17 September 1999.

Potential duplication of extensive regional UNAIDS (United Nations agency to combat HIV/AIDS) initiative. United Nations situation analysis could have been used as initial needs assessment with cost savings. Insufficient focus in first RETA on costs/benefits of GMS subregional approach. Uncertain rationale for subregional initiative against inclusion in ADB Country assistance program for priority countries (e.g., Cambodia)

Health/Education: Ethnic Minorities

Overall objective to promote awareness of ethnic minorities needs, including cross-border issues. Documentation of good practice leading to future strategies and identification of project priorities.

The project is ongoing. Consultants were fielded in January 1999. Inception Workshop held in February 1999. A Steering Committee meeting to discuss the country reports was held in Sep 1999 in Thailand.

Consultancy may have been reduced through more extensive desk review and country papers on ethnic minority needs (e.g., previous ADB health/education project preparatory TAs in Cambodia, Lao PDR, and Viet Nam). Potential opportunity missed to use experienced NGO as consulting firm. Positive feature is promotion of unique requirements of ethnic groups and cultural constraints. Uncertain justification for future subregional approach to expanded programs, potentially better covered under country programs. Possible niche in language materials production and teacher training.

Project Vaccine Production and Procurement

Objectives/Outcomes Assessment of vaccine requirements, production capacities, quality control, financing projections and any associated policy/strategy reforms. Feasibility study of establishing selective subregional vaccine production capacity.

RETA Process Significant consultation with wide range of stakeholders, including pharmaceutical companies, distribution agents, and governments. Study to be circulated to WGHRD members in late 1999.

Status ADB-financed Immunization Financing Study in Cambodia, Lao PDR, and Viet Nam was completed in November 1998. ADB approved a PPTA for the Asian Vaccine Initiative on 27 August 1999. This TA will support additional financing studies to prepare a multi-country loan for procurement of vaccines, such as Hemophilius Influenza B and Hepatitis B vaccines.

Assessment Study has well-designed TORs and consultative process. Sensible approach to examine costs and benefits of any potential subregional economies of scales in production. Uncertain focus on institutional issues, especially political, regulatory, and associated capacity-building needs. Documentation is not clear on coordination with United Nations Childrens Fund for situation analysis, needs assessment, etc. when this agency is a key regional player and coordinator of funding agency support at country level.

Trade and Investment Promotion of Subregional Cooperation in Developing Trade and Investment in the Subregion The inception report for the trade facilitation working group was held on 18-19 December 1995. Preparatory activities have taken place for a follow-up meeting in late 1999. There have been no meetings of the investment working group. Preparatory activities have taken place for an inception meeting in late 1999.

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SUMMARY SECTOR ASSESSMENTS

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

Transport Priorities are (i) developing priority transport corridors; (ii) linking the capitals, other population centers, and major tourist destinations in the subregion; (iii) helping develop remote and lowincome areas by improving access to markets, and social and economic services; and (iv) reducing if not eliminating nonphysical barriers to the movement of people and goods in the subregion.

Transport study, prepared by international consultants working with relevant central government officials, was used to facilitate transport project/technical assistance (TA) selection process. A multitier institutional structure was established to assist in the Greater Mekong Subregion (GMS) sector coordination. Ministerial-level meetings provide strategic guidance and are used to make policy decisions. Subregional Transport Forum (STF) is responsible for overseeing implementation of projects and initiatives. STF can establish working groups to deal with specific issues (first working group meeting on air linkages was held in August 1996).

Inception meeting of the (STF) was held 24-25 April 1995. Four transport forums have been held to date, the most recent in May 1998. All modes of transport are included, but priority has been given to three "first tier" road projects that are at advanced stages of preparation and/or under implementation, 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 fourth road project, the KunmingHanoi-Hai Phong Corridor was included as a priority "second tier" project at the most recent STF. Since 1995 regular STF meetings have been held to assist coordination and implementation.

Implementing cross-border agreements. Close follow-up is needed to (i) ensure that agreements are implemented; (ii) monitor the effectiveness of implementation of arrangements; and (iii) agree on additional changes that may be required to achieve maximum benefits from infrastructure investments. Trade and investment policies and distribution concerns. Potential benefits of infrastructure development will not be realized without further trade and investment reforms. Studies on the impact of trade and investment policies on returns to subregional infrastructure projects should be a high priority. Issues should be addressed in the Asian Development Bank (ADB) country strategies and programs. Social and environmental impacts and concerns. Limited regional technical assistance (RETA) resources for human development and the environment activities might be better focused on concerns and opportunities arising from subregional infrastructure initiatives. Institutional development. Greater emphasis could be given to developing the capacity of the customs, immigration, quarantine, transport, and police officials who will play a critical role in facilitating the movement of goods and people. Also a longer term need to develop the supporting institutions needed to encourage private sector investment. Financing and resource mobilization. ADB will need to be more proactive and innovative in mobilizing the enormous resources required to finance all priority projects, and to ensure an equitable distribution of the costs and benefits of these developments among participating members. Program monitoring, coordination, and information sharing. There is an urgent need to agree on institutional mechanisms to provide effective program monitoring, coordination and information sharing. The development of such systems for the East-West Corridor development is an immediate priority. Marketing GMS opportunities. Need to better market information about opportunities.

Telecommunications Statements about intended outcomes rather general. The Fifth Ministerial Meeting

Initial sector study findings presented to senior officials meeting on 6-7 November 1995.

The Fifth Ministerial Meeting agreed to establish a GMS STCF to facilitate cooperation. Follow-up meetings held in 1996 and

Review need for continuing GMS involvement in telecommunications. Arguments for using a subregional grouping, defined by geographic proximity of countries through which the Mekong River flows, for telecommunications planning are not as compelling as for adopting a GMS approach to transport, energy, tourism, and the environment development issues. The evaluation mission (EM)

GMS Objectives agreed to establish GMS telecommunications forum (STCF) with the following terms of reference (TORs) to (i) provide a vehicle for coordinating subregional project planning; (ii) provide a mechanism for implementing priority subregional projects; (iii) provide a venue for addressing regulatory and policy issues; (iv) promote private and public sector financing of subregional projects; (v) facilitate training projects and other human resource initiatives; and (vi) provide a vehicle for dissemination and exchange of information. Energy The main electric power forum (EPF) objectives are to (i) provide a link between GMS power supply and system development institutions;

Overview of Processes Sector study proposed activities to (i) improve facilities that connect, or are shared, among GMS economies; (ii) modernize national networks to make them more compatible and ensure they grow together in a coordinated fashion; adjust regulations, policies and tariffs to accelerate development of telecommunications within the GMS. In addition to this sector study and working group (WG) discussions, international consultants have worked on a feasibility study for the East Loop Project.

Status/Assessment 1997 (first time with private sector participation), with the next meeting scheduled for late 1999. The Sixth Ministerial Meeting (1996) endorsed the East Loop Project as a priority, together with studies on training needs and mobile communications. The feasibility study for East Loop Project has been completed, but there are outstanding issues that need to be resolved prior to implementation. There has been little other tangible progress. There was no evidence of clear agreed-upon vision or strategy for future GMS involvement in the sector.

Key Issues and Recommendations recommends that an immediate priority should 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 International Telecommunications Union (ITU) and the Association of Southeast Asian Nations (ASEAN). Focus on facilitating commercial investment. Continuing support to GMS telecommunications initiatives will require a more clearly focused strategy. Facilitating commercial investment in subregional telecommunications might be the most appropriate single guiding principle. Given the rapidly 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 telecommunications infrastructure projects.

The Experts Group on Power Interconnection and Trade has met twice. The GMS countries have begun updating their generation and transmission plans. The World Bank (WB) is active in this activity following an earlier study on power trade in the GMS.

The inception meeting of the EPF held in April 1995 together with the inception meeting for the transport forum. Five EPF meetings have been held, and two expert groups meetings on power interconnection and trade were held in December 1998.

Defining a subregional power project. A major cost of subregional approaches to development is the opportunity cost of bringing together senior officials. Thus, it is critical to focus on highest priority issues. While there have been benefits in addressing the planning, regulatory, technical, and institutional issues, and integration of national networks and grids at the subregional level, the EM saw less evidence of benefits from developing and monitoring individual power supply projects as GMS projects. Once power networks are integrated, then including any one power generation project linked to the network as a GMS power project implies that all other power generation projects linked to the network should also be classified as GMS projects.

GMS Objectives (ii) promote and advise on efficient development of power systems; (iii) identify potential GMS power projects; (iv) promote financing of priority projects; (v) provide a venue for addressing software issues, such as planning tools and pricing principles; (vi) provide information to participating institutions, and cooperate with other agencies involved in regional power sector development; and (vii) facilitate training and other HRD initiatives. Tourism Key objectives are to (i) promote tourism and increased tourism flows with the GMS, (ii) facilitate travel within the GMS, and (iii) undertake a review of institutional issues affecting tourism development.

Overview of Processes ADB has been assigned to assist in preparing (i) a draft policy statement on GMS power trade and (ii) a regional indicative master plan. WB has been assigned to assist in (i) formulating a regulatory and institutional framework and (ii) organizing three regional workshops on aspects of regional power trade.

Status/Assessment ADB is supporting preparation of a draft policy statement for presentation at the Sixth EPF Meeting in October 1999. A proposal for RETA (estimated cost $0.8 million) to assist in developing a regional indicative master plan is scheduled to be presented to the EPF meeting in 2000. Progress has been made with initial power generation projects in the Lao PDR (the Theun Hinboun power plant is operational and Nam Leuk soon will be). Later, and larger, hydropower projects have been delayed because of the impact of the Asian crisis. Recently, increasing focus has been given to power trade issues.

Key Issues and Recommendations Resource mobilization and the Asian crisis. The Asian crisis has both dampened the demand for new power-generating capacity, and reduced the supply of private sector financing for GMS power supply projects. This situation could change rapidly, and the GMS needs to be prepared to attempt to mobilize substantially higher levels of private sector financing for power development than has ever been achieve in the past. It is important to have a clear strategy and action plan developed and financing options prepared to mobilize the necessary resources as demand for power increases. Longer term institutional arrangements for GMS power trade. There is need to study appropriate longer term institutional arrangements to assist in the management of an integrated subregional power grid. Recently initiated assistance should provide inputs to this process. Monitoring and information dissemination for GMS projects. There is, and will continue to be, strong regional and international interest in GMS projects, and in particular any projects that have direct impacts on natural resources. ADB can expect particularly strong demand for information on social and environmental impacts of GMS power projects. It will not be enough for ADB just to be assured by findings from environmental impact assessments prior to implementation. There is need for effective ongoing systems for monitoring, studying and disseminating information about impacts, and to ensure that early and proactive corrective action is taken as appropriate. Special efforts should be made to directly involve, promote consultations with, and disseminate information to key stakeholders, including community groups, nongovernment organizations (NGOs), and the private sector on project impacts and opportunities. Define better ADBs role in GMS tourism. ADB needs to be clear about its comparative advantage in tourism development, develop a clear vision of its role in promoting tourism in the GMS, and plan and monitor interventions accordingly. Removing bureaucratic constraints to tourism. Removal of state-imposed bureaucratic and administrative constraints to tourism development should be a (if not the) main priority for ADB support to GMS tourism initiatives. Progress in this area offers potentially strong returns and rapid impact, and is important to maximizing returns from investments in subregional transport infrastructure. If ADB is committed to providing long-term support to tourism development, it should consider including measures to reduce administrative barriers to tourism as an element in individual country strategies. Private and public sector roles in tourism development. Arguments for public sector involvement in promoting tourism development have not always been clearly established. ADB should clearly define priorities for its support to public sector

Study on North-South Tourism Flows completed by the Tourism Authority of Thailand and presented at the Working Group on Tourism (WGT). The study examined implications of tourism flows for air links and aviation policy. The Economic and Social Commission for Asia and the Pacific (ESCAP) is organizing related seminars on expanding GMS tourism through improved air transport.

The first meeting of WGT was held 3-5 April 1995. The ninth meeting (WGT-9) was held in May 1999. There has been growing private sector participation in these meetings, and the private sector has organized a series of tourism forums to actively promote the GMS as a tourist destination. Preparations being made for the Fourth Mekong Tourism Forum in Vientiane on 28-20 November 1999.

GMS Objectives

Overview of Processes ESCAP is considering undertaking a study on air linkages in the GMS. The Agency for Coordinating Mekong Tourism Activities (AMTA) is closely monitoring developments on travel facilitation measures in the GMS. It has also initiated the idea of facilitating overland tours for selected routes on a trial basis.

Status/Assessment The WGT reported favorably on the "Jewels of the Mekong" promotion initiated as a joint marketing exercise, but no data was available to assess its impact on tourism revenues. At WGT-9, ADB proposed a review of GMS subregional cooperation in tourism. The question of ownership and sustainability would be comprehensively addressed in the review. The review will involve close collaboration with AMTA, and is scheduled to be ready for discussion at WGT-10 in November 1999.

Key Issues and Recommendations intervention in tourism development, and arrangements for phasing out its support for WGT and the Mekong Tourism Forum (MTF). Social and environmental safeguards. A clear public sector role in tourism is in developing safeguards and regulations to deal with externalities arising from the social, cultural, and environmental impacts of tourism. There are examples within the GMS of adverse social, cultural, environmental and economic consequences resulting from inadequate safeguards, and there is considerable scope for countries to learn from each other in developing best practices. This issue should receive greater prominence in future GMS interventions. Link with other GMS initiatives to optimize benefits. Information flows and collaboration between those planning GMS transport infrastructure and the tourism industry, through WGT and MTF, could be strengthened. There is also potential for GMS members to learn from each other about the economic benefits to tourism of better environmental management, and of opportunities to diffuse economic benefits from tourism to remote and poorer regions. Improving project design. Greater attention should be given to assessing the needs and the different institutional and human resource capacity in GMS member countries. There is also need to explicitly assess the costs and benefits of undertaking proposed activities at a national versus GMS level. Project Design. Give more attention to (i) the different capacity and needs within GMS countries, (ii) preparing and incorporating rigorous needs assessments in project designs to avoid duplication of effort, (iii) explicitly weighing the costs of subregional approaches against potential benefits, and (iv) explicitly weighing the potential benefits of broader consultative mechanisms against potential costs due to greater complexity in implementation. More care is needed in planning technical and consulting requirements and selection. More focus is needed in attracting the private sector, including opportunities for ecotourism. Strategy for linking environment program with other initiatives. The emphasis on capacity building with gradual extension to address transboundary concerns is sound. It could be more effective if it were more closely aligned with the transboundary investment components, especially in transport infrastructure and energy. A clear strategy is required to make this happen. Learn from past experiences. ADB should better ensure that past lessons and experiences in implementing watershed development projects are incorporated in GMS project designs. Environment data. Strengthen collection, assembly, and exchange of primary data, rather than just manipulate secondary data. For a program intended to

Environment Initial priority given to capacity building. This was seen as a first step for GMS countries to move from monitoring and analysis to active management of the many interdependent environmental assets. Focus later shifted to active cooperation in managing environment assets. More recently, the existence of common environmental problems has been seen as a sufficient basis for GMS activities.

A working group for the environment (WGE) was established (first meeting on 4 October 1995) to guide selection of activities and serve as the principal consultative body for environment activities. It is mobilized on an ad hoc basis and remains dependent on outside funding. It has had limited impact in subregional networking. ADB (sometimes in consultation with bilateral cofinanciers) has dominated priority setting. GMS members only later endorsed these priorities.

The environment sector has received by far the largest share of GMS RETA resources with more than $14 million approved. This included around $6 million of cofinancing from a number of bilateral agencies. Five GMS environmental RETAs have been approved, three of which combine advisory with investment-preparation elements. Two projects have been completed and the others are under implementation. Despite the use of some funds under three RETAs to formulate investment projects, no investment

GMS Objectives RETAs included setting up an environmental monitoring information system, strengthening a number of key environmental planning institutions, watershed management, wetlands protection management systems, and formulation of a subregional environmental strategic framework. Human Resource Development Broad aims are to (i) contribute to common policies/ strategies on human development; (ii) facilitate subregional labor development; and (iii) identify GMS HRD programs with potential scale economies. Following initial sector study, the program focused on employment and skills training. Later it broadened to cover (i) managerial and technical skills, (ii) environmental training, (iii) financial and human resources to develop higher education, (iv) education and training for minority

Overview of Processes Still, there has been a fairly good fit between RETAs and priorities as articulated by WGE. There has been also fairly broadbased involvement in design, financing, and implementation. Program design and implementation have not been effectively linked with the broader GMS program, or other sectorlevel programs. Country visits by international consultants in undertaking initial sector study. Position papers prepared for Government presentation/ discussion at regional HRD working group meetings. This was used to facilitate discussion on HRD project/TA selection. Limited involvement of NGOs and private sector in HRD activities. Initial sector work was limited to labor market trends and skills training, with little attention to broader health, education, social insurance, and labor market institutional policy and financing issues. Thus, GMS stakeholders lacked strategic guidance on program selection and screening criteria.

Status/Assessment projects have yet been approved. The most recent meeting of the WGE (the fifth) was held in Kunming on 11-12 May 1999.

Key Issues and Recommendations address transboundary impacts, the fact that there is very little idea of the magnitude of transboundary flows of goods, people, wildlife is a major concern. At the same time, there is need to reduce the gap between sophisticated GMS environmental monitoring objectives and field realities. Improve programming of ADB staff resources. ADB must ensure that adequate staff resources are provided for each project to nurture and sustain the policy dialogue needed to maximize the benefits from the RETA investments. If staff resources are not available, the number of projects should be reduced.

The first meeting of the working group on human resource development (WGHRD) was held on 5-6 December 1996. The second meeting of WGHRD was convened in June 1999. This meeting included a major stock-take of the GMS/HRD program. The meeting acknowledged that past approaches had resulted in a supply-driven wish list of proposed interventions. ADB acknowledged that clearly ADB would not be able to meet WGHRD expectations in financing all pipeline projects. In summary, the most recent WGHRD recognized that there has been little progress toward achieving either the broad aims, or the more specific program concerns.

Achieving greater strategic focus. There is need for substantive analysis of the relative merits of alternative strategic options and to prepare a position paper on possible options for circulation to governments, funding agencies, NGOs, and the private sector to obtain feedback and suggestions. The WGHRDpossibly with broader representationshould then finalize a revised strategy and amend the project priorities and work program. Examining HRD strategic options. In reviewing future strategic directions, three levels of intervention might be considered Option 1: Enabling HRD policy dialogue and information exchange aimed at optimizing country and regional investments through a more reform minded policy environment. Option 2: A few substantive HRD programs where there are economies of scale from subregional cooperation (e.g., vaccine production), and strong demand. Option 3: The social development corridors approach to optimize and/or mitigate the social impact of the economic corridors, through targeted area development programs, linked to GMS/country program investments. The social corridor approach would provide a clearer spatial focus, help project screening, and have greater potential for synergy and impact through the broader ADB GMS and country programs. Reviewing the RETA design process. Improved stakeholder consultation at the design and implementation stages should increase benefits and impact from any future RETAs. Explicit consideration is needed of the costs and benefits of alternative approaches to achieving TA objectives. Maximum use should be made of existing studies, needs assessments, institutional assessments, and other relevant information wherever possible. Where feasible, designs should maximize the use of regional and country expertise, including regional/national consulting firms and NGOs of proven records and experience. In operational terms, RETA designs should (i) wherever possible, incorporate consultation with NGOs and the

GMS Objectives groups and hill areas, (v) language and communications skills, (vi) rapid spread of HIV/AIDS, and (vii) malaria.

Overview of Processes Most recent WGHRD involved broader funding agency representation, including the International Labour Organisation, United Nations Population Fund, World Health Organization, Mekong River Commission, and the Deutsche Gesselschaft fr Technische Zusammenarbeit (GTZ). GMS members have stressed the importance of having trade and investment working groups because of the importance of trade and investment (and tourism) in securing returns to the GMS development. International consultants worked with GMS members to prepare papers outlining options for improvement. These reports have been discussed, but there is still no clear consensus among GMS members about what practical measures can be achieved under the GMS that cannot be achieved at either the project level, or by existing trade and investment forums. Consultations are ongoing in preparation for working group meetings in late 1999

Status/Assessment

Key Issues and Recommendations private sector into RETA conceptualization, design, and implementation; (ii) give greater emphasis to opportunities for systematic capacity building; (iii) where needs assessment are adequate, give greater emphasis to feasibility studies and costed interventions. Finally, ADB should carefully assess its comparative advantage in terms of experience and expertise when preparing RETAs for ADB financing.

Trade and Investment The investment working group (SIWG) aims to (i) provide an avenue for cooperation on regulatory frameworks; (ii) provide a vehicle for cooperation in investment promotion; and (iii) support cooperation between countries on investment facilitation. The trade working group (STWG) aims to provide (i) a venue to identify trade constraints; (i) a venue for cooperation among member countries in trade facilitation; (ii) a vehicle for cooperation in improving procedures; and

The inception report for the trade facilitation working group (WGTF) was held on 18-19 December 1995. Preparatory activities have taken place for a follow-up meeting in late 1999. There have been no meetings of the investment working group (WGI). Preparatory activities have taken place for an inception meeting in late 1999. All GMS members argued for GMS support to the trade and investment working groups, but there remains no clear agenda for action. There have been no tangible results to date. While these groups have used minimal financial resources, they have consumed considerable human resources from GMS members and ADB, including considerable time in discussions at high-level meetings.

Clearer focus and objectives. There is need to prioritize trade and investment constraints that can be mitigated relatively quickly and opportunities that complement rather than overlap parallel initiatives being conducted by other bodies, such as ASEAN. If a cost-effective role in realizing subregional objectives cannot be identified, limited resources should be reallocated to higher priority areas. Refocus on supporting GMS infrastructure investments. There is need to refocus on practical constraints and opportunities related to specific infrastructure developments. An immediate priority is to build on the progress in negotiating cross-border agreements for the East-West corridor on administrative issues (e.g., mutual recognition of vehicle and drivers licenses, quarantine and customs regulations and procedures, visa arrangements, etc.). Priority trade and other policy constraints to maximizing returns on subregional infrastructure developments (e.g., agriculture trade policies) need to be identified. Broader rulesbased concerns should be left to the ASEAN Free Trade Area (AFTA) and the World Trade Organization (WTO). More focused marketing and information dissemination. A more systematic approach to disseminate information on GMS plans, progress, and results is essential in building awareness and confidence in the GMS program. As progress is made toward implementation, more focused marketing of the opportunities presented by the proposed development may be required. Greater emphasis on public/private partnerships. The private sector needs to be a committed partner in the trade and investment program, and should be actively engaged in the execution of trade and investment activities, possibly through a more substantive role for the GMS Business Forum. The private sector should not be regarded just as an end user of segments of the GMS Program, but be actively engaged as a codesigner of the GMS Program. This will be important in

GMS Objectives (iii) a way to improve trade information, and to use it for trade facilitation.

Overview of Processes 1999.

Status/Assessment

Key Issues and Recommendations attracting private sector funds. The role of governments and the private sector and their comparative advantages require clearer definition. Mobilizing financial resources. ADB is in a unique position to use its leverage to mitigate against the cumulative country risk associated with investment returns that depend on subsequent policy actions of a number of sovereign nation. Consideration should be given to developing a marketing package describing the particular ways it could assist in financing GMS-related infrastructure developments. This should clearly spell out the ADBs potential in minimizing trade/investment risk, providing loan quality assurance and control, including articulating success stories elsewhere in the region.

Appendix 4, page 1 TRANSPORT, TELECOMMUNICATIONS, AND ENERGY A. Transport 1. Overview

1. The development of trade, tourism, and investment through improvements in transport infrastructure 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 technical assistance, 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 waterways projects, and 6 air transport projects. During the second GMS ministerial meeting (30-31 August 1993) country delegations agreed on the priority transport projects where further feasibility studies 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 to three first-tier road projects that are at advanced stages of preparation and/or under implementation, namely, the Phnom Penh to Ho Chi Minh City (HCMC) Road Project, the EastWest Transport Corridor, and the Chiang Rai to Kunming Road Improvement Project. A fourth road project, the Kunming-Hanoi-Hai Phong Corridor was included as a priority second-tier project at the most recent subregional transport forum.1 3. The third and fourth GMS ministerial meetings agreed on the need to "establish a more hands-on involvement by the six countries in subregional development."2 The result was the establishment of a two-tier coordinating structure with ministerial level meetings providing overall strategic guidance and making policy decisions as required, with the Subregional Transport Forum (STF) responsible for operational issues related to overseeing the implementation of projects and initiatives. The STF is empowered to establish working groups to deal with projects and/or specific issues. Four STF meetings have been held since the inception meeting on 24-25 April 1995, the most recent in May 1998. The broad objectives of the STF3 are to (i) (ii) (iii) (iv) provide a vehicle for the coordination of transport project planning at the macro level; provide a mechanism for facilitating the implementation of priority subregional projects; provide a venue for addressing software issues (e.g., issues related to driver and vehicle registration, route licensing, axle load regulations, design standards); promote the financing of subregional projects by the governments concerned, the various funding agencies, and the private sector;

Greater Mekong Subregion (GMS) subregional transport forum (STF). 1998. Summary of Proceedings of the Fourth Meeting of the STF, 14-15 May 1998. Asian Development Bank (ADB).1995. Inception Report of the Subregional Transport Forum and the Subregional Electric Power Forum, Preface. ADB, Manila. Ibid., p. 34.

Appendix 4, page 2 (v) (vi) facilitate training projects and other human development initiatives in the transport sector; and provide a vehicle for disseminating information on transport matters.

4. ADB financing for the Phnom Penh to HCMC segment of the Bangkok to Vung Tau Road Improvement Projectthe first ADB-financed GMS transport project involving coordinated financing to two governmentswas approved in late 1998. ADB financing for the East-West Corridor is scheduled for approval in late 1999. ADB has also approved financing for the Yunnan segments of the Kunming to Chiang Rai Road Improvement. Two ADB-financed transport projectsthe Siam Reap Airport Improvement and the Champassak Road Improvement projectshave been classified as GMS transport projects, but project processing and implementation have not depended on coordinated financing in more than one GMS country. 5. Recent ADB documents4 on GMS transport sector activities identify the following specific priorities for subregional cooperation in transport development: (i) developing priority transport corridors; (ii) linking the capitals, other population centers, and major tourist destinations in the subregion; (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 the movement 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 the eighth ministerial meeting in October 1998. The decision was taken partly in response to initial implementation experiences, and partly as a "strategic response to help the GMS countries in the process of recovery from the economic crisis."5 At the same meeting, five possible economic corridors6 were noted, namely: (i) (ii) (iii) (iv) (v) Kunming-Mandalay-Yangon Kunming-Lao PDR-Bangkok Kunming-Hanoi-Hai Phong Mawlamyine-Phitsanulok-Savannaket-Da Nang (East-West Corridor) Yangon-Bangkok-Phnom Penh-Ho Chi Minh City (rail corridor)

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

4 5

Draft RRP for East-West Corridor Project dated 10 August 1999, para. 10. ADB GMS Unit, Programs Department (West) 1999. Background Paper for the GMS Interdepartmental Coordinating Committee Meeting. 2 July. ADB GMS Unit, Programs Department (West). 1998. Summary of Proceedings of the Eighth Ministerial Conference on 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 Lao PDR and Thailand, to the Indian Ocean near Moulmein in Myanmar. The initial focus was on the road transport link from Da Nang through the Lao PDR to Savannakhet, to Mukdahan in northeast Thailand. Project planning was assisted by a series of studies, including two ADBfinanced regional technical assistance (RETA).7 Project documents report that the project is economically viable, subject to trade growth projections. Governments concerned stated that even if the project had been only marginally viable, they would have been prepared to make a trade-off between the economic efficiency objectives and the need to develop infrastructure and reduce poverty in some of the poorest areas within the GMS. 9. In addition to the ADB-financed segments the East-West Corridor development, related projects have been formulated and will be implemented, with financing from national governments and a range of bilateral and multilateral agencies. These include (i) a bridge crossing the Mekong River at Mukdahan and Savannakhet (loan signing was scheduled for August 1999); (ii) Da Nang Port (loan agreements signed on 30 March 1999); (iii) new bridges for 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) the proposed Chan May and Dung Quat Ports Development (private sector financing envisaged). 10. The ADB requirements for environmental and social impact assessment appear to have been met. However, the development is in environmentally and socially sensitive areas and will result in increasing economic and social integration between communities in three countries at very different levels of development. These differences are clearly visible at the border crossing between the Lao PDR and Thailand, where the bulk of road transport cargo from the Lao PDR is logs, while the bulk of the goods from Thailand consist of containerized cargo, mostly for reexport. c. Cross-Border Agreements

11. The initial transport study identified nonphysical barriers to cross-border movement of goods and people as a priority concern, but the first RETA addressing these issues was approved only in 1996. Another two of three RETAs have since been approved.8 The ADB's approach to facilitating cross-border agreements has been consultative, focusing on practical issues needed to maximize returns from investments in the East-West Corridor. Strong links developed between the transport planning and development officials from GMS countries have facilitated 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 in practice.

TA 5586-REG: Study of Lao-Thailand-Viet Nam East-West Transport Corridor, for $1 million, approved on 18 July 1994; and TA 5710-REG: Greater Mekong Subregion-East-West Transport Corridor, for $3 million, approved on 11 December 1996. TA 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 cooperative transport developments within the GMS and elsewhere in the region. The most recently approved ADB technical assistance in this area aims to extend the agreements to include other border 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 consideration should be given to the scope for including such reforms as important elements when ADB is formulating 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 an established priority before the establishment of the GMS. ADB loan financing was approved in December 1998,9 with separate loans being made to the Cambodian and Vietnamese governments. Plans for private financing of the HCMC to Vung Tau segment have not materialized. 15. Project preparation was facilitated by an ADB-financed technical assistance in detailed engineering design, procurement, environment and social impact assessment in accordance with ADB guidelines, and initial work on reaching cross-border agreements.10 Cross-border agreements were not finalized prior to loan approval. Technical assistance was approved under the country programs to help draft subsidiary agreements and protocols. Delays in reaching cross-border agreements were partly attributed to political difficulties and the resulting institutional weaknesses, and the fact that this was the first subregional transport project where such agreements were needed. Efforts should be made to ensure that agreements are in place prior 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 mobilizing resources because of the impact of the Asian financial crisis. Other national road improvement projects (including ADB-financed projects) in both Viet Nam11 and Cambodia can be expected to have 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 social safeguards in a very sensitive area.

Loan 1659-CAM: Phnom Penh to Ho Chi Minh City Highway, for $40 million, approved in 15 December 1998; and Loan 1660-VIE: Phnom Penh to Ho Chi Minh City Highway, for $100 million, approved in 15 December 1998. 10 TA 5649-REG: Greater Mekong Subregion-Infrastructure Improvement: Ho Chi Minh to Phnom Penh Highway, for $3 million, approved on 9 November 1995. 11 For 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 that upgrading of sections from Kunming to Yuanjiang (200 km) to expressway standards will be completed by the end of 1999, while the section from Xiaomengyann to Jinghon (24 km) will have been upgraded to a Class II highway using national investment resources. Upgrading of the section from Mohei to Simao (71 km) was completed in 1996. An ADB loan for the Yunnan segment 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 Rai to Mae Sai in early 1998, using national resources. Rehabilitation of the route from Chiang Rai to Chiang Kong is scheduled for completion by 2001. Two potential sites have been identified for a bridge across the Mekong River to Houei Sai. The Lao Government has signed a private concession agreement to develop a toll road for the Lao segment, but no substantial development work has been undertaken, and changes to the concession agreement are being discussed. In Myanmar, the initial upgrading of the road from Tachileik (border with Thailand near Mai Sai) to Kengtung has been completed, and repairs undertaken on the Kengt-tung to Mongla section, using national budget resources. 2. Assessment

20. There has been tangible progress in promoting substantive dialogue on reducing transport administration barriers to increased trade and tourism. Progress has been made in agreeing on priority projects, detailed preparation of these projects, and in securing financing for a number of major projects. Progress in implementing investment projects has been more limited. 21. Officials from the GMS economies noted that a major positive feature of the GMS is that it has provided an opportunity for the GMS economies to develop a shared vision on transport development in the GMS region. This was seen as important in ensuring that interests from outside the GMS region do not drive efforts at regional cooperation. The sustained high level of GMS member participation in GMS meetings, especially the ministerial meetings, is an indication of strong support for the GMS process. In contrast, a number of external commentators from the business and funding communities see the GMS as an ADB-driven initiative. 22. There are concerns within segments of the business community and within the local communities that the GMS has been slow in generating tangible impacts in improving transport facilities and reducing transport costs and time. This contrasts with the assessment of most central agencies that progress has been satisfactory, given the need for widespread consultations in reaching agreements and securing political approval from multiple governments for all GMS activities. Regardless of perceptions, there was general agreement that unrealistic expectations were raised initially and that the perceived delays in delivering tangible results has generated disappointment among some stakeholders. Improved information flows and more systematic consultations with non-State interests may have done much to reduce the differences in perceptions. 23. There is general agreement that the East-West Corridor is one of the highest priority subregional projects. While officials from central-level planning agencies concede that alternative public investments might realize higher returns, they argue that lower returns are

12

Loan 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 the poorest areas in Lao PDR, Thailand, and Viet Nam. 24. Substantive progress has been made with the design of the East-West Corridor and in arranging project financing, but implementation has not started and no ADB loan financing had as 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 some questions about whether ADB had given adequate attention to broader issues that will affect the social and economic returns from the Project. 25. There was some disagreement at the local level about the final route chosen among the alternative options. While disagreement is inevitable because of the local interests involved, local concerns could have been partially ameliorated by more public discussion and transparency about the rationale for route selection. Even senior local planning officials noted that they found it very difficult to remain on top of the information arising from the numerous studies and activities undertaken in relation to this project. Local officials argued that more effort was needed to better coordinate, synthesize, and disseminate information about the various initiatives. 26. ADB requirements for environmental and social impact assessment appear to have been met. However, the development is in environmentally and socially sensitive areas and will result in increasing economic and social integration of communities in three countries at very different levels of development. Differences are clearly visible at the border crossing between the Lao PDR 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 addressing environmental and social issues. 27. Officials from a number of countries suggested that ADB should be more proactive in identifying options to maximize these opportunities and to mitigate potential constraints. They suggested that subregional resources allocated to the human resource and environment sectors might have generated greater returns by focusing on the constraints and opportunities resulting from specific subregional infrastructure developments. 28. The most innovative feature arising from the subregional nature of the project has been the efforts to reach agreements on policy and institutional changes and in coordinating financing of a number of subprojects in two countries. The policy and institutional reforms agreed upon under the cross-border agreements related to the East-West Corridor development will generate more immediate tangible results in increasing trade and tourism than what has been achieved under the trade and investment working groups. The process has been, and still will be, a protracted one, but the results to date are impressive, given the major political, cultural, and institutional obstacles to reaching tripartite agreement on issues that impinge directly on issues of national sovereignty. The achievements are more impressive, given that there were no directly comparable models to be followed in resolving key cross-border issues. The crossborder agreementsand the processes leading to themcan serve as models for subsequent subregional transport developments in Asia. However, much remains to be done to ensure that these agreements are implemented in practice. 29. In contrast, little attention has been given to the trade policy constraints to increased trade. This is a particularly important issue for the Lao PDR because of concerns that it will bear a 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 to develop agricultural exports is constrained by high and ad hoc tariffs and nontariff barriers in Thailand and Viet Nam, as well as in the Lao PDR itself. These problems are compounded by legal constraints to enforcing contractual arrangements between Thai business people and Lao farmers. Trade restrictions on manufactured goods are generally much lower. Agriculture trade reforms 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 be addressed when ADB formulates the country operational strategies and programs. 30. The development of the economic corridor concept is still at an early stage and no lessons can yet be drawn. There are potential advantages from better integration of economic policy issues as well as social and environmental concerns in GMS infrastructure developments, but the key challenge is how to develop manageable implementation and coordination mechanisms. It will be important to draw on positive lessons from experience in implementing GMS activities, including the benefits from informal, flexible, and pragmatic institutional arrangements. It will also be important to clearly identify what economic corridor activities can be 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 support for key reforms, for reaching consensus on priorities, and for sustaining momentum. The lack of formal institutional arrangements and the explicit adoption of a flexible, pragmatic, and resultsoriented approach to cooperation have been an important feature. Administrative and institutional barriers to developing the subregional transport infrastructure were addressed by focusing on the practical changes needed to successfully implement specific projects.13 32. The GMS processes reflected the recognition that effective subregional cooperation requires attitudinal changes. ADB facilitated such changes by providing neutral technical and economic advice and secretariat support, but focused primarily on changing the attitudes of central officials. Only limited efforts were made to build community awareness and to address the concerns of other stakeholders such as customs officers and groups with monopoly trade and transport arrangements. b. Institutional Issues

33. Attention was given to the capacity of an institution to implement infrastructure development 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 between them. There is also need for new skills and capacity to enforce environmental, drug control, and quarantine regulations; and for longer term development of the institutions needed to encourage private sector investment. Government representatives also noted a need for greater emphasis
13

A representative of the Association of Southeast Asian Nations (ASEAN) at the Fouth Subregional Transport Forum noted the potential for ASEAN to "draw on the GMS activities in the formulation of the implementing protocols 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 technical support needed to sustain the momentum in addressing bottlenecks to high priority initiatives. They argued that selected high-priority initiatives will require more regular working-level discussions, possibly supported by medium-term technical assistance to resolve the complex issues 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. A pronounced example is the Kunming to Chiang Rai Road Improvements where most of the benefits are expected to accrue to Yunnan Province and Thailand, but major investments will be required in environmentally and socially sensitive areas of the Lao PDR. Careful financial planning (e.g., private cofinancing, cost sharing and/or efforts to mobilize grant financing for the Lao PDR sections of this road) will be required to ensure equitable distribution of the costs and risks associated with this development. ADB needs to ensure that adequate resources are made available so that these proposed developments are not only equitably implemented, but also provide models for future subregional cooperation. d. Impacts of Policy Distortions

35. In some cases distortions in national policies exacerbate the distributional concerns about the subregional initiatives. Current national policies in Lao PDR, Thailand, and Viet Nam have a strong bias against agricultural trade and investment. These policies will result in suboptimal levels of returns from investments in transport infrastructure and exacerbate distributional concerns. These policies can be expected to have particularly adverse impact on the Lao PDR, which has a strong comparative advantage in agricultural production, but very limited opportunities for export of manufactured goods. More generally, the potential benefits to the poor in rural communities will remain substantially underrealized where progress in liberalizing agricultural trade is lacking. 36. Studies on the impact of trade and investment policies on returns to subregional infrastructure projects should be a high priority for action in the trade and investment working groups. Policy dialogue on these issues should be addressed in the country strategies and programs for GMS member countries. e. Broadening the Corridor Approach

37. GMS RETA activities in the social and environment sectors have not been effectively linked to infrastructure developments. Development of the East-West Corridor will provide new economic opportunities, should facilitate improvements in social conditions, and could reduce environmental pressures. On the other hand, social inequities will become more visible as goods and people move more freely; economic incentives to exploit natural resources may increase with reduced transport costs, and drug control may become more complicated with trade liberalization (footnote 4). Road development both increases logging opportunities and provides opportunities for increased incentives to control deforestation. Environment and social RETAs could be better directed to recognize these realities, for example, by supporting improved water use planning, watershed management, and forest protection along the EastWest Corridor, in tandem with efforts to increase economic opportunities from infrastructure development.

Appendix 4, page 9 38. Effective implementation of cross-border agreements will require human resource development in terms of training of customs, immigration, quarantine, transport, and police officials. Specific skills and capacity need to be developed to enforce the environmental, drug control, and quarantine regulations under the new border arrangements. There will also be opportunities for longer term development of the supporting institutions needed to encourage private 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 the private sector, will be critical to realizing the ambitious objectives of the GMS Program. There was initial private interest in transport developments, including the HCMC-Vung Tau segment of the Bangkok to Vung Tau Road Improvement, and the Lao PDR section of the Kunming to Chiang Rai Road Improvement project. However, the Asian economic crisis has dampened private sector interest, and there are no immediate prospects for finalizing any new private sector investments in GMS projects. 40. Another constraint to private sector investment is the perceived risks in implementing cross-border and revenue agreements. Successful implementation of cross-border agreements associated with the East-West transport corridor will be critically important in increasing private sector confidence in the GMS initiative. The highest possible priority should be given to effective implementation of the East-West Corridor Project. ADB should actively use its leverage in the subregion to improve the economic environment for private sector investment. A more focused approach to information dissemination and marketing of potential investment opportunities could also 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 a range of sectors. Thus, monitoring and evaluation of this initiative to learn from the experience deserve a particularly high priority. More systematic efforts are required to consolidate and disseminate study findings, issues, and potential constraints. Special efforts should be made to promote consultations with key stakeholders and to disseminate information to them on key issues in the affected areas. Many local officials argued that more effort was needed to better coordinate, synthesize, and disseminate information about the various initiatives. They argued for greater efforts to provide consolidated status reports and summary findings in a clear concise format that could be easily understood by those not directly involved in the Project on a day-to-day basis. Private sector discussants complained about the lack of information on specific investment opportunities arising from the 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 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, findings from 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. The need for such mechanisms is especially important for subregional corridor developments, for these reasons.

Appendix 4, page 10

(i) (ii) (iii)

(iv) (v)

Success depends as much on the timely implementation of policy, regulatory, and other institutional reforms as on the physical infrastructure. Program implementation typically involves a large number of subprojects, national governments, and funding agencies. There is a high probability that previously unanticipated social, distributional, environmental, trade, and investment issues will arise during program implementation. Potentially important lessons can be drawn for the implementation of other transport and economic corridor projects in the region. Strong domestic, regional, and international interest in the socioeconomic impacts of the development can be anticipated, and this implies a strong demand for 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 in facilitation of cross-border movements of goods and people and in transport infrastructure development. ASEAN framework agreements on the facilitation of goods in transit and on multimodal transport were approved in 1998, and work is ongoing on the harmonization of road transport laws, rules and regulations within ASEAN. Consultations are also ongoing within ASEAN on the ASEAN Highway network and the development of a Singapore to Kunming rail link. The fifth Conference of ASEAN Transport and Communications Ministers held in Hanoi on15-16 September 1999 passed a program of action for ASEAN transport and communications development to the year 2004 that included a list of 55 individual regional projects. An ASEAN ministerial memorandum of understanding on the development of an ASEAN highways network project paved the way for the phased development of priority road projects. The ministers also signed protocols on types and quality of road vehicles and technical requirements for vehicles transporting goods across ASEAN boundaries. 44. The abovementioned development suggests the need for a clearer vision of the most appropriate links between the two forums. One possible option is to view the GMS initiative as a subset of the ASEAN initiative. Another is to broaden the scope of GMS activities to include ADB support to GMS economies plus the remaining ASEAN countries in subregional transport development. i. What Constitutes a GMS Project?

45. There continues to be some ambiguity about what constitutes a GMS project. The Evaluation Mission (EM) found little in the Siem Reap airport development that had a greater subregional 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 a GMS project because some of its funds will be used to upgrade segments of priority GMS routes as well as feeder roads to this project. It may well have been that during the early stages of GMS implementation there was a perceived need to report success in securing funding for GMS projects. 46. The issue of definition goes beyond semantics. There can be high management and coordination 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 large number of inter-related activities. Clearly, the issue of definition needs to be resolved through GMS consultation, but points for consideration are worth noting. 47. One guiding principle that might be considered is to exclude all projects from being classified 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 to assist in addressing policy constraints to the development of air links and air transport, but there would be no need to include airport developments. In the power sector, activities might focus on subregional network development, interlinkages, pricing and purchase agreements competition, benchmarking and management, but there would be no need to include individual power generation projects. Indeed, as power networks become interlinked, if any power generation project is included, then all new power projects connected to the network would also have to be included 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 arguments for identifying indicative allocations of ADB RETA resources for GMS activities at least three years in advance to facilitate effective programming of technical assistance for priority GMS activities. 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 approach would (i) facilitate RETA allocations that better reflect GMS priorities, (ii) increase GMS member ownership 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 and the clear commitment of GMS member countries. As part of the improved programming of resources, ADB should also give more attention to leveraging policy and institutional change in GMS countries. Reaching agreement on priorities may not always be easya strong commitment will be required from GMS members and ADB staff to make this workbut this is true of all GMS activities. B. Telecommunications 1. Background

49. No separate case study was conducted on this sector. This analysis and the following recommendations are based on a brief desk study of ADB documents. 50. The initial GMS studies recognized that the transformation of GMS economies to a more open and market-oriented system implied a need for efficient telecommunications systems. A GMS Subregional Telecommunications Study,14 completed in February 1996, called for a coordinated subregional approach to expanding and improving the telecommunications sector, so that disparities in price and quality of telecommunications services are reduced over time and become more in line with international standards.

14

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

Appendix 4, page 12 51. Study recommendations were presented to a Senior Officials Meeting on Telecommunications in November 1995. The sector study recommended activities to (i) improve facilities that connect or are shared among GMS economies; (ii) modernize national networks to make them more compatible and ensure they grow together in a coordinated fashion; and (iii) adjust regulations, policies, and tariffs to accelerate the development of telecommunications within the GMS. 52. The fifth ministerial meeting endorsed the recommendation to establish a GMS telecommunications forum (STCF) to facilitate cooperation. The STCFs terms of reference require it to (i) provide a vehicle for coordinating subregional project planning, (ii) provide a mechanism for implementing priority subregional projects, (iii) provide a venue for addressing regulatory and policy issues, (iv) promote private and public sector financing of subregional projects; (v) facilitate training projects and other human resource initiatives, and (vi) provide a vehicle 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 subregional cooperation 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 price throughout the subregion would tend towards being essentially uniform." There was no evidence of clear vision or strategy for future GMS involvement in the sector. The formulation of a clear strategy could help ensure that GMS activities do not result in interventionist measures that might discourage private investment. 54. Follow-up ADB support to GMS telecommunications initiatives has been minimal, the only support having been for the study of the East Loop Telecommunications Project. The study has been completed, but there continues to be a degree of ambiguity about the potential role of ADB 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 sector where 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 promote commercialization and private sector15 participation in the sector appears to be at odds with the fact that there has been considerable foreign private investment in telecommunications development in Viet Nam. 56. The economic rationale for any substantive public sector financing involvement in investments in international telecommunications needs to be clearly justified, given the increasingly dominant position of the private sector in financing telecommunications developments elsewhere. ADB studies need to explicitly address the question of why public financing is required, and whether the public sector decision-making process is likely to arrive at optimal investment decisions given the rapidly changing technologies in telecommunications. Clear reasons should be given to justify GMS and public sector involvement in identifying training needs for the sector and mobile telecommunications needs. Any justification should
15

Back-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 accelerated telecommunications development at a national or subregional level. 57. Where there may be justification for public sector involvementsetting regional standards and regulatory principlesthere is also need to ask what advantages a GMS approach 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 in the telecommunications sector. The EM did not find the evidence for using a subregional groupingdefined by geographic proximity of countries through which the Mekong River flowsfor telecommunications planning as compelling as that for using this subregional approach for transport, energy, tourism, and the environment. The EM recommends that the immediate 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 and ASEAN. b. Strategic Focus on Facilitating Commercial Investment

59. If the GMS wishes to continue supporting telecommunications development, then a more clearly focused strategy is needed. Facilitating commercial investment in subregional telecommunications might be the most appropriate single guiding principle. There is unlikely to be any need for ADB lending to public institutions for the development of telecommunications infrastructure. There may be scope for ADB involvement in using private sector modalitiesand its leverage to reduce contractual risksin mobilizing private sector resources. Given the rapidly 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 telecommunications infrastructure projects. C. Energy Sector 1. Background

60. The GMS is well endowed with energy resources, but their geographic distribution is uneven. Yunnan Province accounts for the largest share of the hydropower potential, followed by Myanmar, Lao PDR, and Viet Nam. Hydrocarbon resources, both oil and natural gas, and coal 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 about 100 kilowatt-hours (kWh) in Cambodia, Lao PDR, and Myanmar to more than 1,500 kWh in Thailand (Table 1). Almost one half of Thailands energy needs have to be imported, while Viet Nam is a net exporter of energy. Detailed data on the Lao PDR and Cambodian energy trade are 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

Electricity Consumption (kilowatt hours/person) 1,570 891 217 93 71 103 Oil Consumption (kilograms/ person) 1,333 902 448 294 Share of Net Energy Consumed that is Imported (%) 45 0 (14) 7

Country

Thailand China, Peoples Rep. of Viet Nam Myanmar Cambodia Lao PDR

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

61. The rationale for GMS cooperation in energy development is that a shift to a more integrated approachin the electric power subsector through transmission grid interconnection and hydropower development, and in the gas subsector through cross-border gas tradewill bring important benefits. Potential benefits in the power subsector were estimated at $4 billion for 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. A total of five EPF meetings have been held to date, with an additional expert groups meetings on power interconnection and trade in December 1998. The main objectives of the EPF are to (i) (ii) (iii) (iv) (v) (vi) (vii) provide a link between GMS power supply and system development institutions; promote and advise on efficient development of power systems; identify potential GMS power projects that could be developed on a cooperative basis; promote financing of priority projects to potential private and public financing sources; provide a venue for addressing software issues, such as planning tools and pricing principles; assemble and disseminate information to participating institutions, and cooperate with other regional and international agencies involved in the power sector; and facilitate training and other human resource development initiatives.

63. ADBs TA support to the energy sector includes limited assistance for the GMS EPF and substantial 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 Theun Hinboun Hydropower Project and the Nam Leuk Hydropower Development Project. 64. ADB provided staff consultant support in drafting a policy statement for presentation to the sixth EPF meeting in October 1999. A proposed RETA (estimated cost $800,000) to assist in developing a regional indicative master plan is scheduled to be presented to the EPF meeting in 2000.

Appendix 4, page 15 2. Assessment

65. No separate case study was conducted on this sector. This analysis and the following recommendations 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 power generation projects. There has also been an increasing focus on power trade issues. More substantive progress would almost certainly have materialized if not for the Asian crisis. The decision to draw on past experience in implementing GMS activities and to prepare a clear policy statement for the EPF is timely. 67. ADB has provided cofinancing for two GMS power generation projects, the Theun Hinboun and Nam Leuk Hydropower Development Projects. Theun Hinboun has been operational since April 1998, and the Nam Leuk hydropower station is expected to be operational by the end of 1999. Both projects have been implemented relatively quickly. The Nam Leuk hydropower project is very similar in basic structure to earlier (pre-GMS) ADBfinanced 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-financed hydropower development projects in Lao PDR in terms of the innovative financing arrangements, but is not clear to the EM that these financing arrangements can be directly attributed to the GMS process. 68. There may be clear benefits in addressing planning, regulatory, technical and institutional issues (e.g., power purchase agreements), and the integration of national networks and grids at the subregional level. The EM saw less evidence of benefits from developing and monitoring individual power supply projects as GMS projects. Once power networks are integrated, then including any one power generation project linked to the network as a GMS power project implies that all other power generation projects linked to the network should also be 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 senior GMS officials away from priority policy and institutional issues. 69. External observers have raised concerns about the possible adverse social and environmental impacts of the Theun Hinboun Hyropower Project. ADB has followed up on these concerns (see the back-to-office-report of the Infrastructure, Energy and Financial Sectors Department [West] Consultation Mission dated 7 December 1998). The EM did not have the resources or mandate to study this issue, but this issue clearly needs close attention in preparing 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 of bringing together senior officials from the respective countries. It is critical that subregional meetings focus on resolving the highest priority subregional issues. Some projects implemented as GMS projects (e.g., Nam Leuk) may have been implemented more efficiently as a national project.

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 and reduced the supply of private sector financing for GMS power supply projects. This situation could change rapidly, and the GMS needs to be prepared to attempt to mobilize substantially higher 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 financing options 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 assist in the management of an integrated subregional power grid. Recently initiated assistance should 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 can expect a particularly strong demand for information on the social and environmental impacts of GMS power projects. Assurances from findings of environmental impact assessments prior to implementation 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 proactive corrective action is taken as appropriate. Special efforts should be made to directly involve and promote consultations with key stakeholders, including community groups, nongovernment organizations, and the private sector, and to disseminate information on project impacts and opportunities. ADB also needs to recognize that there are well-organized lobby groups that are opposed to all hydropower projects, regardless of any assessment of social, environmental, and economic impacts.

Appendix 5, page1 ENVIRONMENT A. Evolution of the Environmental Program

1. The Greater Mekong Subregion (GMS) environmental strategy and activities were formulated on the basis of an extensiveif somewhat indiscriminate, in a strategic sense review of subregional environmental issues and opportunities. These were translated into priorities through the GMS consultative process (based on ministerial conferences and, later, the Working Group on the Environment [WGE]). The consultation itself was extensive and genuine, but in the early years of the program specially, it suffered from a narrow range of views that largely excluded nongovernment organizations (NGOs) and independent voices. Also, the functioning of WGE has been sporadic and by invitation, rather than sustained and spontaneous. Its work remains wholly dependent on outside funding. 2. The environmental strategic focus has correctly given priority to a substantial capacitybuilding effort. It was recognized that institutional strengthening is needed before GMS countries can contemplate a move from monitoring and analysis toward active management of their many interdependent resources and environmental assets. This direction matched the GMS governments own preference for capacity building rather than resource use or environmental-management activities. 3. The choice and design of technical assistance (TA) activities was based, to a sufficient degree, on ADBs country experience and (with some qualifications) its comparative advantage. Regional TA (RETA) 5684 (Subregional Environmental Training and Institutional Strengthening 1 in the GMS) was a logical extension of ADBs extensive involvement in building the capacity of the environmental agencies of the DMCs, including those in GMS countries (Thailand, Viet 2 Nam). The formulation of RETA 5622 was prompted by ADBs growing financing of environmental and resource data management activities in DMCs (especially Indonesia, but 3 also the Peoples Republic of China and the Mekong Basin). RETA 5771 was designed against the background of a major (though undigested) portfolio of ADB watershed management projects. There was also a reasonable degree of coherence within the GMS environmental component, 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 the TA design. There have been few fresh ideas as to how to get better value for money in RETAs, ADBs own system of consultant proposal evaluation conspiring against such ideas. Demands for holistic approaches to complex environmental problems tend to be met by more complex RETA implementation arrangements. There have also been few new ideas about how best to shortcut certain stages of RETAs and build on the considerable body of work done on the same and similar subjects by Asian Development Bank (ADB) and others. B. Overall Assessment

1 2 3

TA 5684-REG: Subregional Environmental Training and Institutional Strengthening in the GMS, for $1,665,000, approved on 9 May 1996. TA 5622-REG: Subregional Environmental Monitoring and Information System, for $1,000,000, approved on 9 February 1995. TA 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 data sharing based on such subregional standards was too ambitious. The technical and institutional capacity for sharing of data continues to be weak in each of the GMS countries. Thus implementation took place on weak foundations. This was particularly evident during the implementation of the Subregional Environmental Monitoring and Information System program. Even at the RETAs conclusion, the national authorities and the subregion remained largely unable to exchange data according to a subregional protocol. The substantial differences in the level of technical skills between Thailand, Viet Nam, and Yunnan on the one hand, and Cambodia, Lao PDR, and Myanmar on the other, have reduced the effectiveness of subregional training. A two-tiered approach recognizing these differences might have produced better results. ADBs technical knowledge of the subject addressed under the RETA has always been very narrow. This placed an unreasonable burden of technical supervision on a small number of individuals.

6. Variation in GMS country capacity needs to be recognized during RETA design. A positive example of a flexible approach is in RETA 5684 (footnote 1). For example, the flexible format of training modules, providing for a mix of national and subregional activities, was a considerable 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 to overambition. For example, in merging the original forestry-only design with the goal of poverty reduction, the objectives of RETA 5771 (footnote 3) became better balanced, but the RETA turned far too ambitious when the subregional dimension was added. ADBs experience with watershed development projects, suggesting that such projects are among the most complex of any to implement, was largely ignored. In the absence of internal consensus and policy on watershed development, ADBs guidance and technical supervision were either absent or overly dependent on individual views. The RETAs central objective of searching for models capable of wider, subregional applications remains questionable. Watershed development is highly sitespecific 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 environmental problems require shared solutions. Despite the important element of physical interconnectedness, poverty reduction in watersheds requires first and foremost more effective national, not subregional, policies. In the circumstances where the status of NGOs varies from country to country, a blanket bias in favor of NGO involvement in RETA implementation begets reduced governments support for the RETA and the subsequent investment program. 9. Particularly for policy/strategy-oriented TAs, it is critical that consensus on objectives 4 and outcomes be achieved at the design stage. For example, the design of RETA 5783 is uniformly regarded as extremely complex. Approval by the WGE did not signify that the participating institutions had full or common understanding of the RETAs objectives at the outset. That is emerging only now, five months into the TAs implementation.

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

Appendix 5, page 3
5 10. RETA 5822 also highlights some key design lessons. Following the removal of the Viet Nam subcomponent, the RETAs subregional credentials have come to rest largely on the hydrological dependence of the Great Lake on developments outside Cambodia. In all other respects (and leaving out the small Lao subcomponent), however, the RETA promises to become one of several national projects focusing on Tonle Sap. This has increased the importance 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 the complexities of source coordination, especially between the GMS program and the activities of the Mekong River Commission.

11. No major conflict has been found between the GMS environmental RETAs and the country environmental priorities. This is mainly because three of five GMS environmental RETAs are of a capacity-strengthening nature, an accepted priority throughout the GMS. The fit remains uncertain in the case of RETA 5822 (footnote 5) where the country environment strategy for the two countries concerned is yet to be finalized. However, if, overall, no major contradictions between the direction of the GMS environmental intervention and those pursued under country programs are found, this is more a tribute to ADB staff initiative than the result of an effective integration of the country and GMS planning processes, which continue to be largely separate. The ADB RETA Screening Committee reacts to individual RETA proposals rather 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 formulate investment projects. This has further increased the importance of GMS governments ownership of RETAs. In those cases where GMS RETAs are only tenuously integrated into the country programs, the degree of the participating governments commitment to borrow for investment projects identified under the RETAs remains doubtful. The problem is potentially serious in the smaller GMS economies (Cambodia, the Lao PDR) where a single GMS RETA may come to dominate the countrys 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 having established an interlinking of professional networks of government officials, ADB staff, funding agencies, and, increasingly, NGOs. The benefits of these networks have been complex and hard to quantify, but their existence is not in dispute. 14. The GMS environmental activities have contributed significantly to building of technical skills within the GMS countries environmental and other agencies. They have not been used enough, and in combination with other GMS components, as a vehicle for policy and institutional change. The leveraging potential of the GMS Program has been reduced by the insufficient integration of some GMS activities into ADBs country programming and, possibly also, by fragmentation of aid assistance and its directions that the GMS program could not overcome. As a result, some of potentially the most exciting opportunities for creating value added, 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 regional environmental programs (by Mekong River Commission, United Nations Development
5

TA 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 is among the domestic environmental institutions. This is hardly surprising, but is clearly insufficient to allay duplication concerns. Until now, this topic has been played down by the GMS Program. 16. Overall, the major transboundary investment potential of the GMS has propelled the programs environmental component to a position of considerable importance. Although not central to the GMS Program, the environmental component has become its essential supporting element. It succeeded best in facilitating professional contacts and creating a common environmental language across the subregion. The financial cost of this achievement may have been high, but the benefits of institutional goodwill and a more efficient debate across the subregional boundaries have been commensurate with the cost. 17. Outside funding will continue to be indispensable to the environmental component as a whole. The in-kind contributions of GMS governments to the GMS RETA budgets have fallen short of the original amounts pledged. The short-term prospects of greater financial sustainability 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 even greater need to ensure a close fit between the RETAs and ADBs country programs. This may be easy in some cases (i.e., the Protection and Management of Critical Wetlands RETA), but not in others since the sharing of costs and benefits of subregional investments, and with it the assignment of project ownership to individual countries, may be much more complex. The GMS infrastructure investments provide some ideas of how to reconcile country-level and regional programming. The appropriateness of these procedures to anticipated GMS environmental and natural 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 leveraged policy and institutional change in GMS countries. One reason is that they have not been integrated 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 the potential 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 on capacity building but gradual extension of activities to address transboundary environmental impacts, is sound. Its effectiveness might increase if it becomes more closely aligned with the main GMS transboundary investment components, especially in transport infrastructure and energy. For this to happen, ADB needs to make this requirement more explicit in the strategic 6 look recently formulated.
6

Programs 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 on Subregional Cooperation, Manila, 30 September2 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 other collaborators for the GMS environmental RETAs have been a source of dissatisfaction among the 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 environmental management, it will be handicapped by the absence of reliable data. The component needs to find ways of becoming party to the process of collecting, assembling, and exchanging critical original data rather than dealing mainly with the manipulation of secondary data. For a program aiming to address transboundary impacts, a source of concern is that neither the GMS governments nor the funding agencies have a good idea of the magnitude of the transboundary flows of goods, people, wildlife, etc. The gap between the sophisticated aims of the GMS environmental component and field reality must not get any bigger and, ideally, should start getting smaller. 6. Designing Subregional Cost-Benefit Analytical Tools

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

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

Appendix 6, page 1 TOURISM A. 1. Agencies in Tourism Development in the Greater Mekong Subregion (GMS) 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 is to promote economic and social development through regional and subregional cooperation. In tourism, ESCAP has made particular efforts in the following areas, often in collaboration with other agencies, including the Asian Development Bank (ADB): (i) promoting regional and subregional cooperation, (ii) strengthening national capabilities in human resources development, (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 advisory missions. Recent activities include (i) formation of the network of Asia-Pacific Education and Training Institutes in Tourism (APETIT) to provide a mechanism to facilitate contacts between institutions involved in human resource development in tourism in the Asia-Pacific; (ii) promotion of 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 seminars such as the one held in Ho Chi Minh City (HCMC) in 1996 and the one held in July 1999 in the Lao PDR; and (iv) organization of workshops such as the Seminar on Expansion of Tourism in the GMS through Improved Air Transportation held in Vientiane in July 1999, which was attended by officials from National Tourism Organizations (NTOs), civil aviation authorities, and representatives of airlines. A more extensive listing of relevant ESCAP meetings and publications is attached to the consultants report, including ESCAPs Plan of Action for Sustainable 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 is involved nationally through individual projects such as funding a new master plan for tourism for Viet 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 therefore eligible for training support from the World Heritage Fund. UNESCO has also undertaken a pilot study in village-based tourism at Luang Namtha in the Lao PDR. 4. Pacific Asia Travel Association (PATA)

6. PATAs mission is to contribute to the growth, value, and quality of travel to and within the Asia Pacific region. Founded in 1951, PATA is an international organization whose membership 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 an international network of chapters in 78 locations comprising more than 17,000 travel industry professionals 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 annual statistics 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 in tourism marketing. 5. World Tourism Organization (WTO)

7. WTO is an intergovernmental organization based in Madrid. Its mission is to develop tourism as a significant means to foster international peace and understanding, economic development, and international trade. It is open to nongovernment organizations and provides a forum for governments and industry to meet and address issues of common interest and concern. Its activities include cooperation for development, education and training, environment and development planning, quality of tourism services, statistics and market research and communications 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 assisting Viet 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 in several 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. The group is composed of representatives of the six National Tourism Organizations, PATA representing the private sector, and members of the funding community (e.g., United Nations Educational, Scientific and Cultural Organization). The WGT held its first meeting in April 1995 in Bangkok. It now meets twice a year and is the strongest element of the subregional tourism program. 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 Coordinating Mekong Tourism Activities (AMTA), which coordinates its activities. AMTA was established within the Tourism Authority of Thailand (TAT) in 1997. AMTA also coordinates marketing
1

TA 5647-REG: Regional Program to Train Trainers in Tourism in the Greater Mekong Subregion, for $130,000, approved on 23 October 1995. 2 TA 5807-REG: Tourism Skills Development in the Greater Mekong Subregion, for $125,000, approved on 29 September 1998. 3 TA5743-REG: Mekong/Lancang River Tourism Planning Study, for $600,000, approved on 24 June 1997.

Appendix 6, page 3 activities for the WGTsales 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 umbrella organizations that themselves represent many members, such as the Thai Hotels Association and Association of Thai Travel Agents. Private sector representation has generally been satisfactory, 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 each meeting. The projects are (i) promoting the subregion as a tourist destination,(ii) subregional tourism forum, (iii) training the trainers in the basic skills of tourism, (iv) training resource managers in conservation and tourism, (v) Mekong/Lancang tourism planning study, (vi) villagebased tourism, (vii) study of facilitation of travel to and within the GMS, and (viii) GMS northsouth tourism flows. 13. ADB also provides support to the Mekong Tourism Forum (MTF) that was established by the 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 influence on regional tourism, the sustainability of the initiatives is a major question. Estimates suggest that TAT has invested at least Baht 8 million in regional initiatives via AMTA. PATA has also funded one position in AMTA for an initial two-year period. 14. The WGT and MTF provide a critical means for discussing regional tourism development. A positive atmosphere of cooperation has developed among the groups. Informal contacts now take place among participants between WGT meetings, which did not happen previously. The Seminar on Facilitating Regional Air Travel held in the Lao People's Democratic Republic (PDR), July 1999, resulted from a WGT suggestion. Present moves to ease visa restrictions in the Lao PDR, Myanmar, and Viet Nam and the opening of new overland checkpoints 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, with the NTOs and private sector beginning to develop more ownership. However, the timing is difficult, with economies and tourist receipts only just beginning to recover and with little money available in NTO budgets. The MTF, however, should be able to develop a plan to become selfsustaining over the next three years. 2. Technical Assistance - Training

15. The Subregional Tourism Sector Study undertaken as part of RETA 55354 identified the low levels of skills in the tourism industry as a main constraint. The study proposed a training program to upgrade the teaching skills of tourism trainers in the subregion and enable them to identify 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 on Subregional Economic Cooperation held in Hanoi in April 1994. 16. ADB has provided support for two training programs. The first was executed in November/December 1996 under RETA 5647 (footnote 1). The four-week course was run in
4

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

Appendix 6, page 4 Singapore and Thailand for 18 participants from the six countries. Of the $130,000 approved by ADB, $34,290 was not disbursed. The Government of Singapore contributed $16,000 and the TAT $3,000. The objective was to foster the development of tourism in the subregion by upgrading the teaching skills in the basic skills of the tourism industry of the subregions trainers. 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 stimulate in-country training capabilities and encourage a common approach to tourism training within the region. Half the course was dedicated to how to design tourism courses and the other half to teaching practical aspects of the various elements of the hotel industry. The program was targeted at middle-management personnel from the subregions NTOs and other appropriate authorities. The NTOs nominated the participants. A review of the institutional affiliations of the participants suggests that perhaps half were directly involved with training. The TA completion report draws attention to some of the difficulties experienced in coordinating a regional course undertaken by two different institutes in two different countries. Whereas interviewees for this study were unanimous in supporting the need for more training in the tourism sector, it is not readily 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 and national training for trainers by the end of August 1999. 18. The second initiative (RETA 5807, footnote 2) involved two courses and was cofinanced by ADB ($120,000) and TAT ($10,000). One course, Training Trainers in the Basic Skills of Tourism was held at the Dusit Thani College in Bangkok in November 1998. Three tourism trainers from five GMS countries attended the course. Last-minute problems prevented the participation of two of the Chinese candidates. The three-week course focused mainly on basic skills similar to those in the first course. The second course, Training Experienced Tourism Trainers in Tourism Management, was held at the Mekong Institute in Khon Kaen, Thailand, 22 March-9 April 1999. The participants were the same as those who had attended the first course in Singapore and Bangkok. 19. Evaluation of the course outline and training materials indicates that the focus of this course was more on institutional strengthening, including tourism planning, site management, marketing, public participation, ecotourism, and analysis of future trends. No participant feedback is available, however. The contents of the course seem to have been more appropriate for a regional course aimed at strengthening regional tourism institutions than for the earlier hospitality-oriented course. This was also the consensus of the WGT who felt that future basic skills courses should be undertaken by the private sector and should be at a more advanced level. PATA was given the opportunity to review the design of both RETAs before implementation 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 and Tourism 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 in institutional strengthening. The first training course may have influenced teachers in tourism training institutes to improve their courses. However, there has been no rigorous follow-up to assess whether (i) courses have changed, (ii) the change was a result of attendance at the training course, and (iii) the courses have improved in terms of setting and meeting appropriate learning objectives. Such impacts are very difficult to assess, but both NTOs interviewed (TAT and Viet Nam National Administration of Tourism [VNAT]) spoke positively of the Khon Kaen course. 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 spend an internship period of one year with AMTA in Bangkok. The costs of such an initiative should be 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 closer analysis 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 tourism training programs. Basic hospitality courses should be self-sustaining and based at national training institutes. More advanced planning courses at a regional level may still be appropriate as they are able to draw on the best resources and share regional experiences as part of the learning process. Such a course (or courses) should focus on aspects of planning and management 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 River Planning Study. The first phase was undertaken by ESCAP. The second phase, funded by ADB, 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 of major tourism segments and also develop appropriate and linked infrastructure. A third phase that aims to prepare specific development opportunities, mainly for the private sector, has been listed by ADB for possible funding. 23. The study paid explicit attention to the relative roles of government and the private sector. Of the $420 million possible investment packages identified by the study, some $124 million is for private investment and $195 million for joint public-private. The benefits are not distributed evenly. The study suggests that Viet Nam would receive between 56 and 60 percent of the total benefits of implementing the investments. However, it would have to invest approximately 50 percent of the total capital required. 24. The Mekong/Lancang Planning Study has generated a lot of interest in national planning circles, but its sustainability will depend mainly on the support provided by NTOs and the abilities of the private sector to successfully capture the potential profits. The projected economic internal rate of return (EIRRs) for each segment of the river range from over 17 percent to over 30 percent, thus showing an acceptable rate of return on all segments, with a particularly good return on segment six (the Delta). The average EIRR of all segments is estimated to be some 24 percent. The new RETA proposed by ADB will play a critical role in determining 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 a continuing role in helping to develop basic transportation infrastructure that has a major influence on tourism flows. C. Options for Strengthening Subregional Cooperation

25. The report discusses several options for strengthening subregional cooperation including institutional 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 framework and 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 is required to find possible options to make it more effective. The MTF was designed as a means for providing private sector input to the WGT. The MTF has evolved into a very interactive format involving regional NTOs and the private sector. It could be strengthened by subsidizing stakeholder attendance (for those who might otherwise be excluded due to costs) and having a broader base of NGOs in attendance. It is suggested that the MTF should become selfsustaining. 27. AMTA acts as a secretariat in implementing the regional activities of the WGT. It has received considerable subsidy from TAT. While very laudable in terms of undertaking initiatives that the other NTOs cannot afford, it raises concerns as it is seen as a Thai rather than a GMS initiative. 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 allowed to devote considerable amounts of time acting for AMTA on joint marketing project as part of the Marketing Task Force; and (iv) individual NTOs taking on the implementation of specific projects under AMTAs guidance. 28. AMTA was created as a centralized coordinating unit to help implement regional tourism projects. It has limited resources and should be assessed to determine whether strengthening it would be contribute to overall strengthening of regional tourism cooperation. A reorganized and financed AMTA may include direct representation from NTO and private sector representatives in decision making, a dedicated professional staff that includes nationals from other GMS countries, and consideration of the training/research role of AMTA. A feasibility study would need to be undertaken to assess the costs and benefits of such a proposal, and provide detailed recommendations on funding (e.g., NTO funding formula), projected budgets, plan for financial independence (initial input from the funding community is anticipated), organization, strategic and 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 a Mekong Marketing Task Force (MMTF) that will be self-funding, meet at the same time as the WGT and MTF and be actively involved in designing joint marketing campaigns. Interviewees in both Viet Nam and Thailand were in favor of regional marketing, although one private sector interviewee in Viet Nam did express a preference for strong national marketing campaigns. The seriousness with which the TAT is taking regional marketing is illustrated by the production of the very high quality, 66 page brochure entitled Thailand: Amazing Gateway to Mekong Countries. After an introduction to the region, each country is given an equal number of pages with engaging and informative text and superb photography. The final section is devoted to regional itineraries. In addition, TAT has funded other promotional materials for the GMSmap, poster and video and provides space and personnel for AMTA besides producing the newsletter. The various contributions of TAT to GMS activities over the last few years total some Baht 8 million ($210,000). Each of the six NTOs has also contributed toward the production of the 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 and that NTOs are willing to also invest resources in joint marketing. In theory, Thailand, with the most developed tourism industry, has the most to lose from such a campaign, that will introduce the 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 the major hub, and few tourists will visit the region and not visit Thailand. The smaller countries should all benefit in being associated with Thailands very strong name in international tourism and 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. Appropriate activities are discussed for each one. 1. Maintaining and Enhancing Regional Cooperation

32. There are synergies to be gained through a coordinated regional approach to tourism development. Several options are identified in the consultants report. Two of them are for ADB to facilitate regional cooperation, including continued support to the WGT over the next two or three years, and an evaluation of AMTA with a view to its playing a more significant role in the long term. 2. Facilitation of Development of the Private Sector

33. In addition to stimulating regional cooperation, there is a need to continue to stimulate tourist business development by creating a favorable environment for investment. ADB can play a catalytic role here. A major challenge is how to encourage investment at a minimum cost to the public purse. 3. Encouraging a Sustainable Tourism Industry

34. Tourism is a resource-based industry. Like forestry and fisheries, it is dependent on the health of its resource base if it is to be sustainable over the long term. The private sector is very weak 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 from ADB investments, including cumulative impact assessments; (ii) facilitating basin-wide agreements on sewage and solid waste management regulations; (iii) facilitating basin-wide agreements 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 and management of all ports and landing facilities; (v) assisting in the development of implementation procedures for environmental regulations; (vi) encouraging public consultation and 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 and local 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 with many other elements of development. There is great potential to derive value-added returns, but more attention must be devoted to relationships to optimize the comprehensive benefit flows. The consultants report cites specific recommendations regarding the role ADB can take in seeking 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 where significant nonmarket added value, such as environmental conservation and poverty reduction may result. E. 36. Specific Recommendations 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, the result will be the coordinated development of a globally important tourist resource through significant private investment. Review of the pending needs assessment report on training for the NTOs before implementing any further training initiatives. Basic hospitality training is best left to the private sector and delivered nationally. There is still a role, however, for higher level, planning-oriented courses at the regional scale. These should become self-sustaining with funding from NTOs. Financial support for the WGT and MTF. There should be a phased withdrawal of financial support for these two tourism bodies. Value-added returns from tourism. More attention should be given to valueadded returns from tourism links with other sectors such as transport, environment, and poverty reduction; and also to synergies to be obtained from linking the planning and training programs.

(ii)

(iii)

(iv)

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, providing support 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 5-10 years 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 and AMTA, PATA, ESCAP, and others. The report suggests that a regional center of excellence is needed. A review of that proposal and of the pending training needs assessment study will provide a firm platform on which to build a GMS tourism strategy paper for consideration at a GMS ministerial meeting. This paper should give a focus to the role of ADB in GMS Tourism. 38. The consultants report notes, however, that (i) there is no strategic policy to guide the activities 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 with specialized 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 tourism is a significant engine of economic growth in the region and a sector in which the GMS has a lot of potential. There is excellent opportunity for stimulating private sector involvement and future sustainability. There are also considerable value-added benefits to be gained when tourism is effectively 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 its major 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 60 percent, from 120 million to 200 million. The challenge to policy makers will be to (i) enable this work force to acquire effective skills; and (ii) establish an environment that allows the work force to respond quickly to income-generating opportunities, including those across country borders. 2. The GMS human resource strategy faces a number of constraints. The grouping represents a disparate cluster with significant variations in per capita income (e.g., Thailand, th $3,200; Cambodia, $295) and human development index ranking (Thailand, 59 , Cambodia, th 140 ). Other potential constraints include language diversity, cross-border tensions, and a tradition of competition rather than cooperation. Overcoming these constraints will be critical if future 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 regional 1 technical assistance (RETA). The initial scope of the terms of reference (TORs) focused largely on labor market trends and skills training, rather than broader aspects of human development. ADBs rationale was that improving skills, technology transfer in technical training, networking of vocational training institutions and effective labor management information systems were pivotal to the efficient and equitable functioning of labor markets in the GMS, and that ADB does not have a comparative advantage in all aspects of HRD. This focus contributed in part to a limited definition of potential stakeholders, and limited consultations 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 the TORs) 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 development financing. The absence of strategic project selection criteria reinforced an activity-based approach. The limited focus of the initial work meant that most follow-up TAs had to begin by assessing GMS regional needs, opportunities, and constraints. 5. The outcome of the first HRD working group meeting partly reflected the narrow focus of the 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) access to education and training by minority and hill area groups, (v) low level of communication and 2 language skills, (vi) rapid spread of HIV/AIDS, and (vii) prevalence of malaria. To some extent, this framework of priorities helped to broaden the range of GMS/HRD priorities beyond the narrow skills training focus.

TA 5487-REG: Studies in Sub-regional Cooperation Initial Possibilities for Cambodia, Peoples Republic of China, Lao PDR, Myanmar, Thailand, and Viet Nam (Phase I), for $100,000, approved on 9 March 1992. The amount was subsequently increased to $190,000 on 19 May 1992 and $270,000 on 16 September 1992. Human immune deficiency virus/acquired immune deficiency syndrome.

Appendix 7, page 2 6. The Working Group on Human Resource Development (WGHRD) was not convened until December 1996, almost two years after the initial HRD sector work and much later than most other sector initiatives. The first WGHRD meeting achieved consensus on an agreed list of priority projects, but did not reach a strategic view on HRD in the GMS. Many country position papers focused on elaborating country policies and priorities rather than presenting a broader GMS perspective. A focus on sector considerations (e.g., health/education) was evidenced in the decision to invite presentation of separate health and education position papers. 7. The initial HRD project profiles prepared were as follows: HRD1-employment promotion/training (approved for funding); HRD2-centers of excellence network; HRD3-health surveillance information sharing; HRD4-HIV/AIDS prevention and control (approved for funding); HRD5-health and education: ethnic minorities (approved for funding); HRD6- technical skills training. HRD7-vaccine production/procurement (approved for funding); HRD8- health sector 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 stocktaking of the GMS/HRD program. The cochairperson acknowledged that the approach had essentially been a supply-driven wish list of proposed interventions. ADB also acknowledged that given Bank staff and RETA budget constraints, it was becoming obvious that ADB would not be able to meet the expectations of WGHRD regarding this pipeline of projects. The meeting recognized that greater funding agency cooperation was required to secure financing for the program. The funding agency representation was significantly broader than in 1996, and included participation from the International Labor Organization (ILO), United Nations Development Programme, United Nations Educational, Scientific and Cultural Organization, United Nations Population Fund, World Health Organization, Mekong Institute, Mekong River Commission, and German Agency for Technical Cooperation (GTZ). 9. The meeting agreed on the need for (i) adoption of principles for a GMS/HRD strategic framework; (ii) closer examination of the RETA screening and selection criteria, including a review of priorities; (iii) recognition of the need to take account of broader poverty reduction strategies, including the impact of the regional economic crisis; and (iv) greater linkage between HRD projects and the road/energy economic corridor, including spatial considerations in project targeting and selection. The second WGHRD meeting also recommended (i) a study of the social impact of the economic corridor, including potential opportunities, constraints, and strategies for social optimization and mitigation; and (ii) initial agreement on a revised work plan for the period 1999/2000 to be presented at the ninth ministerial meeting and reviewed at the next WGHRD meeting in June 2000. 10. Discussants noted that the programs proposed by the WGHRD were largely countrybased programs, although there were dimensions that could be used as the basis for subregional programs (such as economies of scale, greater linkage with the East-West transport corridor). ADB staff highlighted staffing and RETA financing constraints, and noted that this would necessitate a prioritization and rationalization of the WGHRD program. 11. The country presentations and priorities made to the second WGHRD meeting to some extent 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 be variable, 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 the first 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 GMS work program in HRD. Limited attention was paid to crosscutting social and economic development perspectives, including: (i) little emphasis on crosscutting legislative and regulatory issues associated with social service provision; (ii) no regular attempt to assess whether activities would be more cost effectively implemented as (several) country or a single subregional project; and (iii) limited attention to GMS/country capacity-building objectives and requirements during TA design (partly because limited project design resources have to be spread over multiple countries). The net result has been: (i) a limited focus on the potential benefits/costs of social sector investments within the economic corridor, including social impact assessment and possible social opportunities and mitigation strategies; and (ii) inadequate use of previous needs assessments in TA design, meaning that there are potential overlaps with previous studies and intrinsic repetition costs. 13. Stakeholder ownership of the HRD program appears limited, evidenced by the lack of NGO or private sector representation on the WGHRD and national steering committees. The Bank has committed only modest resources to HRD activities ($0.9 million) and only $0.95 million in cofinancing has been secured. On a positive note, aid agency interest (especially United Nation agencies) appears to be increasing. 14. HRD RETA project documentation show significant fragmentation of the project rationales. Clear criteria for prioritization and for resolving differences in priorities were not established. The identification and design process does not appear to have given adequate attention to the costs and benefits of subregional versus national approaches. There is a wide continuum 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 documented elsewhere 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 differences between GMS members in policies, strategies and planning and implementation capabilities. 15. Many of the HRD project profiles and completed RETAs have resulted in extensive needs assessments and the formulation of indicative project interventions for tabling at a series of regional meetings. The designs rely heavily on the use of international consultants (on average representing more than half of total costs). Project documents included few specific references to the costs/benefits of alternative approaches, such as drawing more heavily on previous ADB or other funding agency country assessments (e.g., in skills training, health/education for ethnic minorities by ADB, HIV/AIDS by United Nations Childrens Fund 3 /UNAIDS ). On a positive note, the use of government departments and domestic consultants to 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 immediate terms, study field discussions with government planning and social sector ministries indicated the value of sharing experiences, discussing comparative country policies and strategies, alongside a growing recognition and awareness of the potential benefits of regional
3

United Nations agency for combating HIV/AIDS.

Appendix 7, page 4 cooperation. As recent international studies highlight (e.g., Emerging Asia 19974), the potential long-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 stronger professional networks with government policy makers and planners as well as within the funding 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 information networks and international/regional performance monitoring systems. Another potential benefit is opportunities to build awareness of broader HRD governance issues. The benefits and impact 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 widespread recognition 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 a tendency for fragmentation. The study recommends that ADB (i) conducts a detailed evaluation of its support for the GMS HRD program, and prepare a draft position paper on possible alternative strategies for the GMS HRD program, to be circulated for review and feedback from Governments, funding agencies, NGOs and the private sector, and (ii) convenes a meeting of the WGHRD, possibly with broader representation, to finalize the revised strategy and amend the project priorities and work program. Some alternatives for different levels of intervention are discussed below. a. Alternative 1: Enabling HRD Policy Dialogue and Information Exchange

19. The objective would be to undertake analysis, policy dialogue, and information exchange aimed at harmonizing policies, legislation, and regulation for human development services, 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 may include subregional policy conferences on social sector financing, decentralization, and capacity-building; and steps to set and implement subregional standards for education, and health 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 within the subregion. 20. One opportunity under this alternative is to help unlock many of the policy and strategy constraints facing ADB/other funding agency health/education country programs and optimize the benefits from this investment. A second opportunity is to broaden the scope and range of HRD networks (e.g., a greater focus on governance) particularly by tapping into UN and other funding agency networks. A third advantage is that this alternative may take pressure off ADB as the dominant financier of the program. The potential limitations of this alternative include some danger of fragmentation without careful management and difficulties in managing the
4

Emerging 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 GMS Economies 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 subregional agreements, institutions, and financing arrangements. The primary activity initially would be to undertake a small number of feasibility studies for agreed upon services, followed by mobilization of resources to build institutions for service delivery. Possible areas of cooperation include the procurement/distribution of vaccines and other pharmaceutical products, specialist health/education services (e.g., higher education, tourism/hotel management training), crossborder health services, specialist research centers, and English language trainer training and program accreditation. 22. The main opportunity under this alternative is that feasible interventions could result in direct investment by government/funding agencies and the private sector. Another opportunity is 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, and difficulties in focusing on a small number of deliverable projects and reaching agreements on costs and revenue sharing. Another potential disadvantage is perceptions from the smaller GMS countries that these initiatives would be located in and dominated by the more advanced GMS 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 the economic/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 would be to undertake a social impact assessment of the five possible economic corridors, starting with the East-West Corridor. Subsequent project activities could include cross-border health and education facilities, and skills training initiatives, taking into account any projected growth in social service demand and resettlement. These initiatives could be linked to several of the cross-border initiatives under alternative 1. 24. A particular advantage of this alternative is the provision of a clear spatial/geographical focus to assist the targeting of interventions. A second opportunity is the likelihood of immediate value added to the massive planned investments. A third opportunity is strong synergy with ADB and other funding agency country programs, many of which are located in more remote areas. A fourth advantage may be the greater likelihood of government/funding agency support for social infrastructure investment, integrated into planned roads/energy infrastructure development. A potential disadvantage is the concentration of investment in selected areas, at cost to other parts of the GMS, along with the limited focus on broader GMS policy issues and common services. In effect, this alternative would constitute a small number of Greater Mekong area development programs in which ADB has extensive planning and management experience. On balance, this study suggests that greater potential for impact and synergy with ongoing ADB/other funding agency country investments may be found through closer 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) examining the 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 and institutional assessments wherever possible; and (ii) where it appears cost-effective, maximize the 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 RETA conceptualization, design, and implementation; (ii) give greater emphasis to opportunities for systematic capacity building in the RETA design; (iii) where needs assessment appears adequate, give greater emphasis to feasibility studies and costed interventions in RETAs; and (iv) undertake a careful assessment of ADBs comparative advantage in terms of experience and 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 variable contexts and development features. The key strategic considerations included the variable importance of intra-GMS trade, the different volumes and shares of aggregate foreign direct investment (FDI), and the size and makeup of the private sector within the GMS countries. A critical concern was how the more advanced trade and investment strategy and program in Thailand could be harnessed to the mutual benefit of the GMS members. 2. With the notable exception of Thailand, the importance of intrasubregional trade flows for each of the GMS countries, as a proportion of their aggregate external trade, is fairly substantial. Thailand is the odd man out. Only about 5 percent of its exports and 3 percent of imports are conducted with fellow GMS countries; there appears to be a large potential for increased 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 (excluding Yunnan Province) saw its FDI inflows grow from $2.7 billion in 1992 to $5.2 billion in 1997, an almost twofold increase in aggregate foreign investment. Most of this FDI activity has taken the form of inflows from investors located beyond the subregion, with only Thailand providing any consistent 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 fairly predictable profile that one might expect to see when countries open up to foreign capital after a 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 of business support services (e.g., hotels, banks, law firms, etc.) were also quick to enter the GMS countries 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 new leisure travel destinations. The more established members of the ASEAN (the ASEAN 6, which includes only Thailand of the five GMS members) have played a very important role in FDI flows, both vigorously trading with the GMS countries and heavily investing also. Singapore is the largest single investor in both Myanmar and Vietnam, while Malaysia is the largest single investor 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 of the 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 international investors/venture capitalists active in the subregion. With the exception of Thailand, the domestic 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 currently stands, the input that can be expected from the indigenous private sector in GMS initiatives is probably 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 its first inception meeting was not held until December 1995, shortly after the fifth ministerial meeting. 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 in investment promotion; and (iii) support cooperation between countries on investment facilitation, notably with regard to complementary investment and transborder projects. At the seventh ministerial conference of April 1997, a proposal for the ASEAN Secretariat to participate in and support the SIWG was endorsed. 6. The trade facilitation working group (TFWG) was established, at the third ministerial meeting in April 1994, as an advisory body on issues relating to the facilitation of trade within the GMS. The TFWGs objectivesendorsed by the seventh ministerial conferenceare to provide (i) a venue for identifying trade constraints; (ii) a venue for institutional cooperation among member countries in trade facilitation; (iii) a vehicle for cooperation in improving and coordinating 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 of the private sector. The United Nation Economic and Social Commission for Asia and the Pacific hosted a meeting of the GMS Chamber of Commerce in 1996, leading to proposals for the formation of a GMS Business Forum. Very little progress has been made in this direction due to limited consultation and follow-up with private sector groups with strong interests in the subregion. In part, this reflects a policy environment that is not conducive to trade and investment in the subregion (apart from Thailand) and uncertainties at the time regarding the need 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 workshop has already taken place), and the second meeting of the SIWG. These meetings will take place in an external environment that has changed greatly since the inception meetings as a result of the recent regional financial crisis, ASEAN expansion, and changes in the international business 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 the changed 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 GMSs future value added, particularly with regard to GMS trade and investment activities in relation to the AFTA (ASEAN Free Trade Area) and the AIA (ASEAN Investment Area). There are concerns about defining a role 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 to address 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 ensuring consistency in trade procedures and information reporting that is likely to add value to what AFTA is already doing in this area. While financial resources allocated to the trade and investment initiatives have been minimal, the activities of these groups have consumed considerable time in ministerial and other discussions attended by some of the highest level policy 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. The various activities planned are largely ad hoc, with uncertain intended outcomes. This is due in part to the inadequate processes for early consultation with the private sector who remain unconvinced and uncommitted to the merits of a GMS trade/investment program. The lack of ownership and clear structures and processes for private sector involvement has been a significant limitation of program design and implementation. 12. The absence of a clear public/private partnership strategy for trade and investment is most evident in the development of the economic corridors. The most substantive GMS impacts on 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 preparations for the East-West Corridor Project. Yet the trade and investment working groups were not utilized 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 private investors, and to the broader community has been ad hoc and weak. The general ideals and long lists of projects raised expectations, but there was no systematic approach to regularly disseminating information on progress and emerging opportunities. Specific marketing initiatives, namely the private sector forums in Europe and East Asia, were successful in raising broad awareness of the GMS initiative. In contrast, there has been very limited and ad hoc follow-up in promoting specific projects. 14. More recently, the interest of GMS members in the trade and investment working groups initiative gained some momentum, due partly to changes in priorities following the regional financial crisis. Prior to this crisis, overall trade and investment flows in the subregion had grown 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 for substantive change. The crisis affected all GMS economies to some extent, and the impact on some economies, notably Thailand, has been very severe. Since 1997, subregional growth in trade and FDI inflows have slowed markedly. 15. Largely because of this nonconducive environment, ADB's investment in the Greater Mekong 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-year investment cycle, the fund has committed investments of only $8.9 million. Country diversification has been limited, with loans being only to Thai firms that do yet have any significant exposure in other GMS countries. One of the investments is facing substantial difficulties, and the other is now being divested. There is little evidence that the fund has provided 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 on developing 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 of other listed funds targeting the GMS area. Most GMS funds (including the GMCIF) will not invest in deals of less than $1 million, given the time and resources necessary, yet in much of the GMS, equity deals of at least $1 million are too large for local firms. This is exacerbated by the fact that most funds are not permitted to hold more than a minority equity stake in a single company/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 on effective action for trade and investment in the GMS. Working groups urgently need to reach agreement on a role that is clearly differentiated from that of existing regional institutions. The working groups need to prioritize trade and investment opportunities that can be implemented relatively quickly. Key selection and screening criteria need to ensure nonduplication and complementarity 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 of value 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 specific subregional infrastructure developments. The tasks of both the SIWG and TFWG should be reprioritized to meet this revised focus. An immediate priority is to build on the progress achieved in negotiating on administrative issues (e.g., mutual recognition of licenses [vehicle and drivers], quarantine and customs regulations and procedures, visa arrangements, etc.) involved in the cross-border agreements for the East-West Corridor. The forward work program should also attempt to identify the priority trade and other policy constraints to maximizing returns on subregional infrastructure developments. One example is the potential negative impact of agricultural protection policies on potential benefits from the East-West corridor 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 of and confidence in the GMS program. Confidence, in turn, is essential to better marketing of GMS investment opportunities to potential private sector investors. As progress is made toward implementation, more focused marketing of the opportunities presented by the proposed development may be required. In the end, however, it will be results that will have the greatest impact in generating private sector confidence. Successful development of the East-West Corridor infrastructure and effective implementation of the associated cross-border agreements have a potentially pivotal role to play in mobilizing private sector resources for future development. Thus, ADB needs to give the highest possible priority to ensuring effective implementation 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 a partner in the trade and investment program. Any revised strategy and program should incorporate private sector ideas and concerns. The private sector should also be more actively engaged in the execution of trade and investment activities, possibly through a more substantive 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 early stages in the decision-making process. The private sector should not be regarded just as an end 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 important in attracting private sector funds. In essence, the role of the governments and the private sector, and their comparative advantages require a clearer definition. 5. Mobilizing Financial Resources

20. ADB needs to more actively mobilize financial sector resources from all possible sources. ADB is in a unique position to use its leverage to mitigate the cumulative country risk associated with investments dependent on the subsequent policy actions of a number of sovereign nation. ADB should consider developing a marketing package describing the particular ways it could assist in financing GMS-related infrastructure developments. This marketing strategy needs to clearly spell out ADBs potential in minimizing trade/investment risk, providing loan quality assurance and control, and articulating success stories elsewhere in the region.