ASIAN DEVELOPMENT BANK

COUNTRY STRATEGY AND PROGRAM(2002-2004)

LAO PEOPLE’S DEMOCRATIC REPUBLIC

August 2001

CURRENCY EQUIVALENTS(as of 31 July 2001)

Currency Unit – Kip (KN)KN1.00 = $0.0001096$1.00 = KN9,120.00

ABBREVIATIONS

ADB – Asian Development BankADTA – advisory technical assistanceAFTA – ASEAN Free Trade AreaASEAN – Association of Southeast Asian NationsCOSS – country operational strategy studyCSP – country strategy and programGMS – Greater Mekong SubregionIMF – International Monetary FundIPF – indicative planning figureLao PDR – Lao People’s Democratic RepublicLRM – Lao Resident MissionNGOs – nongovernment organizationsO&M – operations and maintenanceODA – official development assistancePPTA – project preparatory technical assistanceQPRM – quarterly portfolio review meetingRTM – round table meetingSME – small and medium-size enterpriseSOCB – state-owned commercial bankSOE – state-owned enterpriseTA – technical assistanceUDAA – Urban Development Administration Authority

NOTES

(i) The fiscal year (FY) of the Government ends on 30 September. FY before acalendar year denotes the year in which the fiscal year ends. For example,FY2001 begins on 1 October 2000 and ends on 30 September 2001.

(ii) In this report, “$” refers to US dollars.

CONTENTS

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EXECUTIVE SUMMARY ii

I. DEVELOPMENT AGENDA 1A. Key Features of the Lao People’s Democratic Republic 1B. Current Political, Macroeconomic, and Social Trends 2C. Current Developments 4D. Development Priorities and Outlook 8

II. ADB’s DEVELOPMENT EXPERIENCE 9A. Factual Summary of ADB Assistance 9B. Summary Evaluation of ADB Assistance 10C. Portfolio Performance and Status 13D. Conclusions and Lessons for the Country Strategy and Program 13

III. ADB’s STRATEGY 15A. Poverty Reduction 15B. Thematic Priorities 16C. Private Sector Development 20D. Regional Cooperation 21E. Risks 21

IV. OPERATIONAL APPROACH 22A. Modalities of ADB Assistance 22B. Participation of Civil Society, the Private Sector, and Local Governments 23C. Strengthening Government Capacity 24D. Aid Coordination 24

V. THREE-YEAR ASSISTANCE PROGRAM 25A. Funding Level and Performance 25B. Loan and Technical Assistance Program 25C. Economic and Sector Work Program 25

VI. PERFORMANCE MONITORING AND EVALUATION 26A. Agreed Upon Performance Indicators 26B. Monitoring Process and Plan 26

APPENDIXES 27

EXECUTIVE SUMMARY

The Lao People’s Democratic Republic (Lao PDR) has a rich and varied naturalresource base and is also the hub of the economic corridor linking the subregional economies.However, the Lao PDR’s mountainous terrain, remote settlements, and low population densityare barriers to access to and cost-efficient delivery of public services. Policy and administrativereform must be accelerated and institutions and human resources developed to realize thecountry’s potential.

During the last five years, the Lao PDR has achieved average economic growth of about6 percent per annum and reduced the incidence of poverty from 45 to 39 percent. The incidenceof poverty varies significantly across regions as well as between urban and rural areas, and ishighest in the northern region and lowest in Vientiane Municipality. While economic growth hashelped reduce poverty, the better-off have benefited more than the poor.

Sustaining poverty reduction through equitable economic growth will be a majorchallenge. The Government’s ambitious development goal is to reduce poverty by half by 2005and eradicate it and for the Lao PDR to graduate from the status of least developed country by2020. The Government targets broad-based economic growth of 6-7 percent per annum overthe next five years. The strategic approach is to reduce poverty through human and ruraldevelopment, and people’s participation, focusing on (i) agriculture and forestry, (ii) education,(iii) health, and (iv) road infrastructure. To achieve its ambitious objectives with limited financialand human resources, the Government will need to prioritize and phase in its poverty reductionprogram.

The Asian Development Bank’s (ADB) 1996 Country Operational Strategy Study placeshigh priority on sustainable economic growth through infrastructure investments, and secondarybut important emphasis on policy reform, social services, and human development. The Studyalso emphasizes subregional cooperation. Operations evaluation findings show that ADB’s pastoperations contributed to the country’s economic development, poverty reduction, and regionalintegration. However, to maximize the development impact of ADB’s operations in the Lao PDR,the following are needed: (i) more emphasis on synergy between various developmentactivities, (ii) better social and environmental management in economic development planningand implementation, (iii) effective institutional development and capacity building, (iv) greatersustainability of investment projects, and (v) more emphasis on full participation and ownershipof stakeholders.

The theme of ADB’s interventions in the Lao PDR over the next five years will be povertyreduction by broadening community participation and opportunities. Core strategies are (i)sustainable economic growth, (ii) inclusive social development, and (iii) good governancethrough policy and institutional development. ADB will thus focus on four operational priorities (i)rural development and market linkages, (ii) human resource development, (iii) sustainableenvironmental management, and (iv) private sector development and regional integration.

The participatory poverty assessment highlights the need to improve rural infrastructureand increase market access in rural areas. With local community’s participation, ADB willsupport the development of rural access roads, electricity, water supply, and other rural physicalinfrastructure. ADB investments will be complemented by improved basic education, skills, andhealth standards. To increase agricultural productivity, ADB will focus on (i) institutionaldevelopment and policy reform; (ii) crop diversification, including livestock andcommercialization; (iii) reducing shifting cultivation; (iv) rural finance development; and

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(v) provision of extension services. Small-town development will help link the rural and urbanareas.

ADB will continue to widen the coverage of quality services in basic education, primaryhealth care, and water supply, and to support development of isolated areas, women, andethnic minorities. Social services will be made more relevant to community needs by increasingcommunity participation in project preparation and implementation. ADB will strengthen policydialogue to address the imbalance between current and capital expenditures to make socialsector investment more sustainable and efficient.

In a natural resource-based economy, all public investments have potentially importantenvironmental implications. Environmental considerations will be increasingly integrated intoearlier stages of economic planning and infrastructure development, including hydropower. ADBwill work closely with other aid agencies, community groups, and civil society to improve theinstitutional, policy, and regulatory framework for sustainable environmental management. ADBwill place more emphasis on community consultation and involvement, and on raising publicawareness of social and environmental issues. ADB will consider investment support for riverbasin development and industrial tree plantation.

Private sector development, particularly of micro- and small businesses, is critical toachieve sustainable economic growth and reduce poverty. To improve the businessenvironment, ADB will focus on (i) restructuring state-owned commercial banks (SOCBs) andimproving corporate governance, (ii) providing a level playing field for state-owned enterprisesand the private sector, (iii) improving financial service delivery in rural areas, (iv) establishingregular dialogue between business groups and the Government, and (v) removing barriers tocross-border movement of goods and people. Infrastructure projects will develop potentialmarkets, tourism, and enterprises. ADB will pursue internal and subregional economicintegration to expand the economy’s market base and broaden the country’s opportunities.

Most road networks in the land-linked Lao PDR contribute to subregional cooperation.The country program should be effectively linked with Greater Mekong Subregion (GMS)initiatives. The country strategy and program (CSP) aims to explore policy, administrative, andpublic expenditure options to maximize the benefits to the Lao PDR from subregionalcooperation. Potential areas for subregional development cooperation include transport,tourism, power transmission, telecommunications, trade and investment, HIV/AIDS and otherdisease prevention, and environmental management.

To enhance the development impact of projects and ensure their close monitoring,ADB’s interventions in the Lao PDR will focus primarily on the northern region provinces,1 whichare the poorest in the country, and on Savannakhet Province, where the ongoing GMS: East-West Corridor Project connecting the Lao PDR with Thailand and Viet Nam will provideopportunities for access to markets.

Weak capacity of the Government and local agencies and inefficient delivery of publicservices are major constraints to development. Institutional development, improved governance,and greater stakeholder participation in development will be an integral part of all ADBoperations. ADB will particularly focus on improving (i) public finance management, (ii)government accounting and auditing, (iii) project implementation and monitoring; and (iv) the

1 Here, northern region provinces include Phongsali, Louang Namtha, Oudomxai, Bokeo, Louang Phrabang,

Houaphanh, Sayaburi, Xaisomboun, and Xieng Khouang.

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capacity of provincial authorities. Long-term institutional development and capacity-buildingprograms for agencies will be prepared and reflected in ADB investment, as appropriate.

Three lending scenarios are proposed for the 2002–2004 assistance plan. Consideringrecent achievements in macroeconomic stability, economic growth, poverty reduction, andsocial development, the current situation is a base case lending scenario. Subject toperformance-based allocation, an indicative planning figure (IPF) of $45 million–55 million peryear for lending, with additional IPF for subregional projects, is used to develop the 2002–2004assistance plan.

A base case scenario would be triggered by (i) stable macroeconomic outlook; (ii)formulation of and Government commitment to a SOCB restructuring plan and implementationof agreed upon interim measures; (iii) enactment and implementation of the prime minister’sdecree on social and environmental impact assessment; and (iv) implementation of monitoringsystems for contract award, submission of audited financial reports, and compliance with loancovenants. A high case scenario would be triggered by (i) significant improvement inmacroeconomic management; (ii) implementation of restructuring plan of the banking sector andrural finance; (iii) significant improvement in the balance between capital and currentexpenditures in social development; and (iv) significant improvement in contract award,submission of audited financial reports, and compliance with loan covenants.

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SUMMARIZED THEMATIC FRAMEWORK

STRATEGIC THEME Poverty Reduction by

Broadening Community Participation and Opportunities

THREE PILLARS OF POVERTY REDUCTIONSustainable Economic GrowthInclusive Social Development

Good Governance through Policy and Institutional Development

OPERATIONAL PRIORITIESRural Development and Market Linkages

Human Resource DevelopmentSustainable Environmental Management

Private Sector Development and Regional Integration

GEOGRAPHIC FOCUS OF INVESTMENT PROJECTSNorthern Region Provinces (including Xaisomboun and Xieng Khouang)

Savannakhet Province along the East-West Corridor

PRIORITY REFORMS TO BE MONITORED DURING THE COUNTRY STRATEGY AND PROGRAM

Regional, Ethnic, and Gender Equity in DevelopmentEnforcement of Social and Environmental Safeguards

Increased Budget Share for Current Expenditure on Social Development Reduction of Barriers to Private Sector Development and Regional Integration

Increased Domestic Resource Mobilization

OPERATIONAL ISSUES AND APPROACHESAgreed Upon Sector Strategies, with Clear Targets and Long-Term Support

Stakeholder Participation in Project Design and ImplementationMobilization of Local Resources for Social and Economic DevelopmentLong-Term Capacity Building and Institutional Strengthening Support

Integrating Subregional Cooperation in Development PlanningImproved and More Consistent Monitoring and Evaluation

I. DEVELOPMENT AGENDA 1

A. Key Features of the Lao People’s Democratic Republic

1. Natural Resources

1. The Lao People’s Democratic Republic (Lao PDR) has a rich resource base and uniquebiological diversity, and is the least densely populated country in Southeast Asia. Some threequarters of the population are involved in agriculture. Forests still cover more than one third ofthe country. Natural resource-based economic potential includes agriculture, forestry, fishing,tourism, mining and hydropower. Natural resource-based development is accelerating and couldhelp achieve economic growth with equity, provided the poor (including ethnic minorities andrural women) have equitable access to resources and economic opportunities. However, muchof the country is uncultivated and environmentally fragile. Deforestation and shifting cultivationremain major problems. Unexploded ordnances are a problem in up to half the districts. Somehydropower projects have had unintended environmental and social costs. Poverty must bereduced to discourage unsustainable shifting and poppy cultivation and thus ameliorateenvironmental pressures. Sustainable natural resource-based development requires adequate,enforced social and environmental safeguards.

2. Diverse Ethnic Groups and Cultures

2. The small population includes more than 70 ethnic groups2. This diversity enriches theculture, but also has implications for development. Well-designed participatory approaches areparticularly important to reflect ethnic differences. Language, livelihood patterns and otherculture-specific issues need to be considered when providing social services, infrastructure andeconomic opportunities to ethnic groups. Targeting ethnic groups may increase costs, but mayalso be more cost-effective in reducing poverty in the poorest areas where ethnic minorities live.

3. “Land Link” to Major Subregional Economies

3. The Lao PDR was once an isolated, landlocked economy, with limited and high-costaccess to foreign markets. The Government has adopted more open economic policies and adevelopment strategy that emphasizes the country’s location at the hub of trade routes linkingemerging regional economies. The Government recognizes that regional cooperation offerssignificant opportunities for the Lao PDR as a land link in the Greater Mekong Subregion(GMS). Infrastructure must be improved to realize the potential economic benefits of the LaoPDR’s geographic location. Complementary policy and administrative reforms are needed tofacilitate the cross-border movement of goods, people, and investment.

4. Mountainous Terrain and a Fragmented Domestic Market

4. Mountainous terrain, remote settlements, and low population density are barriers toaccess and the cost-efficient delivery of social and other services. Physical constraints,

1 The country strategy and program (CSP) was prepared by the Asian Development Bank’s (ADB) country team (led

by G. H. Kim, Programs Officer, PW3) and the Government’s country team (led by K. Pholsena, Vice President,Committee for Planning and Cooperation). Considerable consultations have been conducted with provincialauthorities, other aid agencies, international nongovernment organizations, community-based organizations, andthe private sector.

2 Lao PDR Government Report to the Seventh Round Table Meeting. November 2000. Fighting Poverty throughHuman Resource Development, Rural Development and People’s Participation. Vientiane.

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including a lack of direct access to seaports, poorly developed infrastructure, and a smalldomestic market, increase business costs and discourage commercial investment. Per capitainfrastructure costs are high due to the sparse population. Weak public administration hasexacerbated these constraints. A strategic approach is needed to reform institutions and theorganizations required to provide critical rural services and infrastructure. The viability of manysocioeconomic development investments will depend on the extent of internal and subregionaleconomic integration.

5. Transitional Economy

5. The country is in transition to a market-oriented economy. The public sector still plays amajor role in industry, the financial sector, and some services. Frequent policy and institutionalchanges, bureaucratic interference in business decisions, and administrative discretion add tobusiness costs. Institutions are weak in terms of protecting property rights, enforcing contracts,and providing professional and financial services. Institutional weaknesses and severe publicsector budget constraints inhibit the delivery of public services, and limit capacity to maintainphysical infrastructure, reducing the development impact of past public investments and officialdevelopment assistance (ODA). In some sectors, improving the quality and sustainability ofpublic investments and services is more urgent than increasing public investment, and willrequire reforms in public administration and ODA delivery. Alternative arrangements fordelivering services are being tested, including the increased involvement of local authorities,private enterprise, and civil society.

6. Underdeveloped Human Resources

6. Key indicators of human development, including life expectancy, infant and maternalmortality, and education levels, are among the lowest in the region. The United NationsDevelopment Programme’s (UNDP) human development index gives the Lao PDR a rating of.484 and a ranking of 140 out of 174 countries, making the Lao PDR one of the poorestdeveloping member country in the region.3 Low education, health, and nutrition standards aremajor constraints to productivity growth. The education and health status of women isparticularly disappointing. Women’s potential contribution to development is weakened by theirlimited participation in higher value-added economic activities. UNDP’s gender-relateddevelopment index gives the Lao PDR a rating of .469 and a ranking of 117 out of 143countries. Some 70 percent of the workforce has not completed primary school, and poortechnical and management skills discourage business investment. Accelerated humandevelopment is an important goal in itself, but is also essential to achieve sustainable economicgrowth and reduce poverty.

B. Current Political, Macroeconomic, and Social Trends

1. Political Trends

7. Political stability has been sustained over the last 25 years by the one-party state. Thenewly appointed political leadership is committed to pursuing reforms and reducing povertythrough (i) sustainable social and economic development, (ii) balanced and equitabledevelopment, (iii) administrative and political development, (iv) external cooperation, and (v)national security. Fulfilling these commitments and the emerging aspirations of a changingsociety—which has an increasing proportion of well-educated young people—will require

3 United Nations Development Programme. 2001. Human Development Report. New York.

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accelerated public sector and economic reforms. Decentralized development activities throughgreater community participation is important. However, implementation capacity remains weak,and much remains to be done to ensure that local institutions are accountable. The recentdecision to transfer public service management responsibilities from the Lao People’sRevolutionary Party to the Government is an important initial step to improve public sectorprofessionalism.

8. The Lao PDR’s commitment to regional integration is reflected in the country’smembership in the Association of Southeast Asian Nations (ASEAN) since 1997, commitment tothe ASEAN Free Trade Area (AFTA), and active involvement in other regional initiatives such asthe GMS Program and Mekong River Commission. The Government is also investigatingpossible membership in the World Trade Organization. Despite these positive developments,challenges remain in meeting the existing and proposed commitments and in developing thecapacity and policy environment to maximize national gains from regional integration.

2. Macroeconomic Trends.

9. In 1997–1999, the country suffered macroeconomic instability, triggered byexpansionary fiscal policy and the regional financial crisis. From 10–20 percent before the crisis,inflation rose to 87 percent in 1998 and 134 percent in 1999. The kip sharply depreciated byabout 80 percent against the dollar between 1997–1999. Capital spending increased fromapproximately 50 percent of total government expenditures to approximately 75 percent duringthe crisis, mainly because the Government invested heavily in irrigation systems. Depreciationof the kip also increased the kip-denominated amount of externally funded projects. Inflationeroded the value of recurrent expenditure, particularly government salaries.

10. Tighter fiscal and monetary policies since mid-1999 and the recovery of neighboringeconomies have helped restore stability in the Lao PDR economy, which grew by 7.3 percent in1999 and 5.9 percent in 2000. Agriculture (particularly paddy crops), manufacturing (primarilytextiles), and tourism all contributed significantly to economic growth. Inflation is expected to bebelow 10 percent in 2001. The exchange rate has stabilized at around KN8,000 to $1. The fiscaldeficit is still high at around 9 percent of gross domestic product (GDP). Tax revenues havegone up from 10.6 percent of GDP in 1999 to 14.0 percent in 2000. The Government is takingsteps to restore the balance between capital and recurrent spending. Capital spending nowaccounts for about 65 percent of total government expenditures. Exports have grown by about 8percent since 1998, and the balance of payments, although in deficit, is improving. Tourism,textiles, and electricity are key exports. The current account deficit was less than 6 percent in1999 and 2000, a substantial improvement from previous years when the deficit was 10–20percent.

11. In April 2001, the Lao PDR and International Monetary Fund (IMF) entered into anagreement to permit the country to borrow under IMF’s Poverty Reduction and Growth Facility.The agreement is an important endorsement of the country’s commitment to economic reform.Macroeconomic management priorities include strengthening domestic resource mobilization toreduce the economy’s heavy dependence on external assistance, and increasing currentexpenditure allocations (especially for social services). Reforms in fiscal management and thefinancial sector are critical. Achieving targeted annual growth rates of 6-7 percent4 over the nextfive years will require additional reform of state-owned enterprises and the financial sector, andcontinued commitment to opening the economy. Given limited public resources and weak

4 ADB staff estimates.

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public sector management, an active private sector is critical. To maintain the inflation rate atless than 10 percent, the Bank of Lao should keep its commitment to not financing future budgetdeficits by printing money.

3. Social Trends

12. Progress has been made in social development. The adult literacy rate increased from50 to 74 percent in the last decade, infant mortality declined from 104 to 75 per 1,000 births in1995–2000, and life expectancy increased from 50 years in 1995 to 55 years in 2000.5

However, rural areas have improved much more slowly than urban areas, and have genderdisparities in education and employment. The disparity is growing between Mekong river basincommunities and those in the uplands and highlands. The lowland population is increasinglyinvolved in market economy activities, including growing trade with Thailand. Lowlandersgenerally have better education and health services, and better access to physicalinfrastructure. New transport and electricity infrastructure is resulting in rapid expansion ofsettlements and micro- and small business activity in some larger provincial towns. Mostuplanders, however, still live in a largely nonmonetized economy, and have poor access tohealth, education, transport, power, and markets.

C. Current Developments

1. Poverty Situation

a. Assessment

13. The 1997/98 expenditure and consumption survey reveals a decline in poverty incidencefrom 45 percent in 1992/93 to 39 percent in 1997/98. The incidence of poverty variesconsiderably across regions and provinces as well as between urban and rural areas (Table 1).The incidence of the poor and ultrapoor6 is highest in the northern provinces and lowest inVientiane Municipality, which also enjoyed the largest decline in poverty, from 24.4 to 12.2percent of the population. In contrast, poverty in the northern region declined only slightly from58.4 to 52.5 percent. Consequently, the estimated Gini coefficient for per capita consumptionincreased from 0.29 in 1992/93 to 0.36 in 1997/98. While consumption inequality may not be ashigh as in many other Asian countries, it has increased markedly in the last five years.According to participatory poverty assessments, poverty in the Lao PDR is generally influencedby livelihood systems, including agriculture and forestry production, rural infrastructure, basiceducation, and primary health care. The burden of poverty is disproportionately borne bywomen (Box 1).

5 Lao Reproductive Health Survey 2000, NSC/UNFPA 2000 and Government reports.6 Those at 80 percent or less of the food poverty line.

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Table 1: Poverty Incidence in Lao PDR by RegionRegions Consumption

(real kip/capita,1997/98)

Consumption(average annual

growth 1992/93 to1997/98)

PopulationLiving in

Poverty (%)

Poverty inUrban Areas

(%)

Poverty inRural Areas

(%)

Vientiane Municipality 59,577 10.8 12.2 16.7 4.5Northern Region a 25,770 4.9 52.5 43.3 53.5Central Region 32,586 4.7 34.9 27.7 35.9Southern Region 29,504 4.4 38.4 35.8 38.7

Total 32,848 5.8 38.6 26.9 41.0a Northern provinces include Phongsali, Louang Namtha, Oudomxai, Bokeo, Louang Phrabang, Houaphanh, and

Sayaburi. However, in this CSP, Xaisomboun and Xieng Khouang will also be considered as northern provinces.Source: Lao PDR Government Report to the Seventh Round Table Meeting. November 2000. Fighting Povertythrough Human Resource Development, Rural Development and People’s Participation. Vientiane.

Box 1: A Day in the Life of a Poor Woman

Mrs. Khem is a Khmou woman living in a poor village. She is the mother of five children. Last year,one of her sons died of an illness. She gets up before dawn to pound rice. While she is pounding, thebaby cries and she puts the baby on her back. She fetches more water and then starts the cooking fireand puts on the rice. Her husband and other children wake up and have breakfast while she breastfeedsthe baby. She also prepares some food for the day’s work.

They walk two hours up the mountain to get to the field. She begins to clear the grass from the fallow.Cutting and burning the grass is women’s work. The fallow soil is not very productive. On the sameamount of land, they used to produce enough rice to feed the family for a year. Now the rice only lasts forfive months. Her husband and sons join her at about 11 a.m. from foraging for products that can beexchanged for rice. Today they have found a large bamboo rat which they will eat for dinner and collectedsome damar resin for sale in the market. With her daughters, she prepares lunch for the family. Followinglunch, her husband naps while she feeds the baby.

Her husband and sons return to the forest and she continues to clear the field. In the late afternoon,she gathers some bamboo shoots and firewood. Her husband returns with a rare argus pheasant thatthey have trapped and will sell to a wildlife trader. On the two-hour walk back, she carries the firewood onher back and the baby on her front, the bag with bamboo shoots is slung over her shoulders. Herdaughter carries heavy calabashes and bags of corn. The bamboo rat is carried live dangling from ashoulder pole by her youngest son. The oldest son carries the pheasant. When they arrive, just afternightfall, she builds a fire and puts a new container of rice on to steam and goes to fetch some water. Shereturns to feed the pigs and chicken again and prepares dinner with her daughters. The bamboo rat isskinned and cleaned and prepared for a stew. After dinner, she feeds the baby, washes the dishes, andcleans up with her daughter. By the time she goes to bed at 9 p.m., her husband is already asleep.

She lives the same way as her mother and grandmother did, with the notion that their lifestyle is theirfate—something that they cannot change by themselves.

Source: ADB/SPC, Participatory Poverty Assessment, 2000.

b. Pro-Poor Growth

14. Economic growth has done much to reduce poverty in the Lao PDR, but has not done soequitably, especially in reducing the number of ultrapoor. Based on the preliminary findings,7 the

7 Kakwani, N. and E. Pernia. 2000. “What is Pro-Poor Growth?” Asian Development Review. Vol. 18. Manila.

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elasticity of poverty incidence relative to growth8 for 1992–1998 was 0.21: that is, for every 1percent increase in growth, poverty incidence declined by about 0.21 percent. Growth hasbenefited the better-off more than the poor, and inequality has increased. The population justabove the poverty line is considered vulnerable to external shocks. Given the scattered andremote population, which lives largely outside the monetized economy, specific pro-poor growthpolices must be developed to build the capacity of the poor and empower them to partake ofeconomic growth.

c. Governance

15. Recent participatory poverty assessments9 found evidence of links between goodgovernance and poverty reduction. The poorest areas have generally had little contact with theGovernment and limited access to basic public services such as health, education, transport,power supply, or markets. The assessments identified insecure land tenure and lack oftransparency in land titling as among the most pressing problems of poverty. At the local level,full participation of village leaders and their constituents in decision making for developmentprojects has been key to poverty reduction (Box 2). The poor need to have strong ownership ofefforts to improve their lives. Effective governance and accountability require mechanisms andcapacity to work with all stakeholders, including established village leadership structures, toidentify needs and help develop and deliver solutions. Institutional and regulatory weaknessesresult in limited accountability, administrative discretion, and ambiguity, which reduce theefficiency of public service delivery, invite corruption, and discourage investment. Red tapeparticularly constrains small, labor-intensive enterprises, which are essential to theGovernment’s development strategy. The capacity of public sector agencies should beimproved by enhancing officials’ professionalism.

Box 2: Village Cooperation in Fighting Poverty

Mr. Khamone is the chief of a Khmou village located 30 minutes away by foot from the main road. In1995, he retired from the military, where he was a captain responsible for food supply. In 1997, he waselected as a village chief. He decided, based on his experience and observations from all over thecountry, that he would work to eradicate poverty in his village of 37 households. After becoming villagechief, he called a meeting of the village and established a rule with the agreement of the villagers:“Whoever is lazy and doesn’t work to improve the livelihood of their household will be fined.”

The village decided to increase their income and agricultural production. At first, they did not knowhow to increase their income, so they had a meeting to decide on cash crops. They decided to plantpaper mulberry, which is easy to grow and has bark that can be easily sold. They also decided to growsesame and pepper, which can be sold at the local market. They also started collecting palm hearts fromthe forest for resale in the market. It was agreed that each household would plant at least one of the cashcrops. After two years, they have no food shortages in their village. Last year, household cash incomesvaried from KN3 million–6 million, a substantial increase for most households. As for Mr. Khamone, hehas just purchased a rice mill for the village. “I am doing this for the real life. We won’t concede to haveless than other villages. Now some households are richer than I am.”

Source: ADB/SPC Participatory Poverty Assessment, 2000.

8 The elasticity of poverty incidence relative to growth is derived by the overall change in the poverty situation by the

pure growth effect (i.e., subtracting the equity effect). Growth is viewed as weakly pro-poor if greater than zero butless than 0.33, moderately pro-poor if between 0.33 and 0.66 and strongly pro-poor if greater than 0.66.

9 State Planning Committee. October 2000. Poverty in the Lao PDR: Participatory Poverty Assessment. Vientiane.

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d. Social Development

16. Urban areas are more developed than rural areas, and the uplands have less access tohealth, education, transport, electricity, and markets than the Mekong corridor. Uplanders (oftenethnic minorities) see migration as a way to prosperity and as one of few options to improveliving standards. Rural women are especially disadvantaged. They are traditionally primaryproduction managers, small-enterprise traders, primary cash earners, small-credit users, andkey agriculturists, and play key roles in education and health. However, they suffer from lack ofaccess to and control of economic resources and opportunities as well as from poor health andeducation. Balanced social development is a goal as well as a prerequisite for sustainedacceleration of economic growth. Mountainous terrain, remote settlements, ethnic diversity, andlow population density are barriers to access and add to the cost of delivering socioeconomicservices. A recent participatory poverty assessment found that poor villagers view education asunavailable, unaffordable and/or secondary to securing their livelihood. Much remains to bedone to develop and establish appropriate institutional arrangements for expanding basicservices to rural areas where livestock is often the only form of social insurance.

2. Private Sector Development

17. The private sector produces most agriculture output and some 75 percent of servicesector output. The private sector is also increasingly active in handicrafts and manufacturing(mainly small-scale agricultural processing, timber, and textiles). The next five years may seelarge private investments: Nam Ngum 2 and 3, and Nam Theun 2 hydropower projects; goldand copper mines in Sepon and Xaisomboun Special Region; and plantation forestry. However,the state remains dominant in some sectors, including energy, and many private enterprisesdepend on close links with the state sector to remain viable. Cumbersome bureaucraticrequirements and procedures (e.g., lengthy procedures for business licenses); poorly developedmarket institutions (property rights, land titling and access to land, contract enforcementmechanisms, professional services, business legislation, financial institutions, etc.); and lack oftransparency in tax collection and law implementation remain major constraints to privateinvestment. An often inconsistent and frequently changing regulatory framework clouds theinvestment environment. Corruption adds to business costs and discourages private investment.Regular consultative mechanisms between business groups and high authorities areimmediately needed to continuously identify and address institutional constraints to privatesector investment. Throughout Asia, including the People’s Republic of China and Viet Nam,small and medium-size enterprises (SMEs) play a vital role in reducing poverty and generatingemployment and income growth.

3. Environment

18. Most of the population (especially the poor) rely on natural resources for their livelihood.Population growth, limited cultivation area, and poor soil conditions force the rural poor toengage in shifting cultivation, with detrimental consequences to the environment, long-termproductivity, and rural incomes. The Government aims to replace shifting cultivation of uplandrice with sedentary farming by providing improved rural infrastructure and other services. Socialconcerns should be fully considered during implementation of the Government policies. There isalso a need to address environmental issues such as the unsustainable commercial exploitationof forests and adverse environmental impacts of infrastructure projects.

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4. Regional Cooperation

19. The Government recognizes that regional cooperation can help narrow the gap betweenthe Lao PDR and other regional economies, and that active membership in ASEAN and AFTAwill enable Lao PDR to strengthen its role as a land link, at the center of the GMS. It is importantto explore policy, administrative, and public expenditure options to maximize national benefitsfrom regional cooperation, and to ensure their equitable distribution. Potential areas forexpanded regional development cooperation include transport, tourism, power transmission,telecommunications, trade and investment, HIV/AIDS and other disease prevention, preventionof human and drug trafficking, environmental management, and river basin development.

D. Development Priorities and Outlook

1. Objectives and Priorities of the Lao PDR

20. Government development priorities are presented in its strategies for socioeconomicdevelopment from now to 2020 and 2010 and fifth five-year socioeconomic development plan(2001-2005). The Government’s ambitious targets are to (i) reduce the proportion of poorfamilies by more than half and stop poppy cultivation by 2005; (ii) basically eradicate povertyand stop shifting cultivation by 2010; and (iii) graduate from the status of least developedcountry by 2020 by becoming a natural resource-based industrialized economy. The strategicapproach is to fight poverty through human development, rural development, and people’sparticipation by focusing on (i) agriculture and rural development, (ii) education, (iii) health, and(iv) road infrastructure. The Government is preparing a national poverty reduction strategy,which will take its focus from the Socioeconomic Plan (2001-2005). The Government wants tofacilitate greater people’s participation in development, and recently adopted a decentralizationpolicy that focuses on provinces as strategic units, districts as planning and fiscal units, andvillages as implementing units. The Government established the urban developmentadministration authorities (UDAAs) to decentralize urban development. Accelerated human andinstitutional developments is the prerequisites for national development. The Governmentrecognizes that “governance is a vital link between economic growth and poverty reduction” andthat “environmental sustainability is a prerequisite for continued sustained economicgrowth…[and]…poverty alleviation.”10

2. Public Finance and Investment

21. The biggest barrier to realizing development goals is inadequate domestic resources tofinance recurrent expenditures for social development and maintenance of physical assets.Weak tax collection, public expenditure planning, and management, and an overreliance onODA financing of public expenditure (about 80 percent of capital expenditures) remain majorconcerns. The turnover tax, excise taxes on luxury goods, and trade taxes account for around50 percent of Government revenue. The property, income, and profit taxes account for less than20 percent of total revenue. A large percentage of taxes are collected from trade. As the LaoPDR joins the world economy, the country will need to diversify its tax base and depend moreon domestic sources. Notwithstanding recent improvements in tax collection, Governmentrevenue is still only around 14 percent of GDP. The Government is thus considering introducingthe value-added tax system. Private investment must also be encouraged to provide appropriatepublic services and invest in commercial business to help bridge the domestic investment and

10 Lao PDR Government Report to the Seventh Round Table Meeting. November 2000. Fighting Poverty through

Human Resource Development, Rural Development and People’s Participation. Vientiane.

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savings gap and finance the ambitious development agenda. The Government stresses theneed to step up domestic resource mobilization and improve the quality and efficiency ofpublicly financed services and infrastructure. With the provinces now accounting forapproximately 30 percent of total public investment, the Government strategy recognizes thatpublic expenditure efficiency requires building local administrative capacity.

3. Role of External Assistance

22. External assistance has (i) filled the financing gap by providing up to 80 percent of publicinvestment in recent years, (ii) helped expand physical infrastructure, and (iii) increased percapita incomes and improved key indicators of human development. The Governmentrecognizes that it needs external assistance to finance the ambitious development agenda. Atthe same time, the Government is concerned about (i) its capacity to maintain and fully utilizerecently developed physical assets, (ii) the cost-effectiveness of some assistance, and (iii) thefact that human development indicators have not satisfactorily risen despite substantial externalassistance for human development. Given the rising external debt, the Government stresses theneed for more efficient and effective ODA-financed initiatives through decentralization andgreater stakeholder participation at all stages of the project cycle. Development partners haveexpressed similar concerns through the round table meetings (RTMs), most recently inNovember 2000. The Government hopes to use RTMs to address remaining constraints toeffective ODA delivery.

4. ADB’s Assessment of the Development Agenda

23. ADB endorses the Government’s emphasis on poverty reduction, human resourcedevelopment, and equitable delivery of social and economic services. ADB welcomes theGovernment’s emphasis on increasing stakeholder participation, decentralization, and publicservice efficiency. The Government development agenda is ambitious, and will need to bephased in and perhaps further prioritized to reflect limited financial and human resources. Pastheavy reliance on ODA contributed to disproportionately high capital expenditure at the expenseof current expenditure, especially in the social sectors as well as in operations and maintenance(O&M) of assets. Better domestic resource mobilization and more current expenditureallocations for social services are prerequisites for ADB support for the development agenda.Domestic resources should be the primary source of development funding, with externalresources playing a supplementary role in financing the resource gaps. The financial sectorshould be deepened from its currently low level of 18 percent of GDP. Economic growth of 6–7percent per annum is planned for the next five years. Past performance and regional experiencesuggest that such growth is achievable, but sustainable acceleration of economic growthrequires (i) a competitive and open market economy, (ii) high labor productivity throughimproved health and education, and (iii) sustainable management of natural resources.

II. ADB’s DEVELOPMENT EXPERIENCE

A. Factual Summary of ADB Assistance

24. ADB has approved 49 loans totaling $887.5 million, and 174 technical assistance (TA)grants totaling $83.5 million to the Lao PDR from 1968, when operations there began, until theend of 2000 (Table 2). Nearly half of all ADB loans were approved in the last five years. Until the1980s, assistance focused on transport and energy infrastructure development. Since the late1980s, ADB has promoted financial sector development. The focus of support broadened duringthe 1990s to include rural development, social development, and the environment.

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Table 2: Summary of ADB Loans and Technical Assistance to the Lao PDR(as of 31 December 2000)

Loan TA

1996–2000 1970–2000 1996–2000 1968–2000SectorNumber $ mn Number $ mn Number $ mn Number $ Mn

Agriculture and NaturalResources

3 35.8 11 126.8 9 6.13 43 22.82

Energy 2 82.0 13 223.3 7 3.57 18 11.34Finance and Industry 1 25.0 2 50.0 5 3.03 26 9.21Multisector and Other — — — — 12 5.98 23 9.61Social Infrastructure 7 132.0 12 183.4 12 6.76 36 17.05Transport andCommunications

4 151.0 11 304.0 6 3.34 28 13.50

Total 17 428.8 49 887.5 51 28.81 174 83.52Percent of Total 48 100— = not available, mn = millionSource: Asian Development Bank.

B. Summary Evaluation of ADB Assistance

25. The last country operational strategy study (COSS) for the Lao PDR was prepared inJuly 1996. The strategy placed high priority on sustainable economic growth throughinfrastructure investments, and secondary but important emphasis on policy reform, socialservices, and human development. The COSS also emphasized subregional cooperation toenhance the landlocked economy’s market opportunities.

1. Relevance

26. The COSS continues to be relevant to the Lao PDR’s development constraints.Infrastructure development is a clear priority for a country that has a small, scattered, andremote population, and mountainous terrain. ADB’s past investments have considerablyimproved the national road network. The key concerns now are to (i) ensure sustainability ofinfrastructure, (ii) better address development’s adverse social and environmental impacts, and(iii) ensure that the social and economic benefits of development are equitably distributed. Toimprove relevance, selected social services should be targeted at poor areas, and operations’equity issues explicitly addressed. ADB interventions can be made more relevant by (i) buildingon past interventions and/or complementing ongoing interventions, (ii) ensuring direct linkagesamong all elements of the strategy, and (iii) paying more attention to developing medium-termapproaches to addressing financial and institutional weakness.

2. Efficiency

27. ADB assistance should be more consistently efficient and effective. ADB support insome sectors (e.g., transport) has been relatively efficient, but less so in others. The costefficiency of ADB support could be increased by a narrower geographic focus, and better projectdesigns that take into account real institutional capacities. Greater emphasis on community-based rural infrastructure projects might be more costly in terms of time and ADB staffresources for preparation, but the cost savings to communities and the Government could besubstantial in the long term. Increased involvement of local communities in project preparationand implementation could make development projects more efficient. Recent experiencesuggests that a series of loosely related TA projects is not a cost-efficient modality forinstitutional strengthening. Institutional strengthening is an ongoing process, and any assistance

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must take a sufficiently long-term view of the institution’s development needs. Without a stronglycommitted host agency, development impact will be unsatisfactory.

3. Effectiveness

28. ADB-financed projects have contributed to economic, social, and institutionaldevelopment, and to recent progress in reducing poverty. Long-term support to power, roadtransport, and other infrastructure development has developed physical assets and institutionalcapacity, enhancing economic opportunities for isolated rural communities. ADB support toprimary health and education activities is beginning to improve service delivery and to make itmore equitable. ADB has also created a decentralized institutional framework through urbansector interventions. However, the road network is underutilized because of inadequate linkingof infrastructure developments to market opportunities and improved social services. Past gainsin infrastructure development may be undermined by inadequate attention to O&M expenditure,and the impact of the recent regional financial crisis on resource mobilization. Developmentcould have been more effective if more attention had been paid to (i) analyzing local conditions,(ii) identifying priority needs, and (iii) ensuring community participation and ownership in thedevelopment process, and if support to sector development had been focused and sustained inline with clearly articulated sector strategies agreed upon by the Government, ADB, and otherdevelopment partners. ADB support to policy and institutional reform in key sectors such asagriculture, finance, and water supply has been less effective than envisaged.

4. Major Sector Reviews: Success and Failures

29. Recently completed and ongoing economic and sector work that fed into this countrystrategy and program (CSP) included (i) agriculture, education, rural finance, road, energy,environment, and urban sector strategy studies; (ii) studies on primary health care, financialsector, and private sector; and (iii) the medium-term expenditure framework and publicinvestment program. Key operations evaluation findings include the following:

a. Agriculture and Rural Development

30. Rural infrastructure has been developed and agriculture production increased. Ministryof Agriculture and Forestry capacity in planning, policy analysis, applied research, andextension has been strengthened. The policy environment for private investment and trade inagriculture has improved. Agriculture along the Mekong river corridor has become morecommercialized. Overall rice yields have increased with the improvement of irrigation systems.However, concerns include: the sustainability of some past investments, especially in irrigation;deforestation due to shifting cultivation; the limited scope for crop diversification and nonfarmemployment; and the limited coverage and cultural inadequacy of research and extensionservices, especially in remote ethnic minority areas.

b. Environment

31. ADB has helped strengthen institutional capacity, develop new environmentalregulations and safeguards, increase awareness of environmental issues, conductenvironmental impact assessment of some investments, and improve some urbanenvironments. Some ADB investments in hydropower, however, have had unanticipatedadverse environmental impacts; the integration of environmental issues into economic planningis weak, as is capacity to enforce environmental safeguards; and civil society is not yet fullyinvolved in environmental protection.

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c. Education

32. ADB has helped improve coverage of basic education through school construction andrehabilitation; redress gender imbalances in education; introduce curriculum reform; andimprove teacher quality. However, the Lao PDR still lags behind its neighbours in educationquality, coverage, and gender equality, and the country’s capacity to sustain and effectively useeducation assets developed with ADB and other funder support is doubtful. The communitymust participate in development so that project designs can reflect local conditions and thusmake investments more efficient.

d. Health

33. ADB has helped bring primary health care services to the poor by supporting villagehealth centers and providing health kits to isolated communities. However, health indicatorsremain among the lowest in the region, and capacity to plan and deliver health care servicesand to undertake financial management is still weak. Greater community participation is criticalto make investments more efficient.

e. Urban Development and Water Supply and Sanitation

34. ADB assistance in urban infrastructure and services has improved the urbanenvironment. ADB has engaged in policy dialogue with the Government, focusing ondecentralized urban governance and emphasizing mobilization of local resources, and costrecovery measures as integral elements of institutional reform and prerequisites for sustainabledelivery of services. ADB urban sector projects led to the establishment of urban localadministrations and creation of fiscal frameworks for local revenue generation. Capacity buildingof UDAAs has been an important component of ADB assistance. However, the following needimprovement: (i) analysis of local conditions and needs, (ii) stakeholder involvement, and (iii)attention to sustainability and institutional capacity issues.

f. Transport

35. ADB has contributed to substantial progress in expanding transport infrastructure,increasing the access of many towns to national and regional markets, and developinginstitutional capacity of transport agencies. ADB has promoted subregional cooperation intransport development, including projects to improve the links among the Lao PDR, Viet Nam, andThailand. Still, most rural communities do not have reliable access to markets, and most provincialroads remain unpaved. O&M systems must be improved, and social and environmental concernsand barriers to maximizing economic benefits from transport development must be addressed.

g. Power Supply

36. ADB-financed hydropower generation and transmission projects have increased budgetrevenue and foreign exchange earnings by exporting electricity to Thailand. ADB support hasalso played a catalytic role in attracting additional private and other financing. Majorweaknesses in past support are inadequacies in addressing social and environmental concerns,tariffs and financial sustainability, domestic consumption, and contract management.

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h. Financial Sector Development

37. Despite some successes (e.g., in skills development and building the legal andregulatory infrastructure), ADB support to the financial sector has not generated the expectedresults. The system introduced has not been effectively implemented. The sector remainsconstrained by poor loan recovery, weak management, inadequate prudential control, weakoutreach and/or coverage, and dominant state-owned financial institutions. Basic marketinstitutions that play a critical role in financial sector development (land mortgage systems,foreclosure systems, and the auditing and accounting professions) remain poorly developed.ADB needs to continue to promote financial sector development, but should be innovative inimproving performance by strengthening the Government’s commitment to financial sectorreform.

i. Gender and Social Development

38. Despite the increased attention paid to gender and ethnic equity, women and ethnicminorities still remain marginalized in the development process. ADB should help strengtheninstitutional capacity to address these issues.

C. Portfolio Performance and Status

39. The overall portfolio performance of ADB projects in the Lao PDR could be improved butis generally satisfactory. The contract award ratio at the end of 2000 was 24.5 percent(disbursement ratio of 21.3 percent) compared with ADB’s overall ratio of 21.0 percent (20.5percent for disbursements). Following a country portfolio review in 2000, ADB and theGovernment agreed on a time-bound action plan that includes monitoring contract awards,submission of audited financial statements, and compliance with loan covenants; strengtheningprocurement management; improving budgeting and allocation procedures; and simplifying fundflow management mechanisms and disbursement procedures. The ADB Lao Resident Mission(LRM) and Committee for Planning and Cooperation (Department of International EconomicCooperation) closely monitor action plan implementation through quarterly portfolio reviewmeetings (QPRMs) with national project directors. Weak institutional and human capacity stillconstrain efficient implementation of many projects.

40. Of 12 postevaluated ADB projects, 33.3 percent were classified as generally successfuland 58.3 percent as partly successful, compared to 56.0 percent and 32.5 percent ADB-wide,and 45.9 percent and 32.7 percent in group-A countries11, respectively. The ratio of projectsclassified as unsuccessful is 8.3 percent, lower than ADB’s overall 11.3 percent, and group- Acountries’ 21.4 percent. All transport projects are rated as generally successful. Half the energysector projects were rated as generally successful, with the remaining partly successful. Allsocial and most agriculture sector projects were rated partly successful.

D. Conclusions and Lessons for the Country Strategy and Program

1. Effective Poverty Reduction

41. Poverty is linked to limited access to resources, services, and opportunities. The benefitsof economic growth have not been distributed equitably, with rural and isolated areas benefiting

11 Group A countries include Afghanistan, Bhutan, Cambodia, Kiribati, Kyrgyz Republic, Lao PDR, Maldives,

Myanmar, Mongolia, Nepal, Samoa, Solomon Islands, Tajikistan, Tuvalu, and Vanuatu.

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much less than urban areas. Few ethnic minorities have received the benefits of development,with women benefiting less than men. Given widespread poverty and low per capita income,economic growth must remain a priority, but assistance should help achieve equitabledevelopment.

42. Progress in human development has been slow. Despite substantial support to humandevelopment, its key indicators are among the lowest in the region. Isolated rural populationsand women are the worst affected. The quality and coverage of social services must beimproved, but current expenditure is insufficient to pay teachers and health workers. Targetingof the poorest areas has had only limited success. Unsustainable expansion of physical assetsat the expense of adequate operations and maintenance budgets should be avoided.

43. Weaknesses remain in managing and enforcing environmental safeguards. Rapidpopulation growth and resource-based development increase the need for sustainablemanagement of natural resources.

44. Private investment and economic integration can help reduce poverty. The greatestprogress in improving economic opportunities has occurred in the Mekong river corridor wherethe private sector has developed due to access to domestic urban and international markets.Barriers to private investment and economic integration must be dismantled to reduce povertyand achieve development goals

2. Policy and Project Design Weaknesses

45. Tangible progress in policy and institutional reforms is the prerequisite for efficient ADBinvestment, as reflected in dialogue and agreements reached with the Government duringannual programming. ADB should not “force” dialogue and policy reform, but must help theGovernment identify and “own” the reform process. Stakeholder participation in project design,implementation, O&M, and use will make the project more effective.

46. Domestic resource mobilization, public finance management, and expenditureaccountability should be emphasized. Key concerns relate to the need to (i) improve resourcemobilization and reduce Government dependence on ODA financing; (ii) balance capital andrecurrent expenditure; (iii) sustain assets developed with ADB support; and (iv) improvecommunity participation in and transparency and accountability of interventions.

47. Coordination between development projects must be strengthened. Opportunities tobuild on earlier or parallel development projects have not been fully realized because of the lackof medium-term sectoral and/or regional development strategies developed by the Governmentin consultation with major development partners, and the lack of geographic focus in ADBactivities.

48. Implementing agencies’ capacity in project design, procurement, financial management,and community mobilization must be analyzed. TA to address institutional weaknesses musthave an adequate time frame.

49. ADB assistance must strengthen the Government’s capacity to analyze the potentiallyadverse social and environmental impacts of infrastructure projects and needs of diversesocioeconomic subgroups, and the design and enforcement of measures to maximize the socialand environmental benefits of ADB investments.

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3. Weaknesses in Program and Project Monitoring

50. Effective monitoring of ADB assistance at all levels could make ADB assistance moreeffective and efficient. The establishment of the LRM was an important step to improvemonitoring. The following improvements are still required under the CSP:

(i) Country program-level monitoring. ADB’s program needs to be monitored againstverifiable indicators of progress in implementing policy and institutional reforms.

(ii) Project-level monitoring. Effective project monitoring requires adequateresources for regular assessment of development impact via consultations withintended project beneficiaries. The Government has stressed the need for lowerADB staff turnover and longer review missions with greater emphasis on in-fieldinspection. There is a need to further strengthen the LRM’s capacity for projectmonitoring through provision of additional international staff for rural developmentand social sectors.

(iii) Community-level Monitoring. Given the difficulty of reaching many project sites,and the weak capacity of many local authorities, community-level monitoringmust be emphasized. The geographic scale of high-risk projects should belimited to facilitate monitoring.

III. ADB’S STRATEGY

A. Poverty Reduction

51. In line with Government priorities and ADB’s long-term strategic framework,12 povertyreduction by broadening community participation and opportunities will be the unifying principleof ADB’s interventions in the Lao PDR over the next five years. The CSP will help theGovernment substantially reduce poverty. This primary goal is supported by three pillars:

(i) Sustainable economic growth. Sustainable, strong economic growth is essentialfor poverty reduction, as is targeting development assistance to address the mainsources of and constraints to broad-based growth as well as the main roots ofpoverty.

(ii) Inclusive social development. Poverty and equity goals require that no group isexcluded from active participation in development, including in ADB-financedprojects. Remote ethnic minorities need to be empowered in the developmentprocess in line with ADB’s policy on indigenous peoples. Gender anddevelopment should be emphasized as appropriate in all interventions.

(iii) Good governance through policy and institutional development. The Governmentand ADB must be more accountable for their investments, with moretransparency and stakeholder involvement at all stages of planning andimplementation. Institutional capacity of the Government and local agencies andefficient delivery of public services must be addressed as an integral part of allADB operations.

12 Asian Development Bank. February 2001. “Moving the Poverty Agenda Forward in Asia and the Pacific: The Long-

term Strategic Framework of the Asian Development Bank (2001-15).” Manila.

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B. Thematic Priorities

52. The four thematic priorities to realize the strategic goal of poverty reduction are (i) ruraldevelopment and market linkages, (ii) human resource development, (iii) sustainableenvironmental management, and (iv) private sector development and regional integration.

53. Given the limited resources, ADB will adopt a two-track approach to supportingdevelopment. One track aims for national institutional strengthening and policy reforms,including in the public sector, financial sector, private sector development and regionalintegration, and environmental management. The other track aims to develop targetedgeographic areas. A major share of project lending will be primarily focused on the northernregion provinces (including Xaisomboun, and Xieng Khouang), which have the highestincidence of poverty, and on Savannakhet Province, where the ongoing GMS: East-WestCorridor Project connecting Lao PDR with Thailand and Viet Nam will provide low-cost accessto larger markets. Community-based rural development projects will be implemented in a fewprovinces with possible assistance from civil-society and mass organizations. The strategyenvisages comprehensive regional development strategies and local institutional strengtheningto ensure relevant, geographically focused development.

1. Rural Development and Market Linkages

54. Given that the poor are concentrated in rural areas and that most people depend onagriculture for their likelihood, rural development is critical to achieving sustainable economicgrowth and reducing poverty. Rural poverty is perpetuated by inadequate basic education andhealth services, poor access to markets, weak infrastructure, and low productivity. Relief fromrural poverty and food insecurity will especially benefit women, who are mainly engaged in low-productivity agriculture activities, and ethnic minorities.

a. Urban-Rural Linkages

55. Nonagriculture output in a developing economy will increase faster than agricultureoutput. Thus, growth in nonfarm employment must exceed labor force growth to reduce incomeinequality. Rural producers and consumers and urban markets must be integrated. Localmarkets, in turn, must be better integrated with international markets. The country’s majormarkets have been developed through past interventions in urban development, and futureefforts will emphasize small towns. Workforce skills must match market demand, includingstandard quality requirements. Infrastructure must be carefully planned to avoid socioeconomicand environmental costs. Concerted and sustained efforts are needed to lower policy andinstitutional barriers to integration of small-town economies with higher-income domestic andinternational markets.

b. Rural Infrastructure Development.

56. Recent experience has shown the importance of market access in promoting ruralemployment, and the need to develop transport and information links with small towns, urbanareas, and larger markets. Better rural electrification and water supply will facilitate commercialdevelopment by improving human development, productivity, consumer demand, and economicopportunities. Community contributions to rural development will help ensure ownership andmaintenance of facilities, and also help reduce Government fiscal expenditure. Community-managed rural development can be introduced as a viable option: communities decide prioritiesand improve rural infrastructure by contributing their labor and in-kind resources, while the

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Government provides materials and appropriate technical guidance (Box 3). With communityparticipation, ADB will support the development of transport (especially rural access roads),electricity and water supply, and other rural physical infrastructure to encourage investment inagriculture and other rural businesses. These investments must be complemented by improvedbasic education, basic skills, and health standards. ADB will take a long-term approach to ruraldevelopment that recognizes the interrelated impacts of social, infrastructure, institutional, andpolicy development.

c. Agriculture Productivity

57. The Government’s Vision for Agriculture and Forestry Development to the Year 2020aims to increase productivity by strengthening research and extension, developing humanresources, liberalizing trade, reducing shifting cultivation, and enhancing irrigation management.ADB will focus on institutional development and policy reform; crop diversification, includinglivestock and commercialization; reduction of shifting and poppy cultivation; and rural financedevelopment. Land tenure security issues will be addressed, if appropriate. Measures toimprove rural education and human capital formation are essential to increase agricultural laborproductivity. ADB will strengthen its efforts to address specific needs and participation of womenand ethnic minorities in the sector by (i) supporting the rural population, especially ethnicminorities, during the transition period from shifting cultivation to culturally acceptable alternativelivelihood schemes; (ii) providing resources, services, and capacity building; and (iii) highlightinggender and development in agriculture and rural development.

2. Human Resource Development

58. Coverage, quality, and relevance of social services need improving. With communityparticipation, ADB will continue to widen the coverage of high-quality services in basiceducation, primary health care, and water supply. Support will include funds targeted at womenand ethnic minorities to redress inequities. ADB will require the Government to redress theimbalance between current and capital expenditure, which results in inefficiencies, as acondition for continuing support to the social sectors. Achieving inclusive social developmentrequires specific targeting of the most disadvantaged groups, the rural poor, ethnic minorities,and women. Equitable land-titling arrangements,13 equal access to social services, more publicfinance for maternal and child health care, economic empowerment through improved access toopportunities, and inclusive stakeholder consultations are also important. The provision of socialservices must be made relevant to community needs, which requires improved consultativeprocesses, including adequate representation of ethnic groups and women. ADB staff will alsoclosely consult with other aid agencies to mobilize grant cofinancing or parallel financing as anessential element of ADB support to social sector activities.

a. Education

59. ADB support will focus on improving the quality and coverage of basic education,including targeted support to the poorest areas, ethnic minorities, and girls. Teacher trainingneeds to be improved and to focus on the needs of ethnic minorities. Curriculums must addresscommunity needs and include training in agriculture and other income-generating skills;nutrition, public health, environmental, and market economy issues; and other communityissues. School hours and holidays should be flexible to accommodate agriculture cycles and

13 Lao Women’s Union. 2000. “Gender and Land Developments: How do Society’s Perceptions of Gender Affect

Women”. Vientiane.

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periods of peak labor demand. ADB will encourage the Government to fully reflect communityneeds and situations in education planning and implementation. Local institutional developmentis critical to effectively implement the decentralization policy in the education sector.

Box 3: Community-Managed Rural Developmentin the Republic of Korea in the 1970s

In the early 1970s, the Republic of Korea Government introduced the saemaul (new community)movement to improve rural infrastructure with full participation of communities. Given limited resources,the Government could not sufficiently fund rural infrastructure, including market access roads, electricity,and water supply. Korean farmers traditionally believed that poverty was their fate. However, without thefarmers’ willingness and desire to improve themselves, their poverty would continue forever. The saemaulmovement addressed two concerns: domestic resource mobilization and the people's spiritual change.

The Government provided cement to rural villages on the condition that it be used for communitydevelopment projects. Regional administrative offices demonstrated improvement projects, which villagescould choose to adopt. Villagers selected a leader, who was assisted by women representatives andyoung farmers with some skills and knowledge. Once the villagers chose a project, they volunteered theirtime and labor to construct urgently needed infrastructure. Village leaders played a crucial role in inducingvillagers’ participation in the movement. The Government provided extensive village leadership trainingand gave more support to villages that conducted the most successful projects and disseminated bestpractices to other villages.

By the end of the 1970s, rural infrastructure improved significantly. Almost all villages becameaccessible by car; the embankments of all small rivers were repaired; every household was connected toclean water; rural electrification increased from 20 percent in 1970 to 98.7 percent in 1979; and evensmall villages had telephones. In addition, rural per capita income increased from $165 in 1970 to $778 in1978, on a par with city laborers’ income; the relative share of farmers’ deposits increased from less than30 percent in 1970 to almost 50 percent by 1980; forestry coverage increased when communities stoppedslash-and-burn agriculture and planted trees; and the status of rural women was significantly enhanced.

However, the most valuable result of the movement was spiritual change: the people developed a “cando” spirit, proving that they could change their lives by themselves.

b. Health Care

60. ADB will focus on primary health care, including reproductive health and birth spacing,and health sector efficiency, and will include targeted support to isolated areas and ethnicminorities. Greater community participation through training of village leaders will broaden thecoverage of primary health care and makes it more efficient.

c. Water Supply and Sanitation and Urban Utilities

61. ADB support will focus on rural water supply and small-town development with closeinvolvement of communities in project design, implementation, and monitoring, and will givemore attention to systems’ cost efficiency and financial sustainability. Community and/or privatesector participation in systems development and operation will be actively pursued.

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3. Sustainable Environmental Management

62. Living standards are directly linked to how well the country’s natural resources aremanaged, protected, and developed. Sustainable natural resource-based development can helpreduce poverty, and poverty reduction can reduce pressures contributing to environmentaldegradation. As the economy is dominated by resource-based economic activity, all ADBinterventions must address environmental issues, from education to infrastructure and privatesector development, rather than treat environmental protection as a stand-alone issue. ADB willclosely work with other development partners, community groups, and civil society to improvethe institutional, policy, and regulatory framework for environmental management.

a. Social and Environment Management

63. In a natural resource-based society, all public investments have potentially importantenvironmental implications. Thus, efforts and measures to improve environmental managementneed to be incorporated into visions for sector development agreed upon between theGovernment and ADB. Social and environmental considerations must be increasingly integratedinto earlier stages of economic planning and infrastructure development. ADB will consider theenvironmental implications of all its recommendations relating to public policies, investmentstrategies, and institutional reforms. Potential areas for support include the following:

(i) strengthening institutional capacity to analyze environmental issues and policyand regulatory enforcement, including social and environmental impactassessments, and ensuring that safeguards are built into all ADB-financedprojects;

(ii) holding systematic consultations with all stakeholders on social and environmentissues, and increasing capacity and transparency in environmental assessmentand monitoring;

(iii) improving monitoring of land registration to ensure that women’s traditionalproperty rights and ethnic minorities’ traditional rights are protected;

(iv) investing in river basin development, and stabilizing shifting cultivation andstopping poppy cultivation by offering alternative livelihood schemes such asindustrial tree plantations and crop diversification;

(v) Investing in water supply and sanitation and urban infrastructure and services;and

(vi) encouraging involvement in regional environmental initiatives.

b. Community-Based Initiatives

64. Most enforcement measures are ineffective without strong community support andparticipation. Community consultations and involvement will be encouraged, as will be raisingpublic awareness of key issues. Communities will be directly involved in the monitoring of socialand environmental impacts of all ADB-financed infrastructure projects. Given that most of thepoor rely on natural resources to live, incentives (including ownership arrangements) will beimproved to enhance community protection of natural resources. Systematic inclusion ofenvironmental awareness in education and training material will be encouraged.

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C. Private Sector Development

65. The private sector will contribute to the country’s economic development throughemployment creation, foreign exchange earnings, and tax revenues to fund social developmentprograms. Sustainable economic growth and poverty reduction will require private sectorinvestment and reforms to improve agriculture productivity; create rural off-farm employmentthrough the development of SMEs in agriculture and forestry-based industries, handicrafts, lightmanufacturing, tourism, and other service enterprises; and develop mineral and hydroresources in an environmentally friendly manner. Given the small, fragmented domestic market,internal and subregional economic integration will be essential in accelerating and diversifyinggrowth in economic output and employment. ADB will use subregional cooperationarrangements to increase trade and investment, and seek subregional private investmentpotential.

a. Infrastructure

66. Improved infrastructure is essential to attract private investment. Infrastructure projectswill be designed to develop potential markets, tourism, and enterprises. ADB will be involved intransport (especially subregional linkage, and development of rural access roads and smallairports); small-town infrastructure and services; and energy (power generation, transmissionand distribution, and rural electrification). ADB will also emphasize efficient O&M ofinfrastructure projects as well as measures to mitigate potentially negative social andenvironmental impacts.

b. Business Environment

67. Expected areas of intervention include (i) developing the market institutions needed toreduce transaction costs and risks associated with commercial investments, including crediblesystems for enforcing contracts and property rights, and transparent and credible accountingand financial reporting systems; (ii) restructuring state-owned commercial banks (SOCBs) withimproved corporate governance; (iii) providing a level playing field for SOEs and the privatesector, particularly by removing administrative barriers to domestic and foreign investment inmicro, small, and medium businesses; (iv) removing nonphysical trade barriers to the movementof goods and people; (v) improving financial service delivery, particularly in rural areas; (vi)improving regulatory systems to encourage commercial investment in infrastructure projects;and (vii) increasing transparency in public tendering. ADB will support Government efforts toregularly consult businesses to identify and address remaining structural weaknesses, includingcumbersome bureaucratic requirements and procedures, hampering private sector investmentin areas of potential comparative advantage.

c. Catalytic Investment

68. Opportunities for an increased private sector role need to be assessed in planing allADB support to the Lao PDR. This task will include assessing opportunities for private sectorinvolvement in the development, implementation, and operation of projects, and as commercialand/or contracted suppliers of public services, including health, education, water supply, andsanitation in urban areas. ADB private sector operation modalities will be used to encourageprivate sector investment in hydropower and SME development through possible participation inthe Mekong Enterprise Fund and Mekong Project Development Facility (para. 76).

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D. Regional Cooperation

69. The Government’s commitment to regional integration “because we are land linked toour neighbors”14 is consistent with ADB’s long-term strategy of supporting regional cooperationand integration for development, to provide wider development options, address sharedproblems, and pool information.15 The strategy aims to link the country program and GMSinitiatives, which is particularly important as most transport networks connect the Lao PDR withits neighbors. The GMS program aims to extend infrastructure development to rural areas andcross-border areas. The country program and/or GMS activities will complement the GMS East-West Transport Corridor project, experiences from which will feed into planned support forsubregional transport development connecting Thailand and the People’s Republic of Chinathrough northern Lao PDR provinces. The Telecommunication Backbone Project and theMekong River Tourism Infrastructure Project are planned to be processed during the programperiod (para. 19).

E. Risks

70. The Government’s targets of poverty reduction are ambitious relative to what has beenachieved. Government’s ambitions are achievable only if the appropriate policy and institutionalreforms are effectively implemented in a timely manner. The Government strategy highlightsmajor reform areas that need to be continuously monitored and discussed during CSPimplementation. Economic stability and growth, fiscal discipline, improved resource mobilizationand external debt management, and increased public expenditure efficiency, including provisionof a counterpart fund, must be sustained. ADB will closely coordinate with the World Bank andIMF to improve fiscal performance and public expenditure management. Some other specificrisks include the following:

(i) Substantially reduced economic growth or instability in neighbouring countrieswill limit the impact of domestic development efforts.

(ii) Too rapid a build-up in the resources channeled through local institutions willincrease risks of project failure and misuse of resources. Careful analysis andstrengthening of local institutional capacity will be needed.

(iii) A lack of continuity and insufficiency of ADB and counterpart staff will hinder theCSP. The LRM can help provide continuity, but not fully effectively withoutcontinuous high-level ADB staff inputs.

(iv) ADB support will be dissipated if the Government does not improve governanceand accountability. CSP measures address this risk.

(v) Failure to address geographic, ethnic, and gender inequities in income and socialindicators, as well as unsustainable environmental management, will limit theCSP’s impact.

71. To mitigate potential risks, ADB will primarily focus on sectors (or subsectors) andapproaches where most of the following criteria are met:

14 Lao PDR Government Report to the Seventh Round Table Meeting. November 2000. Fighting Poverty through

Human Resource Development, Rural Development and People’s Participation, p. 12. Vientiane.15 Asian Development Bank. February 2001. “Moving the Poverty Agenda Forward in Asia and the Pacific: The Long-

term Strategic Framework for the Asian Development Bank (2001-15)”. Manila.

22

(i) Support will contribute to reducing poverty and increasing regional, ethnic, andgender equity.

(ii) ADB, the Government, and other aid agencies agree on medium-term sectordevelopment and a road map to achieve the vision. ADB will have a sustainedmedium-term role in realizing that vision.

(iii) Support will not crowd out private and/or grant assistance, and preferably willplay a catalytic role in mobilizing additional resources.

(iv) Detailed institutional and capacity analysis verifying public support andGovernment commitment and capacity to implement policy and institutionalreforms and capacity-building programs must exist.

(v) Adequate measures are in place, and capacity exists to address and mitigatepotential adverse social and environmental impacts.

(vi) The interventions will support increased private investment and the developmentof a competitive market economy.

(vii) The Government has successfully implemented ADB projects in the past,complied with loan covenants and conditions, and provided sufficient counterpartfunds and appropriate O&M expenditures.

IV. OPERATIONAL APPROACH

A. Modalities of ADB Assistance

72. Future ADB support should generally be preceded by agreements with the Governmenton (i) sector development frameworks that include clearly defined needs, proposedinterventions, and the role of development partners in reaching development objectives; (ii)verifiable performance indicators of development impact; and (iii) monitoring mechanisms toensure consistency in efforts to achieve sector and/or regional development goals. To improvethe development impact of all modalities, ADB will emphasize (i) community participation indevelopment planning and implementation; (ii) better financial management and moretransparent procurement procedures; (iii) better monitoring and reporting against agreed uponperformance targets; and (iv) better analysis and dissemination of information on social,economic, and environmental impacts. Active stakeholder participation throughout the projectcycle and better financial planning and management are needed to make ADB supportsustainable and efficient. Financing of community-managed, geographically focused projectscould facilitate incorporation of local needs into project design. Parallel projects with a similargeographic focus may ensure complementarity across sectors.

1. Lending Modalities

73. The strategy identifies policy and institutional reform as critical to the success of ADBassistance. The Government faces budgetary constraints to institutional development. Whilethis may suggest a need for program lending, ADB experience with program lending modalitiesin the Lao PDR has not been encouraging. To address institutional and policy constraints,sectoral current expenditure constraints, and long-term sector development approaches,investment lending components will be combined with reform-linked sector budget support,especially in the social sectors. Project-lending modalities with specific policy conditions andinstitution-building components will be emphasized for infrastructure projects. Such assistancewill be directly linked to income-generating activities, and to analyzing and addressing adverse

23

social and/or environmental impacts of proposed developments. Community-managed matchingfund projects will be considered to improve rural infrastructure with community participation.

2. Technical Assistance

74. Project preparatory technical assistance (PPTA) must (i) ensure that local participationand support is strong in the design, implementation, and monitoring of projects; (ii) assessrecurrent expenditure implications and strategies for financing recurrent expenditure; (iii) assessproject design options for improving equity; and (iv) identify policy changes and project designoptions that could directly enhance private sector investment. Analysis of institutional andhuman resource capacity development needs, development of the loan-term capacity-buildingprogram, and participatory approaches in design and implementation should be incorporatedinto PPTA terms of reference. Effective institutional strengthening and capacity building willrequire long-term support. The strategy aims to focus on fewer, more substantive, and generallylong-term TA to identify and address constraints in priority sectors.

3. Economic and Sector Work

75. The key to effective implementation of this CSP is high-quality and focused economicand sector work (ESW). ADB must undertake these studies in close cooperation with theGovernment and other stakeholders to ensure that their views are reflected, and to build supportfor implementation findings and recommendations based on long-term development strategies.ESW results will be directly linked to policy dialogue and ongoing CSP implementation.Recommendations for effective assistance should be reflected in program and/or projectplanning and design (para 85. for future ESW priority areas).

4. Private Sector Operations

76. ADB aims to play a catalytic role in mobilizing private sector resources. Support may beprovided directly to private enterprises and financial institutions through loans, equityinvestments, cofinancing, and guarantees under ADB private sector operations. Considerationwill be given to assisting (i) financial intermediaries; (ii) infrastructure projects in the power,water supply, transport, and telecommunications sectors; and (iii) other projects with significanteconomic development impact.

B. Participation of Civil Society, the Private Sector, and Local Governments

77. ADB will look at options to (i) allow for extensive consultation and collaboration with keystakeholders at all levels, and (ii) ensure better integration between ADB interventions to meetpriority needs of local communities. ADB will work closely with the Government to implement itsdecentralization strategy, ensure close consultation with local authorities and local communities,and directly support local institutional capacity building. Progress in achieving these objectiveswill be closely monitored during annual programming.

78. Cooperation and consultation with local communities can strengthen projectidentification and design. Opportunities for such cooperation will be pursued duringprogramming, country-level work, lending and TA implementation, and policy and institutionaldevelopment.16 The aim is to work with communities in order to understand their concerns,

16 Asian Development Bank. 1998. “Cooperation between the Asian Development Bank and Nongovernment

Organizations”. Manila.

24

needs, and priorities, and to involve communities in the design and implementation of ADB-supported activities. ADB will support policy and institutional reforms where the Government candemonstrate that it involves all stakeholders in developing consensus, ownership, and supportfor these reforms. Consensus building takes time and there is the need for long-term support.

C. Strengthening Government Capacity

79. Weak implementation capacity of the Government and local agencies and inefficientdelivery of public services have been major constraints to development. The Government plansto clarify the relationship between provincial and central government agencies, and to increasethe involvement of provincial authorities in priority setting and decision making in the context ofdecentralization. However, local capacity is particularly weak, and implies an even greater needfor careful analysis of institutional-strengthening requirements when supporting decentralization.Government capacity-building assistance will be an integral part of all ADB operations, butparticular focus will be given to improving: (i) governance and the delivery of public services; (ii)capacity of local authorities, especially in resource mobilization, financial management, andplanning and provision of social services; (iii) enforcement of environmental safeguards; (iv)Government accounting and auditing; and (v) project implementation and performancemonitoring. A long-term capacity-building program for agencies concerned will be prepared andreflected in each ADB investment, if appropriate.

80. Substantial and sustainable development impact will directly depend on the Governmentremoving structural and institutional constraints. Improving the quality of public investment andpublic service delivery is a greater priority than increasing public investment. Increased publicsector efficiency is needed to extend coverage of public services. Institutional development,improved governance, and greater stakeholder participation in development processes areessential to efficient delivery of public services. These concerns will be addressed by all ADBinterventions. Institutional strengthening will also address the need for equitable participation ofethnic groups, women, and other underrepresented groups in public institutions.

D. Aid Coordination

81. External assistance finances some 80 percent of public investment. Coordinatingdevelopment partner activities and advice has been a major challenge for the Government.Some development activities were funder-driven without adequate Government and/orstakeholder commitment. The situation has improved recently as demonstrated duringpreparations for the 2000 RTM. Still, the broad consensus is that more improvements areneeded and that continuing development business as usual is not a viable option. ADB is wellpositioned to take a facilitating and/or collaborative role in coordinating with other developmentpartners in sectors where ADB has made major long-term commitments. Generally, ADB willcooperate closely with other development partners in implementing all policy-related work tohelp develop consistent approaches. ADB will also participate in and contribute to sector policyand planning initiatives by the Government and other development partners. ADB will beprepared to enter into parallel and/or cofinancing arrangements with other official fundingagencies and/or private investors. Mobilizing grant cofinancing will be emphasized.

25

V. THREE-YEAR ASSISTANCE PROGRAM

A. Funding Level and Performance

82. The CSP proposes three lending scenarios for the 2002–2004 assistance plan, basedon the triggers of macroeconomic management, structural reform, cross-cutting issues, andportfolio performance. The current lending scenario is a base case. Notwithstanding recentmacroeconomic stability, economic growth, poverty reduction, and social development, theGovernment must further emphasize sustainable economic growth, human resourcedevelopment, sustainable environment management, and private sector development. Theobjective of the CSP is to help the Government do so for the next five years. The lendingscenario will be reviewed annually based on performance monitoring and evaluation (para. 87for performance indicators).

83. Subject to the ongoing process of performance-based allocation, a tentative indicativeplanning figure (IPF) of $45 million–55 million per year on average for lending, with provision ofadditional IPF for subregional projects, is used to develop the 2002-2004 assistance plan as abase case scenario. The high case scenario is about 20 percent higher than the base case,and the low case about 20 percent lower.

B. Loan and Technical Assistance Program

84. The base case lending program for the Lao PDR during 2002–2004 will comprise about10 national projects amounting to $150 million (average $45 million/year) and 3 subregionalprojects amounting to $50 million (average $16 million/year). During the program period, theshare of core poverty or poverty intervention projects by number is about 55 percent of thelending program, including subregional projects. In terms of thematic priority classification, 39percent of projects by number have environmental protection as an objective; 23 percent each,economic growth and regional cooperation; and 8 percent each, private sector development andgender and development. Agriculture and rural development by number of projects account for39 percent, physical infrastructure for 31 percent, social sector for 23 percent, and finance andindustry for 8 percent. The TA program, at about $5 million annually, focuses on capacitybuilding and governance, policy support, and quality project preparation (the proposed programfor lending and TA is in Appendix 5).

C. Economic and Sector Work Program

85. A number of ESW initiatives will be prepared during the program period of 2002–2004.The proposed ESW pipeline is in Appendix 6. EWS initiatives include the following:

(i) studies directly linked to Government poverty reduction strategies and improvedpublic service delivery, including (a) a poverty reduction monitoring andevaluation study, (b) institutional strengthening and reform needed to implementdecentralization, (c) analysis of options for community development funds, and(d) a northern region development plan;

(ii) northern social and environmental assessment and capacity building for gendermainstreaming at local levels; and

(iii) support for private sector development and economic integration, including workon (a) private sector assessment and analysis of SME development, (b) financialsector strategy, (c) rural finance strategy, (d) analysis of the country’s

26

competitiveness, and (e) analysis of policy and institutional constraints to privateinvestment in the power sector.

VI. PERFORMANCE MONITORING AND EVALUATION

A. Agreed Upon Performance Indicators

86. The CSP will have sustainable impact if the poverty reduction partnership agreementbetween the Government and ADB makes tangible progress. Detailed monitoring indicatorshave been developed in the partnership agreement. Key triggers for the performance-basedresource allocation have been selected from the monitoring indicators in the partnershipagreement.

87. A base case scenario would be triggered by (i) a stable macroeconomic outlook;(ii) formulation of and commitment to a SOCB restructuring plan and implementation of agreedupon interim measures; (iii) enactment and implementation of the prime minister’s decree onsocial and environmental impact assessment; and (iv) implementation of monitoring systems forcontract award, submission of audited financial reports, and compliance with loan covenants.The high case scenario would be triggered by (i) significant improvement in macroeconomicmanagement; (ii) implementation of restructuring plan of the banking sector and rural finance;(iii) significant improvement in the balance between capital and recurrent expenditures in socialdevelopment; and (iv) significant improvement in contract award, submission of audited financialreports and compliance with loan covenants. The proposed lending scenarios and triggers arein Appendix 5.

B. Monitoring Process and Plan

88. The CSP’s progress will be reviewed annually by the Government and ADB through acountry confirmation mission, based on the triggers and detailed monitoring indicators listed inthe poverty reduction partnership agreement. Analysis and findings of the annual monitoringreview will be jointly prepared by the Government and ADB. ADB’s project review missions willregularly assess the development impact of individual investments through consultations withthe agencies concerned and intended beneficiaries. LRM will facilitate the collection of data andinformation for the monitoring process. The annual programming exercise will explicitly addressthe need to update the CSP to reflect any major changes in the development environment. Inparticular, progress in key sector-level policy and institutional development will be reviewed.Adequate resources are needed to strengthen ADB monitoring of the CSP and individualinvestments.

27

APPENDIXES

1. Country Economic, Social and Environment Indicators

2. Poverty Indicators

3. Sector Strategies

4. Portfolio Status

5. Three-Year Pipeline

6. Economic and Sector Work Pipeline

7. Supplementary Appendix: Project Selection Briefs

28Appendix 1, page 1

Item 1997 1998 1999a 2000a 2001b

A. Income and Growth1. GDP per capita ($, current) 364.0 262.5 284.2 330.5 343.72. GDP Growth (%, in constant prices) 6.9 4.0 7.3 c 5.9 6.0 Agriculture 7.0 3.1 8.2 5.1 5.3 Industry 8.1 9.2 7.9 7.5 7.5 Services 7.5 5.5 6.9 6.2 6.1

B. Saving and Investment (current market prices)1. Gross Domestic Investment 26.2 24.9 22.7 20.5 21.02. Gross Domestic Saving 10.0 14.8 16.4 14.7 15.8

C. Money and Inflation1. Consumer Prices (annual average, December 1995=100) 19.3 87.4 134.0 27.0 9.0

2. Broad Money (M2)d 65.8 113.3 78.3 45.8 20.0

D. Government Finance e

1. Total Revenuef 11.0 9.8 10.6 14.0 15.22. Total Expenditure and Net Lending 19.8 13.0 19.3 21.9 23.5

3. Overall Surplus/Deficit (-)f (8.8) (3.2) (8.8) (7.9) (8.4)

E. Balance of Payments 1. Merchandise Trade Balance (% of GDP) (18.9) (16.8) (13.2) (11.5) (12.2)

2. Current Account Balance (% of GDP)g (16.2) (10.1) (6.3) (5.8) (5.2)3. Export ($) Growth (annual percent change) (1.4) 6.4 7.7 8.3 7.44. Import ($) Growth (annual percent change) (6.0) (14.7) 0.3 6.6 10.6

F. External Payments Indicators1. Gross International Reserves (months of imports) 2.1 2.4 2.3 2.4 2.42. External Debt Service (% of exports of goods) 9.6 11.1 11.4 10.1 13.33. External Debt (% of GDP) 132.9 199.1 180.5 148.8 134.9

G. Memorandum Items:GDP (current prices, KN billion) 2,200.7 4,240.2 10,303.9 13,482.6 #######GDP (current prices, $ million) 1,747.3 1,286.4 1,449.6 1,718.5 1,890.4Exchange Rate (KN/$, average official rate) 1,259.5 3,296.2 7,108.2 7,845.8 8,200.0Population (million) 4.8 4.9 5.1 5.2 5.5

GDP = gross domestic producta Preliminary estimates by the Lao People's Democratic Republic authorities. b Projectionsc The Lao PDR authorities estimate real GDP at 7.3 percent in 1999, mainly due to significant growth in agriculture. However, the

staff estimates real GDP to grow by 5.2 percent in 1999 following more modest growth in agriculture.d Includes foreign currency depositse Figures are on a fiscal year basis where fiscal year ends 30 September.f Excluding grants.g Excluding official transfers.Sources: National Statistical Centre, Bank of Lao PDR, Ministry of Finance, Committee for Planning and Cooperation, International

Monetary Fund, ADB staff estimates.

(percent of GDP)

(percent of GDP)

Table A1.1: Economic IndicatorsCOUNTRY ECONOMIC, SOCIAL AND ENVIRONMENT INDICATORS

29 Appendix 1, page 2

1985 1990

Total Population (million) 3.62 4.14 5.22 (2000)Annual Population Growth Rate (% change) 2.49 2.49 2.49 (2000)

Total Fertility Rate (births per woman) 6.7 (1980–1985) — 5.5 (1998)Maternal Mortality Rate (per hundred thousand live births) 750.0 (1988) 656.0 (1993) 530 (2000)Infant Mortality Rate (below 1 year; per '000 live births) 118.0 104.0 (1995) 75.0 (2000)Life Expectancy at Birth (years) 45.0 49.7 55.0 (2000)

Female 46.0 51.3 — Male — — —

Adult Literacy (%) 44.0 60.2 (1995) 74.0 (2000)Female — 47.9 (1995) 60.0 (2000)Male — 73.5 (1995) 82.0 (2000)

Primary School Enrollment (% of school age population) a 104.8 (1985/86) 104.8 (1990/91) 116.0 (1996/97)Female — 93.3 106.3

Lower Secondary School Enrollment (% of school age population) 27.3 (1985/86) 31.8 (1990/91) 36.4 (1996/97)Female 22.9 25.7 30.2

Child Malnutrition (% of under age 5) 35.0 (1984) — 43.0 (1992–1997)

Population with Access to Safe Water (%) 21.0 (1985–1988) — 32.0 (1990–1998)

Population with Access to Sanitation (%) b 10.0 (1985–1988) 24.0 (1988-1991) 18.0 (1990–1997)

Public Education Expenditure as % of GDP 1.3 (1987/88) 1.94 (1990/91) 2.0 (1998/99)

Public Health Expenditure as % of GDP — 0.73 (1990/91) 1.5 (1998/99)

Human Development Index — 0.246 0.484 (1998)

Human Development Ranking c — 141.0 140 (1998)

1980

Energy Efficiency of Emissions

GDP per Unit of Energy Use (PPP $ per kg oil equivalent) — —

Traditional Fuel Use (% of total energy use) 72.3 86.5 (1996)

Carbon Dioxide Emissions (total metric tons) 0.2 0.3 (1996)

Carbon Dioxide Emissions (per capita metric tons) 0.1 0.1 (1996)

Water Pollution

Emissions of Organic Water Pollutants (kg/day) — —

Industry Share of Emissions of Organic Water Pollutants — —

Wood (%) — —

Primary Metals (%) — —

Paper and Pulp (%) — —

Chemical (%) — —

Food and Beverages (%) — —

Textiles (%) — —

Land Use and Deforestation

Forest Area (million ha) — 8.5 (1997)

Average Annual Deforestation (million ha) — 0.1 (1990-96)

Average Annual Deforestation (% change) — 0.6 (1990-96)

Rural Population Density (people per km2 of arable land) — 474 (1997)

Arable Land (% of land area) — 3.5 (1997)

Permanent Cropland (% of land area) 0.1 0.2 (1997)

Biodiversity and Protected Areas

Nationally Protected Areas (km2 '000) — 30.8 (1999)

Percent of Total Land Area — 13 (1999)

Mammals (number of threatened species) — 30 (1996)

Birds (number of threatened species) — 27 (1996)

Higher Plants (number of threatened species) — 2 (1997)

Reptiles (number of threatened species) — 7 (1996)

Amphibians (number of threatened species) — 0.0

Urban

Urban Population (million) 0.4 1.1 (1998)

Percentage Urban 13 22 (1998)

Per Capita Water Use — —

Wastewater Treated (percent) — —

Per Capita Solid Waste Generation (kg/day) — 0.7 (1999)

Air Pollution

City Population ('000) — —

Total Suspended Particulates (micrograms per m3) — —

Sulfur Dioxide (micrograms per m3) — —

Nitrogen Dioxide (micrograms per m3) — —

— = not available, ha = hectare, GDP = gross domestic product, kg = kilogram, Km2 = square kilometer, m3 = cubic meter,PPP = purchasing power paritya Gross enrollment ratio is defined as the number of students enrolled in a level of education, whether or not they belong in

the relevant age group for that level, expressed as a percentage of the population in the age group 6-10 years for primary

school, 11-14 years for lower secondary school, and 14-16 years for upper secondary school.b Percentage of population with reasonable access to sanitary means of excreta and waste disposal, including outdoor

latrines and composting.c For 1990 and 1998, a total of 173 and 175 countries, respectively, were ranked from high to low human development,

using the human development index.Sources: Basic Statistics of Lao PDR , National Statistical Centre; Ministry of Public Health; Ministry of Education; Ministry of

Agriculture and Fishery; Social Development Assessment and Strategy, The World Bank, 1995; World Development Report and World Development Indicators, The World Bank; Human Development Report, UNDP; Human Development Indicators, 2000, UNDP.

Table A1.2: Social and Environment IndicatorsLatest Year

Latest Year

Population Indicators

Social Indicators

Environmental Indicators

30Appendix 2

1990

QUANTITATIVE INDICATORS

Poverty Incidence a Number of Poor (million) 2.0 (1992/93) b 1.9 (1997/98) c

Population Share (%) 45.0 (1992/93) 38.6 (1997/98) By Region Vientiane Municipality 24.4 (1992/93) 12.2 (1997/98) North 58.4 (1992/93) 52.5 (1997/98) Center 39.5 (1992/93) 34.9 (1997/98) South 45.9 (1992/93) 38.4 (1997/98)Poverty Gap d 11.3 (1992/93) 10.3 (1997/98)Poverty Severity Index e 4.2 (1992/93) 4.0 (1997/98)Gini Index f 28.6 (1992/93) 35.7 (1997/98) First 9.3 (1992/93) 7.8 (1997/98) Second 13.5 (1992/93) 11.8 (1997/98) Third 16.9 (1992/93) 15.4 (1997/98) Fourth 21.9 (1992/93) 20.6 (1997/98) Fifth 38.4 (1992/93) 44.4 (1997/98)Gender-Related Development Index — 0.469 (1998) Rank — 117 (1998)

QUALITATIVE INDICATORS Frequency

Rice Self-Sufficiency g Annual CPC, NSC (Biannual Socioeconomic Survey)Small and Large Live Stock h Annual CPC, NSC (Biannual Socioeconomic Survey)Division of Labor Between Genders I Annual CPC, NSC (Biannual Socioeconomic Survey)Valuing Subsistence Livelihood j Annual CPC, NSC (Biannual Socioeconomic Survey)Quality of Land k Annual CPC, NSC (Biannual Socioeconomic Survey)Access to and quality of social services l Annual CPC, NSC (Biannual Socioeconomic Survey)

— = Not available, CPC= Committee for Planning and Cooperation, NSC=National Statistical Centrea Based on headcount ratio, which measures the percentage of the population living in households with the per capita consumption

less than the poverty line.b/ Staff estimate based on the July 1993 population census.c Staff estimate based on the July 1998 population census.d Based on the poverty gap index, which reflects the depth of poverty. The index measures the mean distance below the poverty line as a

proportion of that poverty line, where the mean is formed over the entire population, counting the nonpoor as having zero poverty gap.e Measured by the Foster-Greer-Thorbecke (FGT) index, which reflects the severity of poverty and measures the mean of the squared

proportionate poverty gaps. This index takes into account inequality among the poor and is sensitive to the distribution of consumption among the poor.

f Refers to inequality of per capita real consumption, which takes into account differences in the cost of living and changes in monthly consumer prices.

g Refers to year-round availability and/or quantity of rice.h Number of livestock and/or livestock diseases in village.I Percentage of work load by gender.j Market valuation of and information on items bartered.k Productivity and soil quality.l General health of village and quality of education.Sources: ADB Key Eocnomic Indicators, 2000; Human Development Indicators, 2000, UNDP; Poverty in Lao PDR, ADB, October 2000;

Fighting Poverty Through Human Resource Development, Rural Development and People's Participation , Lao Government

Report, November 2000.

Latest Year

POVERTY INDICATORS

Appendix 3, page 131

SECTOR STRATEGIES

A. Agriculture and Rural Development

1. Overview of Sector Constraints and Needs

1. Agriculture and forestry account for 52 percent of gross domestic product (GDP) and 85percent of employment. Agriculture output grew by a relatively strong 5 percent per annumduring the 1990s, but major annual variations in output occurred because of the country’sdependence on rainfed agriculture. While the country is now self-sufficient in food, some remoteareas still face seasonal food shortages. Given its resource base, location, and potential costadvantages, the domestic agriculture sector is well placed to benefit from growing regionalprosperity and the increasing demand for food and other agriculture products. Institutional andpolicy reforms are needed to encourage commercial investment in the sector.

2. Rural development strategies are being reoriented to address the large gap between theMekong corridor flatlands and the sloping and upland areas where most of the rural poor live.Market forces are driving development in the flatlands, and poverty has been reduced andincomes increased considerably in recent years. The uplands remain dominated by subsistenceagriculture, with endemic rural poverty, limited options, and little improvement in livingconditions in recent years.

3. Rural productivity is constrained by (i) human development weaknesses, especially inthe remote rural areas; (ii) weak public sector institutions; (iii) formal and informal barriers toprivate sector investment and trade in agriculture products; (iv) poor rural transport, electricity,and communications infrastructure; (v) underdeveloped rural financial services; (vi) poorlydeveloped marketing system linking producers, wholesalers, and retail buyers; and (vii)environmental degradation that has led to decreased soil fertility, increased erosion, and lessreliable water supplies. Agricultural diversification has been largely limited to the Mekongcorridor. The Government still faces the challenge of reducing shifting cultivation in the remotenorthern and eastern border areas, where lack of market access provides rural communitieswith few options.

4. Notwithstanding recent improvements, the water resource subsector is constrained by (i)the lack of a national water policy and legal support mechanism, (ii) ineffective coordinationamong stakeholders using water resources, and (iii) weak maintenance and rehabilitation ofirrigation schemes.

5. The Government has developed new institutional initiatives to support its agriculturaldevelopment strategies. Agriculture support services will be demand-driven, and upgradedcapacity at the district level will directly extend productivity-enhancing technologies to farmers.District agricultural workers are being retrained as farming systems extension workers, andprovincial farming systems and subject matter specialists will support these workers. The newlyestablished National Agriculture and Forestry Research Institute will learn from—and providetechnical and logistical support to—provincial and district agriculture services under a “bottom-up” system. To improve efficiency of irrigation systems, the Government plans to shift fromlarge, capital-intensive irrigation schemes to gravity and small-scale pump schemes, and tomove away from government to farmer-managed systems.

6. The Government strategies specifically target (i) reducing shifting cultivation bydeveloping upland alternative livelihood programs; (ii) encouraging farming systems

Appendix 3, page 232

diversification and agroforestry development; (iii) providing market access through feeder roaddevelopment and market information delivery; (iv) promoting land-use zoning based on slopeand land capability, and accelerating land allocation; and (v) developing rural savings and creditsystems.

2. Major Development Partner Activities

7. The Asian Development Bank (ADB) has supported agriculture and rural development,including two program loans in addition to technical assistance (TA) and investment support. In1999, ADB helped the Government formulate its strategic vision for the agriculture sector, and afollow-up agriculture sector action plan. ADB has also supported poverty studies, which supportGovernment efforts to reach the poor through rural development programs.

8. The World Bank has provided assistance in land titling (with Australia) and for areadevelopment projects. The United Nations Development Programme (UNDP) supports the ruraldevelopment focal site strategy. UNDP and United Nations Capital Development Fund (UNCDF)have supported rural microfinance development. Australia, France, Germany, Japan, Sweden,the European Union (EU), and International Fund for Agricultural Development (IFAD) have alsobeen involved in rural infrastructure development. Food Agriculture Organization (FAO) andIFAD have been involved in livestock development.

3. Future Role for ADB in the Sector

9. ADB will help the Government implement the strategic vision through policy dialogue,TA, and investment support. Such support is critical to achieving country strategy and program(CSP) goals given that the poor are concentrated in rural areas, most people live in rural areas,and agriculture provides income for most people. The strategy envisages discrete interventions(i) the commercially oriented Mekong corridor, and (ii) the largely subsistence sloping land areaswhere most of the poor live. The focus of support will be on rural development and marketlinkages, with interventions to support the development of (i) rural infrastructure, (ii) agricultureproductivity, and (iii) rural-urban linkages.

a. Rural Infrastructure

10. Recent ADB experience with agriculture development in the Lao People’s DemocraticRepublic (Lao PDR) highlights the importance of market access, and the need to developtransport and information links with small towns, urban areas, and larger markets. Ruralelectrification and water supply improvements facilitate commercial development via impacts onhuman development, productivity, consumer demand, and new commercial opportunities. Withcommunity participation, ADB will support the development of rural access roads, electricity andwater supply, and other rural physical infrastructure to encourage investment in agriculture andother rural businesses. The community will be encouraged to decide priorities and provide laborand in-kind resources in the development process. The investments will be complemented byimproved basic education, basic skills, and health standards. ADB will take a long-termapproach to rural development that recognizes the interrelated impacts of social, infrastructure,institutional, and policy development.

11. Four projects are included in this area over the next three years. The proposed secondrural access roads project will be processed in 2003 (project preparatory technical assistance[PPTA] in 2001) to improve market accessibility. The proposed northern area rural powerdistribution project will be processed in 2003 (PPTA in 1998) to improve rural electrification in

Appendix 3, page 333

the poor northern provinces. The proposed northern community-managed irrigation project isincluded in 2003 as standby and in 2004 as firm will build upon achievements of the ongoingCommunity-Managed Irrigation Project. The proposed community fund for rural developmentpilot project will be processed in 2004 as standby (PPTA in 2003). It will introduce thecommunity matching fund in selected poor provinces to encourage community participation inrural development. The PPTAs for the second decentralized irrigation development andmanagement project and the northern rural access roads improvement project are included inthe 2004 TA program. The advisory technical assistance (ADTA) for the northern regionaldevelopment plan will be processed in 2002 to develop a comprehensive development actionplan for the northern region. The ADTA for capacity building for a community fund will beprovided in 2004.

b. Agriculture Productivity.

12. The Government’s Vision for Agriculture and Forestry Development to the Year 2020defines seven priority program areas to increase productivity: (i) strengthening the Ministry ofAgriculture and Forests and local institutions; (ii) developing human resources; (iii) adjusting tointernal and external business regulations; (iv) establishing conditions for liberalized externaltrade; (v) ensuring food security and accelerated market orientation of agriculture in theflatlands; (vi) promoting environmentally sustainable development of sloping land to reduceshifting cultivation; and (vii) enhancing irrigation management. ADB will support this initiative byfocusing on institutional development and policy reform; crop diversification, including livestockand commercialization; stabilizing shifting cultivation; rural finance development; andinfrastructure development. Measures to improve rural education and human capital formationwill be essential to increase labor productivity in agriculture.

13. Two projects are included over the next three years. The proposed smallholdersdevelopment project will be processed in 2002 (PPTA in 2000) to increase rural incomesthrough crop diversification. This project will closely coordinate with the proposed small townsdevelopment project in 2003 to improve market linkages (para 14). The proposed rural financedevelopment project will be processed in 2004 and will build upon the ongoing cluster TA forRural Finance Development. ADB will focus on the enabling policy environment as well asfinancial architecture and institutional capacity for sustainable rural finance services. Economicintegration requires developing an appropriate financial intermediation scheme for rural areas.The PPTA for participatory livestock development will be processed in 2003 to explore potentialof livestock development in the northern rural areas.

c. Urban-Rural Linkages.

14. In order to provide economic opportunities and nonfarm employment in rural areas,urban-rural linkages should be explored. Rural producers need to be integrated with urbanmarkets, urban producers to trade with rural populations, and rural and urban populations tohave easy access to international markets. This will require investments in infrastructure insmall towns, and in infrastructure linking small towns to domestic and international markets.Workforce skills need to be developed to match market demands, including for qualitystandards. With well-planned infrastructure, concentrated rural populations can provide thescale economies needed to develop business. ADB will address the infrastructure constraintsand help strengthen the legislative, institutional, operational, and enabling policy environmentfor small towns development through the proposed small towns development project in 2003(PPTA in 2000) and ADTA for institutional strengthening for small towns development in 2003.

Appendix 3, page 434

B. Environment

1. Sector Development Constraints and Needs

15. As most people depend directly on natural resources to live, living standards are directlylinked to how well the country’s natural resources are managed, protected, and developed.Sustainable natural resource-based development can help reduce poverty and, therefore,pressures contributing to environmental degradation. Challenges to sustainable developmentand management of the environment include (i) developing the institutional capacity, and publicawareness and support needed to implement environmental commitments; (ii) strengtheningcapacity in environmental impact assessments, policy analysis, community mobilization, andenforcement of central and provincial agencies, and environmental management andmonitoring, especially at the local level; (iii) involving community groups and other stakeholdersin formulating environmental policy and regulations; and (iv) ensuring that social andenvironmental considerations are integrated at the early stages of development planning.

16. Careful and sustainable management of forests and river basins is critical to thecountry’s development. However, natural resources management faces a number of majorconstraints, including (i) lack of a national policy and legal support mechanism; (ii) a weakregulatory framework, and poor monitoring and enforcement; (iii) lack of systematic andtransparent logging management, planning, and inventories; (iv) weak institutional capacity ofcentral and provincial agencies; (v) inconsistent forest management through local communities;and (v) ineffective execution of the national plantation strategy.

2. Major Development Partner Activities

17. Most development partners address environmental issues as part of broaderdevelopment activities. ADB, Danish International Development Agency (DANIDA), DeutscheGesellschaft für Technische Zusammenarbeit (GTZ), Norwegian Agency for DevelopmentCooperation (NORAD), UNDP, Global Environment Facility (GEF), Swedish InternationalDevelopment Cooperation Agency (Sida), and United Nations Environment Programme (UNEP)are supporting and/or planning technical support to improve the institutional, policy, andregulatory framework for environmental protection. The World Bank, Finland, and Sweden havebeen actively involved in forestry. Nongovernment organizations (NGOs) play a critical role inraising public awareness of environmental issues and in helping monitor and identify anyadverse environmental impacts of development projects.

3. Future Role for ADB in the Sector

18. ADB will closely work with other aid agencies, community groups, and NGOs to improvethe institutional, policy, and regulatory framework for environmental management. Key areas offocus will be in (i) strengthening the social and environmental management of infrastructuredevelopments, (ii) supporting community-based initiatives to better protect the environment (iii)supporting activities to improve upland agricultural systems; and (iv) building managementcapacity for sustainable river basin development.

19. In a resource-based society such as the Lao PDR, all public investments haveimplications for resource management and environmental protection. Community-basedinitiatives can play an important role in enforcing environmental monitoring and protectionmeasures.

Appendix 3, page 535

a. Social and Environment Management in InfrastructureDevelopments

20. In the Lao PDR, all public investments have potentially important environmentalimplications. Thus, efforts and measures to improve environmental management need to beincorporated into visions for sector development. ADB will ensure that consideration is given tothe environmental implications of all its recommendations relating to public policies, investmentstrategies, and institutional reforms. ADB will strengthen institutional capacity to analyzeenvironmental issues and policy and regulatory enforcement, including social and environmentalimpact assessments. Ensuring safeguards will be built into all ADB-financed infrastructureprojects, and encourage adoption of safeguards as standard practice in agencies supported byADB. ADB will conduct systematic consultations with all stakeholders on social and environmentissues, and will increase capacity and transparency in environmental assessment andmonitoring.

21. The proposed environmental and social management in energy and transport programloan is included in 2001 (PPTA in 2000) to help the Government develop a policy and regulatoryframework, as well as effective monitoring, enforcement, and coordination mechanisms. ADBwill also process the proposed Nam Ngum river basin development project in 2002 (PPTA in2000) with a focus on sustainable river basin development. The proposed second industrial treeplantation project will be processed in 2004 (PPTA in 2001) to further promote the plantationpolicy. The ADTA for northern social and environmental assessment is included in 2003 toidentify the environmentally and socially sensitive areas in the northern region and reflect themin future development. PPTA for energy development in northern rural areas will be processedin 2004 to develop an environment-friendly and economically viable options for electrification.ADB will also continuously be involved in subregional environmental initiatives through theGreater Mekong Subregion (GMS) program.

b. Community-Based Initiatives

22. Community ownership of forest resources, community awareness of the economic andsocial importance of forests, transparent awarding of logging concessions, and a professionalcivil service are important in sustainable environmental management. ADB will emphasizecommunity consultations and involvement, and will raise public awareness of key environmentalissues. Communities will be directly involved in the monitoring of social and environmentalimpacts of all ADB-financed infrastructure projects. Given that most of the poor rely on naturalresources, incentives (including ownership arrangements) will be improved to enhancecommunity protection of natural resources.

C. Education

1. Sector Development Constraints and Needs

23. Education and skill development are critical to achieving sustainable economic growthand reducing poverty. Without progress in education, returns on other investments indevelopment will be diminished.1 While some progress has been made in extending the primaryschool system, Lao PDR still lags behind neighboring countries in education quality as shown inTable 1. Public expenditure on education marginally increased from 1.9 percent of GDP in 1991

1 World Bank. 2000. World Development Report 2000/2001: Attacking Poverty. Washington, D. C.

Appendix 3, page 636

to about 2.0 percent in 1999, but current expenditures declined from 80 percent of totaleducation expenditures in 1991 to 46 percent in 1999. This has adversely affected the quality ofservices: the primary completion rate is only 60-65 percent, 25 percent of students repeat, and12 percent drop out each year.

Table 1: Distribution of Total Education Budget in Selected Asian Economies

Distribution of PublicEducation Expenditure

(% of total)

Education Expenditure asa Ratio of Gross National

Product

Year ofData

Current Capital TotalExpenditure

RecurrentExpenditure

Lao PDR 1996/97 55 45 2.9 1.6Bangladesh 1992 80 20 2.3 1.8China, People'sRepublic of 1994 90 10 2.6 2.3

Indonesia 1995 72 28 2.8 2.0Malaysia 1994 84 16 5.3 4.4Thailand 1994 80 20 3.8 3.0

Source: Asian Development Bank. June 2000. Education Sector Development Plan. 184-185.

24. The quality of education is particularly poor in rural areas. Females areunderrepresented at all education levels, and gaps are widest in rural areas and in highergrades. Ethnic minorities also have noticeably lower level of school enrollment and completion.A recent participatory poverty assessment2 found that poor villagers view education asunavailable, unaffordable, and/or secondary to securing their livelihood. To achieve universalprimary education by 2015, the Government must address inadequate access to completeprimary education; weak planning and management capabilities; inadequate financing ofrecurrent costs; and poor quality of teaching.

25. Education delivery should meet local conditions and needs. Nonformal education is alsoconsidered important. Key Government objectives are to extend access to complete primaryschooling to all children; improve the quality of teaching, curriculum, and training material;improve the relevance of education to society and business; and strengthen the planning andmanagement of education.3

2. Major Development Partner Activities

26. ADB has given policy advice on education sector development as well as support toimprove access and teacher quality of basic, and postsecondary education. The World Bankhas been involved in coverage expansion of primary and secondary education, and curriculumdevelopment. The United Nations Children’s Fund (UNICEF), UNDP and United NationsEducational, Scientific, and Cultural Organization (UNESCO) and many NGOs, as well as

2 Government of the Lao PDR. State Planning Committee. October 2000. Poverty in the Lao PDR: Participatory

Poverty Assessment and Poverty in the Lao PDR: Quantitative and Participatory Analysis. Vientiane.3 Government of the Lao PDR. Ministry of Education. October 2001. The Education Strategic Vision up to the Year

2020. Vientiane.

Appendix 3, page 737

Japan, France, Australia, Norway, and Switzerland have provided grant assistance tostrengthen basic education.

3. Future Role for ADB in the Sector

27. ADB will continue to improve coverage, quality, and relevance of basic educationservices. Several ADB projects in education are being implemented or prepared, including theBasic Education (Girls) Project, Postsecondary Education Project, and second EducationQuality Improvement Project. Given the Executing Agency’s absorptive capacity and otherdevelopment partners’ assistance, ADB will focus on implementing the ongoing projects overthe next three years, particularly promoting multigrade education in remote areas, and teachertraining. ADB, together with other major aid agencies, will emphasize the policy dialogue withthe Government to redress inequalities in basic education and to make service delivery moreefficient. ADB will do this by (i) developing curriculums that address (a) community needs andinclude training in agriculture and other income-generating skills; (b) nutrition, public health,environmental, and market economy issues; and (c) other community-life issues; (ii) allowingflexibility in school hours and holidays to fit with local agriculture cycles and periods of peaklabor demand; (iii) encouraging communities to be actively involved in education projectplanning and implementation; and (iv) redressing imbalances between current and capitalexpenditure.

28. ADTAs for strengthening decentralized education, and provincial institutionalstrengthening in education efficiency are included in the 2002 and 2004 programs, respectively.PPTA for a basic education project will be processed in 2003, building ongoing basic educationprojects. ADB will address opportunities to mobilize grant cofinancing or parallel financing (withbilateral agencies, NGOs, and community groups) as an essential element of ADB educationsupport. In line with Government objectives to increase the proportion of students attendingprivate schools, ADB will promote increased private sector investment in education in urbanareas.4

D. Health

1. Sector Development Constraints and Needs

29. While increased public expenditure on health (0.7–1.5 percent of GDP in 1991–1999)and substantial external assistance have helped improve coverage and health conditions, healthindicators remain among the lowest in the world as shown in Table 2. Morbidity and mortalityprofiles are characterized by diseases that could be easily reduced by better preventive care,basic health care, and education. Preventive health care and family planning must be thehighest priorities. Key concerns include (i) uneven distribution of access to health care and anetwork that reaches few isolated rural areas; (ii) the imbalance between capital and recurrentexpenditures, which adversely affects service delivery and facility use; (iii) weak institutionalcapacity in policy analysis, financial management, and administration; (iv) poorly developeddrugs management and distribution system in rural areas; (v) the overly high ratio ofadministrators to nursing and medical staff; and (vi) shortage of adequately trained medicalpersonnel in most areas. Coverage, quality, and relevance of health services need improving,which will require adequate investments as well as further institutional reform.

4 Government of the Lao PDR. State Planning Committee. March 2001. Public Investment Program 2001-2005.

Currently, about 2.5 percent of all students attend private school. Most private schools are concentrated inVientiane and other larger urban areas.

Appendix 3, page 838

Table 2: Health Indicators from Selected Asian Economies

Health Expenditure % ofGDP (1990-1997, mostrecent available data)

LifeExpectancy

at Birth

InfantMortality(per ‘000)

MaternalMortalit y

(per100,000births)

FertilityRate

(birthsper

women)Total Public Private 1997 1997 1997 1997

Lao PDR 2.5 1.0 1.5 54 98 660 5.6Bangladesh 3.2 1.4 1.8 58 75 850 3.2People’sRepublic ofChina

— 2.1 — 70 32 95 1.9

Thailand — 2.0 — 69 33 1.7Viet Nam 2.1 1.1 1.0 68 29 105 2.4

— = not available, GDP = gross domestic product.Source: Asian Development Bank and World Bank (various issues of reports).

30. The Government’s priorities are to reduce infant and child mortality; increase lifeexpectancy; and reduce illness and deaths from selected fatal epidemic diseases. Publiclyfunded health programs such as primary health care; disease control for malaria, respiratorytract infections, and tuberculosis; reproductive health and maternal care; and rural water supplyaddress these concerns.

2. Major Development Partner Activities

31. ADB has been involved in giving policy advice and in investing in expanding access toquality primary health care to poor and ethnic minority communities in the northern rural areas.The World Bank, Australia, Germany, Japan, Sweden, UNDP, UNICEF, and NGOs have beeninvolved in primary health care, disease control, birth spacing, and rural water supply.

3. Future Role for ADB in the Sector

32. ADB will continue to focus on primary health care, birth spacing, and health sectorefficiency, and will include targeted support to isolated areas and ethnic minorities. ADB willfocus on implementing the ongoing Primary Health Care Expansion Project over the next two orthree years given the Executing Agency’s absorptive capacity and other aid agencies’assistance. In particular, a primary health care network will be developed in remote andmountainous areas to deliver better basic health services; basic drug kits will be distributed topoor villages and a revolving fund implemented; and training will be provided to local healthworkers and village leaders. ADB will emphasize policy dialogue with the Government toimprove coverage, quality, and relevance of primary health care services. The policy dialoguewill address (i) upgrading skills to improve planning, financial management, and delivery ofhealth services at all levels; (ii) upgrading the knowledge and skills of health personnel anddistrict-level physicians; (iii) upgrading skills of primary health care workers to increase publicawareness of health care measures; (iv) redressing the imbalances between capital and currentexpenditures in primary health care services; and (v) improving consultative processes,including by ensuring adequate representation of ethnic groups and women, to provide projectsrelevant to community needs. PPTA for a health sector efficiency and management project will

Appendix 3, page 939

be processed in 2003. ADTA for capacity building for health sector efficiency and managementis included in the 2004 program.

E. Urban Development and Water Supply And Sanitation

1. Sector Development Constraints and Needs

33. Limited access to potable water and sanitation services contribute to poor indicators ofpublic health. Improvements in water supply and sanitation can significantly help reduce infantand child mortality, and improve the health and productivity of the general population. Most ofthe population lives in rural areas, where water supply and sanitation facilities range from basicto nonexistent. About 60 percent of households living in other provincial and small towns havesome access to piped water, or direct access to a connection during part of the day. About 90percent of households in Vientiane have access to piped water or direct access to a connection.The Lao PDR has no centralized sewage system for wastewater collection, treatment, anddisposal. Latrines are usually open pits or septic tanks with on-site effluent disposal. Septictank effluent and wastewater are often discharged into street drains or open areas, withnegative impacts on the environment and public health.

34. The early to mid-1990s saw rapid increases in access water, but the sustainability ofmany investments is now doubtful. Consequently, the Government has shifted its focus onincreasing water supply away from accessible to inaccessible high-poverty areas, andemphasizing service quality rather than quantity. Human resource and institutionaldevelopment, with extensive community participation, are essential to avoid past designproblems.

35. Government programs recognize the differences in rural and urban water supply systemneeds. Rural water supply development focuses on helping rural communities help themselves,which is crucial to sustain the rural water supply system. Government policy states that publicsupport to urban water supply development will only be provided when local commitment to theproject is clear. Government policy is to work toward full cost recovery for urban water supplyand centralized wastewater systems. The Government has recently introduced policies toencourage private involvement in the sector, but detailed regulations are yet to be promulgated.It is also critical that urban development administration authorities evolve into fully functionallocal governments.

2. Major Development Partner Activities

36. ADB has been a major aid agency in the water supply and urban development sector.EU, France, Germany, Japan, Norway, United Nations Centre for Human Settlements(UNCHS), UNDP and UNCDF have supported water supply and sanitation activities in selectedtowns and rural areas. The World Bank, UNICEF, and NGOs have helped rural water supplies.

3. Future Role for ADB in the Sector

37. Improvements in rural water supply and sanitation with full community participation ofare important for social, economic, and equity reasons. In addition, as the population grows, andan increasing proportion of the workforce is employed in industry and services, small towndevelopment will be critical in providing nonfarm economic opportunities. Since Vientiane andsecondary towns have been developed as national and regional markets, efforts will be shiftedto small towns to ensure linkages between rural areas and major urban economies or

Appendix 3, page 1040

subregional markets. ADB’s urban sector strategy will seek to utilize existing urban potentials forbroad-based development.

38. Some past ADB interventions in this sector exposed the need to improve institutionalcapacity, community involvement in project design and implementation, and flexibility of projectdesign to reflect local conditions and ensure sustainability of the water supply system. Particularattention must be given to raw water sources, and watershed catchment areas. The need fordrainage and sanitation development to complement water supply developments must becarefully assessed.

39. ADB support will focus on water supply and small towns development with closeinvolvement of local communities in project design, implementation, and monitoring, and willgive more attention to cost efficiency and financial sustainability of systems. Communityparticipation in the development and operation of systems—including consultations on thecommunity’s needs, expectations, and affordability and willingness to pay for improvedfacilities—is a prerequisite for future ADB involvement in small town and water supply projects.Adequate time and resources are needed to ensure effective community participation andminimize future design problems. ADB interventions will recognize that sustainability can onlybe assured when communities are aware of the value of improved water supply systems, andhave a real sense of ownership and a commitment to pay tariffs to cover the cost of the service.The proposed northern and central water supply and sanitation project will be processed in2004 (PPTA in 2002). The proposed small towns development project will be processed in 2003(PPTA in 2000). An ADTA for local resource mobilization in 2002 will address the need tocontinue to increase the institutional capacity of local authorities.

F. TRANSPORT

1. Sector Development Constraints and Needs

40. Substantial progress has been made in recent years in expanding transportinfrastructure, especially national roads and major provincial airports. However, most ruralcommunities still do not have year-round road access to markets, most provincial roads remainunpaved, and small airports need to be improved to ensure civil aviation safety. The lack ofaccess roads is a main constraint to rural development and access to services and opportunities.Barriers to maximizing the economic benefits from transport development should be dismantled.Some transport infrastructure assets are underutilized because of weak domestic andinternational economic integration and insufficient intersectoral coordination. Close monitoring ofthe removal of the informal and formal barriers is essential to maximize returns on transportinvestments. Concerns about financial and institutional capacity to maintain existing assets aremounting. Improved analysis of recurrent cost implications is required to plan new investments.Social and environmental concerns should be also fully addressed. Government awareness of theenvironmental impacts of road development rose after ADB brought environmental NGOs and theGovernment together to monitor and mitigate such adverse impacts. ADB has provided TA tobuild capacity in social analysis, resettlement, and environmental management.

2. Major Development Partner Activities

41. ADB and the World Bank have been the major source of external finance to supporttransport sector development over the last decade. ADB helped the Government prepare theRoad Sector Strategic Vision, which provides a sector-wide framework for future roadinvestments. The World Bank, in collaboration with ADB and Sweden, has supported the Road

Appendix 3, page 1141

Maintenance Program, which includes developing sustainable mechanisms for maintainingexisting roads. The Road Maintenance Fund was established to manage financing of themaintenance of the road network. Australia, Germany, Japan, and Sweden have been the mostsignificant sources of bilateral aid to the road transport sector over the past decade.

3. Future Role for ADB in the Sector

42. ADB will continue to support transport development to reduce poverty, develop theprivate sector, and integrate the national and regional economies. ADB will focus on (i)developing economic corridors with subregional linkages and (ii) improving rural access roads tofacilitate market linkage. Financing options of subregional projects where a relatively large shareof benefits may accrue to other countries will be evaluated. Rural access road networkdevelopment should be accompanied by adequate funding, staffing, and a system for sustainableoperation and maintenance (O&M), including enhancing community participation in site selection,construction, and maintenance. The improvement of civil aviation services is also important for thegrowing tourism sector, service delivery, and market and economic linkages. In planning andimplementing transport sector support, ADB will ensure that social and environmental concerns,and opportunities to maximize economic benefits, are integrated at early stages of the transportplanning process. ADB interventions will also address transport safety.

43. The proposed second rural access roads project will be processed in 2003 (PPTA in2001) to continue to provide market access roads in rural areas to support agriculture and ruraldevelopment efforts. The follow-up project will be prepared through PPTA of northern ruralaccess roads improvement in 2004. The proposed GMS: northern economic corridor project willbe processed in 2002 (PPTA in 2001) to link Kunming and Chiang Rai through northern Laoareas. PPTA for a small airport improvement project will be processed in 2002 to facilitateeconomic integration by improving civil aviation safety, following the ongoing AirportsImprovement Project.

G. Power

1. Sector Development Constraints and Needs

44. Hydropower is a major nonagriculture industry in terms of contribution to total economicoutput, fiscal revenue, and export earnings. Only 623 megawatt (MW) of a Government-estimated potential 18,000 MW of hydropower generation capacity have been developed. TheLao PDR has one of the lowest levels of electrification in Asia, with only 17 percent of thepopulation and 2 percent of rural households connected to the power grid. The Government aimsto accelerate power development and substantially increase electricity exports. Sectordevelopment needs (i) better and more transparent integration of social and environmentalconcerns and enforcement mechanisms into sector planning; (ii) higher domestic tariffs to coverfinancial production costs at least in urban areas, with a transparent subsidy scheme for rural poorareas; (iii) wider rural electrification coverage; (iv) more effective subregional cooperation througha diversified export market; (v) prioritized proposed hydropower generation projects and the mostsuitable financing schemes for them; (vi) better regulatory framework and enforcementmechanisms to encourage private sector investment; and (vii) institutional strengthening,especially in financial planning, management, and negotiation capacity with developers. Indeveloping hydropower projects, the following risks should be carefully assessed and addressed:(i) possible adverse environmental and social impacts, (ii) consultation with community groups,(iii) risks associated with an economy heavily dependent on one commodity and a singlemarket, and (iv) engineering and other technical risks.

Appendix 3, page 1242

2. Major Development Partner Activities

45. ADB has been actively involved in the sector in policy and planning support, institutionalstrengthening, financing power supply and distribution, and encouraging private sectorinvestment. The World Bank has also provided advisory services to Electricité du Laos (EdL)restructuring and has been actively involved in preparing the proposed Nam Theun 2 hydroelectricproject, and rural electrification in the southern provinces. Australia, Japan, and Norway havehelped strengthening EdL and the hydropower office. Australia and Japan have been involved innongrid rural electrification. Private developers from Australia, France, Japan, Norway, Republicof Korea, Sweden, and Thailand are also involved in sector development.

3. Future Role for ADB in the Sector

46. ADB is preparing an energy sector strategy study, which will provide the basis for ADB’sinterventions in the power sector. ADB will continue to provide assistance to the power sector,with special emphasis on rural electrification, which is key to rural development. ADB willsupport Government efforts to (i) develop capacity to manage power sector development in anenvironmentally and socially productive manner; (ii) support the rationalization of tariffstructures, and help restructure and strength EdL to improve its financial viability; (iii) develophydropower projects, where technically and financially feasible, for export and domesticconsumption; (iv) develop transmission and distribution systems; (v) extend rural electrification;(vi) use renewable energy, where feasible; (vii) promote private sector investment in export-oriented generation projects by giving them financial support, improving their regulatoryframework, and strengthening the Government’s negotiation skills; and (viii) promote regionalcooperation.

47. The proposed northern area rural power distribution project will be processed in 2003 tohelp northern rural areas gain more access to electricity. The PPTA for energy development inthe northern rural area will be processed in 2004 to develop viable options for electrificationincluding power generation in northern rural areas. Bilateral interest in providing grantassistance to power sector development exists. The ADTA for power sector development in2002 will, interalia, explore opportunities to mobilize grant cofinancing or parallel financing andaddress constraints on power sector development.

H. Financial sector and Business Environment

1. Sector Development Constraints and Needs

48. The banking system comprises (i) three state-owned commercial banks (SOCBs); (ii) theAgriculture Promotion Bank; (iii) three joint-venture banks; (iv) seven branches of foreign banks;and (v) one representative office. The banking system remains small and poorly developed, withtotal assets of about $408 million. The four SOCBs account for 71 percent of total assets,5 mostof which are in foreign currency, primarily US dollars and Thai baht. The Bank of Lao PDR(BOL) is the central bank, the lender of last resort, responsible for monetary policy, reservemanagement, bank supervision, and the payment system. The BOL Governor is appointed bythe Government, and lack the power to act autonomously.6

5 Bank of Lao PDR. 2000. The Banking and Financial Sector of Lao PDR. (Second draft, p. 25). Vientiane.6 Article 5 of the Law on the Bank of Lao PDR states: “BOL shall perform other tasks as provided by law or as

assigned by the Government.”

Appendix 3, page 1343

49. Weakness in the banking system is a major risk to macroeconomic stability as well as amajor constraint to national development, making it difficult to mobilize and allocate domesticresources, and increasing the economy’s dependence on foreign resources. Formal financialinstitutions are concentrated in Vientiane, and the bulk of the population still has no access tothe banking system. A microfinance system should be developed to serve the rural poor. Onepromising area is the expansion of pilot microfinance schemes targeted at the poor, especiallywomen. Such schemes would charge sustainable interest rates and achieve high repaymentrates. The private sector relies mainly on the informal financial system as access to medium-and long-term credit from the formal financial sector is very limited. The ratio of broad money toGDP is very low at 18 percent, compared with 90 percent in Thailand and 24 percent in VietNam. Thus, financial depth should be much improved. SOCBs remain constrained by poor loanrecovery, weak management, and inadequate prudential control. Most nonperforming loans arelinked with policy lending and weak performance of state-owned enterprises (SOEs), and weakfinancial discipline of borrowers. Basic market institutions that play a critical role in financialsector development (land mortgage and foreclosure systems, auditing and accountingprofessions) remain poorly developed.

2. Major Development Partner Activities

50. ADB has been a major aid agency in the financial sector, including rural finance. BOL,ADB, and the World Bank, in coordination with the International Monetary Fund (IMF), arepreparing a joint financial sector strategy based on consultation with the Government on futurechallenges and policy directions. The strategy will guide the financial sector reform and futuredevelopment partner involvement in the sector. Australia has assisted SOCB audits. UNDP,UNCDF, EU, bilateral agencies, including those from France, Germany, and Sweden, andNGOs have assisted to microfinance projects.

3. Future Role for ADB in the Sector

51. The evaluation of past ADB support to the financial sector, via technical assistance andprogram lending shows that such support has not satisfactorily generated the expected resultsbecause of lack of in-depth analysis of the political and institutional environment, complex policyagenda, inappropriate sequencing of reforms, insufficient attention paid to financial discipline toimprove the flows of new lending, limited ownership by the Government and other localstakeholders, and lack of institutional memory and consistency of policy advice due to frequentchanges of ADB staff.

52. The Government’s ownership of financial sector reform is now much improved throughvarious kinds of consultations over the past two years. The Government recently reconfirmedthat bank restructuring is an urgent need. ADB will continue to promote financial sectordevelopment, but innovations are needed to make assistance more effective. To strength theformal financial system, ADB will rely on the ongoing consultative process, and support the jointstrategy. SOCBs restructuring to improve financial discipline and corporate governance will bean ADB priority. ADB will also help expand outreach and coverage through better rural andmicrofinance. Thus, the financial sector strategy will be two-pronged, including (i) financialdiscipline and (ii) financial outreach and coverage. The proposed financial sector program loanand ADTA for strengthening corporate governance and management of SOCBs will beprocessed in 2002 to address this need. ADB will also focus on developing microfinanceservices through the proposed rural finance development project in 2004 (PPTA in 2002). ADTAfor institutional strengthening for rural finance is included in 2004 to build on achievements ofthe ongoing cluster TA for Rural Finance Development, approved in 2000.

Appendix 3, page 1444

53. ADB’s support for small and medium-size enterprises (SME) will also help develop thefinancial sector. Interventions to support business development will include (i) developing themarket institutions needed to reduce transaction costs and risks associated with commercialinvestments, including credible systems for enforcing contracts and property rights, andtransparent and credible accounting and financial reporting systems; (ii) developing a regulatoryframework that supports efficient credit markets, including mortgage, foreclosure, andbankruptcy provisions; (iii) providing basic infrastructure to improve market access andopportunities for private investors; (iv) removing nonphysical trade barriers; (v) improving creditdelivery, particularly in the rural areas; and (vi) greater openness and increased transparency inpublic tendering. The ADTA for enhanced environment for SME development and PPTA forSME development will be processed in 2003 and 2004, respectively. ADTA for competitivenessimprovement in the economic corridor will be processed in 2003 to assess the economy’scompetitive potential and recommend ways to realize it. Opportunities for an increased privatesector role will be developed in all sectors supported by ADB. This will include an assessment ofopportunities for private involvement in the development, implementation, and operation ofprojects, as commercial and/or contracted suppliers of public services, including urban health,education, water supply, and sanitation.

I. Governance and capacity building

1. Sector Development Constraints and Needs

54. The country is still in transition from a centrally planned system to a market-basedeconomy. The regulatory framework remains weak and the public sector continues to dominateindustry and some service sectors. Institutional weaknesses limit delivery of public services,capacity to maintain physical infrastructure, and development of an institutional and regulatoryenvironment supportive of private investment. Frequent policy and institutional change andambiguity during the transition add to business costs. Market institutions are weak to adequatelyprotect property rights, enforce contracts, and provide professional and financial services.Business enterprises continue to face Government officials’ considerable administrativediscretion and interference. Commercial transactions with the Government are often nottransparent. Weak public administration has greatly reduced the development impact of pastpublic investments and development assistance. The Government recognizes that improvingthe quality of public investment and services is a more urgent priority than increasing publicinvestment. The structure and capability of the public service, and the way developmentagencies deliver development assistance must be changed to realize this objective. Alternativearrangements for delivering services are being trailed, including greater civil society participationthrough increased involvement of local authorities, private enterprise, and NGOs.

55. Recent participatory poverty assessments highlight links between good governance andpoverty reduction. The poorest areas have generally had little contact with government and no,or negligible, access to basic public services such as health, education, transport, power, ormarkets. At the local level, strong village leaders frequently play an important role in reducingpoverty. Effective governance and accountability require appropriate mechanisms, includingestablished village leadership structures, to identify stakeholder needs and to fulfill them. TheGovernment stresses the need to empower local communities to encourage their activeparticipation in the development process.7

7 Government of the Lao PDR. 2001. Interim Poverty Reduction Strategy, page 30. Vientiane.

Appendix 3, page 1545

56. The Government recognizes “governance as a vital link between economic growth andpoverty reduction.” 8 Tangible indicators of Government commitment to improving governanceinclude the gradual move to introduce transparent and decentralized public investment andexpenditure planning processes, the recently developed national audit function, and theGovernment’s anticorruption decree. Progress has been made in recent years in delegatingdecision making, clarifying procurement procedures, increasing awareness of aid agencyprocedures and market principles, improving the monitoring of project implementation, andtransferring public service management responsibility from the Lao People’s RevolutionaryParty to the Government. Government priorities to improve governance include (i) improving theplanning, management, and monitoring of public expenditure; (ii) training and managing civilservants; (iii) clarifying and streamlining procedures; (iv) implementing administrative and legalreforms; and (v) decentralizing priority setting and implementation of development activities.

57. Finally, corporate governance should be improved to ensure greater accountability tostakeholders, more efficient resource allocation, consistent enforcement of regulations, andinternal incentives conducive to economic and social efficiency. The need for improvedcorporate governance is most pronounced in SOEs, because few private shareholdingcompanies exist. Generally, improvements in the regulatory environment are needed to reduceadministrative discretion and ambiguity, and thus reduce incentives and opportunities forcorruption. Reducing red tape is particularly important in promoting small, labor-intensiveenterprises that are essential to the Government’s development strategy.9

2. Major Development Partner Activities

58. Most development partners prioritize governance in their development assistancestrategies for the Lao PDR. ADB has been involved in public finance management. A publicexpenditure review is being conducted jointly by ADB, the World Bank, IMF, and theGovernment. The World Bank and IMF have been involved in tax reform and foreign debtmanagement; UNDP, in public administration reform and strengthening local governmentagencies; bilateral aid agencies from EU, Australia, Japan, France, Germany, and Sweden, incapacity building at various agencies concerned.

3. Future Role for ADB

59. Major recent ADB efforts to improve governance include (i) strengthening public financialmanagement (including extending support to the National Audit Office, and improvingexpenditure planning and monitoring of official development assistance [ODA]); (ii) supportingthe Government’s decentralization policy; and (iii) improving the environment for private sectordevelopment. ADB has also been supporting sectoral policy reform and institutionaldevelopment through project and program loan components, economic and sector work, andpolicy dialogue.

60. Effective CSP implementation requires competent and honest public service institutionsthat are committed to deliver public services. Public service institutions must thus have systemsto ensure provision of adequately skilled staff, appropriate training, and institutional structuresthat reward commitment and performance in serving the public. Civil servants must also bedirectly accountable to intended beneficiaries. Effective ODA management requires

8 Lao PDR Government Report to the Seventh Round Table Meeting. November 2000. Fighting Poverty through

Human Resource Development, Rural Development and People’s Participation, page 86. Vientiane.9 Lao PDR. 2001. Interim Poverty Reduction Strategy. page 30. Vientiane.

Appendix 3, page 1646

strengthened civil service capacity to (i) effectively manage public expenditure; (ii) providetransparency in establishing investment priorities; and (iii) ensure efficient delivery of publicservices. All CSP interventions should help develop an efficient and service-oriented publicservice.

61. ADB supports the Government’s decentralization initiative, but also recognizes thechallenges posed by weak institutional capacity, especially at the local level. All local projectswill help strengthen local institutional capacity. To improve accountability, projects will ensureeffective stakeholder consultations; design and implement efficient monitoring systems; andregularly make information on expenditures, contracting, and performance available to localcommunities.

62. At the central level, ADB will provide ADTAs for strengthening accounting and auditfunctions in the government (2003) and project implementation and performance monitoring(2002), and poverty reduction monitoring and evaluation (2004). ADB will support Governmentefforts to promote transparency in all public expenditure and policy decisions, focusing onmechanisms to ensure transparent procurement and secure private investment in publicprojects. ADTA for public service delivery efficiency will be processed in 2004. Long-termcapacity-building programs will be prepared and reflected in each ADB investment, ifappropriate. Continuing support to sectors will be linked to tangible progress in the appropriatepublic administrative reform and capacity building of the concerned agencies and localauthorities.

J. Gender Issues

1. Sector Development Constraints and Needs

63. While women account for more than 51 percent of the workforce, most are engaged inlow-productivity (and low-income) activities, and most social development indicators showmarked gender inequities. Women are generally less educated than men, and suffer from poorhealth services, high fertility rates, inadequate birth spacing, and very high maternal mortalityrates. Women’s potential contribution to development is weakened by their poor levels ofparticipation in higher value-added economic activities and decision-making positions. Whilenew female entrants to the workforce are becoming better educated, skills constraints andcultural and administrative barriers combine to limit women’s participation in higher-productivityemployment.

64. The Government is committed to “guaranteeing quality health care; development,protection and participation rights of children and women; quality education and other socialservices to every member of society”10. Gender inequities must be reduced if the Government isto reduce poverty because: (i) most of the poor are women, and they disproportionately bearsthe burden of poverty due to their multiple roles and disadvantaged position; (ii) women aretraditionally primary production managers, small enterprise traders, primary cash earners, small-credit users, and key agriculturists, yet their potentials have not been realized due toinstitutional, resource, and cultural barriers; and (iv) women are more likely to stimulate demandfor better education and health delivery.

10 Lao PDR Government Report to the Seventh Round Table Meeting. November 2000. Fighting Poverty through

Human Resource Development, Rural Development and People’s Participation. page 50. Vientiane.

Appendix 3, page 1747

65. During the transition to a market economy, it is essential that newly emerging marketinstitutions provide equal opportunities and rights for women to access property rights inproductive resources, especially land. The traditional strengths of women’s roles could bedissipated without ensuring that women have equitable access to new market institutions andresources. Administrative and cultural bias as against women’s access to productive resourcesmust be addressed proactively.

2. Major Development Partner Activities

66. Most development partners prioritize gender issues, and have had some success inreducing gender inequities. UNICEF, United Nations Population Fund (UNFPA), United NationsDevelopment Fund for Women (UNIFEM), Australia, and Norway have substantially supportedprograms and projects to reduce gender inequities. NGOs have actively supported the LaoWomen’s Union and directly targeted women in community development activities. Successfulmodels are needed to promote gender equity of development assistance nationwide.

3. Future Role for ADB

67. ADB’s recent efforts to promote gender equity have been support for education(including activities specifically targeting the education of girls) and primary health care. ADBhas increasingly included analysis of gender issues in most recently approved assistance,which, however, has targeted gender inequity only in a limited way. Monitoring data to assessthe effectiveness of such support is also limited.

68. ADB should address gender equity issues more carefully in its annual programming andprogram monitoring exercises, sector strategies and interventions, program and project design,and program and project evaluations. Improved targeting of gender inequity can make ADB’ssupport much more effective and efficient and make the country more economically competitive.However, most aspects of ADB operations must be improved. Some priorities are discussedbelow.

a. Mainstreaming Gender Issues

69. All ADB’s operations must ensure equal participation and employment opportunities forwomen. Gender must be taken into account in all interventions to help identify women’sdevelopment needs and priorities and to ensure the equitable delivery of project benefits towomen. The capacity of central and local government development planners to integrate genderconcerns in macro, sector, and regional development planning, as well as in projectidentification, design, implementation, and monitoring must be strengthened. The ADTA forcapacity building for gender mainstreaming will be processed in 2004. ADB’s individual projectswill be required to include gender analysis and strategies.

b. Development Projects that Target Women

70. ADB interventions in primary health care and in water supply are more likely to impacton women. ADB can also directly target girls as it has done in basic education. ADB will try todraw more women into agriculture projects so that more impacts are directed at women (forexample, by focusing on vegetables, fruit, small animals, food preservation, and marketing).Rigorous gender analysis is necessary for the specific ethnic context when preparing theseprojects. ADB is helping strengthen the capacity of the Lao Women’s Union to analyze anddevelop measures to address gender inequities.

Appendix 3, page 1848

c. Stakeholder Participation in ADB-Financed Activities

71. Women must be adequately represented in all consultations related to the design anddelivery of ADB support. ADB should monitor and work with the Government to ensureadequate representation of women as employees and consultants in institutions supported byADB.

d. Developing Gender Equal Representation of Women

72. Support for policy and institutional reform and development will address potential genderimpacts of proposed reforms, which is particularly important in areas such as land titling andallocation, and in community forest initiatives. There is also a need to ensure adequaterepresentation of women in the judiciary, national assembly, financial institutions, professionalbusiness services, and development agencies.

49Appendix 4, page 1

Table A4.1: Implementation, Disbursement Performance, and Postevaluation Results—Public Sector Projects

(as of 31 December 2000)

Rating (No.) A. Project Portfolio Implementation Progress Development Objectives

$ million % No. % HS S PS U HS S PS U

Agriculture and Natural Resources 45.2 10.0 4 20.0 0 4 0 0 0 4 0 0 Energy 77.9 17.3 2 10.0 0 2 0 0 0 2 0 0 Finance and Industry 23.6 5.2 1 5.0 0 0 0 1 0 1 0 0 Social Infrastructure 122.8 27.2 7 35.0 1 5 1 0 1 6 0 0 Transport and Communications 182.0 40.3 6 30.0 1 4 1 0 1 5 0 0 Others/Multisector 0.0 0.0 0 0.0 0 0 0 0 0 0 0 0

451.5 100.0 20 100.0 2 15 2 1 2 18 0 0 B. Disbursements OCR

(1) Total funds available for withdrawal ($ mn, active loans only) (2) Disbursed amount ($ mn, cumulative, active loans only) (3) Percentage disbursed [(2)/(1)] (%) (4) Disbursements ($mn, active loans only, latest year) (5) Disbursement ratio (%) a

C. Net Transfer of Resources b ($ million) OCR Total

1996 1997199819992000

D. Postevaluated Projects (by year of PPAR circulation) 1996–2000 1. Postevaluation Rating (as of 31 December 2000) No. %

Highly Successful (HS) 1 33.3 Successful (S) 0 0.0 Partly Successful (PS) 2 66.7 Unsuccessful (U) 0 0.0 No Rating (NR) 0 0.0

3 100.0 2. Postevaluation Rating by Sector HS S Total 1996-2000 (as of 31 December 2000) No. % No. % No. % No. % No. % No. %

Agriculture and Natural Resources 0 0.0 0 0.0 1 50.0 0 0.0 0 0.0 1 33.3 Energy 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Finance and Industry 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Social Infrastructure 0 0.0 0 0.0 1 50.0 0 0.0 0 0.0 1 33.3 Transport and Communications 1 100.0 0 0.0 0 0.0 0 0.0 0 0.0 1 33.3 Others/Multisector 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0

1 100.0 0 0.0 2 100.0 0 0.0 0 0.0 3 100.0

ADF = Asian Development Fund, HS = highly satisfactory, mn = million, NR = no rating, OCR = ordinary capital resources, PPAR = project performance audit report,

PS = partially satisfactory, S = satisfactory, U = unsatisfactory a Ratio of disbursement during the year over the undisbursed net loan balance less cancellations at the beginning of the year. Effective loans during the year have

also been added to the beginning balance of undisbursed loans.b Includes private sector projects for countries with private sector operations.

Total

Total

Total

PS

PORTFOLIO STATUS

Net Loan Amount Total

ADF Total

57.65

38.5 38.5

57.6551.0 51.0

21.27

451.5260.3 260.3451.5

21.27

ADF

80.5 80.5

81.7 81.7

U NR

59.2 59.2

41.7 41.7

Table A4.2: Status of Project Implementation—Public Sector Projects Only(as of 31 December 2000)

Net Loan Amount Approval Effectivity Closing Date Cum Contract Cummulative Project Performance Rating

Sector Project Title OCR ADF Date Date Original Revised Awards Disbursement Implementation Development

($ million) (mm/yy) (mm/yy) (mm/yy) ($ million) ($ million) Progress Objective

AGR Industrial Tree Plantation 10.8 Dec 93 Aug 94 Sep 01 — 90 4.1 5.1 S S

AGR Community Managed Irrigation Sector 13.5 Nov 96 Oct 97 Jun 04 — 72 9.9 7.0 S S

AGR Shifting Cultivation Stabilization 5.4 May 99 Nov 99 Dec 05 — 10 2.5 0.8 S S

AGR Decentralized Irrigation Development 15.6 Nov 00 — Jun 07 — 1 0 0 S S

ENE Nam Leuk Hydropower 49.0 Sep 96 Jan 97 Mar 00 Mar 01 100 47.4 48.2 S S

ENE Power Transmission & Distribution 28.9 Sep 97 Mar 98 Jun 02 — 26 4.7 2.0 S S

F&I Financial Sector Program Loan 2 23.6 Sep 96 Dec 96 Oct 99 Jul 00 100 23.6 23.6 U S

SOC Vientiane Integrated Urban Development 17.2 Aug 95 Feb 96 Dec 00 — 97 17.0 15.9 S S

SOC Secondary Towns Urban Development 25.5 Jun 97 Apr 98 Jun 03 — 28 6.7 3.2 PS S

SOC Water Supply and Sanitation Sector 19.0 Nov 99 Jul 00 Jun 06 — 7 2.5 0.4 S S

SOC Primary Health Care 4.7 Jan 95 May 95 Oct 00 — 100 4.4 4.5 HS HS

SOC Postsecondary Education 17.5 Sep 95 Dec 95 Jun 02 — 65 11.4 7.9 S S

SOC Basic Education (Girls) 19.4 Jun 98 May 99 Jul 05 — 12 1.6 0.7 S S

SOC Primary Health Care Expansion 19.5 Aug 00 — Jun 07 — 0 0 0 S S

T&C Sixth Road Improvement 25.3 Jun 93 Dec 93 Jun 99 Jun 01 93 21.9 20.7 S S

T&C Airports Improvement 14.6 Nov 93 Jun 94 Jun 98 Jun 01 93 14.0 14.0 PS S

T&C Champassak Road Improvement 42.3 Aug 95 Dec 95 30-6-200 Dec 00 98 41.3 40.9 HS HS

T&C Xieng Khouang Road Improvement 44.8 Sep 97 Feb 98 Jun 02 — 38 33.3 17.9 S S

T&C GMS: East-West Corridor 30.0 Dec 99 Sep 00 Dec 04 — 7 14.1 1.6 S ST&C Rural Access Roads Project 25.1 Dec 00 — Apr 05 — 0 0 0 S S

Total 0.0 451.5 260.3 214.3

— = not available, AGR = agriculture and natural resources, ENE = energy, F&I = finance and industry, GMS = Greater Mekong Subregion, HS = highly satisfactory, OTH = others/multisector, PS = partially satisfactory, S = satisfactory, SOC = social infrastructure, T&C = transport and communications, U = Unsatisfactory

50

Project

Progress

(% complete)

Appendix 4, page 2

Appendix 5, page 151

THREE-YEAR PIPELINETable A5.1: Lending Scenarios and Triggers

Low Case Base Case High Case

• Macroeconomic instability anddeclining growth

• Stable macroeconomicoutlook

• Significant improvement inmacroeconomic management

• No Improvement in state-owned commercial bank(SOCB) restructuring

• Formulation of andcommitment to a SOCBrestructuring plan andimplementation of agreedupon interim measures

• Implementation ofrestructuring plan of thebanking sector and ruralfinance

• No improvement in social andenvironmental impactassessment in infrastructureinvestment

• Enactment andimplementation of at the primeminister’s decree on the socialand environmental impactassessment

• Significant improvement in thebalance between capital andrecurrent expenditures insocial development

• Absence of monitoringsystems for contract award,submission of auditedfinancial reports, andcompliance with loancovenants

• Implementation of monitoringsystems for contract award,submission of auditedfinancial reports, andcompliance with loancovenants

• Significant improvement incontract award, submission ofaudited financial reports, andcompliance with loancovenants

52Appendix 5 , page 2

Table A5.2: Lending Pipeline, 2002–2004

Poverty Thematic Responsible Year of TOTAL Bank Gov'tClassification Priority Division PPTA OCR ADF Total

2002 Firm LoansNationalAgriculture and Natural Resources1 Smallholder Development PI ECO/PSD AWAR 2000 20.0 0.0 15.0 15.0 5.0 TBD2 Nam Ngum River Basin Development CPI ENV AWFN 2000 20.0 0.0 15.0 15.0 5.0 TBD

Subtotal 40.0 0.0 30.0 30.0 10.0 0.0

Finance and Industry3 Financial Sector Development NC PSD IWFI/AWAR 2001 37.5 0.0 15.0 15.0 7.5 15.0

Subtotal 37.5 0.0 15.0 15.0 7.5 15.0

Total 77.5 0.0 45.0 45.0 17.5 15.0

Subregional4 GMS: Mekong RiverTourism Infrastructure Dev't. NC RC/HD AWWU 1999 12.0 0.0 10.0 10.0 2.0 TBD5 GMS: Northern Economic Corridor NC RC IWTC 2000 94.0 0.0 20.0 20.0 4.0 70.0

Total 106.0 0.0 30.0 30.0 6.0 70.0

2002 Standby Loans6 Rural Access Roads 2 PI ECO IWTC 2001 20.0 0.0 15.0 15.0 5.0 TBD7 GMS: Telecommunications Backbone Project

Phase 1NC RC/PSD IWTC 2001 25.0 0.0 20.0 20.0 5.0 TBD

2003 Firm LoansNationalSocial Infrastructure1 Small Towns Development PI ENV/HD AWWU 2000 25.0 0.0 15.0 15.0 5.0 5.0

Subtotal 25.0 0.0 15.0 15.0 5.0 5.0

Transport and Communication2 Rural Access Roads 2 PI ECO IWTC 2001 20.0 0.0 15.0 15.0 5.0 TBD

Subtotal 20.0 0.0 15.0 15.0 5.0 0.0

Energy3 Northern Area Rural Power Distribution NC ECO IWEN 1998 45.0 0.0 15.0 15.0 20.0 10.0

Subtotal 45.0 0.0 15.0 15.0 20.0 10.0

Total 90.0 0.0 45.0 45.0 30.0 15.0

Subregional4 GMS: Telecommunications Backbone Project

Phase 1NC RC/PSD IWTC 2001 25.0 0.0 20.0 20.0 5.0 TBD

2003 Standby Loans5 Rural Finance Development CPI GAD AWAR/IWFI 2002 10.0 0.0 10.0 10.0 0.0 TBD6 Northern Community Managed Irrigation CPI ENV AWFN 2001 10.0 0.0 10.0 10.0 0.0 TBD

2004 Firm LoansNationalAgriculture and Natural Resources1 Rural Finance Development CPI GAD AWAR/IWFI 2002 10.0 0.0 10.0 10.0 0.0 TBD2 Northern Community-Managed Irrigation CPI ENV AWFN 2001 10.0 0.0 10.0 10.0 0.0 TBD3 Second Industrial Tree Plantation NC ENV/PSD AWFN 2001 12.0 0.0 10.0 10.0 2.0 TBD

Subtotal 32.0 0.0 30.0 30.0 2.0 0.0

Social Infrastructure4 Northern and Central Water Supply PI ENV/HD AWWU 2002 20.0 0.0 15.0 15.0 5.0 TBD

and SanitationSubtotal 20.0 0.0 15.0 15.0 5.0 0.0

Total 52.0 0.0 45.0 45.0 7.0 0.0

2004 Standby Loans5 Community Fund for Rural Development CPI GAD AWAR 2002 6.0 0.0 5.0 5.0 1.0 TBD

(Pilot)6 Small Airports Improvement NC PSD IWTC 2002 20.0 0.0 15.0 15.0 5.0 TBD7 Power Sector Development NC PSD IWEN 2002 25.0 0.0 20.0 20.0 5.0 TBDAWAR = Agriculture and Rural Development Division, AWEH = Education, Health and Population Division, AWFN = Forestry and Natural Resources Division, AWWU = Water Supply, Urban Development and Housing Division, CPI = Core Poverty Intervention, ECO = Economic Growth, ENV = Environmental Protection, GAD = Gend

and Development, GG = Good Governance, HD = Human Development, IWEN = Energy Division, IWFI = Financial Sector and Industry Division, IWTC = Transport and

Communication Division, NC = Not Classified, PI = Poverty Intervention, PSD = Private Sector Development, RC = Regional Cooperation, TBD = to be determined.

Project Cost (in $ million)Sector/Project Name Cofinancing

(Others)

53Appendix 5, page 3

Responsible TypeSector/Project Name Division of TA ADB Others Total

1 Rural Finance Development (Cluster TA) AWAR ADTA 545.0 0.0 545.02 Rural Finance Development AWAR/IWFI PPTA 150.0 0.0 150.03 Capacity Building for Nam Ngum River Basin Development AWFN ADTA 250.0 0.0 250.0

Subtotal 945.0 0.0 945.0

4 Northern and Central Water Supply and Sanitation Sector AWWU PPTA 700.0 0.0 700.05 Local Resource Mobilization for Municipal Authorities AWWU ADTA 500.0 0.0 500.06 Strengthening Decentralized Education Management AWEH ADTA 500.0 0.0 500.0

Subtotal 1,700.0 0.0 1,700.0

7 Strengthening Corporate Governance and Management of SOCBs II IWFI ADTA 600.0 0.0 600.0Subtotal 600.0 0.0 600.0

8 Small Airports Improvement IWTC PPTA 500.0 0.0 500.0Subtotal 500.0 0.0 500.0

9 Power Sector Development IWEN ADTA 400.0 0.0 400.0Subtotal 400.0 0.0 400.0

10 Northern Regional Development Plan PW3 ADTA 500.0 0.0 500.011 Project Implementation and Performance Monitoring COPP/LRM ADTA 500.0 0.0 500.0

Subtotal 1,000.0 0.0 1,000.0

Total 5,145.0 0.0 5,145.0

1 Community Fund for Rural Development (Pilot) AWAR PPTA 700.0 0.0 700.02 Participatory Livestock Development AWFN PPTA 700.0 0.0 700.0

Subtotal 1,400.0 0.0 1,400.0

3 Heath Sector Efficiency and Management AWEH PPTA 700.0 0.0 700.04 Institutional Strengthening for Small Towns Development AWWU ADTA 500.0 0.0 500.0

Subtotal 1,200.0 0.0 1,200.0

5 Enhanced Environment for SME Development IWFI/AWAR ADTA 400.0 0.0 400.0Subtotal 400.0 0.0 400.0

6 Northern Socio-Environmental Assessment ENVD ADTA 600.0 0.0 600.07 Competitiveness Improvement in the Economic Corridor PW3 ADTA 500.0 0.0 500.0

8 Strengthening Accounting and Audit Functions in the Government PW3/IWFI ADTA 700.0 0.0 700.09 Capacity Building for Decentralized Project Financial Management COPP ADTA 500.0 0.0 500.0

Subtotal 2,300.0 0.0 2,300.0

Total 5,300.0 0.0 5,300.0ADTA = advisory technical assistance, AWAR = Agriculture and Rural Development Division, AWEH = Education, Health and Population Division, AWFN = Forestry and Natural Resources Division, AWWU = Water Supply, Urban Development and Housing Division, ENVD = Environment Division, IWEN = Energy Division, IWFI = Financial Sector and Industry Division, IWTC = Transportand Communication Division, PW3 = Programs Department (West) Division 3, PPTA = project preparatory assistance, SME = smalland medium-size enterprise, SOCB = state-owned commercial bank

Social Infrastructure

Finance and Industry

Transport

Energy

Table A5.3: Technical Assistance Program, 2002-2004

Amount ($ '000)

2002Agriculture and Natural Resources

Others

2003

Agriculture and Natural Resources

Social Infrastructure

Finance and Industry

Others

54Appendix 5, page 4

Responsible TypeSector/Project Name Division of TA ADB Others Total

Amount ($ '000)

10 Basic Education Development AWEH PPTA 700.0 0.0 700.0

1 Capacity Building for Community Fund AWAR ADTA 400.0 0.0 400.02 Institutional Strengthening for Rural Finance AWAR/IWFI ADTA 500.0 0.0 500.0

Subtotal 900.0 0.0 900.0

3 Basic Education Development AWEH PPTA 700.0 0.0 700.04 Capacity Building for Health Sector Efficiency and Management AWEH ADTA 500.0 0.0 500.0

Subtotal 1,200.0 0.0 1,200.0

5 SME Development IWFI/AWAR PPTA 700.0 0.0 700.0Subtotal 700.0 0.0 700.0

6 Northern Rural Access Roads Improvement IWTC PPTA 700.0 0.0 700.0Subtotal 700.0 0.0 700.0

7 Energy Development in the Northern Rural Area IWEN PPTA 700.0 0.0 700.0Subtotal 700.0 0.0 700.0

8 Capacity Building for Gender Mainstreaming SOCD ADTA 400.0 0.0 400.09 Public Services Delivery Efficiency PW3/PWOD ADTA 500.0 0.0 500.0

10 Poverty Reduction Monitoring and Evaluation PWOD ADTA 500.0 0.0 500.0Subtotal 1,400.0 0.0 1,400.0

Total 5,600.0 0.0 5,600.0

11 Provincial Institutional Strengthening in Education Efficiency AWEH ADTA 500.0 0.0 500.012 Decentralized Irrigation Development and Management II AWFN PPTA 700.0 0.0 700.0

ADTA = advisory technical assistance, AWAR = Agriculture and Rural Development Division, AWEH = Education, Health and Population Division, IWFI = Financial Sector and Industry Division, IWTC = Transport and Communication Division, PW3 = ProgramsDepartment (West) Division 3, PWOD = Programs Department (West), PPTA = project preparatory assistance, SME = small andmedium-size enterprise, SOCB = state-owned commercial bank, SOCD = Social Development Division

2004

Stand-by

Energy

Others

Stand-by

Agriculture and Natural Resources

Social Infrastructure

Finance and Industry

Transport

55

Appendix 5, page 5

Table A5.4: Lending Program and Pipeline, 2002–2004

(By Poverty Classification, Thematic Priority, and Sector)

2002 2003-2004Classification No. % No. %

1. By Poverty Classification

A. Core Poverty Intervention 1 20.0 2 25.0B. Poverty Invtervention (noncore) 1 20.0 3 37.5C. Not Classified 3 60.0 3 37.5

Total 5 100.0 8 100.0

2. By Thematic Priority

A. Economic Growth 1 14.3 2 18.2

B. Environmental Protection 1 14.3 4 36.4C. Gender and Development 0 0.0 1 9.1D. Good Governance 0 0.0 1 9.1E. Human Development 0 0.0 1 9.1F. Private Sector Development 3 42.9 1 9.1G. Regional Cooperation 2 28.6 1 9.1

Total 7 100.0 11 100.0

3. By Sector

A. Agriculture and Natural Resources 2 40.0 3 37.5B. Energy 0 0.0 1 12.5C. Finance and Industry 1 20.0 0 0.0D. Social Infrastructure 1 20.0 2 25.0E. Transport and Communications 1 20.0 2 25.0F. Others/Multisector 0 0.0 0 0.0

Total 5 100.0 8 100.0

Appendix 6

56

ECONOMIC AND SECTOR WORK PIPELINE

Type/ESW Name Year ExecutingDivision Objective Modality

Economic WorkDevelopment Impact of ADB-

Financed Projects2004 PW3 Strategic SC

1

Country Economic Review 2003 PW3 Operational Staff

Thematic WorkNorthern Region Development Plan 2002 PW3 Operational ADTANorthern Socio-Environmental

Assessment2003 ENVD Strategic ADTA

Country Environment Assessment 2004 ENVD Strategic SCNational Gender Action Plan 2002 SOCD Strategic ADTAPoverty Reduction Monitoring

Evaluation2004 PWOD Strategic ADTA

2

Analysis of Ethnic Minorities 2002 PW3/SOCD Strategic SC

Sector WorkRural Finance Strategy 2002 AWAR Operational ADTAOptions for Community

Development Fund2002 AWAR Operational SC

Livestock Note 2002 AWFN Operational SCSmall Towns Development Strategy 2003 AWWU Operational ADTACompetitiveness Improvement in

the Economic Corridor2003 PW3 Strategic ADTA

Governance and Capacity BuildingStrategy

2003 PW3 Operational SC

Private Sector Assessment 2004 PW3 Strategic SC

3

Private Sector Development in thePower Sector

2003 IWEN Operational SC

ADTA = advisory technical assistance, AWAR = Agriculture and Rural Department Division, AWFN =Forestry and Natural Resources Division, AWWU = Water Supply, Urban Development and HousingDivision, ENVD = Environment Division, PW3 = Programs Department (West) Division 3, PWOD =Programs Department (West), SC = Staff Consultant, SOCD = Social Development Division

57

PROJECT SELECTION BRIEFS AND TECHNICAL ASSISTANCE CONCEPT PAPERS

Project Selection Brief for Smallholder Development

A. DataProject Number: 31351Country: Lao PDRSector: Agriculture and Natural ResourcesSubsector: Agriculture Support ServicesProject Division: AWARContact Person in Projects Division: R. EricksonPrograms Division: PW3Tentative Loan Amount According to CSP: $15.0 millionProposed Lending Modality: Project LoanPPTA: TA 3603-LAO: Smallholder DevelopmentProposed PPTA Amount: $750 thousandAttached ADTA: NoneProposed ADTA Amount: —Start Pre-design Phase: TA approved in December 2000Start Design Phase: TA started in July 2001Approval Year According to CSP: Loan approval in 2002Proposed Executing Agency: Ministry of Agriculture and ForestryContact Person in Proposed Executing Agency: Mr. Phouang Parisak PravongviengkhamB. DescriptionBrief Rationale of Project: More than half of the rural population in Lao PDR is

below the poverty line. Subsistence agriculture ispredominant and Lao PDR's private sector andmarkets are underdeveloped. Opportunities fordeveloping cash commodities are increasing withgrowth in urban areas and growing regionalintegration. The proposed project will reduce povertyand strengthen the rural economy by promotingmarket-oriented, diversified agricultural production onsmallholder farms. This is in line with the countrystrategies, especially for (i) rural development andmarket linkages and (ii) private sector developmentand economic integration.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

The project concept evolved out of the ADB-financedAgriculture Strategy Study and the Government'sStrategic Vision for Agriculture which bothemphasized development of market-orientedagriculture and an improved environment for thegrowth of the private sector.

Comparative Advantage of ADB in Proposed Project: ADB has taken a lead role in formulation of the sectorstrategy. ADB's role in developing the strategy placesit in a key position for working with the Government todevelop market-oriented agriculture and anenvironment conducive for the private sector.

Development Objective (thematic priority): Economic Growth, Poverty InterventionEnvironmental Classification: BSocial Issues: Inclusion (Lao PDR population is multi-ethnic)

— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, AWAR = Agriculture and RuralDevelopment Division, CSP = country strategy and program, DMC = developing member country, ESW = economic andsector work, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatory technical assistance, PW3= Programs Department (West) Division III, TA = technical assistance.

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Project Selection Brief for Nam Ngum River Basin Development

A. DataProject Number:Country: Lao PDRSector: AgricultureSubsector: Irrigation, Soil Conservation, FisheriesProject Division: AWFNContact Person in Projects Division: Akmal Siddiq, Project EconomistPrograms Division: PW3Tentative Loan Amount According to CSP: $15 millionProposed Lending Modality: ADFPPTA: TA No. 3544-LAO: Nam Ngum River Basin

Development ProjectProposed PPTA Amount: $850,000Attached ADTA: Capacity Building for Nam Ngum River Basin ProjectProposed ADTA Amount: $250,000Start Predesign Phase: July 2000Start Design Phase: May 2001Approval Year According to CSP: 2002Proposed Executing Agency: Ministry of AgricultureContact Person in Proposed Executing Agency: Mr. Phouangpalisack Pavongviengkham, Deputy

Permanent SecretaryB. DescriptionBrief Rationale of Project: The project will adopt a holistic river basin

development and integrated water resourcesmanagement approach rather than confining to that ofwatershed protection and development. It will beundertaken considering not only the issuesconcerning the upper watershed areas but also thosepertaining to integrated water resources managementfor irrigation, hydropower generation, fisheries, soiland forest conservation, and flood protectionthroughout the river basin. Furthermore, the progressmade by the Government in developing water policyand implementing the Water Law allows a morecomprehensive review of the institutionalarrangements than were envisaged in therecommendations made in the Nam Ngum WatershedManagement Study (TA 2734-LAO).1

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

To develop and manage water resources efficientlyand effectively, the Government has taken steps tointroduce an integrated water resources managementapproach by promulgating the Water and WaterResources Law in October 1996 and by establishingthe WRCC in February 1998. With a request from theGovernment, ADB provided a technical assistance(TA3006-LAO)2 to strengthen the WRCC throughpreparation of the National Water Sector Profile and

1 TA 2734-LAO: Nam Ngum Watershed Management Study, for $800,000, was approved in December 1996.2 TA 3006-LAO: Institutional strengthening for the Water Resources Coordination Committee, for $260,000, was approved

in April 1997.

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Water Sector Strategy and Action Plan in 1997-98.With successful performance of that TA, ADBprovided a follow-on (TA3205-LAO)1 to keep themomentum and prepare a national water policy and adraft decree required to implement the Water Law.

Comparative Advantage of ADB in Proposed Project: As described above, ADB has continuously assistedthe Government in this sector since the mid-1990s byhelping establish new institutes and preparing relevantplans, policies, laws, and decrees.

In Case Attached ADTA is Proposed, IndicateRationale and Scope:

The relevant line agencies require continuousassistance in capacity building. The proposed ADTAwill provide opportunities to the staff for on-the-jobtraining by working closely with the consultingspecialists as well as by participating in the specially-designed seminars/workshops, and overseas studytours.

Development Objective (thematic priority): CPIEnvironmental Classification: ENVSocial Issues: Given the unique nature of minority and gender issues

in the Nam Ngum River Basin, project activities will bedesigned to address them effectively.

ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technical assistance, AWFN = Forestryand Natural Resources Division, CSP = country strategy and program, DMC = developing member country, ESW = economicand sector work, Lao PDR = Lao People’s Democratic Republic = PPTA = project/program preparatory technical assistance,PW3 = Programs Department (West) Division III, TA = technical assistance, WRCC = Water Resources CoordinationCommittee.

1 TA 3205-LAO: Implementation of the Water Sector Action Plan, for $300,000, was approved in June 1999.

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Project Selection Brief for Financial Sector Development

A. DataProject Number:Country: Lao PDRSector: Finance and IndustrySubsector: FinanceProject Division: IWFIContact Person in Projects Division: Eric Manes, Financial EconomistPrograms Division: PW3Tentative Loan Amount According toCSP:

$15.0 million

Proposed Lending Modality: Program LoanPPTA: Financial Sector DevelopmentProposed PPTA Amount: $400,000Attached ADTA: Strengthening Governance and Capacity in SOCBs IIProposed ADTA Amount: $600,000Start Predesign Phase: June 2001Start Design Phase: October 2001Approval Year According to CSP: 2002Proposed Executing Agency: Bank of Lao PDRContact Person in Proposed ExecutingAgency:

Mr. Dethphouvang Moularat, Director, Research Department

B. DescriptionBrief Rationale of Project: Lao PDR’s financial system is dominated by banks, which are

largely insolvent due to a lack of enforcement of financialdiscipline and corporate governance in the system. Financial andoperational restructuring is needed to impose corporategovernance in the banks and build financial discipline in theenterprise sector.

Summary of Preparatory Work by DMCand/or ESW by ADB or Others:

Financial Sector Note was prepared by ADB, WB and theGovernment

Comparative Advantage of ADB inProposed Project:

ADB has been a leading aid agency in the financial sectorthrough providing two program loans and various technicalassistance.

Rationale and Scope of Attached ADTA: Capacity building for carrying out reform program, particularly therestructuring of state-owned commercial banks.

Development Objective (thematic priority): GovernancePrivate Sector Development

Environmental Classification: DSocial Issues: —

— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, CSP = country strategy andprogram, DMC = developing member country, ESW = economic and sector work, IWFI = Financial Sector and IndustryDivision, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatory technical assistance, PW3 =Programs Department (West) Division III, SOCB = state-owned commercial bank, TA = technical assistance, WB = WorldBank.

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Project Selection Brief for GMS: Mekong River Tourism Infrastructure Development

A. DataProject Number: 33434Country: Lao PDRSector: Social InfrastructureSub-sector: OthersProject Division: AWWUContact Person in Projects Division: L. WeidnerPrograms Division: PW3Tentative Loan Amount According to CSP: $10.0 millionProposed Lending Modality: ADF

PPTA: Mekong River Infrastructure DevelopmentProposed PPTA Amount: $600,000Attached ADTA: —

Proposed ADTA Amount: —Start Pre-design Phase: October 1999Start Design Phase: April 2001Approval Year According to CSP: 2002Proposed Executing Agency: To be determined.Contact Person in Proposed Executing Agency: To be determined.B. DescriptionBrief Rationale of Project: The purpose of the project is to promote and

strengthen subregional cooperation and tourismdevelopment within the GMS countries. The crossborder inter-relatedness of the infrastructuredevelopment projects will create a unique opportunityfor the GMS countries to work jointly on promoting theMekong/Lancang River as a tourism destination. Theimplementation of the ongoing PPTA will result in afeasibility study which analyzes potential developmentprojects and among these prioritizes and selects theprojects which are considered highest priority in eachcountry. Potential projects include rehabilitation ofVientiane riverfront and construction of river landingsin Xieng Kak, Pak Beng, Huay Xai, tourist rest andconvenience areas, water supply and sanitationfacilities in Pak Beng, road link from Muang Sing toXieng Kak, and airport facilities in Louang Namthaand Huay Xai.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

To be determined.

Comparative Advantage of ADB in Proposed Project: To be determined.Rationale and Scope of Attached ADTA: —Development Objective (thematic priority): Regional Cooperation/Human DevelopmentEnvironmental Classification Project: To be determinedSocial Issues: To be determined

— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, AWWU = Water Supply, UrbanDevelopment and Housing Division, CSP = country strategy and program, DMC = developing member country, ESW =economic and sector work, GMS = Greater Mekong Subregion, Lao PDR = Lao People’s Democratic Republic, PPTA =project/program preparatory technical assistance, TA = technical assistance.

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Project Selection Brief for GMS: Northern Economic Corridor

A. DataProject Number:Country: Lao PDRSector: TransportSubsector: RoadProject Division: IWTCContact Person in Projects Division: To be determined.Programs Division: PW3Tentative Loan Amount According to CSP: $20.0 millionProposed Lending Modality: ADFPPTA: GMS: Northern Economic CorridorProposed PPTA Amount: $400,000Attached ADTA: NoneProposed ADTA Amount: —Start Predesign Phase: TA fact-finding September 2001, TA approved

November 2001Start Design Phase: TA project to start January 2002Approval Year According to CSP: Loan approval in September 2002Proposed Executing Agency: Ministry of Communications, Transport, Post and

ConstructionContact Person in Proposed Executing Agency: Mr. Sommad Pholsena, Director General, Department

of RoadsB. DescriptionBrief Rationale of Project: Subregional cooperation can help the country narrow

the gap between Lao PDR and other regionaleconomies. In particular, Lao PDR needs tostrengthen its role as allied link between emergingregional economies, especially southern China andThailand. This will provide the Lao Northern Regionwith opportunities to access larger markets.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

Preliminary feasibility study has been completedunder RETA 5728: Chiang Rai-Kunming via Lao PDRRoad Improvement Project.

Comparative Advantage of ADB in Proposed Project: To be determinedRationale and Scope of Attached ADTA: —Development Objective (thematic priority): Regional CooperationEnvironmental Classification: To be determinedSocial Issues: To be determined

— = not applicable, ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technical assistance,CSP = country strategy and program, DMC = developing member country, ESW = economic and sector work, GMS = GreaterMekong Subregion, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatory technical assistance,PW3 = Programs Department (West) Division III, RETA = regional technical assistance, TA = technical assistance.

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Project Selection Brief for Rural Access Roads 2

A. DataProject Number:Country: Lao PDRSector: TransportSubsector: Road SectorProject Division: IWTCContact Person in Projects Division: Sri WidowatiPrograms Division: PW3Tentative Loan Amount According to CSP: $15.0 millionProposed Lending Modality: Project LoanPPTA: Rural Access Roads II (2001)Proposed PPTA Amount: $500,000Attached ADTA: —Proposed ADTA Amount: —Start Predesign Phase: TA fact-finding September 2001, TA approval November

2001Start Design Phase: TA project to start January 2002Approval Year According to CSP: 2002 (Standby) 2003 (Firm)Proposed Executing Agency: Ministry of Communications, Transport, Post &

Construction, Department of RoadsContact Person in Proposed Executing Agency: Mr. Sommad PholsenaB. DescriptionBrief Rationale of Project: The Project will improve about 250 km of national and

provincial roads to allow access to provincial capitals andrural areas and to contribute to developing an effectiveinternal road network. The Project will also provide about100 km community access in the poorest districts to openup remote rural areas and to allow the benefit of thenetwork to the poor community.

Summary of Preparatory Work by DMC and/orESW by ADB or Others:

Road sector strategy: (i) continuing development of themain network to connect all provincial capitals, serve ruralcommunity centers, promote tourism and provide cross-border linkages; (ii) strengthening institutional capacity oflocal government; (iii) strengthening capability of localcontractors; and (iv) supporting sustainable road network interms of maintenance, funding, heavy vehicle control, andsocial and environmental protection.

Comparative Advantage of ADB in ProposedProject:

ADB has involved in road sector for more than 15 yearsthrough 10 loans and has a good knowledge about thesector of the country and a good relationship with the EAand other donors.

Rationale and Scope of Attached ADTA: —Development Objective (thematic priority) Economic Growth/Poverty ReductionEnvironmental Classification: B – Initial Environmental ExaminationSocial Issues: Minor land acquisition and resettlement since the Project

will involve strip acquisition where required.— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, CSP = country strategy andprogram, DMC = developing member country, ESW = economic and sector work, IWTC = Transport and CommunicationsDivision, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatory technical assistance, TA =technical assistance.

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Project Selection Brief for GMS: Telecommunications Backbone Project Phase 1

A. DataProject Number:Country: Lao PDRSector: Transport and CommunicationsSubsector: TelecommunicationProject Division: IWTCContact Person in Projects Division: Dong-Soo Pyo, Sr. Financial AnalystPrograms Division: PW3Tentative Loan Amount According to CSP: $20.0 millionProposed Lending Modality: Project LoanPPTA: To be determinedProposed PPTA Amount: To be determinedAttached ADTA: —Proposed ADTA Amount: —Start Predesign Phase: RETA 5915: Establishment of Backbone Telecoms

Networks Phase I completed in May 2001Start Design Phase: Processing of investment loan can start in 3rd quarter

2002Approval Year According to CSP: 2002 (Standby) 2003 (Firm)Proposed Executing Agency: Ministry of Communications, Transport, Posts and

ConstructionContact Person in Proposed Executing Agency: To be determinedB. DescriptionBrief Rationale of Project: It is proved that telecommunications investment

contributes to economic growth significantly,especially in countries with low teledensity.Telecommunications are not only traded servicethemselves, but also act as a vehicle for trade in otherservice sectors. Particularly, the regional connectivityin the GMS region will enhance the economiccooperation within the regional and accelerateeconomic growth of each country.The Project will complete the backbone telecomsnetwork connecting the four GMS countries,Cambodia, Lao PDR, Thailand, and Viet Nam, by fiberoptic, which will provide unhindered and the mostcost-effective communication network within theregion.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

Subregional Telecommunications Sector Study, aRETA completed in 1995, identified 13 fixedtransmission networks linking 6 GMS countries. In1997, the feasibility study for the east loop (a part of13 projects) was started financed by RETA. In 1999,the scope of the east loop was adjusted as a result ofthe feasibility study. In 2000, RETA for theEstablishment of Backbone Telecoms NetworksPhase I was carried out, of which result, submitted inMay 2001, showed economic and financial viability ofthe project.

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Comparative Advantage of ADB in Proposed Project: ADB is a lead donor equipped with the integrated viewon regional telecoms sector development in GMSregion. Since 1995, ADB has been involved inpreparing national and regional telecoms sectordevelopment plan. The 13 projects identified by RETAhas been a basis for each GMS country to developtheir investment plan for fiber optic telecomsnetworks.

Rationale and Scope of Attached ADTA: —Development Objective (thematic priority): Economic Growth/Regional CooperationEnvironmental Classification: BSocial Issues: Provision of universal telecommunications services

— = not applicable, ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technical assistance,CSP = country strategy and program, DMC = developing member country, ESW = economic and sector work, GMS = GreaterMekong Subregion, IWTC = Transport and Communications Division, Lao PDR = Lao People’s Democratic Republic, PPTA =project/program preparatory technical assistance, PW3 = Programs Department (West) Division 3, RETA = regional technicalassistance.

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Project Selection Brief for Small Towns Development

A. DataProject Number: 31352

Country: Lao PDRSector: Social InfrastructureSubsector: Urban Development and HousingProject Division: AWWUContact Person in Projects Division: G. Cezayirli, Urban Development SpecialistPrograms Division: PW3Tentative Loan Amount According to CSP: $15.0 millionProposed Lending Modality: Project LoanPPTA: Small Towns DevelopmentProposed PPTA Amount: $700,000Attached ADTA: —Proposed ADTA Amount: —Start Predesign Phase: April 2000Start Design Phase: October 2000Approval Year According to CSP: 2003Proposed Executing Agency: Ministry of Communications, Transport, Post and

ConstructionContact Person in Proposed Executing Agency: To be determined.B. DescriptionBrief Rationale of Project: The main objective of the Project is to support

Government’s efforts to improve the quality of life ofthe residents, especially the poor, in selected urbancommunities and to create a conducive physicalenvironment for economic activities. It will includeimprovements in basic infrastructure and servicesincluding drainage, sanitation, solid wastemanagement, roads, and market improvements;provision of innovative pro-poor microfinance serviceswhereby the poor and micro and small enterprises inthese towns can access microcredit and savingsservices; creating opportunities for private sectorparticipation in the provision of urban services; andcapacity building for viable decentralized urbanmanagement systems.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

An Urban Sector Study was completed in 1998.

Comparative Advantage of ADB in Proposed Project: TBDRationale and Scope of Attached ADTA: —Development Objective (thematic priority): Poverty Intervention/Environment Protection/

Human DevelopmentEnvironmental Classification: BSocial Issues: To be determined.

— = not applicable, ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technical assistance,AWWU = Water Supply, Urban Development and Housing Division, CSP = country strategy and program, DMC = developingmember country, ESW = economic and sector work, Lao PDR= Lao People’s Democratic Republic, PPTA = project/programpreparatory technical assistance, PW3 = Programs Department (West) Division III, TA = technical assistance.

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Project Selection Brief for Northern Area Rural Power Distribution

A. DataProject Number:Country: Lao PDRSector: EnergySubsector: Power DistributionProject Division: IWENContact Person in Projects Division: Seethapathy Chander, Senior Project EngineerPrograms Division: PW3Tentative Loan Amount according to CSP: $15.0 millionProposed Lending Modality: ADFPPTA:Proposed PPTA Amount: 510,000Attached ADTA: NoneProposed ADTA Amount: —Start Predesign Phase: TA approved in 1998Start Design Phase: TA started in 2000Approval Year According to CSP: Loan approval in 2003Proposed Executing Agency: Electricité du Laos (EdL)Contact Person in Proposed Executing Agency: Mr. Hatsady Sysoulath, Deputy General ManagerB. DescriptionBrief Rationale of Project: Lao PDR has one of the lowest levels of electrification

in Asia with only 17 percent of the population, and 2percent of rural households, connected to the powergrid. Expanding rural electrification coverage is criticalto develop rural area and to reduce rural poverty inLao PDR, especially in the poor northern region. Ruralelectrification will facilitate commercial developmentvia impacts on human development, productivity,consumer demand, and new commercialopportunities.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

ADB-financed power sector strategy is underpreparation. ADB’s Power Transmission andDistribution Project (Loan No. 1558-LAO [SF]) isongoing.

Comparative Advantage of ADB in Proposed Project: Rural development and market linkages is one of thethematic priorities in ADB’s strategy for Lao PDR.Rural infrastructure development including ruralelectrification is the key element. Geographically, ADBwill primarily focus on the Northern region.

Rationale and Scope of Attached ADTA: —Development Objective (thematic priority): Economic GrowthEnvironmental Classification: To be determinedSocial Issues: To be determined

— = not applicable, ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technicalassistance, IWEN = Energy Division West, CSP = country strategy and program, DMC = developing member country, ESW= economic and sector work, Lao PDR= Lao People’s Democratic Republic, PPTA = project/program preparatory technicalassistance, PW3 = Programs Department (West) Division III, TA = technical assistance.

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Project Selection Brief for Rural Finance Development Project

A. DataProject Number:Country: Lao PDRSector: FinanceSubsector: Rural FinanceProject Division: AWARContact Person in Projects Division: N. FernandoPrograms Division: PW3Tentative Loan Amount according to CSP: $10.0 millionProposed Lending Modality: —PPTA: Rural Finance DevelopmentProposed PPTA Amount: $150,000Attached ADTA: —Proposed ADTA Amount: —Start Predesign Phase: 2002Start Design Phase: 2003Approval Year According to CSP: 2003 (Standby) 2004 (Firm)Proposed Executing Agency: Bank of Lao PDRContact Person in Proposed Executing Agency: Dr. AksoneC. DescriptionBrief Rationale of Project: In Lao PDR, a majority of the rural households do not

have reliable access to formal rural financial services.This limits their ability to participate actively ineconomic development. The Project will improveformal rural financial services to ease this constraint.The Project will provide support to reform and improvethe services of the Agriculture Promotion Bank anddevelop credit unions as an alternative source of ruralfinancial services.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

A cluster TA is now in implementation to improveawareness of policy makers on policy and institutionalissues in rural finance. ADB is also preparing a ruralfinance strategy.

Comparative Advantage of ADB in Proposed Project: ADB approved a cluster TA for $2.02 million in 2000.This TA will prepare the foundation for the proposedproject.

Rationale and Scope of Attached ADTA: —Development Objective (thematic priority): Core Poverty Intervention/Gender and DevelopmentEnvironmental Classification: —Social Issues: To be identified.

— = not applicable, ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technical assistance,AWAR = Agriculture and Rural Development Division, CSP = country strategy and program, DMC = developing membercountry, ESW = economic and sector work, Lao PDR= Lao People’s Democratic Republic, PPTA = project/programpreparatory technical assistance, PW3 = Programs Department (West) Division III, TA = technical assistance.

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Project Selection Brief for Northern Community-Managed Irrigation Sector Project

A. DataProject Number:Country: Lao PDRSector: AgricultureSubsector: Water resourcesProject Division: AWFNContact Person in Projects Division: Toshio Kondo, Sr. Project EconomistPrograms Division: PW3Tentative Loan Amount According to CSP: $10.0 millionProposed Lending Modality: Sector loanPPTA: TA program in 2001Proposed PPTA Amount: $700,000Attached ADTA: NoneProposed ADTA Amount: NoneStart Predesign Phase: May 2001Start Design Phase: June 2001Approval Year According to CSP: 2003 (Standby); 2004 (Firm)Proposed Executing Agency: Department of Irrigation (DOI) within the Ministry of

Agriculture and ForestryContact Person in Proposed Executing Agency: Mr. Phouvieng Latvadong, Permanent SecretaryB. DescriptionBrief Rationale of Project: Increased agricultural productivity to ensure food

security and to reduce dependence on shiftingcultivation is a major goal of the Government. Theprimary determinant of rural poverty is rice self-sufficiency. As most poor families are given paddy landthat can not be cultivated due to lack of water. Theprovision of necessary basic water resources structurewould be essential to increase agricultural productivity.The sector lending modality is justified because theGovernment has a well conceived investment plan forirrigation development by focusing CMI schemes;DOI has proven capacity in implementing irrigationschemes; and the policy environment within irrigationsubsector is conducive to rapid expansion of CMI andsustainability of projects through communityparticipation.Under ongoing Community-Managed Irrigation SectorProject (L-1488) CMI intervention has been addressingthe issues related to poverty effectively.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

MTR of ongoing Project was undertaken in October2000 and concluded that Project impact on povertyreduction is already materializing. Impact of theongoing Project has shown the increased rice yieldsfrom 1.5t/ha to 3.5t/ha in the 1999 wet season in thefive completed subprojects. The most important

learned are (i) implementation capacity at provinciallevel should be further strengthened and (ii) thenumbers of subprojects should be carefully examinedconsidering the implementation capacity. During theMTR, discussion for the preparation of proposedProject has been undertaken to keep the momentum ofCMI development activities in the selected Northernprovinces through incorporating lessons learned.

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Comparative Advantage of ADB in Proposed Project: ADB has been involved in water resourcesdevelopment project as a leading donor. ADB’songoing Project for five central provinces has beensuccessfully implemented. ADB is in the position tocontinue its assistance based on the lessons learnedfrom ongoing project to meet the Government requestto continue its assistance to the sector.

Rationale and Scope of Attached ADTA: —Development Objective (thematic priority): Core Poverty Intervention/Environmental ProtectionEnvironmental Classification Project:: BSocial Issues: The Project has a potential to address social issues,

among others:– community participation in the planning and

implementation of project– carrying capacity of the community and individual

household and their ability and willingness tocontribute to subproject costs;

– ethnic minority issue, especially in terms of thechange in farming system from shifting cultivationto irrigation farming, and from subsistence farmingto a more market-oriented one.

– gender equity issue throughout the projectpreparation and implementation.

— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, AWFN = Forestry and NaturalResources Division, CMI = Community-Managed Irrigation, CSP = country strategy and program, DMC = developing membercountry, ESW = economic and sector work, Lao PDR = Lao People’s Democratic Republic, MTR = Mid Term Review, PPTA =project/program preparatory technical assistance, PW3 = Programs Department (West) Division III.

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Project Selection Brief for Second Industrial Tree Plantation

A. DataProject Number: 31344-01Country: Lao PDRSector: AgricultureSubsector: ForestryProject Division: AWFNContact Person in Projects Division: Snimer K. Sahni, Financial SpecialistPrograms Division: PW3Tentative Loan Amount According to CSP: $10.0 millionProposed Lending Modality: Project LoanPPTA: Second Industrial Tree Plantation ProjectProposed PPTA Amount: $700,000Attached ADTA: —Proposed ADTA Amount: —Start Predesign Phase: TA approval in 2001Start Design Phase: TA starts in 2002Approval Year According to CSP: 2004Proposed Executing Agency: Ministry of Agriculture and Forestry, Department of

ForestryContact Person in Proposed Executing Agency: Mr. Xeme Samountry, Director General, Department

of ForestryB. DescriptionBrief Rationale of Project: Loan No. 1295-LAO: Industrial Tree Plantation Project

has demonstrated the willingness and capability ofboth individual farmers and private enterprises toengage in production forestry through tree plantations.There are potential economic, social andenvironmental benefits from further development ofthe commercial plantation sector in Lao PDR, which isat a very early stage of development. The need forcontinued assistance to the sector is to (i) ensure thatprivate sector involvement and interest in plantationsis maintained and grows over time, and (ii) build linksbetween larger scale plantation investors and smallfarmers, to have greater impacts on poverty reduction.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

Supporting Plantation Development in Lao PDR,March 2001, by Mark Kelly, Consultant, identifies keyissues relevant to future plantation development inLao PDR together with suggested possiblecontributions that could be made by ADB.

Comparative Advantage of ADB in Proposed Project: To be determinedRationale and Scope of Attached ADTA: —Development Objective (thematic priority): Environmental Protection/Private Sector DevelopmentEnvironmental Classification: BSocial Issues: To be determined.

— = not applicable, ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technicalassistance, AWFN = Forestry and Natural Resources Division, CSP = country strategy and program, DMC = developingmember country, ESW = economic and sector work, Lao PDR = Lao People’s Democratic Republic, PPTA = project/programpreparatory technical assistance, PW3 = Programs Department (West) Division III, TA = technical assistance.

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Project Selection Brief for Northern and Central Water Supply and Sanitation

A. DataProject Number: 34197Country: Lao PDRSector: Social InfrastructureSubsector: Urban Development and HousingProject Division: AWWUContact Person in Projects Division: K. TamakiPrograms Division: PW3Tentative Loan Amount According to CSP: $15.0Proposed Lending Modality: ADFPPTA: Northern and Central Water Supply and SanitationProposed PPTA Amount: $700,000Attached ADTA: —Proposed ADTA Amount: —Start Predesign Phase: July 2002Start Design Phase: Oct 2002Approval Year According to CSP: 2004Proposed Executing Agency: Ministry of Communications, Transport, Post and

ConstructionContact Person in Proposed Executing Agency: To be determinedB. DescriptionBrief Rationale of Project: The project will support the Government’s efforts for

an effective decentralization of the water supplysector. It will prepare a feasibility study for anexpanded coverage of water supply and sanitation inthe small towns under the sector-wide approachdeveloped in the ongoing Water Supply andSanitation Sector Project. It will include identifying theneed to expand the water supply distribution systemand sanitation facilities, developing selection criteriafor small towns participating in the project, developingmechanisms to strengthen the regulatory frameworkfor the urban water supply sector established underthe ongoing Project, and capacity building.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

A Water Supply Sector Study was prepared by a staffconsultant in 1999.

Comparative Advantage of ADB in Proposed Project: ADB has taken a lead role in water supply sectorRationale and Scope of Attached ADTA: —Development Objective (thematic priority): Poverty Reduction/Environmental ProtectionEnvironmental Classification: To be determinedSocial Issues: To be determined

— = not applicable, ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technicalassistance, AWWU = Water Supply, Urban Development and Housing Division, CSP = country strategy and program, DMC= developing member country, ESW = economic and sector work, Lao PDR = Lao People’s Democratic Republic, PPTA =project/program preparatory technical assistance, PW3 = Programs Department (West) Division III, TA = technicalassistance.

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Project Selection Brief for Community Fund for Rural Development

A. DataProject Number: None yet (project concept needs to be developed with

the concerned Government agency to be identified).Country: Lao PDRSector: Agriculture and Natural ResourcesSubsector: Rural DevelopmentProject Division: AWARContact Person in Projects Division: Robin EricksonPrograms Division: PW3Tentative Loan Amount According to CSP: $5 millionProposed Lending Modality: ADFPPTA: Community Fund for Rural DevelopmentProposed PPTA Amount: $700 thousandAttached ADTA: NoneProposed ADTA Amount: —Start Predesign Phase: TA fact-finding in April 2003, TA approved July 2003Start Design Phase: TA projected to start September 2003Approval Year According to CSP: Loan Approval in 2004Proposed Executing Agency: To be identifiedContact Person in Proposed Executing Agency: To be identifiedB. DescriptionBrief Rationale of Project: More than half of the rural population in Lao PDR is

below the poverty line. Government budget for fundingsmall-scale rural development projects is constrained.The proposed project would provide resources tomatch funds mobilized from communities to developpriority rural infrastructure needs.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

The project concept needs developing. The ADB-financed Agriculture Strategy Study and theGovernment's Strategic Vision for Agriculture bothidentify the need for stronger supporting ruralinfrastructure.

Comparative Advantage of ADB in Proposed Project: ADB has taken a lead role in formulation of the povertystrategy. The community fund is one means by whichADB can directly address poverty in rural areas.

Rationale and Scope of Attached ADTA: —Development Objective (thematic priority): Core Poverty Intervention/Gender and DevelopmentEnvironmental Classification Project:: BSocial Issues: Inclusion (Lao PDR population is multi-ethnic)

— = not applicable, ADB = Asian Development Bank, ADF = Asian Development Fund, ADTA = advisory technical assistance,AWAR = Agriculture and Rural Development Division, CSP = country strategy and program, DMC = developing member country,ESW = economic and sector work, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatory technicalassistance, PW3 = Programs Department (West) Division III.

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Project Selection Brief for Small Airports Improvement

A. DataProject Number:Country: Lao PDRSector: Transport and CommunicationsSubsector: Civil AviationProject Division: IWTCContact Person in Projects Division: Dong-Soo Pyo, Sr. Financial AnalystPrograms Division: PW3Tentative Loan Amount According to CSP: $20.0 millionProposed Lending Modality: Project LoanPPTA: Small Airports ImprovementProposed PPTA Amount: $500,000Attached ADTA: —Proposed ADTA Amount: —Start Predesign Phase: Loan 1266-LAO Airport Improvement: A preliminary

study will be carried out to identify necessaryinfrastructure improvement in minor airports toupgrade their safety and operational efficiency.

Start Design Phase: Processing of investment loan can start in 3rd quarter2003.

Approval Year According to CSP: 2004Proposed Executing Agency: Department of Civil AviationContact Person in Proposed Executing Agency: Mr. Yakua Lopangkao, Director General Department

of Civil Aviation.B. DescriptionBrief Rationale of Project: The ten minor airports generally lack navigational

aids, adequate length of runways, and suitableterminal buildings. The consequent poor air safety,demonstrated by recent several air accidents, hascaused concern in international society and impededthe growth in tourism industry. ADB’s intervention inminor airport improvement will enhance the safety andoperational efficiency of small airports which have astrategic importance for passenger traffic in Lao.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

(i) As part of Loan 1266-LAO Airport ImprovementProject, Lao Government will conduct the safetyand operational efficiency audit for minor airportsto identify infrastructure requirement.

(ii) ADB will provide PPTA in 2002 to prepare aninvestment plan to upgrade minor airports andcarry out its feasibility assessment.

Comparative Advantage of ADB in Proposed Project: ADB is a lead donor in civil aviation sector in Lao. Theproposed project is a continuation of the previousproject for major airports to improve the air safety andoperational efficiency. As part of the previous project,a preliminary study will be carried out.

Rationale and Scope of Attached ADTA: —

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Development Objective (thematic priority): Economic Growth/Private Sector DevelopmentEnvironmental Classification Project: BSocial Issues: Involuntary resettlement

— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, IWTC = Transport andCommunications Division West, CSP = country strategy and program, DMC = developing member country, ESW = economicand sector work, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatory technical assistance.

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Project Selection Brief for Power Sector Development

A. DataProject Number:Country: Lao PDRSector: EnergySubsector: Power GenerationProject Division: IWENContact Person in Projects Division: S. Chander, Senior Project EngineerPrograms Division: PW3Tentative Loan Amount According to CSP: $20.0 millionProposed Lending Modality: Project LoanPPTA: To be determinedProposed PPTA Amount: To be determinedAttached ADTA: —Proposed ADTA Amount: —Start Predesign Phase: 2002Start Design Phase: 2003Approval Year According to CSP: 2004/2005Proposed Executing Agency: Electricité du Laos (EdL)Contact Person in Proposed Executing Agency: Mr. Hatsady Sysoulath, Deputy General ManagerB. DescriptionBrief Rationale of Project: Hydropower is the major non-agriculture industry in

terms of contribution to total economic output, fiscalrevenue, and export earnings. Only 623 MW of aGovernment estimated potential 18,000 MW ofhydropower generation capacity have beendeveloped. Moreover, Lao PDR has one of the lowestlevels of electrification in Asia with only 17 percent ofthe population, and 2 percent of rural households,connected to the power grid. The Government aims toaccelerate power development and substantiallyincrease electricity exports.

Summary of Preparatory Work by DMC and/or ESWby ADB or Others:

ADB is currently preparing an Energy Sector StrategyStudy, which will provide the basis for its interventionsin the power sector in Lao PDR.

Comparative Advantage of ADB in Proposed Project: ADB has been actively involved in the sector in policyand planning support, and institutional strengthening,in financing power supply and distribution, and inencouraging private sector investment in the sector.

Rationale and Scope of Attached ADTA: —Development Objective (thematic priority): Economic Growth/Private Sector DevelopmentEnvironmental Classification Project: To be determinedSocial Issues: To be determined

— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, IWEN = Energy Division West,CAP = country assistance plan, CSP = country strategy and program, DMC = developing member country, ESW = economicand sector work, Lao PDR = Lao People’s Democratic Republic, MW = megawatt, PPTA = project/program preparatorytechnical assistance.

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TA Concept Paper for Capacity Building for Nam Ngum River Basin Development

A. ProfileDepartment, Division, RM, Officer Concerned: AWD/AWFN/LRM

Akmal Siddiq, Project EconomistType of TA (ADTA, PPTA, RETA): ADTAName of Loan Project to follow (if PPTA): —Country/Region (as applicable): Lao PDRSector/Subsector: Agriculture/Irrigation, Forestry, FisheriesPoverty Classification and Thematic Prioritiesa: CPI and Environment ProtectionProgram Yearb: 2001Expected Approval Date (mo/yr): May 2002Estimated Completion Date: 2006B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)This ADTA will be piggy-backed to the investment project:Nam Ngum River Basin Development Project. The overallcapacity of the EA is limited particularly given the nature ofnew river basin approach to be introduced in theinvestment project. Staff will need better training informulating and executing integrated water resourcedevelopment and management plans.

2. Relation to Strategic Objectives (How the TA addresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

The components of the investment project will be focusedon poverty reduction, ethnic and gender empowerment,and economic growth. The proposed ADTA will significantlyimprove the quality of project implementation by increasingthe capacity of the EA thus helping the project attain itsmain goals effectively.

3. Scope (specific major components, e.g.capacity building)

The executing agency requires continuous assistance incapacity building. The proposed ADTA will provideopportunities to the staff for on-the-job training by workingclosely with the consulting specialists as well as byparticipating in the specially-designed seminars/workshops,and overseas study tours.

4. Expected Outcome and MonitorableIndicators

A core staff of the EA will be better equipped to implementthe components of investment project. The improvement instaff capacity will be monitored through a criteria laid out inthe ADTA design.

5. Previous TA(s) on the Same Theme, in thesector, country, region (last five years)

• name, amount, status• assessment of outcome

To develop and manage water resources efficiently andeffectively, the Government of Lao PDR has taken steps tointroduce an integrated water resources managementapproach by promulgating the Water and Water ResourcesLaw (the Law) in October 1996 and by establishing theWRCC in February 1998. With a request from theGovernment, ADB provided a technical assistance(TA3006-LAO)1 to strengthen the WRCC throughpreparation of the National Water Sector Profile and WaterSector Strategy and Action Plan in 1997-98. Withsuccessful performance of that TA, ADB provided a follow-on (TA3205-LAO)2 to keep the momentum and prepare anational water policy and a draft decree required toimplement the Water Law. These TAs have been quite

1 TA 3006-LAO: Institutional Strengthening for the Water Resources Coordination Committee, for $260,000, was

approved in April 1997.2 TA 3205-LAO: Implementation of the Water Sector Action Plan, for $300,000, was approved in June 1999.

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effective in assisting the Government to establish newinstitutes and prepare relevant plans, policies, laws, anddecrees.

6. Executing agency, implementing agency,counterpart agency (for RETAs asapplicable)

Ministry of Agriculture and Forestry

7. Cost and Financing Plan (i) ADB Financing (JSF,TASF)

(ii)Sources other than JSF/TASF

$250,000, JSF

8. Country, RETA IPF for relevant year $5.0 million— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, AWD = Agriculture and SocialSector Department, AWFN = Forestry and Natural Resources Division, CAP = country assistance plan, CPI = core povertyintervention, CSP = country strategy and program, JSF = Japan Special Fund, Lao PDR = Lao People’s Democratic Republic,PPTA = project/program preparatory technical assistance, PWD = Programs Department (West), RETA = regional technicalassistance, RM = resident mission, TA = technical assistance, TASF = Technical Assistance Special Fund, WRCC = WaterResources Coordination Committee.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Local Resource Mobilization for Municipal Authorities

A. ProfileDepartment, Division, RM, Officer Concerned: AWD/AWWU/G. CezayirliType of TA (ADTA, PPTA, RETA): ADTAName of Loan Project to follow (if PPTA): —Country/Region (as applicable): Lao PDRSector/Subsector: Social Infrastructure/Urban Development and

HousingPoverty Classification and Thematic Prioritiesa: Good GovernanceProgram Yearb: 2002Expected Approval Date (mo/yr): May 2002Estimated Completion Date: Mar 2003B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)To help the urban local authorities improve theirrevenues to better perform their functions of urbandevelopment and management. To study anddevelop a mechanism for systematic and predictableintergovernmental transfers and measures fortapping local financial resources to finance urbandevelopment.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

The TA will lead to revenue mobilization andimproved financial management. It will also supportGovernment's reform for decentralized urbangovernance whereby UDAAs are entrusted greaterfinancial and administrative autonomy.

3. Scope (specific major components, e.g. capacitybuilding)

Review (i) intergovernmental transfers, (ii) scope forproperty-related taxes, user charges and fees, and(iv) scope for outsourcing private sector in urbandevelopment; and propose a realistic plan toenhance revenues and strengthen the accountingand budgeting procedures of UDAAs.

4. Expected Outcome and Monitorable Indicators Recommendations for financial autonomy, localresource mobilization, private sector participation andintergovernment transfers resulting in enhancedrevenues and financial capacities at UDAAs.

5. Previous TA(s) on the Same Theme, in thesector, country, region (last five years)

• name, amount, status• assessment of outcome

(i) TA 2972: Support to Urban DevelopmentAdministration Authorities (1997) for $500,000 –Completed in July 2000, the TA assisted thenewly established UDAAs in the developmentand establishment of systems and procedures forimplementation, procurement, and O&M.

(ii) TA 3331: Capacity Building for UDAAs (1999) for$600,000 —ongoing.

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

To be determined

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7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

$500,000 (JSF)

8. Country, RETA IPF for relevant year $5.0 million— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, AWD = Agriculture and SocialSector Department, AWWU = Water Supply, Urban Development and Housing Division, CAP = Country Assistance Plan,CSP = country strategy and program, JSF = Japan Special Fund, Lao PDR = Lao People’s Democratic Republic, O&M =operations and maintenance, PPTA = project/program preparatory technical assistance, RETA = regional technicalassistance, RM = resident mission, TA = technical assistance, TASF = Technical Assistance Special Fund, UDAA = UrbanDevelopment Administration Authority.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Strengthening Decentralized Education Management

A. ProfileDepartment, Division, RM, Officer Concerned: AWD/AWEH/Y. HirosatoType of TA (ADTA, PPTA, RETA): ADTAName of Loan Project to follow (if PPTA):Country/Region (as applicable): Lao PDRSector/Subsector: Social Infrastructure/EducationPoverty Classification and Thematic Prioritiesa: Human Development/Good GovernanceProgram Yearb: 2002Expected Approval Date (mo/yr): January 2002Estimated Completion Date: September 2002B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)The Government issued a prime minister’s decree ondecentralization in April 2000. In order to strengthenthe capacity for implementing the decentralizationdecree in the basic education sector with goodgovernance, the Government has requested ADB toassist the MOE in developing a long termdecentralization strategy and capacity building plan,and operational guidelines on decentralizededucation management. In particular, theinstitutional, human resource, and managementcapacity of PESs and DEBs are weak and need to bestrengthened to support and sustain the investmentsto be made in the basic education sector. The TA willcomplement the efforts to strengthen the capacity ofPESs and DEBs in delivering teacher training, schoolconstruction, community assistance programs underthe proposed Second Education QualityImprovement Project and the ongoing BasicEducation (Girls) Project.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

In the long term, the TA will strengthen the capacityof PESs in setting a higher priority for allocatingrecurrent budget to the basic education sector, whichwill contribute to poverty reduction through humandevelopment. It will also contribute to goodgovernance by increasing transparency, efficiency,and accountability to allocate the funds to PESs,DEBs and communities/ villages while strengtheningthe capacity of MOE in monitoring and supervisingthe decentralized education management process.Therefore, the TA is in line with the CSP’s strategicfocus on poverty reduction, social development, andgood governance.

3. Scope (specific major components, e.g. capacitybuilding)

The TA will cover the following four components: (i)review of policies, laws, and regulations that regulatethe basic education system, and based on thereview, any modifications to strengthen thedecentralization efforts; (ii) preparation of a long term(2002-2010) strategic plan for the decentralization ofbasic education system; (iii) preparation of a longterm capacity building plan based on the institutionaland training needs assessment; and (iv)development of operational guidelines on

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decentralized education management (planning,budgeting, and staffing) for PESs and DEBs.

4. Expected Outcome and Monitorable Indicators On completion of the TA, the following outputs areexpected: (i) a long term (2002-2010) strategic planfor the decentralization of basic education system; (ii)a long term capacity building plan; and (iii)operational guidelines on decentralized educationmanagement.

5. Previous TA(s) on the Same Theme, in thesector, country, region (last five years)

• name, amount, status• assessment of outcome

ADB assisted the Government in developing theEducation Sector Development Plan under TA No.3014–LAO: Education Sector Development Plan, for$ 530,000, approved in 1998. The plan, whichpublished by ADB in July 2000, analyzed the statusof education governance, planning andadministration.ADB also supports Public Expenditure Review(ongoing) including the education sector, andrecommends that the capacity of PESs and DEBs inplanning, budgeting, and staffing need to bestrengthened under the decentralized educationmanagement.

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

MOE (in cooperation with PESs and DEBs)

7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF (i) $500,000

8. Country, RETA IPF for relevant year $5.0 millionADB = Asian Development Bank, ADTA = advisory technical assistance, AWEH = Education, Health and PopulationDivision, AWD = Agriculture and Social Sectors Department, CAP = country assistance plan, CSP = Country Strategy andProgram, DEB = District Education Bureaus, JSF = Japan Special Fund, Lao PDR = Lao People’s Democratic Republic,MOE = Ministry of Education, PES = Provincial Education Services, PPTA = project/program preparatory technicalassistance, RETA = regional technical assistance, RM = resident mission, TA = technical assistance, TASF = TechnicalAssistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Strengthened Governance and Management in SOCBs 2

A. ProfileDepartment, Division, RM, Officer Concerned: IWD/IWFI/LRM/ Eric ManesType of TA (ADTA, PPTA, RETA): ADTA (Piggy Back)Name of Loan Project to follow (if PPTA):Country/Region (as applicable): Lao PDRSector/Subsector: Finance / BankingPoverty Classification and Thematic Prioritiesa: Pro-poor growth / governance and private sector

developmentProgram Yearb: 2002Expected Approval Date (mo/yr): May 2002Estimated Completion Date: May 2003B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)State-owned Commercial Banks (SOCB) undergoingfundamental financial and operational restructuringas part of financial sector program loan. Key issue inability of SOCBs to undertake operation turnaroundis lack of good management and poor corporategovernance. TA will focus on providing managementinputs to SOCBs undergoing restructuring (e.g.management contracts, twinning, etc.). Operationalimprovements will be condition for phased financialrestructuring of SOCBs identified as key loancondition for Financial Sector Program Loan

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

Country strategy emphasizes poverty reductionthrough growth and private sector development.Financial discipline is needed to ensure limitedresources are used efficiently and to develop robustprivate sector. Banks should enforce financialdiscipline by being oriented to performance andaccountable for results.

3. Scope (specific major components, e.g. capacitybuilding)

Financing of management inputs to SOCBoperational restructuring, (e.g. managementcontracts, twinning arrangements). Capacity buildingfor SOCB staff in operational areas such as riskmanagement, accounting and auditing, internationaloperations.

4. Expected Outcome and Monitorable Indicators Operational improvements in SOCBs. Compliancewith Governance Enhancement Contracts andprudential regulations.

5. Previous TA(s) on the Same Theme, in thesector, country, region (last five years)

• name, amount, status• assessment of outcome

PPTA to prepare financial sector program loan,including formulation of restructuring program. /$400,000 / proposed

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

Bank of Lao PDR

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7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

$650,000 of which $600,000 will be financed by theTA (JSF) and the remainder will be financed by theGovernment. Cofinancing will be sought.

8. Country, RETA IPF for relevant year $5.0 millionADB = Asian Development Bank, ADTA = advisory technical assistance, CAP = country assistance plan, CSP = countrystrategy and program, IWD = Infrastructure, Energy and Financial Sectors Department, IWFI = Financial Sector and IndustryDivision, JSF = Japan Special Fund, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatorytechnical assistance, RETA = regional technical assistance, RM = resident mission, SOCB = State-owned commercial bank,TA = technical assistance, TASF = Technical Assistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Power Sector Development

A. ProfileDepartment, Division, RM, Officer Concerned: IWD/IWEN/S. ChanderType of TA (ADTA, PPTA, RETA): ADTAName of Loan Project to follow (if PPTA): —Country/Region (as applicable): Lao PDRSector/Subsector: Energy/PowerPoverty Classification and Thematic Prioritiesa: Economic GrowthProgram Yearb: 2002Expected Approval Date (mo/yr): September 2002Estimated Completion Date: August 2003B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)Hydropower is the major non-agriculture industry interms of contribution to total economic output, fiscalrevenue, and export earnings. Only 623 MW of aGovernment estimated potential 18,000 MW ofhydropower generation capacity have beendeveloped. Moreover, Lao PDR has one of thelowest levels of electrification in Asia with only 17percent of the population, and 2 percent of ruralhouseholds, connected to the power grid. TheGovernment aims to accelerate power developmentand substantially increase electricity exports. Keychallenges in developing the sector include the needfor: (i) better and more transparent integration ofsocial and environmental concerns and enforcementmechanisms into sector planning; (ii) increasingdomestic tariffs to cover financial production costs atleast in urban areas with a transparent subsidyscheme for the rural poor area; (iii) expanding ruralelectrification coverage; (iv) more effectivesubregional cooperation through diversifying theexport market; (v) prioritizing the proposedhydropower generation projects and developing themost suitable financing scheme for them; (vi)improving the regulatory framework and enforcementmechanisms to encourage increased private sectorinvestment; (vii) institutional strengthening, especiallyin financial planning, management, and negotiationcapacity with developers.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

ADB strategy emphasizes active involvement in thepower sector in policy and planning support, andinstitutional strengthening, in financing power supplyand distribution, and in encouraging private sectorinvestment in the sector.

3. Scope (specific major components, e.g. capacitybuilding)

Address the abovementioned constraints in thepower sector development. Details will be developedin consultation with other possible cofinanciers andthe Government.

4. Expected Outcome and Monitorable Indicators To be determined5. Previous TA(s) on the Same Theme, in the

sector, country, region (last five years)• name, amount, status• assessment of outcome

ADB is currently preparing an Energy SectorStrategy Study.

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6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

Electricité du Laos

7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

$400,000 (JSF)

8. Country, RETA IPF for relevant year $5 million— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, CAP = country assistanceplan, CSP = country strategy and program, IWD = Infrastructure, Energy and Financial Sector Department, IWEN = EnergyDivision, JSF = Japan Special Fund, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatorytechnical assistance, RETA = regional technical assistance, RM = resident mission, TA = technical assistance, TASF =Technical Assistance Special Fund.

a Economic growth, human development, gender and development, good governance, environmental protection, privatesector development, regional cooperation, and support for Bank operations (for RETAs).

b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Northern Regional Development Plan

A. ProfileDepartment, Division, RM, Officer Concerned: PWD/PW3/G.H. KimType of TA (ADTA, PPTA, RETA): ADTAName of Loan Project to follow (if PPTA): —Country/Region (as applicable): Lao PDRSector/Subsector: OthersPoverty Classification and Thematic Prioritiesa: Good GovernanceProgram Yearb: 2002Expected Approval Date (mo/yr): March 2002Estimated Completion Date: December 2002B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)The Government plans to half the poverty by 2005.To achieve this ambitious target, there is a need todevelop and implement well-formulated broad-baseddevelopment plan in the Northern area, which havethe highest poverty incidence. This is particularlycritical considering the scattered and remotepopulation combined with a large portion of non-monetized economy.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

ADB will primarily focus on northern regionprovinces, which have the highest poverty incidence.Development of comprehensive regionaldevelopment plan is critical to ensure relevantgeographically focused development.

3. Scope (specific major components, e.g. capacitybuilding)

Preliminary the project will include: analyzingdevelopment potential in Northern region, review theexisting and planned development activities, andprepare a comprehensive northern regiondevelopment plan.

4. Expected Outcome and Monitorable Indicators Preparation of Northern Regional Development Plan.5. Previous TA(s) on the Same Theme, in the

sector, country, region (last five years)• name, amount, status• assessment of outcome

(i) SSTA 3266-LAO: Preparation of PublicInvestment Program, approved in September1999.

(ii) ADTA 3627-LAO: Institutional Strengthening ofPublic Investment Management, approved inJanuary 2001.

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

Committee for Planning and Cooperation

7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

$500,000 (JSF)

8. Country, RETA IPF for relevant year $5 million— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, CAP = country assistanceplan, CSP = country strategy and program, JSF = Japan Special Fund, Lao PDR = Lao People’s Democratic Republic,PPTA = project/program preparatory technical assistance, PWD = Programs Department (West), PW3 = ProgramsDepartment (West) Division 3, RETA = regional technical assistance, RM = resident mission, SSTA = small scale technicalassistance, TA = technical assistance, TASF = Technical Assistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Project Implementation and Performance Monitoring

A. ProfileDepartment/Division/RM/ Officer Concerned: COPP/PW3/LRM/ Teng ZhijiaType of TA (ADTA/PPTA/RETA): ADTAName of Loan Project to follow (if PPTA): —Country/Region (as applicable): Lao PDRSector/Subsector OthersPoverty Classification and Thematic Priorities 3 Good governanceProgram Year 4: 2002Expected Approval Date (mo/yr): March 2002Estimated Completion Date March 2004

Part B: Project Concept and Design

1. Rationale (Problem/issues to be addressed inTA. Please be specific)

Sustainable economic growth through infrastructureinvestments is given high priority in the Governmenteconomic development strategy. The Government’s anddonors’ past investments and operations have a positivecontribution to the country’s economic development. Toenhance the development impact, timely and effectivemonitoring and evaluating project implementation andperformance are important and necessary. However, thereis lack of an effective independent monitoring andevaluation system and a capable permanent team/unit tomonitor and evaluate the project planning, implementationand management of the increasing investment projects. TheGovernment fully recognizes the urgent needs to establishan independent workable monitoring and evaluation systemand build up a capable professional team/unit forundertaking the tasks and responsibilities.

2. Relation to strategic objectives (How the TAaddresses the following)

• Poverty reduction, thematicpriorities

• Country strategy (where applicable)• Regional cooperation

Country strategy emphasizes that the Government and ADBneed to be more accountable for their investment, with moretransparency, accountability, and stakeholder involvementin all stages of planning and implementation. A workablemechanism and adequate capability of the Government tomonitor and evaluate the investment performance in allstages of planning and implementation could help improvethe efficiency, effectiveness, transparency andaccountability of the investment.

3. Scope (major components, e.g., capacitybuilding. Please be specific)

Assisting the Government in establishing and strengtheninga new capable department of investment monitoring andevaluation in CPC; Strengthening a CPC training center tobe established for investment planning, implementation andmanagement; Providing trouble-shooting assistance duringtransition period.

3 Economic growth, human development, gender and development, good governance, environmental protection,

private sector development, regional cooperation, and support for Bank operations (for RETAs).4 Year of inclusion in CSP or CAP for transition period.

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4. Expected outcome and monitorable indicators Documented guidelines, procedures and performanceevaluation criteria for investment projects monitoring andevaluation; Operational new department of investmentmonitoring and evaluation in CPC; Strengthened CPCtraining center for investment planning, implementation andmanagement; Timely trouble-shooting assistance ininvestment planning, implementation, and managementduring transition period.

5. Previous TA(s) on the same theme, in thesector/country/region (last five years)

• name/amount/status• assessment of outcome

• ADTA 2857-LAO: Institutional Strengthening of theProcurement Monitoring Office-Phase II / $400,000/approved in Aug. 1997;• SSTA 3266-LAO: Preparation of Public InvestmentProgram/ $150,000/ approved in Sept. 1999;• ADTA 3285-LAO: Strengthening the Capacity of Aid Co-ordination and Monitoring/ $680,000/ approved in Oct. 1999;• ADTA 3626-LAO:Capacity Building in Project FinancialManagement / $400,000 / approved in Jan. 2001;• ADTA 3627-LAO: Institutional Strengthening of PublicInvestment Management / $500,000 / approved in Jan.2001

Progress has been made, supported by a series of ADBADTAs, in establishing, enhancing, rationalizing andimproving ODA-funded investments planning, financialmanagement, procurement management, aid co-ordinationand monitoring. However, there is still considerable scopefor further improvement in monitoring and evaluating publicinvestment planning, implementation and management in asystematic, professional and sustainable manner.

6. Executing agency/ implementing agency/counterpart agency (for RETAs as applicable)

Committee for Planning and Cooperation

7. Cost and Financing Plan

(i) Bank financing (JSF/TASF)(ii) Sources other than JSF/TASF

$600,000 of which $500,000 will be financed by the TA(JSF) and the remainder will be financed by theGovernment.

8. Country/RETA IPF for relevant year $5 million— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, COPP = Project Coordination andProcurement Division, CPC = Committee for Planning and Cooperation, JSF = Japan Special Fund, Lao PDR = Lao People’sDemocratic Republic, PPTA = project/program preparatory technical assistance, LRM = Lao Resident Mission, ODA = officialdevelopment assistance, PW3 = Programs Department (West) Division 3, RETA = regional technical assistance, RM = residentmission, SDP = sector development program, SPC = State Planning Committee, TA = technical assistance, TASF = TechnicalAssistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, private sector

development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Health Sector Efficiency and Management

A. ProfileDepartment, Division, RM, Officer Concerned: AWD/AWEH/V. de WitType of TA (ADTA, PPTA, RETA): PPTAName of Loan Project to follow (if PPTA): —Country/Region (as applicable): Lao PDRSector/Subsector: Health/Primary Health CarePoverty Classification and Thematic Prioritiesa: Poverty Project Human Development/GenderProgram Yearb: 2003Expected Approval Date (mo/yr): October 2003Estimated Completion Date: December 2004B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)ADB has been assisting MOH to expand PHCcoverage in northern Lao PDR, and strengthen PHCmanagement nationwide. Overall, the PHC systemthat has been put in place remains of poor qualityand underutilized, in particular by the poor, thus notachieving basic standards of equity, efficiency andeffectiveness. Main reasons are (i) seriousunderfunding of the health sector resulting in poorquality of care due to staff, supplies and supervisionconstraints; (ii) inadequate targeting of limitedresources; (iii) fragmentation of management,services and funding due to lack of integration ofvertical programs in provincial plans; and (iv) limitedmanagement capacity with inadequate delegation ofauthority.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

PHC development mostly benefits the poor, womenand children.

ADB is a leading donor in the health sector.

3. Scope (specific major components, e.g. capacitybuilding)

To prepare the SDP to help finance provincial healthplans. The PPTA will (i) facilitate a consultativeprocess between the central and provincialGovernments and donors to agree on provincial toagree on provincial strategies, plans and funding;and (ii) conduct the studies and prepare thedocumentation for the SDP loan.

4. Expected Outcome and Monitorable Indicators The ensuing project will help to achieve provincialhealth sector targets, including reduction of infantand maternal mortality and fertility, and programtargets.

5. Previous TA(s) on the Same Theme, in thesector, country, region (last five years)

• name, amount, status• assessment of outcome

(i) PPTA for PHC Expansion, for $750,000,provided a high quality project proposal fullyowned by the Government.

(ii) ADTA for PHC Capacity Building, for $800,000,provided essential policy reform support in PHCdevelopment and financing.

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

Ministry of Health/Provincial Health Offices.

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7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

$700,000 (JSF)

8. Country, RETA IPF for relevant year $5 million— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, AWD = Agriculture and SocialSectors Department (West), AWEH = Education, Health and Population Division, JSF = Japan Special Fund, Lao PDR =Lao People’s Democratic Republic, MOH = Ministry of Health, PHC = primary health care, PPTA = project/programpreparatory technical assistance, PWD = Programs Department (West), PW3 = Programs Department (West) Division 3,RETA = regional technical assistance, RM = resident mission, SDP = sector development program, SSTA = small scaletechnical assistance, TA = technical assistance, TASF = Technical Assistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Basic Education Development

A. ProfileDepartment, Division, RM, Officer Concerned: AWD/AWEH/Y. HirosatoType of TA (ADTA, PPTA, RETA): PPTAName of Loan Project to follow (if PPTA): —Country/Region (as applicable): Lao PDRSector/Subsector: Social Infrastructure/EducationPoverty Classification and Thematic Prioritiesa: Poverty Intervention/Human Development/Gender

and DevelopmentProgram Yearb: 2003/2004Expected Approval Date (mo/yr): February 2004Estimated Completion Date: November 2004B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)The Government aims to achieve a goal of universalprimary education by 2015. To achieve this goal,there is need to address the issues includinginadequate access to complete primary educationespecially by female ethnic minority groups in remoteareas, weak planning and management capabilities,inadequate financing of recurrent costs, and poorquality of teaching and learning environment. In orderto adequately address these persistent issues, it isproposed to adopt a sector development programapproach, in which ADB will emphasize the need forpolicy reforms to (i) redress existing inequalities inbasic education and imbalances between recurrentand capital expenditures; and (ii) provide moreefficient delivery of education services includingteacher training, school construction, and communityassistance programs. In particular, the investmentsbeing made under the Basic Education (Girls) Projectwhich promotes multigrade education in remoteareas need to be sustained and further supported.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

The ensuing loan will contribute to reduce poverty byhelping the poor, and ethnic minority groups(especially females) in increasing their access tocomplete primary and lower secondary educationwith better quality.

3. Scope (specific major components, e.g. capacitybuilding)

The ensuing loan will comprise program loan andproject investments. The program loan will supportpolicy and institutional reforms including provision ofrecurrent expenditure (teacher salaries) in a phasedmanner if warranted. Project investments will coverthe following three components: (i) increasing accessto primary and lower secondary education by thepoor, and ethnic minority groups (especially, byfemale groups) in remote areas; (ii) improving thequality, efficiency and relevance of primary and lowersecondary education through the delivery of in-service teacher training; and (iii) strengthening thecapacity of Provincial Education Services, DistrictEducation Bureaus, and communities/villages inmanaging the decentralized education system inselected provinces and districts.

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4. Expected Outcome and Monitorable Indicators On completion of the ensuing loan, it is expected that(I) recurrent expenditure for education includingteacher salaries will be increased above 1.8 percentof GDP; and (ii) primary net enrollment rate will beincreased to 85 percent and lower secondaryenrollment to 60 percent.

5. Previous TA(s) on the Same Theme, in thesector, country, region (last five years)

• name, amount, status• assessment of outcome

Previous TAs are: TA No. 2557–Lao: Women’sEducation Project, for $380,000, approved in 1996.The ensuring project was approved in 1998. TA No.3294–Lao: Second Education Quality ImprovementProject, for $600,000 approved in 1999. The ensuingproject is expected to be approved as a firm loan for2002.

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

Ministry of Education

7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

$700,000

8. Country, RETA IPF for relevant year $5.0 million— = not applicable, ADB = Asian Development Bank, ADTA = advisory technical assistance, AWD = Agriculture and SocialSectors Department (West), AWEH = Education, Health and Population Division, JSF = Japan Special Fund, Lao PDR =Lao People’s Democratic Republic, PPTA = project/program preparatory technical assistance, PWD = ProgramsDepartment (West), PW3 = Programs Department (West) Division 3, RETA = regional technical assistance, RM = residentmission, SSTA = small scale technical assistance, TA = technical assistance, TASF = Technical Assistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for SME Development

A. ProfileDepartment, Division, RM, Officer Concerned: IWD/AWD IWFI/AWAR LRM E. ManesType of TA (ADTA, PPTA, RETA): PPTAName of Loan Project to follow (if PPTA): SME DevelopmentCountry/Region (as applicable): Lao PDRSector/Subsector: Financial/Enterprise SectorPoverty Classification and Thematic Prioritiesa: Pro-poor growth / private sector developmentProgram Yearb: 2004Expected Approval Date (mo/yr): April 2004Estimated Completion Date: February 2005B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)SME Sector is small, inefficient and lacks access toresources. Policy environment is tilted towardgovernment owned or government connectedenterprises due to unaccommodating legal andregulatory system and bureaucratic red tape. Accessto finance and access to input and output markets islimited for the SME sector. Banks do not lend to SMEbecause of perceived high transaction costs and lackability for SME to prepare bankable financial projects.No alternative sources for finance at present. SMEshave difficulty with market knowledge and clientcontact. Government has no focal point for SMEdevelopment and private sector has no clientoriented support and lobby mechanisms.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

Most private sector enterprises are SME. Prospectfor future economic growth with equity and broadbased employment generation dependent on abilityof SMEs to enter and operate in a commerciallyoriented policy environment throughout the country.Given country size, rural nature and low populationdensity, SME promotion is a centerpiece for privatesector development.

3. Scope (specific major components, e.g. capacitybuilding)

Suggestions for improvement in legal and regulatoryenvironment for SME start-ups and expansion ofexisting SMEs (such as adjustments in thecommercial code and enterprise law). Review andproposal of systems to help SMEs prepare bankableprojects and obtain market information. Assistance tobanks in appraisal of SME projects. Review ofaccounting framework for application to SME.Creation of and assistance to focal point inGovernment for SME development

4. Expected Outcome and Monitorable Indicators Strategy for SME development owned byGovernmentFocal point in Government concerned with SMEdevelopment. Higher awareness of issues facingSMEs. Inventory of legal and regulatory issues thatrequire attention. Suggestions for better system forappraising SME projects in banks. Suggestions forSME based accounting system.

5. Previous TA(s) on the Same Theme, in the No TAs in last five years for SME development

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sector, country, region (last five years)• name, amount, status• assessment of outcome

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

To be determined. Possibly Prime Minister’s Office,Ministry of Finance or Ministry of Industry andHandicrafts.

7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

$750,000 of which $700,000 to be finance by BankJSF.Cofinancing will be investigated.

8. Country, RETA IPF for relevant year $5 millionADB = Asian Development Bank, ADTA = advisory technical assistance, AWAR = Agriculture and Rural DevelopmentDivision, AWD = Agriculture and Social Sectors Department, IWD = Infrastructure, Energy and Financial SectorsDepartment, IWFI = Financial Sector and Industry Division, JSF = Japan Special Fund, Lao PDR = Lao People’s DemocraticRepublic, LRM = Lao Resident Mission, PPTA = project/program preparatory technical assistance, RETA = regionaltechnical assistance, RM = resident mission, SME = small and medium-size enterprise, TA = technical assistance, TASF =Technical Assistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Northern Rural Access Roads Improvement

A. ProfileDepartment, Division, RM, Officer Concerned: IWD/IWTC/S. WidowatiType of TA (ADTA, PPTA, RETA): PPTAName of Loan Project to follow (if PPTA): Northern Rural Access Roads ProjectCountry/Region (as applicable): Lao PDRSector/Subsector: Transport/RoadsPoverty Classification and Thematic Prioritiesa: Poverty - Poverty Intervention

Thematic - Economic GrowthProgram Yearb: 2004Expected Approval Date (mo/yr): November 2004Estimated Completion Date: December 2005B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)During the last five years Lao PDR has achievedconsiderable economic growth and reducedincidence of poverty from 45 to 38.6 percent.However, significant disparity was identified in theincidence of poverty across regions as well asbetween urban and rural areas. The incidence ofpoverty is highest in the northern region. Whileeconomic growth has helped reduce poverty, thebetter-off benefited more than the poor. Interventionsare needed in the rural northern area more than inother areas.The economy of the area depends largely on theperformance of rural sector. Lack of access hasgreatly inhibited development of the agriculturesector, the mainstay of the national economy andsustenance of still largely subsistence-oriented ruralpopulation. Transport for access to markets and aregular supply of agricultural inputs and extensionservices are severely limited or impossible. Manydistrict centers are several days walk from nationalroads. Schools, health centers, and other facilitiesexperience chronic lack of staff and supplies as aresult of poor access.The Project will improve national and provincial roadsin the poorest provinces in the northern region of thecountry to allow access of provincial capitals anddistrict/community centers and to contribute todeveloping an effective internal road network. TheProject will also provide community access andmiscellaneous facilities in the poorest districts toopen up remote rural areas and to allow the benefitof the network to the poor community.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

The Project will contribute to poverty reduction andeconomic growth by improving transport efficiency,providing better access to employment opportunitiesand social facilities.The proposed TA will also explore possibilities ofpoverty intervention in the project scope and/or underJFPR facilities. Possible economic development andincome generating activities complementary to the

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road improvement will be explored. Capacitybuilding, particularly for local contracting industry andlocal government, will also be included in acomprehensive program.The scope of the study will be further defined basedon the findings of ADTA: Northern RegionalDevelopment Plan (2002) and ADTA: NorthernSocio-Economic Assessment (2003).The study will be consistent with the ADB's CountryStrategy and Program and road sector strategy of (i)continuing development of the main network toconnect all provincial capitals, serve rural communitycenters, promote tourism, and provide cross-borderlinkages; (ii) strengthening institutional capacity oflocal government; (iii) strengthening capacity of localcontractors; and (iv) supporting sustainable roadnetwork in terms of maintenance, funding, heavyvehicle control, and social and environmentalprotection.

3. Scope (specific major components, e.g. capacitybuilding)

The scope of the TA will be (i) reviewing the reportsof ADTA: Northern Regional Development Plan(2002), ADTA: Northern Socio-EconomicAssessment (2003), and DOR's Strategic Directionfor Road Development5; (ii) preparing developmentpriority and selection of the roads; (ii) preparing afeasibility study including economic analysis, benefitsdistribution analysis and poverty impact ratio for theselected roads; (iii) proposing poverty reduction andeconomic development interventions to be included;and (iv) reviewing and assessing capacity of localgovernment and local contractors and proposingstrategies and actions for improvement.

4. Expected Outcome and Monitorable Indicators • Inception Report: 1st month – work plan andreview related documents;

• Interim Report: 4th month – development priorityand road screening

• Draft Final Report: 7th month - Tripartite Meeting• Final Report: 8th month

5. Previous TA(s) on the Same Theme, in thesector, country, region (last five years)

• name, amount, status• assessment of outcome

• TA 2862-LAO: Management Information SystemII, for $700,000, approved on 9 September 1997and Supplementary, for $280,000, approved on14 March 2000. Completed. Outcome: ImprovedMCTPC capacity for procurement, consultantselection, project management, projectcoordination, and assistance in developingdomestic contracting industry (privatization ofSOEs)

• TA 2889-LAO: Rural Access RoadsImprovement, for $600,000, approved onOctober 1997. Feasibility Study satisfactorilycompleted.

5 Prepared under ADB-TA 3070: Road Infrastructure for Rural Development, for $720,000, approved on 17

September 1998

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• TA 3070-LAO: Road Infrastructure for RuralDevelopment, for $720,000, approved on 17September 1998. Medium-term road investmentsatisfactorily completed.

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

Ministry of Communications Transport Post andConstruction; Department of Roads; Department ofCommunications Transport Post and Construction.

7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

Bank Financing: $700,000 (JSF)

8. Country, RETA IPF for relevant year $5.0 million

ADB = Asian Development Bank, ADTA = advisory technical assistance, CAP = country assistance plan, CSP = countrystrategy and program, DOR = Department of Roads, JSF = Japan Special Fund, Lao PDR = Lao People’s DemocraticRepublic, MCTPC = Ministry of Communications Transport Post and Construction, PPTA = project/programpreparatory technical assistance, RETA = regional technical assistance, RM = resident mission, SOE = State-ownedenterprise, TA = technical assistance, TASF = Technical Assistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, private

sector development, regional cooperation, and support for Bank operations (for RETAs).b Year of inclusion in CSP or CAP for transition period.

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TA Concept Paper for Energy Development in the Northern Rural Area

A. ProfileDepartment, Division, RM, Officer Concerned: IWD/IWEN/S. ChanderType of TA (ADTA, PPTA, RETA): PPTAName of Loan Project to follow (if PPTA): Energy Development in the Northern Rural AreaCountry/Region (as applicable): Lao PDRSector/Subsector: EnergyPoverty Classification and Thematic Prioritiesa: Economic GrowthProgram Yearb: 2004Expected Approval Date (mo/yr):` September 2004Estimated Completion Date: September 2005B. Concept and Design1. Rationale (specific problem/issues to be

addressed in TA)Lao PDR has one of the lowest levels ofelectrification in Asia with only 17 percent of thepopulation, and 2 percent of rural households,connected to the power grid. Expanding ruralelectrification coverage is critical to develop ruralarea and to reduce rural poverty in Lao PDR,especially in the poor northern region. Ruralelectrification will facilitate commercial developmentvia impacts on human development, productivity,consumer demand, and new commercialopportunities.

2. Relation to Strategic Objectives (How the TAaddresses the following)

• poverty reduction/thematic priorities• country strategy (where applicable)• regional cooperation

Rural development and market linkages is one of thethematic priorities in ADB’s strategy for Lao PDR.Rural infrastructure development including ruralelectrification is the key element. Geographically,ADB will primarily focus on the Northern region.

3. Scope (specific major components, e.g. capacitybuilding)

Develop viable options for electrification includingpower generation in the northern rural area.

4. Expected Outcome and Monitorable Indicators Feasibility study for electrification in northern area.5. Previous TA(s) on the Same Theme, in the

sector, country, region (last five years)• name, amount, status• assessment of outcome

PPTA for Northern Area Rural Power DistributionProject is ongoing.

6. Executing agency, implementing agency,counterpart agency (for RETAs as applicable)

Electricité du Laos

7. Cost and Financing Plan(i) ADB Financing (JSF,TASF)(ii) Sources other than JSF/TASF

$700,000 (JSF)

8. Country, RETA IPF for relevant year $5 millionADB = Asian Development Bank, ADTA = advisory technical assistance, CAP = country assistance plan, CSP = countrystrategy and program, IWD = Infrastructure, Energy and Financial Sector Department, IWEN = Energy Division, JSF =Japan Special Fund, Lao PDR = Lao People’s Democratic Republic, PPTA = project/program preparatory technicalassistance, RETA = regional technical assistance, RM = resident mission, TA = technical assistance, TASF = TechnicalAssistance Special Fund.a Economic growth, human development, gender and development, good governance, environmental protection, privatesector development, regional cooperation, and support for Bank operations (for RETAs).

b Year of inclusion in CSP or CAP for transition period.